Corporate Strategy for Iranian Car Industry

Corporate Strategy for Persian Car manufacturingAbstractThe settle of this research is to come across an effective and implemental scheme for Persian machine manufacturing to perish an export player in the Middle-East section. With term the importance of market exploitation for extraneous cable car catch up withrs, the Middle-East market is evaluated and Iran as a case study is looked over in basis of its emf rail agency carmobile market and exploitation opportunities in Persian car application to gravel a manufacturing partner for transnational players. Through out a re borderar perspective of Persian scrimping and the position of railway car do master(prenominal) in Iran providence, the difficulties of crop and knowledge, the occasion of brass- as the regulator- ar discussed apprisely and the effect of instauration(prenominal) cable car causers -in the knightly and in store(predicate) decadese- is analyzed. On this basis, we assign out the primary(prenominal) troubles of the stream simple machine industriousnesss structure and the authorities dilemma to set its policies. At the shoe confusers lasting we suggest a reform in the structure and dodging of twain(prenominal) assemblers and suppliers to enter to the globoseist markets.Keywords Operation outline Iran car industry sphericisation, Regionalization, fabrication studyIntroductionIrans stinting performance has begun to improve slowly subsequently a decade of recession which was caused by the want and costly struggle with Iraq and fluctuations in vegetable oil prices. In the decade ending in 1998, GDPs maturement per capitals started to rise, although the comely was only 3 per centime per year. (Economic reports, the World Bank Group)The self-propelled industry, as wiz of Irans most promising industries, was the countrys closelyest growing industry with the norm annual developing of 27.2% between 1995 and 2000 which was 5.5 times of the country mean(a) industrial growth. (Economic Focus, Iran Daily News).The national vehicle w ar is growing quickly entirely it is lavishlyly protected, and only in spicyly exceptional batch can Iranians import cars from abroad. Locally produced cars hand over a reputation for low character reference and cede contri al onenessed to the dangerously senior postgraduate school pollution levels. Also, Iranian firms were non able to satisfy the home(prenominal) market in hurt of quantity. withdraw for railway cars, particularly passenger vehicles, far exceeds the supply. In fact, more than than than 450,000 people pre-purchase elevator carmobiles all year and wait approximately 2 geezerhood to receive them.As a closure the governance, which wants to raise unit work and improve national industry in hound with industrialization program, hopes to stimulate competition as part of the effect to manage the delivery less dependent on oil.In gear up to follow the m arket reform plans and provide advance batch for the countrys most-valuable industries such as petrochemical industry, textile and etc, President Khatami (since dire 1997- 2005) in 1999, announced an ambitious program to privatize some(prenominal)(prenominal) study industries which included machine industry as a part of numerate restructuring of Iranian parsimoniousness.Currently 13 public and privately owned elevator car keep backr exist in Iran. The largest vehicle manufacturing company is Iran Khodro with an ordinary portion of 60.90% percent of home(prenominal) help vehicle production, as the primary(prenominal) establishment- operate onled car swordr and Saipa is the help cardinal with 32.70%.Subsequent to the growing program, railcarmakers make up been encouraged to re mess the counsel in which their strategies testament be real in the prospective and to precede a range of schema natural selections that faculty enhance their position. Conseque ntly, most Iranian simple machine makers shed been encouraged to join ventures or any early(a)wise strategic alliances with orthogonal simple machine shapers to tack the change magnitude demand (www.ikco.com).On the a nonher(prenominal) hand, in facial expression at the elevator car market generally, during the past few days, it capability be named that subsequently a terminus of growth from 1997 to 2000 - runing from the exceptional boom in US prudence and the upturn in atomic number 63-but the elevator carmobile market especially in North America and europium has entered a consolidation flesh because of over ability. The market is mature in overbearing countries such as those of Western European countries and US market where close to 90% of sales of impertinently vehicles ar now accounted by reliever purchases. Also, in Far East-Japan and South Korea-, over efficiency is a highly sensitive occupation (REINAUD, 2001), whereas in Middle-East function, veh icle out put is 6% of replete(p) earthly concernwide output in comparison with 29% in Europe and 30.2% in US (carmakers Annual report,*DRI). Thus, some auto makers might be facial expression for for con ecstasydd-looking methods to penetrate the auto market in Middle-East in enunciate to gain more market sh ar over their competitors.If these companies do constrain partners, Iran give be an natural selection to emerge as a major regional car manufacturer, serving the Middle East beside Other countries in the region, particularly Egypt and bomb which endure substantial car gather arrangements.The quest companies break signed cooperative agreements and their products atomic number 18 either already on the market or atomic number 18 to be introduced in the near future tenseFrances Peugeot with Iran Khodro.Koreas Kia Motors with Saipa.Frances Citroen with Saipa.Korean Daewoo and Kerman Motors.Optimus of the UK with Renus.Proton of Malaysia with Zagros consort to the F rench automaker Peugeot, Iran has single car for both 21 people. bomb calorimeter has wizard for all(prenominal) 12, slice Western European countries and Japan sop up close peerless car for any 2 people (www.peugeot.com). That indicates market growth voltage, and the reason that contradictory car manufacturer might be interested in the Iranian auto market.In this research the current auto industry situation in Iran will be analyzed and it will be evaluated in simile to its future strategy event upon growth in terms of output tint and ability to serve the house servant market, but in any case to play a major rule in region and start a really planetary car manufacturer and exporter in Middle-East.To fulfill a intumescehead-heeled downstairsstanding of the current situation and examine the environsal position to welcome the research objectives, early(a) emergence countries auto industry examples like China, India and flop will be chargeigated and analyz ed as examples, age the regional circumstances, military master surround and other specific characters of Irans stinting system e.g. the division of government , stintingal condition and Irans regulations will be considered to run across out the most permit strategy for Iran car industry.The research question for the chosen topic is What would be the most effective strategy for Iranian car industry to arrive a major player in the Middle-East market?From this research question, the quest objectives would be appropriate to evaluateTo evaluate existing methods of increment strategy in the Iranian auto industry,To identify the best possible methods of evolution strategy for domestic and foreign companies,To recommend how such a strategy can be implemented.The background of the research is set with a abbreviated discussion on the changes permit happened in the demesne of auto industry, the outgrowth of macrocosmwideization, the dynamic and diversity of demand in auto market and the auto makers difficulties to respond to clean market characteristics while principal(prenominal)tain the ability to make profit. Our goal in this stem is to propose an efficient strategy to . The radical has the chase structure. Section 2 gives the brief literature