The External Factors that Effect the Volvo Car Corporation in Britain - Case Study Example

Volvo Car Corporation in Britain Volvo Car Corporation in Britain Volvo Corporation is an automobile manufacturer based in Sweden. It has more than2200 dealers in more than 100 nations including Britain. There are many environmental factors that affect businesses in an economy. The factors can be categorized as either internal or external. The internal environment takes account of factors within the company and can be controlled by the company such as leadership and product quality. The external dynamics cannot be controlled and maintained by the company and include; political, social, technological, economical, and legal factors. This paper focuses on external factors. Political factors: Britain has increased regulations to the car industry. The automotive industry is being subjected to huge trade taxation. Political factors influence the strategic plans of Volvo Corporation because the government laws and regulations are strict on the production of environmental friendly cars. As a result of the environmental issues, the corporation has to adhere with the regulations that aim to lower the pollution. Non-compliance with the politically influenced changes attracts huge fines that are costly to the company. Politics has also cautioned the industry against manufacturing of many automated motors. Automation will take up the local jobs leading to unemployment (Henson 2009). Economic factors There are always fluctuations in fuel price. The economic condition affects its performance as it has to reduce its rate of motor production. As a result of the high fuel prices, customers are now opting fuel efficient cars. The need for the fuel-efficient cars among Britons leads to low sales of the luxury cars that tend to consume more fuel. The constant population also reduces the number of people purchasing cars. Social factors The social factors that alter the business are affecting its profits immensely. Customer’s preference is shifting from large luxurious engine cars to small cars because of low carbon emission levels, increase in fuel prices, and above all, the state’s tax free and parking incentive for those who purchase eco-friendly cars. Consumer tastes are also affecting the operational cost planning of Volvo Motors Corporation. Customers are continually demanding safer and better quality cars at very low prices. The situation is forcing Volvo Corporation to get resources and ways of production such as outsourcing its parts from far away countries such as China (Henson 2009). Technological factors: Other motor production companies such as Toyota continue to occupy a large share in the market. The companies have adopted and implemented new and advanced technologies into their production strategy. That means that the companies have met the requirements of the changing conditions of fuel efficient cars. Volvo continues to struggle to achieve this due to its low technological advancements. Volvo’s advancement is only evident in safety but has not adapted other features that are the main attractions in the business (Henson 2009). Environmental factors Environmental factors do not affect Volvo much. It is known to produce big vehicles that may be prohibited from using certain roads. Other cars that it produces are suitable for use in all the countries’ streets. As result of large quantities carbon emission from the big sized cars, regulations emphasize on small cars that are producing small carbon amounts and noise. The cars also have limits on their height and weight as well (Henson 2009). Legal factors New laws concerning protecting the environment have affected the whole automotive industry including the Volvo Corporation. Due to the enactment of the Clean air Act and environmental, the market for the environmental unfriendly vehicles has reduced. Volvo has not fully integrated its production with this act, therefore, still finds challenges in its production. The government regulations have increased taxation on large vehicles with huge emissions. Volvo had earlier tried to introduce flexi-fuel cars, but customers’ responses were not appealing (Henson 2009). Strategy The main shortcomings Volvo cars face are the external pressures, changing perceptions, and satisfying customers’ preferences. Volvo’s strategy of Safety was famous in the 1990s but remained static while the customer’s needs and environmental conditions changed. The condition forced Volvo to face a major decline in its sales between 2004 and 2006. Nowadays, most car manufacturing companies have integrated safety to their product’s designs. The safety element being the main strategy for Volvo does not offer any advantage anymore in today’s changing market (Etzel, Walker& Stanton 2007). Ansoff product/ market grid can help Volvo Corporation identify the necessary strategies that will give it the potential to grow. The Ansoff product/ market grid proposes four strategies that will help a business improve in the environment. The design helps businesses identify what needs to be marketed, the appropriate time, and the risks involved in the process (Etzel, Walker& Stanton 2007). The four strategies available to the Volvo Corporation are; The pricing strategy; Volvo cars are unaffordable in the market and it, therefore, needs to present a model or car type that the average people can afford. This can also be precisely termed as the market penetration strategy since with the same market and the same product; the company will have to decrease its prices. The company will reduce the cost to match that of its competitors. Market development strategy which requires that the same product should be sold in different markets. Product development strategy; the strategy requires that a new product should be developed and introduced in the current and existing markets. Changes