Written by Timothy J. Tetreault on December 1, 2016 – Mount Royal University
Introduction and Overview
Fix Auto is an auto body repair company based in Montreal, Quebec that is looking for rapid worldwide expansion. Fix Auto operates within an external task environment which has many opportunities but also many threats.
Politically, governments are changing how infrastructure spending is allocated. More taxpayer dollars are being spent on mass transit initiatives such as the City of Calgary’s green line project, which aims to create a new train corridor with the municipal and federal governments guaranteeing a cumulative $3.08 Billion towards the project (“Green Line”, 2016). The implication for the auto industry (including Fix Auto) is that the transit projects aim to reduce emissions by having fewer cars on the road. With fewer cars on the road, the likelihood of collisions and the customer base are reduced
The socio-cultural tendencies of society increasingly are leaning toward an ecological outlook. People work to reduce their adverse environmental impact and many opt out of driving entirely. Environmental awareness has people taking mass transit and walking (or biking) to their destinations, which means less cars are on the road. Society is moving toward more fuel efficient cars that retain value for longer amounts of time. Modern cars are built to last longer and wear out less quickly. Computer technology is now able to optimize everything from gear shifting to lane positioning, and even taking complete control of a vehicle. As a result, parts wear out more slowly and collisions are less frequent. Parallel to the environmental awareness movement, car manufacturers have been working to make the cars themselves lighter in an effort to conserve fuel. The traditional steel and aluminium bodies are being replaced by lighter, plastic, fibreglass, and carbon fiber builds which are not easily as repaired.
Provisions in the law also create issues for Fix Auto. Provincial and federal governments are moving towards carbon taxes, which will hit drivers with higher fuelling prices with the goal of reducing vehicle mileage. In fact, “A $50 carbon tax would drive up pump prices by 11 cents a litre” (Mccarthy & Leblanc, 2016, para. 11).
Strengths in the Fix Auto organization include their branding and rapid ability to expand operations with limited operating costs. Fix Auto is working to create a trusted Auto Service brand in an industry that historically is not credible (CB Staff, 2016, Para. 4). Fix Auto gains a competitive advantages through their provocative campaigns. Rapid worldwide expansion is facilitated through their operation of 229 Canadian locations as well as those in other countries (CB Staff, 2016, Para. 3). The franchise structure enables them to quickly open new shops based on a ‘cookie cutter’ set of procedures. It also places the risks onto the franchisee owners as opposed to the Fix Auto brand themselves. Profit margins are maximized as a result.
Major weaknesses to international expansion are the organizational structure and the command hierarchy. The current organizational structure does not allow for different socio-cultural standards and adaptations for the different regions.
According to the Canadian Business (2016) article, the “Canadian market is actually pretty much rolled up… The U.S., however, still represents a huge opportunity” (CB Staff, Para. 10). This is because unlike the Canadian Auto repair industry, the United States consists primarily of privately owned shops. Many of the shop owners are straining in the attempt to retain profit margins in the current economic environment, creating an opportunity for companies such as Fix Auto.
Through buying out these individual shops, Fix Auto can continue to build its brand and its bargaining power with suppliers. This enables them to pass lower prices on to the customers, building a competitive advantage in the industry and increasing supply chain efficiency. Another opportunity that Fix Auto faces is the advancement of technology. Modern materials make the repair process more complex and expensive, creating an opportunity for established brands such as Fix Auto. The individual repair shops are increasingly unable to compete with established brands such as Fix Auto, and this contributes to the competitive advantage that Fix Auto could potentially establish.
Threats to the Auto Repair industry include government policy, technological advancements and economic struggles. Carbon taxes and public transit spending encourage people to switch to alternate methods of transportation. Fewer drivers means less collisions to repair. Driver error is reduced through new computerization and detection systems. If auto repair companies do not adapt, they lose competitive advantage over companies that do. Finally, fewer people can afford to operate a vehicle in the current economic climate.
The organizational structure of Fix Auto is the primary issue in that it does not accommodate the varying regions of the world. They have one division and a ‘cookie cutter’ approach that works in Canada, but may not be as effective in other countries such as the United States and many parts of Europe. The current organizational structure of Fix Auto is functional with divisions based on the acquisition of Prime CarCare Group, a parent company to 142 franchise locations under a variety of different brands (“Fix Auto to Acquire”, 2016, Para. 1,4; “Fix Auto Canada”, 2016, Para. 1, 3).
Fix Auto’s current organizational structure is inefficient through their bureaucratic controls and the standardization of rules and operating procedures. A set of guidelines that works in Canada will not work elsewhere. European cities for example, are historically different than North American cities. The rich aristocratic citizens who can afford vehicles, live in different areas of the city. In the United States, the prestigious communities tend to be found in the suburbs, whereas in Europe, the city centers are where you find the wealthy. On top of that, in the United States, the automobile has encouraged people to spread into the outskirts through the diminishing attractiveness of the center for communal activities (Melosi, n.d. Para. 5). Rather than having the North American driving culture, more densely populated regions of the globe rely heavily on public transport, cycling, and walking. This means that the same organizational structure cannot be used effectively worldwide to maximize the global market.
