European Car Industry - Case Study Example

Table of Contents Serial Particulars Page # 1. Introduction 2 2. Company’s Performance 3 3. Financial Results of the Company 3 4. Non-Financial results of the Company 7 5. Present Scenario of the European car market 7 6. Critical reflection on teachings 8 7. Team Performance: critical evaluation of performance of team 13 8. Conclusion 16 9. Appendices 20 Business Simulation Exercise European Car Industry Word Count – 4000 words Introduction: The current European Motor Industry has been chosen for the study. It is the biggest car market in the world. Even though it is the top most industry in the world, the current recession has affected it overall performance. Performance needs to improve very dramatically. The European motor industry is highly competitive and it is very difficult for a new marketer to enter it. The target segment selected is mainly divided into two sectors such as age of the customer and the size of the car. The customers between the age group of 25-40 prefer medium sized cars and the customers under 25 prefer City size cars. The two models that were introduced to meet the current market trends were A-Star and Plush. The model was designed in such a way that the 3 door hatchbacks and small engines were attached to the City cars and this attracted a large number of target segments belonging to the age group of 25. The medium sized cars are designed as a 4 door saloon and large engines with 6 to 8 cylinders in it. The objective to design such models is to ensure safety both externally and internally to the car. As new entrants to the market the models produced by the company will priced at a lower rate and this was found to be the best idea to explore the market. When the price of the car decreases the demand also increase. 16,032 units of city sized cars will be produced and 18,525 units of medium size cars will be produced. The forecasting done on the production, sales post tax profit and bank balance for the first round has been depicted in the table and is shown as appendices. Company’s Performance It is first proposed to consider budgeted figures for European Car Manufacturing Co. Particulars A-Star Plush Total 1.Production 16,032 units 18,525 units 34,557 units 2. Selling Price £12,169.15 £16,909.69 3.Net selling price £195,095,812 £313,252,007 £508,347,819 (Managing for sustainable competitive advantage: Business simulation exercise). Financials results of company: Pricing of the vehicles The movement of pricing, vis-à-vis the budgeted pricing, is being considered next. It is seen that the budgeted pricing for A-Star was £12,169.15 while that Plush was £16,909.69. However over the next three periods, there have been fluctuations in the price movements as envisaged in Table 1 shown in Appendix. Thus over the period there has been an average of 6% increase in prices of A-Star and around 2% in that of Plush. These could be attributed to increases in material prices and labour which shall be taken up shortly. This could also be due to competitors increasing prices which have impacted on this business also. Forecast and Results: Production figures have been estimated at 1% of the 11.25 market share. The total market share and not the market shares as per individual age groups have been taken into account, primarily because city cars are preferred by all age groups and not restricted to any one age group. Round 1: Estimated Sales: This has been estimated by multiplying forecasted production with selling prices per unit; The Depreciation factor has not been considered, since for the first year, it is not necessary to consider cost of manufacturing fixed assets from selling prices. Bank Balance: The Company’s financial strength is indicated by its bank balance. However, in this case it needs to be seen that bank balance needs to improve. Unsold stock: The question of any unsold stocks does not arise since all cars that were manufactured were sold out during the year. Gross Margin: No account of inflation has been considered during the first year of operations. Market Share: We have under produced the cars, when compared to other competitors, thus leading to lower market share. Round 2: Estimated Sales: 83% of A-Star‘s Production and 100% Plush’s production has been fully sold out. Bank Balance: Excess of expenditure over incomes has resulted in negative bank balance. Adverse cash balance has necessitated infusion of fresh doze of bank loan. Unsold stock: There were unsold stocks of A-Star forming around 17% of production. It is hoped this would be sold during the next Round Gross Margin: Has been pegged at 21% Market Share: Market share needs to be improved by gaining better inroads into markets and increasing visibility and sale of cars. It could be through advertising campaigns. Forecast and Results 3: Pricing : We added two new options to care. This is to match options provided by competitors who were doing better business with these add-ons .There have been price increases in finished goods, since, due to the impact of inflation, wage bill has increased