Mercedes Benz International Business Analysis - Essay Example

? Mercedes Benz: International Business Analysis Introduction Mercedes Benz is one of the multinational divisions of the German manufacturer Daimler AG. This brand mainly deals in luxury automobiles, coaches, buses, trucks etc. It’s headquarter is located at Baden-Wurttemberg, Germany. The name of the company was first given in the name of Daimler Benz. It is a part of ‘German Big Three’ automakers along with BMW and Audi, which are 3 highest selling automakers of the world. The company combines luxury with performance for providing highest satisfaction to its customers. Section B: Identification of the Challenges Pestle Analysis Pestle Analysis will help in understanding the macro environmental issues (Lorat, 2009) Political The road tax has directly been linked to the total amount of emission and MOT (Merchant Over Time) has been increased. The Government has held a meeting with the automobile sector to decide about the rules and regulations related to this industry. Economic Presently the global recession has resulted in the financial crisis and has decreased the consumer purchasing power all over the world. Due to this crisis, Mercedes and various other car manufacturers are finding it difficult in increasing the revenue and profit of the companies. It has even resulted in the closure of plants by many automobile manufacturers. In this global crisis, the exchange rate between Euro and pound has resulted in high price of the cars in United Kingdom. This has decreased the sales of the company even more. Social The social environment can mainly be categorized into the following categories: a) Age, b) Gender, c) Income. Mercedes products have been mainly targeted for the middle aged customers. The products are not popular to that extent among the youngsters because of high price of the cars. The overall high expenditure related to the Mercedes products is the reason behind targeting the middle and high income people. As the products do not offer different range of prices starting from high price to low price for covering all classes of the society, the products do not target low income consumers. In the present situation of economic recession, this strategy is creating various challenges for the company. Technological Mercedes adds advanced technological details like air bags, shatter proof windscreens, crumple zones, collapsible steering columns etc. Use of these technologies has allowed the company in manufacturing safer cars. The plant efficiency is increasing with time. Various new production methods have been introduced for improving the efficiency. The facility of e-commerce and Gizmos has helped in upgrading the technology advancement. Environmental The European Union has planned to bring a new legislation which states that the average carbon dioxide emitted from the European cars must not exceed 130 g/km by the year 2015. This might be a reason of increasing concern for the company. Legal The company has maintained good relationship with the government by following the legal framework of the country. The imposition of higher tax might increase the threat of the company. Porter’s Five Forces The industry analysis of Mercedes Benz will help in understand the competitive intensity in the automobile industry (Porter, 1980; 1985; Ahlstorm and Bruton, 2009) 1) Rivalry among the existing firms The rivalry among the companies in the market where Mercedes is operating is intense. The big competitors of Mercedes Benz are BMW, AUDI, JAGUAR, ALFA ROMEO, ASTON MARTIN. Thus all big players provide their best offerings to the customers to seek their attraction. The increased rivalry has resulted in all these firms producing similar types of products, and expanding their operations into other segments like offering financial services, various alcoholic products etc. Thus the rivalry from the existing firms is very high. 2) Threat of new entrants Presently the threat of new entrants is low in the market segment where Mercedes Benz is performing its business operations. This might be because of the following reasons: The existing automobile companies operating in the market have already developed a goodwill and prestige in the eyes of the customers by providing quality product over several years of service. This creates an entry barrier for the new entrants in the market. Moreover this market segment is highly saturated and is no more at its growth point to allow the entrance of new competitors. The set up cost in this market segment is very high creating a barrier for the new entrants with less financial resources. The customers in this market segments have grown their preferences on specific brands because of the quality product and service offerings by these existing companies over several years. Thus there are less chances of success in the market by the new entrants. All the above mentioned factors are responsible for low threat of new entrants in the market for Mercedes Benz. 3) Threat of substitutes Mercedes Benz has high number of substitutes. The alternative transport offerings include motorbikes, buses, trains and planes. Alternative luxury purchases include various other luxury products which the consumers can buy instead of buying Mercedes Benz ‘as a luxury product’. The substitute luxury products include Designer Clothing, Luxury Homes, Arts (Paintings and Sculptures), Holiday Packages, jewelleries etc. 4) Bargaining Power of the Suppliers The bargaining power of the suppliers depend upon a number of factors including the rival suppliers position, quality of raw materials, demand of the goods and services required and finally the supply of those goods and services. The suppliers of Mercedes Benz provide them with a wide array of raw materials required in the car manufacturing and include leathers, electronics, metals, rubber, paints etc. As the company offers high quality raw materials to its customers, the bargaining power of the suppliers is high. 5) Bargaining power of the buyers Mercedes Benz has two types of consumers, each of them having their own kind of bargaining stance. Commercial: These are the large scale customers, for example- those companies which purchase fleets. The bargaining power of these types of customers increases depending upon the scale of the business that they can offer to the company as well as the presence of other alternatives. Generally the bargaining power of this customer segment remains high. Individual: These are mainly the personal buyers. The bargaining power of these customers is low as compared to the commercial counterparts. However, the strength of the