The Future of the European Car Industry - Case Study Example

The Future of the European Car Industry Table of Contents Aim 3 PEST Analysis of European Car Sector 5 Impact Uncertainty Model 8 Developing Scenarios 11 Analysis of an Organisational Impact 16 Conclusion 18 Bibliography 21 Aim European car sector is struggling for strategiging new policies and technology in order to sustain in the market. In this paper, through PEST analysis different political, social and technological problems are identified and scenario is developed for further in - depth analysis of its effect on car industry. The paper is aimed to provide effective solutions through deep analysis of future possibilities and lead to effective decision making process of both management as well as governments. Sector Overview The trends suggest that the European car sector is picking up new car sales from June, 2009 after the adverse effects of recession and global slowdown. Stimulations in car market have been the result of strategies adopted by European automobile industries Global crisis has resulted in 0.8% decline in the share of transport infrastructure on GDP in Western Europe in 2008. But Eastern and Central Europe had shown no sign of decline in 2008 (European Local Transport Information Service, 2010). European car market is experiencing slow growth in past years but yet it came up with new innovative and improved products which helped in increasing the life span of all car parts. Presently, European aftermarket parts have became the standard parts in new cars worldwide (Market Research Europe, 1997). In Europe, the segment of car wash is also a major contributor towards European car sector and economy too. In 2009, it has contributed € 4,423 million to the car sector (Companies and Market, 2010). PEST Analysis of European Car Sector The PEST analysis consists of the following factors: Political Issues: In 2007, when the German car market declined by 9.2% and positive growth in countries like Italy, France and United Kingdom could not balance the decline, European governments released incentive programs which boosted Italian and Spanish markets. This incentive program has reduced the decline rate to -13.8% (Bekker, 2008). Europe charge tax on fuel and Carbon dioxide emissions. Tax on Carbon dioxide helps in reducing carbon footprint from Europe (Dings, 2007). It has also stimulated credit facilities to encourage consumers to purchase green technology. Past scenario has shown that political factors are the main obstacle in the European car market’s success. European car market is not totally supported by policies in many of the areas. For future of manufacturing in Europe, it is dependable on modality of policy making including issues related to development of geo-political environment, coordination rate between policies in different areas from manufacturing to sales and distribution and maintaining a balance between different Europe subsidiaries and central decision making body. Environmental Issues: European car market is facing many environment burdens related to process and products in its manufacturing. It has been analysed that this can lead to public scrutiny in the coming future. European governments and industries have taken steps to balance situation in between environment and manufacturing process. For this, they are implementing more stringent rules and policies. Change in customers’ preference towards more economical and environment friendly products has also influenced European car sector to research and innovate more environment and customer suitable products. Other major economical issue that European car sector is facing is that of the pricing. Europe has different price structures in different countries. In today’s era, European governance system is in a process of strategising new policies for distributing power and policies between regional, national and international level for coming 20 years. These policies will affect trade, competition, industry, security, consumer protection, and security regulation in Europe. Social Issues: Socially, European manufacturing industry is going to face issues related to workforce mobility and skilled labour availability in the coming future. It also has to deal with the changing demand and needs of customer in culturally diversified Europe and for the global customers. European car industry also faced issues regarding ethical implication of science and technology. Public issues like on acceptance of nuclear power for controlling carbon dioxide emission on cars was a serious concern for European car manufacturers. Sociologically, it is also facing problem related to liberalization that will have a competitive effect on exclusive distribution system. Also in many of the target countries of European car markets, consumers are socially and culturally bounded towards purchase of vehicles. Technological Issue: European governments are highly focused on innovations and competitiveness of industry and its capability to perform efficiently. It also invests huge sum on strengthening regional and local research and development system for more advanced innovations (Scapolo, 2003). Technologically, Europe has developed many products like hydrogen powered cars. Europe apart from China is a leader in providing Green Economy Development Model. Car industry in Europe is investing heavily on green technology and fuel so that it can reduce its energy consumption and also carbon footprint. They are working on the field in order to provide nanotechnology, engines which are fuel efficient, new green fuels, and trying to integrate all these facilities into