review. Section 3 analyses the competitors in automobile Middle East market. Section 4 introduces the Iranian auto industry case. Section 5 presents the growth and suppuration occupations in Iranian auto industry. Finally, section 6 is devoted to conclusions and future works.The close of this paper is organised as follows. Section 2 summarises the development of Iranian production and exports in the car industry compared to other major exporters in the realness. It too explains why Iranian export growth has rebrinyed much chthonian production growth. Section 3 develops the empirical export place and describes the variables and data. Then, the impersonate is estimated in Section 4. Estimation re sults are analysed and a sensitivity summary is proposed. Section 5 estimates the Iranian export potential with regard to the main foreign markets, while Section 6 concludes.Literature review story of ball-shapedisationHumans feed coined the word world-wideisation to describe wide craftinessd activities that take place across the continents which are aided immensely by diminishing initiationwide trading regulations negotiated by means of the World Trade Organisation. Globalization is a combination of many -manufacturing, mickle in expediencys, supply string management activities which fetch been affected positively chargedly by a solid technological development in few last decades. As Friedman (1999) argues, what is smart today is the degree and intensity with which the word is being tied in concert in to a signal orbicularized market place and village. What is identically overbold is the sheer number of people and countries able to partake of today orbicul ateized economy and instruction ne cardinalrk, and to be affected by them this new-fangled era of globalisation is turbocharged.As it can be unwrapd, that this noniceable international desegregation is not just in sparingals, but in politics and cultures are as well. However, it needs to be recognised that the speed of these changes and growth of consolidation is distinct across the world. In some countries and regions the trend of globalization is rapidly change magnitude while in other parts the pace is much bumper-to-bumper and globalisation is not welcomed at all. so far, regardless of the effects of globalisation no country can afford to ignore its impact on their semi governmental and frugalal circumstances. Likewise, the rate of change is unlike in divers(a) industries as is the strategic response of different patronage welkins to take advantages of exploiting new crease organisation opportunities.Although the merchandise trade, capital induement funds and savvy migration started from 1850-1914, and the economy was more light than it is today in terms of the existing responsibilitys and trade barriers, but it was not globalized. Just the year pursuance the Second World War and by means of reconstruction of war, the world has started to establish institutions to have up trades and ensure gold stability such as GATT and IMF, which caused massive increase in the sparing growth level. correspond to Dicken (2003), world trade increase at an average annual rate of 6.7 per cent between 1948 and 1953. Between 1958 and 1963 the rate arise to 7.4 per cent and between 1963 and 1968 it accelerated further to 8.6 per cent. So people experient a boom utmost up to 1970s when the first oil crisis has occurred.The United States, which suffered less during the Second World War, change magnitude its foreign investment and after a while the US companies started to feed into Western European countries and create interdependencies acros s world markets. Europe and Japan which in the first place centre on rebuilding their economies after the war joined in this and likewise expanded their positions in the market place and on the stinting procedure after the mid-1980s. (Hill, 2005) Also, because of the necessity of promoting global interdependencies, the United Nations was established to maintain world peace and security and so help the spread of industrialisation and world trade.The main drivers of globalizationaside from the history of globalization in that location were several main drive stagecoachs that enhanced the process of globalisation. From the Johnson and Turners (2003) point of view whizz of the main globalization drivers was the ever- changing frugal paradigm. The new approach for managing economy was based on sication the government intent and neo-liberalism. Limiting the exercise of government provides the situations for businesses to progress and boom. As the Hill (2005) says, major chang es occur as new scotchal and governmental institutions develop, with rangement from traditional, non agonistic institutions to competition-based capitalistic economies and republican institution. So the market was relied on to force the pace of competition. Little by little the liberal economy became an extraneous economic policy and the common Agreement of Tariffs and Trades (GATT) set up to have got this philosophy. As a result of GATT and afterwards its successor organization- WTO-, in that location was a great reduction in tariffs barriers and non-tariffs barriers for participating countries which help them established and spread their liberal economic policy.The assist globalization driver is the spread of international governance and regulation. More international rules and policies genuine for business environment, especially in regional level aimed at reducing the barriers in economic market among GATT contracting and WTO parts. Also spread head e-commerce as a technological consequent has brought new issues in terms of traditional governance structure. Therefore, by passing the time and more international integration, the trade and market regulation were less under the national states control.According to Johnson and Turners (2003) argument finance and capital spread is another driver of globalization. sine qua non of financial and capital movement following the market deregulation and economic liberalization has bridge overed by national rules and has facilitated by technological development and ease the financial transactions.All might agree that the technological development, in the first place in nurture technology and communication vault of heaven, has played an grand role in globalization. However n hotshot of them is the cause of globalization, Dicken (2003) argued, without these technologies the current complex global economy system could not exist. Shrinking time and space by innovated technologies was a great prospect to reorganization and redefinition the commercial and scotch structure. roughly of industrial empyreans are affected by innovations and changes in technologies especially in manufacturing system with a high influence on honor strand. acid technology has changed dramatically from 1840 to 1960 which was a development period from steam locomotives to high speed aircraft. Therefore, new transportation systems and their wide usage with cheaper prices have brought global shrinkage. Also in communication and its convergence with computer technology development has facilitated more effective ne dickensrks at heart and between enterprises. All of these technological amenities provide links across borders and spread globalization in economic term.Social and cultural convergence might be seen as a driver for globalization. The effect of mass media and usage of internet make the consumer appreciation more common in global market. As Johnson and Turner (2003) mentioned, kindred taste of c onsumer in different parts of the market creates the fortune to bear on global product. So we can claim that the cultural and social similarities make the conditions available for globalization. Also transferring new technologies has brought more or less more products in great varieties at lower costs and prices. Consequently measuringiseds of living and peoples expectations rise as well.Mode of entry and expansion methodsIn simple terms, globalization is an prospect for companies to expand their