Legal / Trade Implications
Fix Auto operates in a manner that follows Canadian legislative guidelines which varies by national region. The global presence of Fix Auto creates an inefficiency through the requirement to comply to the laws of several differing countries. Each country has its own unique labour standards, competition regulation, licensing processes and tax codes.
In addition to internal legislation, each country has foreign policy regarding the importation of auto parts. The North American Free Trade Agreement (NAFTA) and the European Union (EU) reduce trade restrictions and tariffs within their respective regions; however, trade between EU and NAFTA countries still have tariffs and taxes. Fix Auto operates in both regions, creating an inefficiency in regards to importing parts for foreign cars. In Europe, taxes are placed on North American car parts and vice versa. The current organizational structure does not effectively take advantage of the trade agreements because Fix Auto is expanding worldwide instead of improving domestic operations in each region.
The national boundaries of Canada are not a confinement for competition guidelines (“Competition Law”, 2013, Role of International Cooperation. Para. 1). Many countries worldwide have slightly different legislation regarding the prevention of monopolies. Due to the rapid expansion of the Fix Auto franchise, they are subject to regulations found in the Canadian Competition Act such as: “the Tribunal shall not find that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially solely on the basis of evidence of concentration or market share” (Canadian Competition, Sec. 92(2)). The Competition Act ensures that monopolies do not occur through expansion, merger or sale of a company. An example of the Competition Bureau becoming involved with the enforcement of competition regulation occurred in 2013, when Sobeys acquired Safeway and was forced to sell 23 of their locations to meet competition requirements (“Competition Bureau Statement”, 2013, Para. 2). Fix Auto needs to meet similar obligations in regards to their expansion.
Wrong Expansion Objectives
While Fix Auto now has expanded operations into Australia and South Africa, (“Fix Auto Launching”, 2016, Para. 1; “Fix Auto South”, 2016, Para. 2) they are far from completely developing the North American market. Even in Canada, Fix Auto operates no locations in many provinces and territories such as Manitoba and Saskatchewan. On top of this, they are failing to test markets before entering. Fix Auto risks following in the failed footsteps of Target, in that they are moving into new markets with more investment than would be advisable (Dahlhoff, 2015, Para. 5)
There are two feasible solutions to the inefficiencies that Fix Auto is experiencing as a result of their uncontrolled global expansion.
The first solution for Fix Auto should be to divide its organizational structure into regions. Independent management for different regions rather than worldwide control in Montreal. Organizations with strategy based on region tend to perform more efficiently and effectively than global orientated strategies (Ghemawat, 2005, Para. 2). Fix Auto should adopt a hub strategy, where they open regional offices and operate the regions like individual companies (Ghemawat, 2005, the Hub Strategy.). Locations in European should report to a separate European administration instead of the one based in Montreal. This allows the European operations of the company to operate more efficiently because Fix Auto would be able to employ regional presidents who know the local legislation of the country or region. Larger countries such as Canada and the United States should also be divided into regions. The United States could be divided into three regions (Pacific, Midwest, and Atlantic) with potential hubs in San Diego, Omaha and Atlanta. Similarly, they should divide Canada into regions (East and West) with potential hubs in Calgary and the existing one in Montreal.
Fix Auto should slow expansion into new countries and paying unnecessary premiums when there is still room to expand in existing markets. It is mentioned earlier that there are no locations in Saskatchewan, Manitoba and much of their target market in the United States. Fix Auto needs to focus on their primary objective of becoming the North American auto body repair chain. Fix Auto is experiencing overexpansion. “Overexpansion often occurs when business owners confuse success with how fast they can expand their business” (Schaefer, 2006, Overexpansion. Para. 1). In a 2005 study done by the Law School at the University of Chicago, it was found that of the Chapter 11 Small Business Bankruptcies issued in the United States, overexpansion contributed to a “non-trivial” (Baird & Morrison, 2005, Pg. 7, Para. 1) number of cases. The best method for expansion is steadily and to move to new countries one at a time. (Schaefer, 2006, Overexpansion. Para. 1). Fix Auto should capitalize on their existing regions such as the United States, Canada, and the United Kingdom before moving into new markets such as Australia, South Africa and Turkey.
If Fix Auto desires to maximize corporate efficiency, they need to begin operating the differing regions as separate divisions with unique management and hubs. This way, each region is able to have expertise in local legislation and cultural standards. They need to implement regional strategies, offices, and management before opening branches in new countries and global regions.
In conclusion, while Fix Auto is rapidly expanding into new regions, their organizational structure fails to accommodate for regional differences and as a result, there are inefficiencies in the company.
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Fix Auto South Africa Appointment Announcement. (2016, August 3). Retrieved November 30, 2016, from https://fixauto.com/za/en/news/FIX_AUTO_SOUTH_AFRICA_APPOINTMENT_ANNOUNCEMENT
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