Suppose the worldwide profit breakdown for General Motors is 85% in the United States, 3% in Japan, and 12% in the rest of the world. Its principal Japanese competitors earn 40% of their profits in Japan, 25% in the United States, and 35% in the rest of the world. Suppose further that through diligent attention to productivity and substitution of enormous quantities of capital for labor, GM manages to get its automobile production costs down to the level of the Japanese.
a. Which company is likely to have the global competitive advantage? Consider, for example, the ability of GM to respond to a Japanese attempt to gain U.S. market share through a sharp price cut.
b. How might GM respond to the Japanese challenge?
c. Which competitive response would you recommend to GMâ€™s CEO?