from £425 to £430. Production : Since there were aspects of unsold stocks, productions of cars were reduced this year although the numbers of workers were the same and the output was the same. However there was greater production. Gross Margins: Similar to that of Year 2 Unsold stocks: Since our prices were relatively higher than that of our competitors, there were unsold stocks. Market share: All cars produced could not be sold because of high pricing. This also resulted in lower market share. Thus, selling prices needed to be brought at par with that of competitors. Sales: We increased the production, and since we produced more, we were able to sell more and gain better sales figures. Post Tax Profits: While production forecasts were lower than actual, the factory producton had not changed. Thus, more production of cars led to more materials and labour costs. Opening stocks were however not considered while calculating post tax profits. We sold lesser number of cars although we produced more, resulting in stocks, and also higher material costs. Results of Round 4: Sales: We redesigned the car options in order to remain in market- and reduced the selling prices of cars. This resulted in increase in the gross margins and medium size cars had a good market. Production: Factory output was at 60% Gross Margins: Similar to Round 3 Unsold Stocks: Competitors have better brand image, better market share and improved popularity Market Share: Similar to Round 3 Post Tax Profits: Error in calculating interest rates in current account and interest on loans. Summary of Financial Results : From a examination of Table 4 appendixed at the end of this study, it is evident that all is not going too smoothly for this auto making company. For one thing, its margins have been decreasing and even the Post Tax Profits are showing losses at the end of Round 4. This is all the more intriguing when one considers that there has been consistent increase in production over the Rounds. Thus, the most sensible thing for the company to do at this stage is to reduce production rationally and concentrate on producing only such products that are money spinners and could earn handsome profits for the company in latter years. There is no use of increasing inventory and carrying costs by producing cars that do not have a ready market, or in expectations of revenues that may not occur. Coming to market share, it may be seen that some aspects of this ratio are market driven and may not be controllable by the company. However, it is necessary that Sound Marketing Strategies need to be made that could address aspects of a sagging bottom line and reducing market share in competitive auto making markets. Non-financial results: Coming to the non-financial aspects, it is evidenced that the number of work force has increased from the initial 391 for A-Star and 475 for Plush, total of 866 employees according to the budgeted estimates. However the strength of the work force in the subsequent rounds is as shown in Table 2 in Appendix From the above, it is quite evident that there has been an excess use of work force as compared to the budgetary figures. Coming to capacity utilization while in the First and Second Round, there has been 100% capacity utilization, during the third round, it is just 65% of total. Regarding promotional activity expenses, it is evidenced that while the budgetary figure of £60M have been maintained in the First and Second round, in the Third round this has increased to £80M, an increase of £20M. Present scenario in the car manufacturing scenario in Europe: It is also seen that, economic recession has severely affected the European car industry and therefore a clearer picture could only emerge if and when the recession fades away and the business economies are realised perhaps after 2010 or so. “Over the past five years, there has been a slowdown in economic output across the EU. Weak growth has led to reduced consumer and business confidence. Industrial production, including the production of durable consumer goods, has declined. This has impacted severely on the car industry, given the car’s status as the ultimate consumer and fashion item, as well as the importance of engineering and design in the manufacturing process. Average profit margins have declined from around 10% in the 1960s to less than 5% today, and some volume car makers are actually losing money.” (EMCC Dossier on the European Automotive Industry, 2004). A business study of this kind needs to also consider economic and non-economic factors like rate of inflation, GDP, industry growth, taxation, availability of spares, etc. in order to be viable and competitive in global car markets. Segmentation and business opportunities in developing countries also needs to be seen as also the need for exploring exports in high growth areas. The non-economic factors like customer trends and preferences, road conditions and liking for the product are also major issues, especially when automakers are vying each other not only in technical competence but also in market sharing and target realization. Under such circumstances, costs, pricing, attitudes and selling stratagems all play crucial roles in determining the business opportunities and its future impact on business, especially in changing and volatile markets. The need for business projections and target setting in areas of production, sales, finance and human relations are crucial in the highly competitive auto making industry. 