competitive brands and the provision of the substitutes are some of the key factors which affect the buying position. SWOT Analysis The SWOT analysis of Mercedes Benz is being done in order to understand the business level strategy. It will help to find out the challenges faced by the organization (Ansoff, 1965; Valentin, 2001; Panagiotou, 2003; Dickson, 2002). It will also help in formulating various strategies in order to overcome the threats and weaknesses (Porter, 1991). Strengths Mercedes Benz has a strong brand name. This helps in increasing the revenue of the company. The company’s brand and high quality products have helped in creating a long term relationship with the existing customers and attract new customers. Mercedes Benz has maintained good relationship with the government by maintaining all the legal frameworks. Weaknesses Price is one of the most concerning factor. The company does not provide varying range of prices to its customers and only targets at medium to high income people. In this period of economic recession this approach has resulted in losses for the company. The purchasing power of the consumers has decreased comparatively. Thus high price offerings made by the company has resulted in choosing other competitor’s cars offering lower prices by the consumers. Opportunities Mercedes Benz is having the opportunity of developing new and highly upgraded models in future for increasing its customer segment. The company has scope of providing environment friendly cars to the customers which will use solar energy and reduce harmful carbon dioxide emission. This will further strengthen the relationship of Mercedes Benz with its customers. Threats The present economic crisis increases the threat for the company as the scenario may get worsened in the future. The existence of strong competitors in the automobile industry offering quality products has increased the competitive threat for the company. Moreover new entrants may enter into the industry with high fashion technology utilized products. Thus the customers will have increased number of alternative companies offering high quality and well designed cars. This is an increasing threat for Mercedes Benz. Section C: Strategic Responses to the Challenges Ansoff’s matrix The four grid matrix will help in suggesting different market and product growth strategies (McDonald, Ward and Smith, 2007; Bachmeier, 2009; Varbanova, 2013). The Ansoff’s matrix represents four types of growth strategies: Market Penetration: This strategy includes selling of existing products in the present market segment. Market Extension: This strategy includes selling the existing products into new market segments. Product Development: This strategy includes selling new products in the present market segment. Diversification: This strategy includes selling of new products in new market segments. (Source: Stone, 2001) The core competency of Mercedes Benz lies in two methods mentioned below: Product Efficiency High Product Quality Strategy to be adapted Mercedes Benz should adapt the strategy of product development. Choice Rationale Advantage Implementation Product Development It will help the company to distinguish itself from the rivals by providing luxurious vehicles with latest and modernized performance figures. The automobile market is presently in a slump condition. Thus the company needs maintaining its competitiveness in the market by means of product development. The new product offering of Mercedes Benz will help in targeting a wider market segment. It will bring in new customers with low, middle and high income levels. The product development strategy will facilitate the company by restraining its competitors in copying its product line. The new product with latest fashion technology and smaller engine will reduce the petrol cost as well. Thus the recommended strategy has high potentiality of becoming successful. The product offerings by Mercedes Benz should be based on the preferences and demands of customers. The company should target a product best suitable for the present economic climate and the social trends. The product should be eco-efficient and must be offered at relatively cheaper price. The Boston Matrix The competitive advantage of Mercedes Benz lies in its ability of offering highly differentiated products to the customers and an effective distribution channel all over the world. Boston matrix analysis will help in analyzing the product mix of Mercedes Benz in the following manner: Class Position Description Action M Class Question Mark Growth market is high but market share is low. Make investments, increase the market share. S Class Stars Growth market as well as the market share is high and this brand is the market leader. Should make investments for increasing the revenue to the optimum level. C, SL Classes Cash Cows The market growth rate is low, but it generates high cash and facilitates the company in investing in other businesses. Maintaining strong market position, defending the market share. Further investment for keeping the market share is not required. A Class Dogs Low growth market, market share is also low. The company needs to take serious steps for diverting this product as it makes huge losses for Mercedes and even is not so popular. Product Life Cycle The product life cycle will provide a clear picture about all the happenings related to the product in the context of its selling or profit (Petty, Moore and Palich, 2005). Introduction: In the introduction phase Mercedes has promoted its product offerings in the market. In this phase the company has targeted the wealthier consumers for seeking high profits. The marketing strategy that has been conducted for promoting the quality and the fuel efficiency of the vehicles is by conducting various car shows. Growth: In this growth phase the company has advertised its products by appealing to a wide range of audience. It has focused on brand differentiation by offering wide range of renowned brands to the customers. The prices have been fixed in such a manner that it attracts mostly the affluent section of the society. Maturity: This phase involved slower growth comparatively and increased competition because of the saturated market. However, Mercedes has implemented effective brand repositioning strategy for maintaining its leading position in the market. Decline: In the decline phase the models which have become outdated in the market start losing demand. The A Class of the company is no more popular in the market. The company needs to sell them at discounts and divert their production in the market. Value Chain Analysis The Value