in the product characteristics results to a difference from those of the competitors. It is termed as product differentiation and can yield positive results. Diversification strategy that requires that the same product be sold incompletely different and new markets. The strategy is risky but can be rewarding (Etzel, Walker& Stanton 2007). From the conditions at Volvo Corporation, the right strategy to use according to Ansoff product/ market grid can then be identified as follows; The market penetration strategy; it involves selling the same product in its current markets. Lowering the prices of Volvo cars by the Corporation will not be of any benefit. The main challenges that Volvo is getting from the current markets is not high prices. Environmental laws and technological advances are the ones that have changed making the customer’s change their preferences. The customers prefer small and fuel-efficient cars instead of the big and fuel consuming vehicles. No one needs a big-engine vehicle no matter the cost. No customer would like to face the huge state taxation; hence, this strategy will not help the business to prosper. Business development strategy; If the Volvo Corporation decides to adopt this approach, it may not be fruitful. The current markets of Volvo cars are in the developed countries. People living in developed nations have the financial potential to buy premium cars. If Volvo again tries markets in the underdeveloped and developing countries, then its growth might be slow as only few customers can afford their expensive cars. This strategy again will not lead to its prosperity. Diversified strategy will have mixed fortunes for Volvo Corporation. Introducing its cars to new markets will meet new customers who may get the urge to try the new brand in their markets. The strategy is again risky because Volvo is facing a significant performance crisis. Due to its current status, Volvo should be a risk averter and not a risk taker. Product development strategy is the best strategy that Volvo should think of adopting. The approach focuses on making changes to the product in line with the current requirements and trends. The strategy will help Volvo produce cars that are safe and reliable. The production would integrate safety, fuel efficiency, style, performance, and size which will lead to its differentiation among its competitors in the industry. If Volvo Company meets all the requirements of the customers, it will increase its sales resulting to its prosperity. Since Volvo does its research and development jointly with Ford, its product development should be easy and cheap. Volvo, which enjoys a business network in more than 120 countries, can introduce changes to its flexi-fuel cars. The modifications are likely to bring positive changes in the business leading to prosperity. Opportunities The company has possible chances of growth due to the improving business markets in China and India. China has a forecast of 10,000 sales per year. Its continued penetration into multiple foreign markets provides it with the potential for growth and performance. Its main strategy of safety may help it in the future to increase its sales as government’s policies in various countries enact strict laws to prevent the occurrence of accidents. Its joint research and development programs with the Ford Company are likely to attract more customers from the automotive industry (Wheelen & Hunger 2010). Threats: Strategies that will make Volvo prosper in Britain If Volvo wants to prosper in Britain, it should create value for its consumers. If it does so, it will develop a consistent market for its cars. Creating value for customers serves three purposes. First, it sets a strong business foundation for the company. Volvo can set such a market by making automobiles that match the needs and preferences of its customers. Secondly, it enables the company in developing a proper strategic plan. Volvo will then avoid spending money unnecessarily on advertisement. In most cases, adverts reach the wrong audience because of improper planning. Third, creating value for the consumer helps in educating potential customers about Volvo’s products. Volvo will then be in a better position to communicate with its customers and convince them to buy its cars (TLFeBOOK). Volvo should carry out market segmentation in Britain and other neighboring regions. Volvo can do the segmentation by examining the overall car market and grouping it into smaller manageable categories. The smaller categories of markets grouped together must have close resemblances. Volvo can then target the market that will likely be very productive for its cars. The targeted market should be fit for Volvo’s strengths and competitive power. Volvo should then produce a variety of cars that meet specific consumer needs. The categories of cars that Volvo should produce must vary in price and quality. Low, middle and high-income earners should be able to get their choices from the corporation. The prosperity of Volvo in Britain can also come from its marketing strategy. The corporation should invest money wisely in order to find new and reliable markets. Advertisement alone may not bring the many desired gains in market share. Volvo should involve its potential customers when it is designing new cars. The involvement will give Volvo a chance to include some of the features it may have overlooked in its designs. Potential consumers will, therefore, find the features they desire in Volvo’s cars. As a result, new markets for the car manufacturer will emerge. Volvo needs to use price penetration strategy in order to grab substantial market share. The price penetration strategy can be implemented by offering cars to the customers at relatively low prices. Potential consumers will then consider Volvo a low price car seller. Consumers will then buy Volvo’s cars and in the process