Part of the industry is automating to offset wage advantages of some competitors
Symptom: Much of the industry is automating to reduce its costs and offset the wage advantage held by foreign competition.
mplications for the market:
Automation is essential when the product has a high labor content and when a competitor with significantly lower wage rates threatens to make inroads into the market. This new, low-cost entrant must be countered before it becomes larger and much stronger financially.
Eventually, though, automation is of limited effectiveness. Foreign competitors, too, can automate. They often have the volume base to introduce automation, and will be motivated to the extent that their own labor rates rise.
Ultimately, achieving the low cost position depends not on automation but on ownership of the customer relationship. Over time, differences in rates of costs and in approaches to functional cost management are copied and homogenized in the industry. The low-cost position comes from being established with customers, because their dependable volume allows a company to win on overhead cost productivity.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.