6. Critical reflection on teachings: The teaching and the analyzing are interrelated they both find the guidance as the useful tool in the analysis and in the final conclusion. The learning can be successful only when the different traits and the complexities are understood properly by the guide and the knowledge can be proven beyond the boundaries. The critical reflection has the major role on the education and it is its major objective. The model of the critical reflection is shown which was put forward by meziro, for the explaining of the critical behaviour exhibited in Table 3 in Appendix The reflection is the analyzing or the forecasting of the future period by the decision making approach with the complicated and the interrelated schema. Learning as an important tool: The learning can be considered as an important tool for the analysis of the different departments in the business game and the various functions of the same. To analyze the proper functioning of the different departments are vital to know whether the business game is a success in the different trait and whether the departments suits the requirement. HR Department: The HR department is the one which deals with the people as the asset of the organization, the people related activities and the contribution by the people to the organization. It is the strategic approach to the goal settings and the functions of the management. In the study of the department is considered the strength of the employees were considered to be less than 1000, during the start up but by the growth of the company and by the innovation the strength of the employees has reached upto 4000.The study of the departments are considered by the employees turnover and the capacity of the production output by the employees in the organization. The loan facility that are acquired for the different operations and for the benefit of the employee. “Professionalism of the Human Resource (HR) department is implied to be twofold implications. A professional HR practitioner has a collective professional role to play to enhance the HR occupation.” (HR Department Professionalism: A Comparison Between the UK and Other European Countries, 2005). Operations Department: The operations department consists of the operations performed in the car industry, the operation starts from the purchase of the raw materials to the process and to the finished goods to the dispatching of the product is the duty of the operations department that has to be monitored. The different operation technique like the JIT and the six sigma process are done in for the efficiency of the operation department for the competitive advantage. “Focused research studies that advance the theory and practice of operations management. OMR is a rigorous, double-blind peer-reviewed journal that is oriented toward fast reviews and publication of high-quality research that makes a clear contribution to the science and practice of operations management in today’s global institutions.” (Meredith and McMullen, n.d). Marketing department: The marketing department consists of the marketing of the manufactured cars to the customers with good promotion techniques and tactics like the offers to find the increased sales and the revenue. The main idea is to promote the product to the customer but the proper market analysis and the research has to be conducted to make the product a success.The qualitative and the quantitative research are to be conducted to have a thorough analysis for the same for finding out the demand for the product and the forecast about the market. “Statistics provide traders with the detailed information needed to make focused decisions; only a complete market analysis can provide the story behind the numbers.” (Market Analysis, 2010). Financial department: The financial department consists of the analysis of the financial data and the analysis of the cash flow and the fund flow of the company as the whole, the accounts personnel are to be hired as the financial controller where they have the ultimate control for the finance and the different kind of the financial aspects.The different pricing mechanism to be treated as the payback period to be made short and analysing of the different pricing ratios to be done,The fixed assets should be increased and the company turn over should be increased. The different tools are used for the analysis of the finance aspects. The commonly used ratios are the “instant financial analysis, accounting ratios, and financial statement analysis tools, with industry ratios tools and accounting ratios.” (My Business Analyst (MBA), 2010). If the game was played once more the performance can be improvised