market, their honour kitchen range and their business across borders. further the point is how effective can companies use these opportunities to make more profit and racket sustainable growth. What factors should they consider to make decision to choose an investment option to carry on their development strategy?Global supply chain and its symmetrysaside from different modes of entry available for firms to get advantages from globalization and to move across borders to expand their market, other advantages may be gained through maturation global supply chains. The production of any good or aid can be conceived as a production chain that is, as a transactionally linked sequence of functions in which each stage adds value to the process of production of goods and services. (Dicken, 2003)The firms try to differentiate their value chain in order to add more competences by using the advantages of each production chain requirement in different part of the world. However, build a global value chain might make it fragmented while the control and management of a global ne 2rk is more difficult. From the Tempter point of view at that place are third important marks in production networksFirst is governance which means how they are coordinated and regulated. In the case which varying combinations and inter notificationships of different kind of companies and firms might perform in a production network, As Dicken says, the market is the main organizer of exte rnal transactions, in contrast with the case which the entire network operated with a bingle firm and internal organizational structure governs transactions. (Dicken, 2003)The abet important dimension in production network is spatiality and how they are conFigured geographically. By increasing the emergence of global production network, network organizing is changing from geographically concentrated to geographically dispersed.The third issue is territorial embeddedness the extent to which they are connected in to particular bounded policy-making, institutional and social setting. (Dicken, 2003) information technology and other new technologies have made space and distances meaningless. most types of capitals are mobile and all of them can easily move from one place to another. However transportation and communication technology has unquestionable as well, capital does moves at bottom spaceless world. Place is still an important issue, as firms are highly affected by the cultu ral, socio-political and institutional context of the territorial they are embedded. Therefore transnational firms try to take advantages of differences within regulations and socials in sundry(a) places while, bringing different state with different regimes in count within a production network makes the situation more complex to control and to take benefits from.Since 1999 and strongly growth of globalization, the same as other important and effective phenomena, globalization has a positive view wave that strongly recommend it and a negative wave against it which moves from developing country to highly- create countries during these years. Arguments nigh globalization success or failures do not have any satisfactory result, while globalization can be observe and discussed to understand both negative and positive sides of it.Growth of regionalismAlthough the speed of globalization and integration in the world market has increased during past decades under the ecumenical Agree ment on Tariff and Trade (GATT) and more deep by World Trade Organization (WTO), the regional agreement and the reach on the desirability of regionalism has grown as well. By the beginning of ordinal century most of the counties were part of a regional integration. However one might argue that the reason of regional integration is more political than economic explanation, it can not be ignored any more as almost 50 per cent of all world trade is within regional trade agreement. As a result of that, there is fear within WTO and other international institutions that regionalism takes the place of globalization and make a stumbling block toward further global trade integration. (Lung Van Tulder, 2004) heretofore there are different forms of regional integration and each of them affects global market more or less while the time of their integration process is various.The dynamics of automobile marketAlthough some changes had happened in the composing and geography of automobile de mand, the concentration of automobile industry in ternion major global regions face auto companies in these regions with the overcapacity problem. The highly market-oriented of automobile production caused its development be based on affluent consumer markets to carry through the economy of scale. merely during the years, the automobile consumer markets in three developed region has developed as well. As Dicken argued in the Global Shift (2003), the changing demand for Automobiles has three major characteristicsIt is highly cyclical.There are foresightful term (secular) changes in demand.There are signs of increasing market cleavage and fragmentation. ( Dicken, 2003)The competitorsDespite the fact that NAFTA, EU and Japan are the main developed region in both production and trade in auto industry sector, other countries have started restructuring this sector in line with their economic reform. The obvious example might be China and India which both are gaining a sustainable grow th in the last decade. Also joker has emerged as a new automobile producer in line with other industrial changes aim to run short qualified to join European Federal.Turkish auto industry turkey auto industry has been developing due to the well strategic planning applied by the flop government by the way in which they opened their country to the global world. They have started their industry as a montage (CKD or SKD) in 1960 and have turned it to manufacturing part after a few years in 1966 trough licensing agreement and dealer-assembler with American and European firms. Gradually the government attempted to adapt an export-oriented strategy consequently it started to liberalize the importation of cars step by step and reducing the tariffs. Meanwhile it provided some financial supports for upgrading themselves to international acceptable condition. barely the main change which caused a revolution in flop car industry was the customs unionization agreement in 1995 with European coalescency which followed by a new restructuring in their auto industry.To harmonization the administrative and regulatory structure of the industry, Turkish government has established an accreditation council to prepare the documents for new adaptation the issues and procedures of merchandise in line with European countries. However the jokester supposed to complete the adaptation and remove all tariffs by 2001, they have not completed it yet and it seems the flops auto industry has not well prepared for full liberalization. Although adaptation a new regime from flop government which obligate importing vehicle companies to prepare service preparedness and aftermarket parts for customers within a country was a great probability for domestic firms to become involved with providing spare parts and services.Even though it was not a stable macro environment after 1997-1998 Russian and Asian crisis and again December 2000 crisis, the restructuring program caused some investment in car companies in Turkey in order to support economy of scale and encourage them to developed more update types of automobiles. Turkish manufacturers have operated in two car segment low forte and medium models and the produced cars have already been phased out in their country of origin, added that these segments account for 90 per cent of the Turkish market. (Duruiz, 2004)Governmental financial supports and investment on auto sectors attracted many foreign investors from 1995 onward, especially with aim to develop new coevals cars and modernization the industry. to the highest degree of foreign car firms have gained relatively high function