The Global Car Industry Facing the Challenge - Term Paper Example

Task 1. Analyse and critically evaluate the competitive landscape under consideration in order to identify the prevailing conditions in the wider environment and the dynamics of the specific industry that can potentially impact and effect incumbent firms. PESTEL Political: Government policy is one of the most important factors influencing the performance and development of the global car industry. Currently, it is expected that the government’s role on balancing the need for transport with the economic and environmental hazards involve in car manufacture and use will steer the prospects in the sector. In developing countries, governments are seen to strongly favor the development of the car industry as it generates revenue through taxes and employment. China and India’s political sectors are seen to expand their infrastructure in order to support industrialization and the higher demand for durables such as cars. However, in industrialized economies with population having larger purchasing powers, governments are more concerned with the pressing issues of sustainable development and environmental preservation. Economic: The difference in the economic situation of various nations will be having different effects on the markets of the global car industry. The United States is forecasted to outpace the Euro Zone in terms of economic growth while the whole Asia Pacific will be experiencing robust growth except for Japan. In general, it should be noted that “growth and wage levels are expected to be slower in the real terms in the immediate future.” This, in turn, can lead to low consumer confidence which is expected to suppress demand for new cars while encouraging the retention of old ones or turning to the second hand market. This bleak outlook is even coupled with the fact that most countries are employing tighter policy measures which squeezes the consumers’ disposable income through higher taxation schemes. Social: One of the social factors which have a high impact in car demand and purchases is the level of nationalism. It is irrefutable that customers have higher preference in purchasing products manufactured in their own country. However, this level of nationalism is expected to be eroded by the subsequent increase in education, travel, and integration. Technological: Technological developments have greatly contributed to the improvements in process, design, and efficiency of car manufacturers. It is expected that technological innovations in the global auto industry will focus on reducing the environmental hazards and pollution caused by emissions. Fuel cell technology will also become the most important issue for car manufacturers. The widespread use and popularity of using robots in production will also affect the labor preference of auto makers. Environmental: Environmental issues are increasingly becoming important in the decisions and operations of car manufacturers worldwide. It is expected that environmental concerns will force automakers to concentrate their efforts in producing cars with less emissions. Legal: Currently, there are no legal issues and concerns faced by the global car industry. However, it can also be expected that automakers will be faced with the issues of sovereignty in light of the increasing globalization. 5-Forces Model of Competition Barriers to Entry/Exit: Moderate The barriers to entry in the global car industry are high due to high costs of initial investment, required aggressive marketing strategy to combat incumbents, and required high costs of research and development. However, this is balanced by the encouragement of the foreign direct investments in major markets like China and India through fiscal incentives. In Russia, the barrier to entry is quite high because of the policies put in place by the state. Intensity of Rivalry: High Competition among rivals is intense as each battle for larger market share through “strong emphasis on product attributes, linked to a total financing and ownership package which is closely matched to buyer needs.” This is even intensified as mergers and acquisitions prevail in order to gain better brand image, scope, and financial strength. Threats of Substitutes: Moderate In the car industry, each automaker has already established its own image where its products are distinguished from the others. Thus, in the mind of the buying public, product offerings are not perfect substitutes. Supplier Power: High The value chain of the global car industry is becoming more and more integrated as manufacturers establish closer strategic partnership with their suppliers. With these arrangements, suppliers have a high bargaining leverage because of the automakers interdependence on them. Buyer Power: High With the intense competition in the market and the availability of information about purchases, buyers hold the freedom to choose among the competing products in the market. The global car industry is also becoming more customer oriented and market driven. Task 2. Carry out an internal environmental analysis for two incumbent firms of your choice in the industry. Core Competencies and Capabilities This section will look at the core competencies and capabilities of the two of the largest players in the global car industry—General Motors (GM) and Bavarian Motor Works (BMW). General Motors General Motors is distinct for its high production capacity which reaches to about 8 million. Because of this, it is considered as the largest automaker in the world in terms of volume and market share. It has successfully captured the Northern American market with its product offerings. As opposed to other competitors in the market, GM has a very good track record in brand management with eleven brands under its control. In terms