to much extend because the first game can lack the experience and the usage of the certain tools can be used more.The safety aspects can be considered more and the competitor analysis are to be done,The car industry can also go for the hybrid variety of cars in the industry as they are the common variety in demand ,the company also go for the variety of the alternative propulsion vehicle and electric vehicle which can add on the variety to the category of the brand. The completeness in the collection and the analysis may also have some of the inadequacy as a result of the lack of experience in the field. Business game is the practical tool to practice and understand business and its challenges, threats and opportunities. Business games help to identify oneself as the core part of the business and managing the situations. “Regardless of the size of business you are in – whether a large corporation, a small company, or even a home-based business – effective communication skills are essential for success.” (Improve your Communication Skills, 2010). The communication is very important in a business; It is the effectiveness in the company which contribute for the overall growth and the prospectus of the company and the smooth functioning of the different departments in the organization irrespective of the functions in the departments, “The World of Business Communication: Every business’s aim is to gain profits. Whatever be the type of business you are in; the bottom line is that you must earn something from it.” (The world of Business Communication, 2010). It is through the communication that the operations are handled effectively and efficiently. The business game is usually to improve the performance and to boost up the skills of selling, marketing and the operations. “There's a lot of confusion about team building event days. Often it is seen as an exercise to boost morale, to help workers bond better, and as a fun day out at the company's expense.” (Rose, 2010). The additions for the improvement in the company are the guidance at the each of the steps for the avoiding of the mistakes and the error correction at the each level. The reference to the previous business game which are a success, Each step of the activities should be conducted in a team. The open discussion should be conducted in order to have various opinions regarding the business and the management and the brainstorming ideas from the team mates. It involves the activities to be conducted and the “Free team building activities, exercises and ideas are for building teams and teamwork, corporate employee motivation, personal development, ice-breakers, energizers, and more serious learning and personal development.” (Chapman, 2010). (References:The all round 1 and 3 and the graphs for the understanding of the company’s performance). 7. Team Performance: A critical evaluation of the performance of the team For every organization there will be a set of team responsible for particular activities within the organization. Team represents a set of people working together towards accomplishing a set of predetermined goals and objectives. “Effective, productive teams of all types have a positive impact on bottom line results and organizational success.” (Cornelius, 2006, p.1) The important works were allocated to these four members. These team members were Yi Jiang, Adnan Hasan, Shanu Jain and Fawaz Khalid Ansari. All these members have performed in such a way that this enabled the organization to achieve it goals. They altogether took the decisions related to the various operational areas. The functions allocated to each member and their roles being in a team are explained as follows; Yi Jiang was responsible for look after the marketing department. His duty was to design the marketing research programs and to give instructions and appropriate guidance to his team members. He used to prepare slides for presentation in the team. After conducting marketing research he decides the promotion strategy that has to be implemented for their product to become successful in the market. He was having a clear idea about the European market conditions and based on those ideas he gave appropriate suggestions related to the production quantity and the percentage of market share that has to be captured by the company. He was the person who gave the idea to produce city and medium sized cars. He helped me in the operations department by deciding the quantity of products that has to be produced by the company. The company was having huge stock that was not sold in both the second and the third round. This was a great problem for the company. For solving this problem he provided an excellent idea to redesign the car. This was decided in the fourth round and the result was outstanding. Adnan Hasan was responsible to manage the finance department. He was responsible to handle all the financial operations of the company in all departments specifically the accounts department. Deciding the finance required for each activity is not an easy task and he was much capable person to give all