they learn about its qualities. Volvo should take precautionary measure of producing high-quality cars in order to win consumer confidence. If the company gains substantial market share, it can then choose to gradually raise the car prices. The effect of raising prices will not affect the company’s sales because consumers will have known the product’s good qualities. For Volvo to prosper, it needs to make proper placement of its automobiles. Proper placement involves making the cars available to customers at very convenient places. It is known that customers always buy products that are easily accessible than those in difficult-to-reach areas. Volvo, therefore, needs to arrange ways with its marketers on how customers can access its products conveniently. The success of Volvo can also occur if it treats marketing of its products as an investment. Volvo needs to know itself, its customers, and what its customers want. Marketing as an investment entails pursuing consistent business strategies. It also involves the hiring of qualified marketers. Hiring qualified marketing staff will enable Volvo reach its customers with the right message. The customers will be aware of Volvo’s products, their quality and prices. Volvo needs to become a marketing company itself. A marketing company is a firm in which all levels stick to uniform methods of finding clients. If Volvo becomes a marketing organization, its entire staff will understand the value of the company’s products. The team will also appreciate the support from customers. In so doing, the team will market Volvo’s products. Volvo should give itself a competitive advantage over rival companies. Every company faces competition from other companies. Any business will always face competition. Competitive advantage is the process of identifying competitors and documenting what each competitor does Volvo should, therefore, know its competitors and what each competitor brings to the market. Competitive advantage can also be achieved by creating unique brands in the market. Volvo can create its competitive advantage by making sophisticated automobiles. The move will differentiate Volvo’s products from those of its rivals. Volvo can also create its competitive advantage through its distribution channels (Akkaya, n.d). Volvo should create a perceived value of its cars. The company can do this by making high quality cars that consumers can identify by the brand names. Volvo will benefit from this move because consumers will trust its products more than those of its rivals. Volvo will, therefore, maintain its customer loyalty. Volvo should identify the strategies of its rivals. In so doing, Volvo will learn about the market trends. Knowledge of business trends will allow Volvo choose the most appropriate current and future investments. External opportunities that Volvo should seize Volvo needs to establish itself in emerging markets, particularly countries in Asia, Africa, and South America. Volvo should focus on places that its main rivals are yet to enter. The emerging economies will create new markets that will eventually become reliable in the future. Volvo needs to enter those new markets using price penetration tactics. Price penetration will allow Volvo establish strong bases in the emerging economies. The company will then gain the largest market share (Akkaya, n.d). Volvo can also seize the opportunity of expanding its distribution networks worldwide. The move will make Volvo’s cars readily available to consumers who would have otherwise bought from other companies. In order to achieve this, Volvo can make partnerships with distributors in different parts of the world. Volvo can also open new outlets in different regions that it has never entered before. Volvo can decentralize its manufacturing processes by opening new plants in other where the cost of production is low. The move will increase its market penetration and also reduce its operational costs. The reduction in operational costs will make Volvo sell its cars cheaply in the market. Selling cars at cheaper prices will be Volvo’s added advantage over its rivals. Consumers in some regions will know the existence of Volvo, what it makes, and how much it sells its cars. External threats that Volvo should counter Volvo should watch on its main competitors and new players in the business. The main reason for watching on competitors is to minimize miscalculated market trends and investments. The competitors may invent and introduce new products to the market. The New products may make Volvo lose a substantial share of the market. Volvo faces a major hurdle if it continues to focus on safety in its products. It ignores other important aspects such as styling and fuel efficiency while other companies are capitalizing on them to increase their sales.The low restrictions regarding importation and trading will make the competition for markets intense as Japanese and Asian companies seek markets in the country. Volvo’s main aspect will be outdated as almost all car manufacturers integrate safety conditions in their products. Safety will, therefore, not give Volvo any advantage over other companies (Wheelen & Hunger 2010). V Reference List Akkaya, F.M. (n.d). Global Marketing Strategies, N.p. Retrieved May 6, 2014 from http://www.ekonomi.gov.tr/upload/bf09ae98-d8d3-8566-4520b0d124e5614d/fatih_akkaya.pdf Etzel, M. J., Walker, B. J., & Stanton, W. J. 2007. Marketing (14th ed.), McGraw- Hill/Irwin,Boston. Henson, A. 2009, Albanias business environment, GMB, London. TLFeBOOK, (n.d), Marketing, Strategy, and Competitive Analysis. N.p, Retrieved May 6, 2014 from http://www.abahe.co.uk/business-administration/Marketing-Strategy-and-Competitive-Analysis.pdf Wheelen, T. L., & Hunger, J. D. (2010). Strategic management and business policy: achieving sustainability (12th ed.), Prentice Hall, Upper Saddle River, N.J. Read More