Detroit: From Automobiles to Tech Hub - A History of Change - Essay Sample

Introduction

Detroit in the state of Michigan is one of the most historically famous cities in the United States primarily due to the automobile industry in the city. The city became famous in terms of technology in 1896 when Henry Ford chose it to test drive the first automobile and later establishing an automobile company in the state, but it was considered a failure because it closed after producing only two vehicles in 3 years of operation (Ferrazzi & Goldstein, 2011). However, later, the Detroit automobile industry was revived by Ransom E. Olds in 1899 who opened the Olds Motor Works and later on in 1903 Ford Motor Company entered the market and later chose the city to build the Model T in 1908 which put Detroit in the automobile map not only in the United States but also globally (Klepper, 2002). This paper will assess Detroit as a motor city between 1900 and the present to establish the reasons for the motor industry in the city decline making it one of the significant challenges experienced by the Motor City which led to a chain of events like the growth of poverty and unemployment in the city.

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Historical Background

Henry Ford and his innovative ideology of mass production and assembly line technique lead to one of the significant success of the automobile industry in Detroit, Michigan. However, the geographic accessibility to a favorable labor pool and favorable resource endowment has further revolutionized the automobile industry in the 20th century. The perspective of 'geography as accessibility' explains the ability to reach services, goods, and activities easily. In this case, the region of Detroit had access to favorable labor pool which has given employers the ability to reach out to potential labors that fit the criteria of the job being offered (Klepper, 2011). Furthermore, the geographic location of Detroit play's a significant role because it is positioned between the east coast and Chicago and has plenty of natural resources that make it an ideal location for manufacturing which shows accessibility to favorable resource endowment. Thus, geography plays an important role to amplify technological innovation and creates a geographic cluster which further attracts new firms, labors and facilitates learning from other firms with the help of localized technological spill over (Klepper, 2011).

Theoretical Framework

Industry Life Cycle Theory

The industry lifecycle is a good theory to use in this case to explain the growth and decline of Detroit as the Motor City in the United States based on its foundation on the automobile industry that is the backbone of the city economy. A theoretical framework helps to expound on the hypothesis of the research in this case the industry life cycle will be used to understand the growth and decline of the motor industry in Detroit as well as the future implications which can be predicted using the industry life cycle theory (Sabol, Sander, & Fuckan, 2013).

Empirical Research

Factors that Contributed to the Automobile Industry Growth in Detroit

In the 20th century, Detroit became known as a motor city mainly due to the activity of the early automobile innovators such as Henry Ford and Ransom Olds who chose the city to begin their automobile companies. The city presented a strategic advantage for the automobile industry because of the availability of space and resources required to set up a car manufacturing plant (Ferrazzi & Goldstein, 2011). The central location of Detroit with the east coast and Chicago also made it a favorable place for the automobile industry because it could be easy to transport the products to the market. Detroit was highly populated and had a surplus working force which made it ideal for Ford and Olds who viewed it as an advantage for starting automobile industries near home (Klepper, 2011). Both Ford and Olds were highly innovative and in 1913 Olds developed an assembly line and Ford a conveyor belt technologies that were necessary for the development of Detroit as an automobile center. Both Ford and Olds plowed back profits from innovations to research and development which made it easy for them to improve the automobile company's efficiency (Klepper, 2011). As the industry developed, it was able to attract a more experienced workforce for the available job opportunities in the city. Besides the availability of labor, natural resources and legal processes existed in Detroit and Michigan State which supported the automobile companies to thrive in the city and by 1929 the automobile industry was at its peak in Detroit which won its name as the Motor City (Klepper, 2011). The ready availability of ore in lakes around Detroit made it one of the most strategic locations for automobile companies to set camp. Today, Detroit is still the motor city despite some declines after the 1950s when the growth of African Americans migrations led to ethnic and racial tensions in the sky which further affected the overall growth of the industry. Progressive legislation in Michigan ensures that Detroit and Michigan remains one of the best automobile destinations in the United States despite the extension of unemployment (Cabral, Wang, & Xu, 2018).