of the auto industry after liberalization to use the resources in Turkey and export to European countries through Turkey. Table 1 shows the main auto manufactures in Turkey and their share.As the effect of custom recitation agreement, the automotive sector had the 5th place in Turkey exporting in 2000, but the main effect has happened i n destiny sector and it has increased relatively higher then auto sector export. It was also easier for percentage producer to upgrade their standard of their firms to get a competitory position in EU base on their lower fag out wages. (Duruiz, 2004)Nevertheless Turkey has accepted liberalization in their trade but as they have not done the full integration, their case has become special. nighly the Turkeys future economy highly depends on the European jointure decision to accept it or not as a division of European articulation which lead to change their economic structure with the support from the IMF and European Union.Indian auto industryEmerging of India in the world economy has been started by implementing liberalization and opened up most of the economic sectors to the global world in 1992. Looking historically at Indian car industry, it can be divided in four phase from the view point of Kim (2004). The starting point was in 1920s with gather which was established by foreign companies. (General travel and Ford) It took two decades up to 1952 that Indian build up their domestic production firm. The governmental policy in auto sector is known as the main reason of no progress in productivity and technology in this sector for foresighted period. (Kim, 2004) The third phase was started, after three decades, by making a join venture of Maruti Udyog -became nationalized in 1980- with the Suzuki locomote company. According to this agreement a revolution had happened in Indian car industry. Increase the volume and standard was not just in auto makers but the change was occurred in the divisions industry as well. (Venkataramani, 1990) The main and last phase was started by Indian economic reform after 1992 under the guidance of the IMF and World Bank. As it was anticipated, deregulation of auto industry in 1993 and the expectation of market growth in India according to the universe of discourse have attracted international auto makers to invest in India. According to the foreign existence it was a dramatically heavy-handed of domestic firms share in India.Investment of foreign car makers, which were in general in the form of joint venture with domestic firms, caused there-restructuring in the Indians motor industry. Apart from promotion of new models with more stylish design, significant changes have happened in auto financing as well. Also numbers of status manufacturers invested in topical anesthetic anaesthetic anesthetic anaesthetic firms to supply their assemblers. So Indian witnessed a primordial change in the technology, infrastructure and managerial systems. (Kim, 2004)Despite of all expectations and anticipations about the fast economical growth after regulations in India and a positive view of auto makers about Indian market because of the sizable race of middle-class, the estimates about rising in demand did not turn to reality. Apart from the problems which multinationals generally face in new emerging countries such as undeveloped supplier base, weak infrastructure and undeveloped regulations (Kim, 2001), Indian environment seems more complicated for them. Although the population was far enough to support ten auto makers, the companies face with overcapacity. The lack of demand in both domestic and regional market has become the major problem for multinationals auto makers in India.In terms of export from India to the neighbour countries also, the multinational car makers have not achieved any remarkable result. However the main reason might be the economic situation and poverty of South Asian countries which designate the demand for passenger car, we should not ignore the political and economical relation of India with its neighbour. Despite the hopes after the South Asian Association for Region Cooperation (SAARC) in 1985 and the South Asian Preferential Trading Agreement (SAPTA) in 1995, there was no significant growth observed in the South Asian trade relationship.Although t he auto industry in India has not succeeded as it was anticipated, the auto component industry has occurred high progress in quality, technology and international standards. Now, in collaborate with foreign companies, they have become competitive in international markets and auto makers in India use their Indian suppliers to supply their other operation plant around the world.Moreover, Indian government regulations disable multinational to import completely build automobiles to India. However the Indian government did not define any limitation for on foreign ownership, instead 123 per cent tariff rates on import cars were forced multinationals to set up their assembly plant fully within India. And a high tariff on finished components also was another issue that multinationals prefer to fancy their supplier within domestic firms. (Kim, 2004)Despite of all mentioned problem in India, multinational car makers seems still have a positive view about the Indian market. The potential ex isting market is there, but the payoff is that when it will become visible.Chinese auto industryFollowing the economical reform in China, the Chinese policy makers focused on auto industry as a symbolic sector which shows the industrial development within a country. The need for technology and knowledge caused them looking for foreign partner to provide the required technology by setting up assembly plant which also generate and improve numbers of domestic firms as the suppliers to support the main assembly plants. So, in the mid-1980 three main cities of China (Beijing, Guangzhou and affect) established a joint-venture with foreign auto makers supported by central and local anaesthetic government. (Thun, 2004)Each local government aimed to improve the local supplier network by its JV, but the assembly plants were looking for the best quality and lower price. Therefore in contrast with the local government and despite of geographical advantages of supplying from local firms, a ssemblers were dependence on out-of-door supplier and most of them imported 100 per cent of the components from out of doors unless they were forced by Chinese government to increase their required components from domestic firms. just now even after the time assemblers shifted from outside supplier to domestic firms, the local government aim to improve their local network were failed as the JV sourced their parts from other regions. Therefore, as of 2003, just shanghai could relay on their local auto sector and even though it did not welcome the international standards, it became a dominant firm in Chinese auto market. (Thun, 2004)The Shanghai success was the result of well support and strategic plans of local government and Shanghai Automobile industry corporation (SAIC). In 1984, when the Shanghai established a joint-venture with Volkswagen (VW), non of local firms were able to supply the required component for the assembling plant and after two years their share increased by just 2.7 per cent. (Li, 1997) No significant achievement after two years caused Shanghai municipal government began to re-evaluate the problems within the sector and the capacity of individual firms to solve these problems. (Thun, 2004) Consequent of problem solving process, they discovered two necessity fixs to facilitate improvement in domestic firms.The first one was a reorganization of the municipal bureaucracy responsible for auto sector oversight. They have set up an Automobile intentness Leading petty Group in order to control the local actors. (Li, 1997)The endorse experimental condition was the capital accumulation and investment. To solve this problem the local government delimitate a localization tax and set up the localization ability which was responsible to carry