financial instructions to the company. He has helped the operations department by stating the quantity to be produced by the firm and also provided the accurate number of human resources required for the operations department. Shanu Jain was responsible to look after the human resource department within the organization. She is a person who is very talented and highly committed towards the work. She was responsible to conduct the meetings within the organization. She prepared the agenda and the minutes of the meeting conducted between the team members from all the departments. Inorder to smoothen the team work a team charter was created by Shanu Jain Date Attendance Discussion 17-11-2009 100% Decision related to market segment and selected the design and options. 18-11-2009 100% Decision related to pricing of cars. 20-11-2009 100% Estimating the production units and sales value. 22-11-2009 100% Forecasting the profit and the cash flow and designing decision form. NX0441 Managing for Sustainable Competitive Advantage In the second round she found that the productivity of the employees has been reduced and for solving that problem she suggested to increase the wages of the worker. This resulted in an increase in the productivity among the employees and it was found in the following rounds.. The last key member is Fawaz Khalid Ansari and that is me. I was the team leader for the operation department and i was responsible to handle the operations department within the organization since I am a mechanical engineering graduate. I took the decisions related to the quantity of output to be produced by the company. I gave my complete effort to give my best to the team and thereby to the organization. With my available knowledge about the cars and the latest trends in the European market I helped the marketing department to understand the consumer behaviour with respect to the car market. I also helped my team, members to create excellent designs for the cars. I suggested an idea to purchase a single factory and give the maximum from it. As a key team member in the organization I took the decision to produce less at the first stage and this was a great help for the firm, because till round 2 the company was having many stocks that were not sold. All the activities that have to be performed by each team members are prepared in a chart and it is termed as team charter. Every team will have a particular charter and it will be in a written format. “The charter typically includes a statement of mission, objectives or statement of work; background; authority, boundary conditions (scope, constraints, resources, and schedule); membership; high-level requirements or specifications, and interface responsibilities.” (Project Management Training and Resources: Team Charter, 2009). I realised that the team work increases the level of motivation. “This encourages members to work hard for the benefit of the team – and the team is motivated because its members get their emotional and intellectual needs met by the team.” (Working in Teams, 2010). The most important benefit for all the team members is that they will realise the value of a group work. “In a teamwork environment, people understand and believe that thinking, planning, decisions and actions are better when done cooperatively. People recognize, and even assimilate, the belief that “none of us is as good as all of us.” (Heathfield, 2010). All the decisions that are taken with respect to each department within the organization have its own significance in achieving the target of the organization. 7. Conclusion: This is a business management game where the team members are asked to select and start a business and they have to sell the product. Various discussions have been held at different levels. It was able to learn a lot of things from this work. The participation of the team members towards a common goal was the major attraction of this game. From this game it was also able to understand how a team is working towards the predetermined goal for achieving the organizational goal. The important objective of the team members was to increase the value of the shareholder. For accomplishing this objective the team has listed out various steps that have to be followed. There is a team leader who is responsible to guide all the performance that is performed by the other active team members. Reference List Brannick, M.T., Salas, E. and Prince, C. eds. (1997) ‘Team performance assessment and measurement: theory, methods and applications’. Mahwah, NJ: Lawrence Erlbaum Associates. [Online] Available at: http://www.questia.com/PM.qst?a=o&d=28163881 (Accessed 09/01/10) Chapman, A. (2010) ‘Free Team Building Games’. Business Balls.com. [Online] Available at: http://www.businessballs.com/teambuildinggames.htm (Accessed 09/01/10) Cornelius, E.T. (2006) ‘How a leadership team should operate’. Collegiate Project Services: A Cornelius & Associates Company. [Online] Available at: http://www.collegiateproject.com/articles/How%20a%20Leadership%20Team%20Should%20Operate.pdf (Accessed 09/01/10) Critical