of scope, GM is in the position of servicing almost all the market strata through its various products in its portfolio. General Motors is known for having something for from the first time car purchaser to the upscale market. GM also posts higher profitability than its other competitors in industry. The company has a better capital structure and manages its more costs efficiently through economies of scale. The strong financial muscle of the company is also indicated by its strategy of growth through acquisition. GM acquires and develops companies who have promising products and augment these to its product portfolio. With this strategy, GM is able to avoid the high research and development costs associated with the starting a car business. Bavarian Motor Works BMW services the upscale industry by offering more innovative products in the market. BMW is regarded as one of the most profitable automakers in the world. However, due to its strategy of producing limited number of cars and maintaining its high-end image, BMW only manufacturers a maximum of 1 million cars annually. This low productivity, however, seems to hinder the company in the maximum utilization of its resources as well as limiting its scope. BMW has succeeded in differentiating its products from the cars of its competitors. BMW has efficiently stressed the special attributes of its cars gaining much preference from customers in the world. It should also be noted that BMW is one of the top automaker in the global upscale market. BMW has also pursued a growth strategy through acquisition when it got hold of Rover. This move has ushered the company into market leadership into the important four wheel drive market. With this, BMW is also able to derive economies of scale, particularly in the small car segment. However, the company has taken a different strategic direction with the disposal of Rover and the acquisition of Rolls Royce leaving them with a more sustainable portfolio. Task 3. Based on the external challenges, opportunities and potential future trends in the industry develop appropriate competitive strategies for the next 5 years for the two incumbent firms that you have selected in task two with particular emphasis on the first three years given their strengths, weaknesses and capabilities. Ansoff Matrix The Ansoff’s Matrixis a tool in strategic management which is utilised in order to aid in deciding the product and market growth strategy of a company. After its publication in the Harvard Business Review in 1957 in an article entitled, ‘Strategies for Diversification,’ this strategic management tool has gained wide popularity and recognition in the marketing world. Ansoff Matrix is specifically useful for business organizations which have growth objectives. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. Four strategies are generally prescribed—market penetration, market development, product development and diversification. General Motors For the next five years, it is recommended that GM pursues a market development strategy by establishing presence in other profitable geographical markets like China and India. It should be noted that currently, GM is only focused on capturing and serving the Northern American market. The opportunities posted by the rapid industrialization and development in the previous emerging markets like China and India will surely boost the performance of the company while utilizing the high productivity of GM. The company should be apt in introducing and bringing its products and increasing its scope in other profitable markets. As these countries develop, GM can initially introduce its low scale products and moving to the higher ones as the markets develop. This move will broaden the scope of the automaker as well as help it retain its position in the global car industry. Instead of just focusing on the Northern America, GM should strive to become a global brand, placing itself in the different markets. With this market development move, GM should also highly consider the different culture and preference of customers across geographic borders. With the prevalence of foreign direct investments abroad to take advantage of low cost labor and cheap input, GM should also position itself in order to take advantage of these opportunities. Bavarian Motor Works With the current strategy and capability of BMW, this report recommends that the company pursues a market penetration strategy. With its quest to preserve its image as an upscale automaker, the company can boost its growth by adding value added features according to the preference of its customers. It can look into the production of cars which are less hazardous and polluting to the environment. BMW can profit much from this innovation knowing that the upscale customers are becoming more and more conscious of the level of environmentalism of automakers. The company should find a way in satisfying this want through the production of innovative and friendly cars. BMW should also focus in the production of cars whose components are more earth friendly and recyclable materials. The company should also consider the production of cars which uses alternative fuels. The company can also pursue a market penetration strategy by complementing its product offerings with excellent service which is unmatched by other industry players. This is very important in order to cope with the intense competition in the global industry. It should be noted that customers do not only look at the product characteristics but also the service quality of the different car manufacturers. BMW should strive to establish the loyalty of its customers by establishing rapport with them. Reference Potter, N S 2005, The Global Car Industry, Facing the Challenge of the 21st Century. The University of Birmingham. Read More