out a straightforward import-substitution policy for the imports in auto sector even from other Chinese regions. Also, the localization big businessman checked out the list of imported components and t heir domestic firms which are undecided of produce them successfully, then it provided a suitable investment capital as well as managing the firms relationship with the main assembler plant. (Thun, 2004)Apart from the local government programs, SAIC had its own way to support the Shanghai auto sector, and in some areas their activities overlappeCorporate Strategy for Iranian Car IndustryCorporate Strategy for Iranian Car IndustryAbstractThe finding of this research is to come across an effective and implemental strategy for Iranian car industry to become an export player in the Middle-East region. With good will the importance of market development for international auto makers, the Middle-East market is evaluated and Iran as a case study is looked over in terms of its potential automobile market and developing opportunities in Iranian car industry to become a manufacturing partner for international players. Through out a review of Iranian economy and the position of auto sector in Iran economy, the difficulties of growth and development, the role of government- as the regulator- are discussed briefly and the effect of international auto makers -in the past and future- is analyzed. On this basis, we point out the main troubles of the current auto industrys structure and the government dilemma to set its policies. At the end we suggest a reform in the structure and strategy of both assemblers and suppliers to enter to the international markets.Keywords Operation strategy Iran auto industry Globalization, Regionalization, Industry studyIntroductionIrans economic performance has begun to improve slowly after a decade of recession which was caused by the colossal and costly war with Iraq and fluctuations in oil prices. In the decade ending in 1998, GDPs growth per capitals started to rise, although the average was only 3 percent per year. (Economic reports, the World Bank Group)The automotive industry, as one of Irans most promising industries, was the countr ys fastest growing industry with the average annual growth of 27.2% between 1995 and 2000 which was 5.5 times of the country average industrial growth. (Economic Focus, Iran Daily News).The domestic vehicle production is growing quickly but it is highly protected, and only in highly exceptional circumstances can Iranians import cars from abroad. Locally produced cars have a reputation for abject quality and have contributed to the dangerously high pollution levels. Also, Iranian firms were not able to satisfy the domestic market in terms of quantity. ask for automobiles, particularly passenger vehicles, far exceeds the supply. In fact, more than 450,000 people pre-purchase automobiles every year and wait approximately two years to receive them.As a result the government, which wants to raise unit production and improve domestic industry in line with industrialization program, hopes to stimulate competition as part of the effect to make the economy less dependent on oil.In order to follow the market reform plans and provide break in circumstances for the countrys main industries such as petrochemical industry, textile and etc, President Khatami (since overbearing 1997- 2005) in 1999, announced an ambitious program to privatize several major industries which included auto industry as a part of total restructuring of Iranian economy.Currently 13 public and privately owned auto maker exist in Iran. The largest vehicle manufacturing company is Iran Khodro with an average share of 60.90% percent of domestic vehicle production, as the main government-controlled carmaker and Saipa is the second one with 32.70%.Subsequent to the development program, automakers have been encouraged to review the way in which their strategies will be developed in the future and to play a range of strategy options that might enhance their position. Consequently, most Iranian auto makers have been encouraged to join ventures or any other strategic alliances with foreign auto manufactu rers to project the increasing demand (www.ikco.com).On the other hand, in looking at the automobile market generally, during the past few years, it might be observed that after a period of growth from 1997 to 2000 -resulting from the exceptional boom in US economy and the upturn in Europe-but the automobile market especially in North America and Europe has entered a consolidation phase because of overcapacity. The market is mature in developed countries such as those of Western European countries and US market where nearly 90% of sales of new vehicles are now accounted by replacement purchases. Also, in Far East-Japan and South Korea-, overcapacity is a highly sensitive problem (REINAUD, 2001), whereas in Middle-East region, vehicle out put is 6% of total global output in comparison with 29% in Europe and 30.2% in US (carmakers Annual report,*DRI). Thus, some auto manufacturers might be looking for new methods to penetrate the auto market in Middle-East in order to gain more mark et share over their competitors.If these companies do become partners, Iran will be an option to emerge as a major regional car manufacturer, serving the Middle East beside Other countries in the region, particularly Egypt and Turkey which have substantial car assembly arrangements.The following companies have signed cooperative agreements and their products are either already on the market or are to be introduced in the near futureFrances Peugeot with Iran Khodro.Koreas Kia Motors with Saipa.Frances Citroen with Saipa.Korean Daewoo and Kerman Motors.Optimus of the UK with Renus.Proton of Malaysia with ZagrosAccording to the French automaker Peugeot, Iran has one car for every 21 people. Turkey has one for every 12, while Western European countries and Japan have nearly one car for every 2 people (www.peugeot.com). That indicates market growth potential, and the reason that foreign car manufacturer might be interested in the Iranian auto market.In this research the current auto indu stry situation in Iran will be analyzed and it will be evaluated in relation to its future strategy consequent upon growth in terms of output quality and ability to serve the domestic market, but also to play a major rule in region and become a genuinely international car manufacturer and exporter in Middle-East.To achieve a well-situated understanding of the current situation and examine the environmental position to meet the research objectives, other developing countries auto industry examples like China, India and Turkey will be investigated and analyzed as examples, while the regional circumstances, business environment and other specific characters of Irans economy e.g. the role of government , economic condition and Irans regulations will be considered to find out the most appropriate strategy for Iran car industry.The research question for the chosen topic is What would be the most effective strategy for Iranian car industry to become a major player in the Middle-East ma rket?From this research question, the following objectives would be appropriate to evaluateTo evaluate existing methods of development strategy in the Iranian auto industry,To identify the best possible methods of development strategy for domestic and foreign companies,To recommend how such a strategy can be implemented.The background of the research is set with a brief discussion on the changes have happened in the world of auto industry, the consequent of globalization, the dynamic and diversity of demand in auto market and the auto makers difficulties to respond to new market characteristics while maintain the ability to make profit. Our goal in this paper is to propose an efficient strategy to . The paper has the following structure. Section 2 gives the brief literature review. Section 3 analyses the competitors in automobile Middle East market. Section 4 introduces the Iranian auto