one product (Organization for Economic Co-operation and Development, 2009). Impact / Uncertainty Model Most significant drivers for future developments of European car sector are the governmental policies that are adopted for future growth of industry, like that of liberalization, pricing, scarcity of workforce in future and green products and fuel. Drivers Impact Uncertainty Justification New Policies from Governments National and international trade, relationship between European can industry with different countries, balance between central policies and subsidiaries and efficient coordination between different policies from manufacturing to sales. Changing international policies, change in target counties’ policies regarding FDIs’ and export and import, global economic market fluctuations, and the internal problems of the industry. Forecasting and future strategies depend on the analysis of past database and certain relevant assumptions. Before going for any change in policies, governments will have a consideration with all other countries’ governments and World Trade Organization too. Every policies made are flexible in nature and fully analysed and tested. Liberalization Creates intra brand competition nationally and internationally resulting to elimination of double marginalization on products, competition softening effects and reduce international discrimination on scope of price on different products (Brenker & Verboven, 2006). Limitation in cross – border arbitration internationally and nationally, proposal not been accepted and followed by many countries. Liberalization is a step towards mutually exclusive business process where all counties collaborate towards low cost supply chain and ultimately to reduction in cost of final product to customers. Pricing Increase in customer dissatisfaction, difficulty in adopting centralized management policies and declination in brand goodwill and likeness. Stronger competitive group. Satisfied and understandable customer. Well managed decentralized system. Pricing can cause equality issue in customers and can also lead to customer jumping towards other competitive brands. Scarcity of Workforce No younger skilled workforce available in future. New technological inventions that will reduce the manual work load in industries. Reduced workforce is due to reduction in youth population in present and higher education level in country. Green Product and Fuel Safe environment and low cost but technologically advanced product for customers More hazardous product used for innovation of green products like nuclear power used in nanotechnology. Failure in innovation, lack of investment and financial availability, global policy against new innovations. Governments’ strategising policies towards cost reduction in present to deal with liquidity problem in future crisis and not supporting and financing green product innovation. Economical and environment friendly products for customers will reduce harmful emission from cars in future that would lead to reduction in global warming. Developing Scenarios Based on PEST analysis and Impact/Uncertainty model, four scenarios can be developed. Scenarios can be such when global market of car industry is booming, decline, closed international trade policies and open international policies. Two highest impacting drivers conducted from the PEST analysis are government’s step towards more supportive national and international policy and green products and fuel innovation. Issue 1 Global Car Industry in Boom Global Car Industry in Recession Closed International Trade Policies Open International Trade Policies Governmental steps toward supportive national and international trade policies. Increased production and financial support to car industry Government being more conservative and less supportive. Less number of treaties signed between different countries. Open global market. Increase in trade and treaties. Plausibility Strong core competencies of European car industry. Concentrating on core competencies. Adding value to existing treaties. Policies focused on long term trade relationship. Differentiat-ion Integration between government and business unit, growth and development in core competencies so that competitors cannot match the level. Government being more innovative and flexible towards policy formulation and support. Maintaining good relationship by maintaining dignity and goodwill in market. Formulating collaborative policies to face profitability in all future market conditions. Consistency Companies’ decision making effectiveness towards efficient utilization of opportunities from government and industry. Companies’ strategies towards overcoming recession effects. Keeping brand at top of consumer mind. Government finding gap in policies and formulation policies for filling those gaps. To find which area of trade and organization needs control and what will be the management style. Decision Making Utility Fluctuation in Global policies, meeting government GDP contribution expectations, increasing sales and brand position and market share, beating competition. How to strategies so that recession effect less the measured. Global pressure, pressure on foreign countries’ government and strong competition in market. Increasing competition in international market. More international brands affecting local brand sales. Challenges Issue 2 Green products and fuels. Increased demand and sales. Decline in demand. Customers moving towards cheap products. Tight international credit and trade policies. More trading opportunities. Counties open for FDI and international trading. Plausibility Company