Chain Model (as suggested by Porter) will help in analyzing the internal strength of Mercedes Benz (Overbeck, 2009; Recklies, 2001). The following sections will cover the value chain analysis of the company for maximizing the customers value (University of Washington, 2011). Primary activities The company is careful about all its valuable investments. Thus every original part of Mercedes Benz is a subject to strict quality control measure. This ensures high reliability and safety and the cars also retain their value. In order to ensure that the company use genuine parts, the new genuine parts have been designed with hologram. a) Inbound Logistics From many years, the company focuses on using natural materials. The main advantage of using natural materials is because of the high environmental capability. The seat covers in the vehicles are made up of 15 percent pure sheep wool. The company makes use of high grade biodiesel having excellent carbon dioxide balance. The company integrates an efficient logistics management system. The management related to IT and Communications made optimized utilization of time, workflow and productivity. b) Outbound Logistics PT Krakatua Steel Collecting stores and distributes the products to the buyers. When the motor vehicle product is ready to be provided to the customers, the output of the production process is based on the order in which the motor vehicles have been booked by the buyers. c) Marketing Conducting auto show is the best marketing strategy for the automakers. The auto shows help in gaining attention of the car lovers. The car shows at places like New York, Las Vegas, Paris etc attract huge masses and act as the best showcase for exposing the products. The car shows act as the corner stone in promoting the products and help in bringing publicity which lasts even after the completion of these shows. The media plays an active role in providing advantage to the car makers. Mercedes Benz makes use of the following marketing strategies for promoting the company’s products. Television acts as another important media promoting the company’s latest technology products. The company’s logo has been used recently in most of the sports tournaments like ‘Tennis grand slam tournament’ held in UK. By connecting its brand with these prestigious world events, the company has achieved its position in the heart of the general public. Secondary Activities a) Information Technology The implementation of natural Gas Technology (NGT) by the company enhances the possibility of utilization of alternative fuels. The primary focus of the company is implementing an innovative drive process which would operate with both petrol and natural gas. The engineers of Mercedes Benz have created a filter system named as BlueTEC which purifies the diesel emission almost completely. In the initial processing stage, the oxidation catalytic converter along with the particulate filer helps in reducing the levels of hydrocarbons, carbon monoxide and other harmful emissions. b) Human Resource management Mercedes Benz is one of the top car manufacturers, well renowned for its high end products. It is an important part of DimlerChrysler. The human resource management includes series of activities and one of the most important activities among them is to decide the type of staffing requirements based on which it would be decided whether to hire employees for fulfilling these needs or to employ independent contractors. The company conducts recruiting and training programs for improving the performances of the employees. The HR department has high contribution in making the company’s brand well known all over the world. Porter’s Diamond Model The porter’s diamond model helps in determining the competitive advantage of various nations (Walker, 2004). It would also help in understanding how the competitive advantage of Germany is being advantageous for the company. Factor Conditions: The factor conditions can be divided into different segments: a) Human Resources, b) Capital Resources. Human Resources: The German car manufacturers employ greater than 220000 employs representing 20 percent of the total workforce of the region. High human resource utilization helped in increasing the competitive advantage of the nation as human resources form an important part of the tangible resources. Capital Resources: The country has high capital resources for supporting the automobile industry. This facilitates the automobile industry in achieving competitive advantage. Demand Conditions: Germany is in the third position on grounds of automotive production. The domestic demand in the automobile market of German is high and is expected to increase more in the coming years. Providing new products with latest technologies will allow Mercedes Benz to achieve competitive advantage in the domestic market. Related and Supporting Industries: A large number of supplier industries support the German automobile industry (for example- companies belonging to electronics, information technology, metal manufacture, glass and plastic production etc. They supply quality raw materials which help in the up gradation of the technology. This will allow the company in maintaining its position in the market. Firms Strategy, Structure and Rivalry: The automobile industry is facing tough competition because of the following challenges: 1) Globalization, 2) innovation, 3) value chain restructure. Innovation is the most essential key which will help Mercedes Benz in maintaining the competitive advantage. Recommendation Mercedes Benz should focus on increasing the safety, precision engineering and luxury of its products in order to maintain its leading position in the automobile industry along with meeting the changing tastes and preferences of the customers. The company should take necessary steps for expanding its product line by offering competitive price, high accessibility to the customers and excellent customer service. The current strategy recommendation of the company is based on four main pillars: Strong brand Leadership in the technology Wide product range Conclusion The car industry is highly saturated and the increased competition in this industry has increased the importance of the brand identity. Mercedes Benz should develop values and attributes which would reflect the changing social values for influencing the buyers. It has built a brand name which is considered as its heritage. 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Strategic management in the arts. London: Routledge, 2013. Print. Walker, G. (2004). Modern competitive strategy. New York: McGraw-Hill International. Read More