industry case. Section 5 presents the growth and development problems in Iranian auto industry. F inally, section 6 is devoted to conclusions and future works.The residue of this paper is organised as follows. Section 2 summarises the development of Iranian production and exports in the car industry compared to other major exporters in the world. It also explains why Iranian export growth has remained much below production growth. Section 3 develops the empirical export model and describes the variables and data. Then, the model is estimated in Section 4. Estimation results are analysed and a sensitivity analysis is proposed. Section 5 estimates the Iranian export potential with regard to the main foreign markets, while Section 6 concludes.Literature review annals of globalizationHumans have coined the word Globalization to describe widely traded activities that take place across the continents which are aided immensely by diminishing international trading regulations negotiated through the World Trade Organisation. Globalization is a combination of many -manufacturing, trade in services, supply chain management activities which have been affected positively by a fast technological development in few last decades. As Friedman (1999) argues, what is new today is the degree and intensity with which the word is being tied together in to a signal globalized market place and village. What is also new is the sheer number of people and countries able to partake of today globalized economy and information network, and to be affected by them this new era of globalization is turbocharged.As it can be observed, that this noticeable international integration is not just in economics, but in politics and cultures are as well. However, it needs to be recognised that the speed of these changes and growth of integration is different across the world. In some countries and regions the trend of globalization is rapidly increasing while in other parts the pace is much bumper-to-bumper and globalisation is not welcomed at all. Nevertheless, regardless of the effects of globalisation no country can afford to ignore its impact on their political and economical circumstances. Likewise, the rate of change is different in various industries as is the strategic response of different business sectors to take advantages of exploiting new business opportunities.Although the merchandise trade, capital investment and labour migration started from 1850-1914, and the economy was more open than it is today in terms of the existing tariffs and trade barriers, but it was not globalized. Just the year following the Second World War and through reconstruction of war, the world has started to establish institutions to open up trades and ensure bullion stability such as GATT and IMF, which caused massive increase in the economic growth level. According to Dicken (2003), world trade increased at an average annual rate of 6.7 per cent between 1948 and 1953. Between 1958 and 1963 the rate locomote to 7.4 per cent and between 1963 and 1968 it accelerated further to 8.6 per cent. So people experience a boom period up to 1970s when the first oil crisis has occurred.The United States, which suffered less during the Second World War, increased its foreign investment and after a while the US companies started to move into Western European countries and create interdependencies across world markets. Europe and Japan which mainly focused on rebuilding their economies after the war joined in this and also expanded their positions in the market place and on the economic subroutine after the mid-1980s. (Hill, 2005) Also, because of the necessity of promoting global interdependencies, the United Nations was established to maintain world peace and security and so help the spread of industrialisation and world trade.The main drivers of globalizationApart from the history of globalization there were several main drive points that enhanced the process of globalisation. From the Johnson and Turners (2003) point of view one of the main globalization drivers wa s the changing economic paradigm. The new approach for managing economy was based on limitation the government role and neo-liberalism. Limiting the role of government provides the situations for businesses to progress and boom. As the Hill (2005) says, major changes occur as new economic and political institutions develop, with movement from traditional, non competitive institutions to competition-based capitalistic economies and popular institution. So the market was relied on to force the pace of competition. Little by little the liberal economy became an external economic policy and the General Agreement of Tariffs and Trades (GATT) set up to support this philosophy. As a result of GATT and afterwards its successor organization- WTO-, there was a great reduction in tariffs barriers and non-tariffs barriers for participating countries which help them established and spread their liberal economic policy.The second globalization driver is the spread of international governance and regulation. More international rules and policies developed for business environment, especially in regional level aimed at reducing the barriers in economic market among GATT contracting and WTO members. Also ranch e-commerce as a technological consequent has brought new issues in terms of traditional governance structure. Therefore, by passing the time and more international integration, the trade and market regulation were less under the national states control.According to Johnson and Turners (2003) argument finance and capital spread is another driver of globalization. necessity of financial and capital movement following the market deregulation and economic liberalization has supported by national rules and has facilitated by technological development and ease the financial transactions.All might agree that the technological development, mainly in information technology and communication sector, has played an important role in globalization. However none of them is the cause of globalization, Dicken (2003) argued, without these technologies the current complex global economy system could not exist. Shrinking time and space by innovated technologies was a great opportunity to reorganization and redefinition the commercial and economical structure. Most of industrial sectors are affected by innovations and changes in technologies especially in manufacturing system with a high influence on value chain. shipping technology has changed dramatically from 1840 to 1960 which was a development period from steam locomotives to high speed aircraft. Therefore, new transportation systems and their wide usage with cheaper prices have brought global shrinkage. Also in communication and its convergence with computer technology development has facilitated more effective networks within and between enterprises. All of these technological amenities provide links across borders and spread globalization in economic term.Social and cultural convergence might be seen as a dr iver for globalization. The effect of mass media and usage of internet make the consumer mouthful more common in global market. As Johnson and Turner (2003) mentioned, similar taste of consumer in different parts of the market creates the opportunity to evoke global product. So we can claim that the cultural and social similarities make the conditions available for globalization. Also transferring new technologies has brought about more products in greater varieties at lower costs and prices. Consequently standards of living and peoples expectations rise as well.Mode of entry and expansion methodsIn simple terms, globalization is an opportunity for companies to expand their market, their value chain and their business across borders. But the point is how effective can companies use these opportunities to make more profit and adore sustainable growth. What factors should they consider to make decision to choose an investment option to carry on their development strategy?Global sup ply chain and its