reflection (2009) Learning. [Online] Available at: http://www.learningandteaching.info/learning/critical1.htm (Accessed 09/01/10) EMCC dossier on the European automotive industry (2004) EMCC. [Online] Available at: http://www.eurofound.europa.eu/emcc/content/source/eu04017a.htm (Accessed 09/01/10) Heathfield, S.M. (2010). ‘How to Build a Teamwork Culture’. About.com: Human Resources. [Online] Available at: http://humanresources.about.com/od/involvementteams/a/team_culture.htm (Accessed 09/01/10) ‘HR department professionalism: A comparison between the UK and other European countries’ (2005). International Journal of Human Resource Management. Routledge [Online] Available at: http://www.faqs.org/abstracts/Human-resources-and-labor-relations/HR-department-professionalism-a-comparison-between-the-UK-and-other-European-countries.html (Accessed 09/01/10) Improve your communication skills (2010) Mind Tools: Essential Skills for an Excellent Career. [Online] Available at: http://www.mindtools.com/page8.html (Accessed 09/01/10) Managing for sustainable competitive advantage: Business simulation exercise. Market analysis (2010) TOBOC: Global B2B Marketplace. [Online] Available at: http://www.toboc.com/TradeResource/Market-Analysis.aspx (Accessed 09/01/10) McCann, D. and Aldersea, R. (1997) ‘Managing team performance: unrealistic vision or attainable reality?’. Team Management Systems, Worldwide. [Online] Available at: http://www.tms.com.au/tms12-1i.html (Accessed 09/01/10) Meredith, J.R. and McMullen, P.R. (n.d.) ‘Operations management research’. Springer. [Online] Available at: http://www.springer.com/business/production/journal/12063 (Accessed 09/01/10) My business analyst (MBA) (2010). Venture Line. [Online] Available at: http://www.ventureline.com/ (Accessed 09/01/10) Project management training and resources: team charter (2009). Vsitask-Team Charter. [Online] Available at: http://www.visitask.com/team-charter-g.asp (Accessed 09/01/10) Project management training and resources: team management (2009) Visitask: Team management. [Online] Available at: http://www.visitask.com/team-management-g.asp (Accessed 09/01/10) Rose, C.J. (2010) ‘How team building games improve business effectiveness’. Ezine Articles. [Online] Available at: http://ezinearticles.com/?How-Team-Building-Games-Improve-Business-Effectiveness&id=2188454 (Accessed 09/01/10) Team performance assessment: overview: what is it? (2008). [Online] Available at: http://thequalityportal.com/mix/q_assess.htm (Accessed 09/01/10) The world of business communication (2010). Exforsys Inc: Execution for System. [Online] Available at: http://www.exforsys.com/career-center/business-communication.html (Accessed 09/01/10) What is a team?: Definition (2007). PennState, Building Blocks for Teams. [Online] Available at: http://tlt.its.psu.edu/suggestions/teams/about/definition.html (Accessed 09/01/10) Working in Teams (2010) The Institution of Engineering and Technology. [Online] Available at: http://www.theiet.org/students/resources/final-year-project/team-working.cfm [Accessed 9 January 2010]. APPENDICES TABLE 1 Pricing Particulars A- Star (£) Plush (£) Budgeted pricing 12, 169.15 16,909.69 1st Round 12,480.00 (+) 310.85 +3% 16,440.00 (-) 469.69 -12.77% 2nd Round 13,490.00 (+)1,320.85 +11% 17,140.00 (+) 230.31 (+)1.36 3rd Round 12,500.00 (+) 330.85 (+) 2.71 17,400.00 (+) 490.31 (+)2.89 Table 2: HR work force Budget figure Actual wk force Excess wk force Round one £ Round two £ Round three £ astar Plush Total Astar Plush Total astar Plush Total 391 1459 475 1608 866 3067 391 1459 475 1608 866 3067 391 400 475 2667 866 3067 1068 1133 2201 1068 1133 2201 9 2192 2201 Table 3 (Critical Reflection, 2009). Table 4 showing Production and Sales forecasts Round 4 A-STAR PLUSH Result 1 Result 2 Result 3 Forecast 4 Result 4 Result 2 Result 3 Forecast 4 Result 4 Prices 12,134 12,480 13,490 12,500 12,500 16,450 17,140 17,400 17,400 Production 15,535 45,667 58,812 10,400 10,511 47,876 61,656 65,875 66,668 gross margin 25.80% 21.49% 25.35% 24% 15.10% 21.36% 21.83% 24% 15.61% Unsold stock 0 7,843 47,651 0 4,053 0 0 0 0 0 Market share 0.29% 0.67% 0.36% 1.6% 1.17% % 0.79% 1.08% 1.5% 1.29% Total Sales 471.64 1,259.60 1,313.15 1,871.86 1,836.39 post-tax profit (£m) -86.73 19.52 23.00 50.02 -56.24 Total A-STAR Result 1 Result 2 Result 3 Result 4 Production 15,535 45,667 58,812 10,511 Unsold stock 0 7,843 47,651 4,053 Production 17,952 47,876 61,656 66,668 Unsold stock 0 0 0 0 Result 1 Result 2 Result 3 Result 4 Prices 15,772 16,450 17,140 17,400 Result 1 Result 2 Result 3 Result 4 gross margin 20.27% 21.36% 21.83% 15.61% Result 1 Result 2 Result 3 Result 4 Market share 0.30% 0.79% 1.08% 1.29% Result 1 Result 2 Result 3 Result 4 post-tax profit (£m) -86.73 19.52 23.00 -56.24 Forecast and Result in round 4 Round 4 A-STAR Forecast 4 Result 4 Production 10,400 10,511 Unsold stock 0 4,053 A-STAR Forecast 4 Result 4 Prices 12,500 12,500 A-STAR Forecast 4 Result 4 gross margin 24% 15.10% A-STAR Forecast 4 Result 4 Market share 1.6% 1.17% Total Forecast 4 Result 4 post-tax profit (£m) 50.02 -56.24 Read More