Challenges Facing the Detroit Automobile Industry

After nearly successful four decades and high job creation in Detroit between 1910 and 1929, the automobile industry faced a significant decline in the post second world war era. Today, poverty, urban violence, and crime are major issues facing the formerly prosperous and economic vibrant Detroit city which is owed to the decline of the automobile industry which is a significant economic activity in the city (Hyde, 2001). After the war, there Detroit became even more successful but the coming on stage of Japan as a car producer which made good products at a lower cost took away business from Detroit and since then competition has grown across the globe and Europe with many automobile industries being set where there is easy accessibility of resources and cheap labor. Therefore, the primary challenge that caused the decline of the Motor City is the growth of competition which took away the city products market share and many automobile companies moved to less production cost areas such as Japan, Germany, and China. However, the most prominent factors that have led to the continuous decline of the Motor City is the lack of ethnic tolerance between the blacks and the white people (Hyde, 2001). Due to the high number of employment opportunities in Detroit, it attracted many migrant families who were not welcomed by the white majority already living in the city (Hyde, 2001). As a result, investment in the city became marginalized, and many people in the middle class who could have been potential investors in the city decided to stay away from the city. As a result, many areas were neglected, and crime took over what used to be a very prosperous city with many automobile companies pooling away from the city.

Potential Solutions for the Motor City Automobile Industry Challenges

The decline of Motor City as a significant hub for automobile business in the United States and the world can be resolved by making the business environment friendly through reduced taxes, investment in education, innovation and government subsidies which can help to reduce the cost of production and restore the number of companies willing to make their vehicles in the city. Companies today are attracted to cheap labor, an abundance of raw materials and friendly government incentives which can help to reduce the cost of production and give the companies a more competitive edge. Competition is a significant factor in the decline of the Detroit motor vehicle industry and improving the existing firm's competitive advantage can help to restore economic prosperity, employment and investment in the city (Cabral et al., 2018).

Case Study

The Motor City (Detroit) is a good case study of the theoretical framework of an industry lifecycle after experiencing all the five stages of growth in its motor vehicle industry which continues to be the primary economic activity in Detroit despite attempts to diversify the market. The theory depicts different stages on the industry progress and prospects which consists of five major stages. The startup stage is the beginning of the industry and in Detroit can be witnessed by the activities of Henry Ford and Ransom Olds who were the first to set up automobile industries in the Motor City. In the beginning, the demand is limited especially, and the distribution channels are limited which explains the Detroit motor vehicle industry between 1900 and 1905. In the growth stage, the starter ups such as Ford and Ransom Olds attract attention, and more companies enter the market. The Detroit motor vehicle industry experienced growth between 1910 and 1927 (Hyde, 2001). After the growth stage, the market proceeds to the maturity stage in which the market reaches the maturation point, and competition becomes a problem in the market. In this case, the Detroit vehicle industry reached the maturity stage between the 1930s and 1950 after which the Motor City as an automobile city started experiencing a decline with some companies exiting the market while others that could operate at lowest possible cost entered the market such as Toyota and Nissan (Hyde, 2001).

Conclusion

The Motor City since the 1900s has long been known worldwide due to its automobile industries and the presence of the premium brands such as Ford which chose the city to produce the iconic T model. The decline of the Motor City as the center of the automobile industry is due to the growth of competition in the post second world war global economic recovery in which Japan and other low-cost production companies emerged as major automobile industry destinations. Although facing decline, the automobile industry in Detroit can be salvaged through government interventions using incentives, attracting skilled labor in the city and investing in technology to facilitate low-cost production which will offer local firms a competitive advantage in the motor market.

References

Cabral, L., Wang, Z., & Xu, D. Y. (2018). Competitors, complementors, parents, and places: Explaining regional agglomeration in the US auto industry. Review of Economic Dynamics, 30, 1-29. Retrieved from https://doi.org/10.1016/j.red.

Ferrazzi, M., & Goldstein, A. (2011). The new geography of automotive manufacturing. International Economics, The World's Industrial Transformation Series, Chatham house. Retrieved from https://www.chathamhouse.org/sites/default/files/0711bp_ferrazzigoldstein.pdf

Hyde, C. K. (2001). "Detroit the dynamic": the industrial history of Detroit from cigars to cars. The Michigan Historical Review, 57-73. Retrieved from https://www.jstor.org/stable/20173894

Klepper, S. (2002, March). The evolution of the US automobile industry and Detroit as its capital. In 9th Congress of the International Joseph A. Schumpeter Society, Gainesville, Florida, March (pp. 22-23). Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.587.3533&rep=rep1&type=pdf

Klepper, S. (2011). Nano-economics, spinoffs, and the wealth of regions. Small Business Economics, 37(2), 141. Retrieved from https://www.jstor.org/stable/41486123

Sabol, A., Sander, M., & Fuckan, D. (2013). The concept of industry life cycle and development of business strategies. Active Citizenship By Knowledge Management And Learning, 635-642. Retrieved from http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-300.pdf