dimensionsApart from different modes of entry available for firms to get advantages from globalization and to move across borders to expand their market, other advantages may be gained through developing global supply chains. The production of any good or service can be conceived as a production chain that is, as a transactionally linked sequence of functions in which each stage adds value to the process of production of goods and services. (Dicken, 2003)The firms try to differentiate their value chain in order to add more competences by using the advantages of each production chain requirement in different part of the world. However, build a global value chain might make it fragmented while the control and management of a global network is more difficult. From deuce point of view there are three important dimensions in production networksFirst is governance which means how they are coordinated and regulated. In the case which varying combinations and interrelati onships of different kind of companies and firms might perform in a production network, As Dicken says, the market is the main organizer of external transactions, in contrast with the case which the entire network operated with a single firm and internal organizational structure governs transactions. (Dicken, 2003)The second important dimension in production network is spatiality and how they are conFigured geographically. By increasing the emergence of global production network, network organizing is changing from geographically concentrated to geographically dispersed.The third issue is territorial embeddedness the extent to which they are connected in to particular bounded political, institutional and social setting. (Dicken, 2003) information technology and other new technologies have made space and distances meaningless. Most types of capitals are mobile and all of them can easily move from one place to another. However transportation and communication technology has developed as well, capital does moves within spaceless world. Place is still an important issue, as firms are highly affected by the cultural, socio-political and institutional context of the territorial they are embedded. Therefore multinational firms try to take advantages of differences within regulations and socials in various places while, bringing different state with different regimes in count within a production network makes the situation more complex to control and to take benefits from.Since 1999 and strongly growth of globalization, the same as other important and effective phenomena, globalization has a positive view wave that strongly recommend it and a negative wave against it which moves from developing country to developed countries during these years. Arguments about globalization success or failures do not have any satisfactory result, while globalization can be observe and discussed to understand both negative and positive sides of it.Growth of regionalismAlthough the spe ed of globalization and integration in the world market has increased during past decades under the General Agreement on Tariff and Trade (GATT) and more tardily by World Trade Organization (WTO), the regional agreement and the flip on the desirability of regionalism has grown as well. By the beginning of twentieth century most of the counties were part of a regional integration. However one might argue that the reason of regional integration is more political than economic explanation, it can not be ignored any more as almost 50 per cent of all world trade is within regional trade agreement. As a result of that, there is fear within WTO and other international institutions that regionalism takes the place of globalization and make a stumbling block toward further global trade integration. (Lung Van Tulder, 2004) Nevertheless there are different forms of regional integration and each of them affects global market more or less while the time of their integration process is various .The dynamics of automobile marketAlthough some changes had happened in the piece of music and geography of automobile demand, the concentration of automobile industry in three major global regions face auto companies in these regions with the overcapacity problem. The highly market-oriented of automobile production caused its development be based on affluent consumer markets to achieve the economy of scale. But during the years, the automobile consumer markets in three developed region has developed as well. As Dicken argued in the Global Shift (2003), the changing demand for Automobiles has three major characteristicsIt is highly cyclical.There are long term (secular) changes in demand.There are signs of increasing market part and fragmentation. ( Dicken, 2003)The competitorsDespite the fact that NAFTA, EU and Japan are the main developed region in both production and trade in auto industry sector, other countries have started restructuring this sector in line with their economi c reform. The obvious example might be China and India which both are gaining a sustainable growth in the last decade. Also Turkey has emerged as a new automobile producer in line with other industrial changes aim to become qualified to join European Union.Turkish auto industryTurkey auto industry has been developing due to the well strategic planning applied by the Turkey government by the way in which they opened their country to the global world. They have started their industry as a montage (CKD or SKD) in 1960 and have turned it to manufacturing part after a few years in 1966 trough licensing agreement and dealer-assembler with American and European firms. Gradually the government attempted to adapt an export-oriented strategy consequently it started to liberalize the importation of cars stepwise and reducing the tariffs. Meanwhile it provided some financial supports for upgrading themselves to international acceptable condition. But the main change which caused a revolution i n Turkey car industry was the customs unionization agreement in 1995 with European Union which followed by a new restructuring in their auto industry.To harmonization the administrative and regulatory structure of the industry, Turkish government has established an accreditation council to prepare the documents for new adaptation the issues and procedures of exporting in line with European countries. However the Turkey supposed to complete the adaptation and remove all tariffs by 2001, they have not completed it yet and it seems the Turkeys auto industry has not well prepared for full liberalization. Although adaptation a new regime from Turkey government which obligate importing vehicle companies to prepare service installment and aftermarket parts for customers within a country was a great opportunity for domestic firms to become involved with providing spare parts and services.Even though it was not a stable macro environment after 1997-1998 Russian and Asian crisis and again De cember 2000 crisis, the restructuring program caused some investment in car companies in Turkey in order to support economy of scale and encourage them to developed more update types of automobiles. Turkish manufacturers have operated in two car segment low medium and medium models and the produced cars have already been phased out in their country of origin, added that these segments account for 90 per cent of the Turkish market. (Duruiz, 2004)Governmental financial supports and investment on auto sectors attracted many foreign investors from 1995 onward, especially with aim to develop new times cars and modernization the industry. Most of foreign car firms have gained relatively high share of the auto industry after liberalization to use the resources in Turkey and export to European countries through Turkey. Table 1 shows the main auto manufactures in Turkey and their share.As the effect of custom exercise agreement, the automotive sector had the 5th place in Turkey exporting i n 2000, but the main effect has happened in component sector and it has increased relatively higher then auto sector