concentrating more on providing fast supply to meet demand rather than maintaining environment and economical product balance. Making green products and fuels its core competencies. High local and governmental financial support in research and development projects. Local government restricted policies. High non green product demand in market. Differentiat-ion Investment on more advanced innovations Focused in innovation and long term balanced gain. More economic and efficient innovations. Meeting demand by providing new environment friendly parts attached in it and creating awareness regarding advantages of green products. Consistency Look for short term profit or long term gain, sustainability and brand name. Management decision change customer’s preference and meet their today desire with future need. Management decision on diversifying finance into new research projects and current demand projects. How to create awareness and along with it brand image of company. Decision Making Utility New competitive products in market, customer changing demand and high rated competition. High competition for sustainability, low liquidity and decline in demand and sales. National and international trade policies. Changing consumer perception towards green product. Satisfying demand based on trend, culture and geographical diversity. Challenges Analysis of an Organisational Impact BMW is one of the renowned luxury car manufactures in Europe. Impact of 4 scenarios in BMW will be as follows: Impact on BMW Global Car Industry in Boom Global Car Industry in Recession Closed International Trade Policies Open International Trade Policies Human Resource Increased employment, promotion and salary hike. No case of employee getting pink slips. No salary reduction. Local job secured for local citizens. Job sharing. Advance, knowledgeable and skilled labour. Best Cases Scarcity of human resource in manufacturing level job. Increased unemployment. Suicide cases among employees. No sharing of international human resource. Fight for job and survival between local and international employees. Worst Cases Information Technology Infrastructure More finance and focus towards innovative development Governmental credit support for research and innovations. Full local governmental support. More idea sharing. Worldwide increased effort on environment friendly innovations. Best Cases More wastage of all resources and no result. Tight national and international credit. No credit support. No idea brainstorming globally. More sharing no results. Worst Cases Marketing Strategy Increased global brand awareness, sale and profitability. Maintaining profitability ratio. New advance, creative and effective marketing strategy formulation. Open market. Meeting demand and supply range. Best Cases Less comparative profit then industry because of high competition. Negative profit range and negative brand recognization in market. All strategies fail to sustain brand in international market. Global negative publicity due to failure in meeting demand. Worst Cases Market Share Increase Increase compared to industry performance. Increased Supernormal hike. Best Cases Decrease Decline more than industry rate of declination. Decreased Decline Worst Cases Conclusion European car manufacturing companies are facing heavy national and international competition in market. It has show a decline on sales and car registration of new cars in 2008 because of global economic slowdown. The governments are initiating new policies that can help national car manufacturers to compete with all obstacles related to international trade, competition and upcoming demand and supply mismatches. Technologically European car market is focused on innovating new environment friendly and economic products for global customers. References Bekker, J., (2008). Top Car Market in Europe in 2007. [Online] International Trade. Available From: http://internationaltrade.suite101.com/article.cfm/top_car_markets_in_europe_in_2007 [Accessed July 04, 2010]. Brenker, R. & Verboven, F., (2006). ‘Liberalizing a Distribution System: The European Car Market’. [Online] Journal of the European Economic Association. Available From: http://www.jstor.org/pss/40004956 [Accessed July 04, 2010]. Companies and Market, (2010). 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Market Research Europe, (1997). ‘European Markets: Car Aftermarket’. [Online] Euro Monitor Publication Ltd. Available From: http://www.faqs.org/abstracts/Business-international/European-markets-car-aftermarket-The-German-car-aftermarket.html [Accessed July 04, 2010]. Organization of Economic Co-operation and Development, (2009). ‘Responding to the Economic Crisis: Fostering Industrial Restructuring and Renewal’. [Online] Responding to the Economic Crisis. Available From: http://www.oecd.org/dataoecd/58/35/43387209.pdf [Accessed July 04, 2010]. Subramanian, N., (1999). Segmentation and Strategic Groups. [Online] The European Automotive Industry. Available From: http://cometonada.tripod.com/segmentation.htm [Accessed July 04, 2010]. Scarpolo, F., (2003). The Future of Manufacturing in Europe 2015-2020. [Online] The Challenge for Sustainability. European Commission Joint Research Centre. Available From: http://foresight.jrc.ec.europa.eu/documents/eur20705en.pdf [Accessed July 04, 2010]. Tyre Press, (2010). Western Europe Small Passenger Car Registration Share Rises in 2009. [Online] Market Data. Available From: http://www.tyrepress.com/News/market-data/18727.html [Accessed July 04, 2010]. Bibliography Mercer, P. A. and Smith, G., (1993). Private View Data in the UK. (2nd Ed). London: Longman. Read More