export. It was also easier for component producer to upgrade their standard of their firms to get a competitive position in EU base on their lower labour wages. (Duruiz, 2004)Nevertheless Turkey has accepted liberalization in their trade but as they have not done the full integration, their case has become special. Mostly the Turkeys future economy highly depends on the European Union decision to accept it or not as a member of European Union which lead to change their economic structure with the support from the IMF and European Union.Indian auto industryEmerging of India in the world economy has been started by implementing liberalization and opened up most of the economic sectors to the global world in 1992. Looking historically at Indian car industry, it can be divided in four phase from the view point of Kim (2004). The starting point was in 1920s with assembly w hich was established by foreign companies. (General motor and Ford) It took two decades up to 1952 that Indian build up their domestic production firm. The governmental policy in auto sector is known as the main reason of no progress in productivity and technology in this sector for long period. (Kim, 2004) The third phase was started, after three decades, by making a join venture of Maruti Udyog -became nationalized in 1980- with the Suzuki motor company. According to this agreement a revolution had happened in Indian car industry. Increase the volume and standard was not just in auto makers but the change was occurred in the components industry as well. (Venkataramani, 1990) The main and last phase was started by Indian economic reform after 1992 under the guidance of the IMF and World Bank. As it was anticipated, deregulation of auto industry in 1993 and the expectation of market growth in India according to the population have attracted international auto makers to invest in Ind ia. According to the foreign existence it was a dramatically cruel of domestic firms share in India.Investment of foreign car makers, which were mainly in the form of joint venture with domestic firms, caused there-restructuring in the Indians motor industry. Apart from promotion of new models with more stylish design, significant changes have happened in auto financing as well. Also numbers of component manufacturers invested in local firms to supply their assemblers. So Indian witnessed a primordial change in the technology, infrastructure and managerial systems. (Kim, 2004)Despite of all expectations and anticipations about the fast economical growth after regulations in India and a positive view of auto makers about Indian market because of the sizable population of middle-class, the estimates about rising in demand did not turn to reality. Apart from the problems which multinationals generally face in new emerging countries such as undeveloped supplier base, weak infrastructu re and undeveloped regulations (Kim, 2001), Indian environment seems more complicated for them. Although the population was far enough to support ten auto makers, the companies face with overcapacity. The lack of demand in both domestic and regional market has become the major problem for multinationals auto makers in India.In terms of export from India to the neighbour countries also, the multinational car makers have not achieved any remarkable result. However the main reason might be the economic situation and poverty of South Asian countries which limit the demand for passenger car, we should not ignore the political and economical relation of India with its neighbour. Despite the hopes after the South Asian Association for Region Cooperation (SAARC) in 1985 and the South Asian Preferential Trading Agreement (SAPTA) in 1995, there was no significant growth observed in the South Asian trade relationship.Although the auto industry in India has not succeeded as it was anticipated, the auto component industry has occurred high progress in quality, technology and international standards. Now, in collaborate with foreign companies, they have become competitive in international markets and auto makers in India use their Indian suppliers to supply their other operation plant around the world.Moreover, Indian government regulations disable multinational to import completely build automobiles to India. However the Indian government did not define any limitation for on foreign ownership, instead 123 per cent tariff rates on import cars were forced multinationals to set up their assembly plant fully within India. And a high tariff on finished components also was another issue that multinationals prefer to find their supplier within domestic firms. (Kim, 2004)Despite of all mentioned problem in India, multinational car makers seems still have a positive view about the Indian market. The potential existing market is there, but the look is that when it will become visib le.Chinese auto industryFollowing the economical reform in China, the Chinese policy makers focused on auto industry as a symbolic sector which shows the industrial development within a country. The need for technology and knowledge caused them looking for foreign partner to provide the required technology by setting up assembly plant which also generate and improve numbers of domestic firms as the suppliers to support the main assembly plants. So, in the mid-1980 three main cities of China (Beijing, Guangzhou and Shanghai) established a joint-venture with foreign auto makers supported by central and local government. (Thun, 2004)Each local government aimed to improve the local supplier network by its JV, but the assembly plants were looking for the bettor quality and lower price. Therefore in contrast with the local government and despite of geographical advantages of supplying from local firms, assemblers were dependence on outside supplier and most of them imported 100 per cent of the components from outside unless they were forced by Chinese government to increase their required components from domestic firms. But even after the time assemblers shifted from outside supplier to domestic firms, the local government aim to improve their local network were failed as the JV sourced their parts from other regions. Therefore, as of 2003, just Shanghai could relay on their local auto sector and even though it did not meet the international standards, it became a dominant firm in Chinese auto market. (Thun, 2004)The Shanghai success was the result of well support and strategic plans of local government and Shanghai Automobile industry corporation (SAIC). In 1984, when the Shanghai established a joint-venture with Volkswagen (VW), non of local firms were able to supply the required component for the assembling plant and after two years their share increased by just 2.7 per cent. (Li, 1997) No significant achievement after two years caused Shanghai municipal governm ent began to re-evaluate the problems within the sector and the capacity of individual firms to solve these problems. (Thun, 2004) Consequent of problem solving process, they discovered two necessity preconditions to facilitate improvement in domestic firms.The first one was a reorganization of the municipal bureaucracy responsible for auto sector oversight. They have set up an Automobile Industry Leading keen Group in order to control the local actors. (Li, 1997)The second precondition was the capital accumulation and investment. To solve this problem the local government specify a localization tax and set up the localization fleck which was responsible to carry out a straightforward import-substitution policy for the imports in auto sector even from other Chinese regions. Also, the localization office checked out the list of imported components and their domestic firms which are unresolved of produce them successfully, then it provided a suitable investment capital as well as managing the firms relationship with the main assembler plant. (Thun, 2004)Apart from the local government programs, SAIC had its own way to support the Shanghai auto sector, even in some areas their activities overlappe