International Business and Global Change: Electric Powered Cars - Case Study Example

International Business and Global Change Select A Consumer Good Or Service There has been international tussles, wars between one country and the other, the formation of groups against groups, and unfortunately, the death that comes with such atrocities, all in the name of oil. As America marks over one year of loss from the Mexican oil spill by the BP company, we come with the solution to all these problems; the electric vehicle. Fuel consumption in the world is the largest consumers of the oil products, constituting over 80% of the oil/ fuel consumed each day (Acemoglu et al. 2006); thus such a large demand for fuel. For instance, United States of America consumes 20, 700, 000 barrels of oil per day (bbl/day), and in total of over 213 countries counts to 86, 000, 000 bbl/day, a weighted average of 400,000 bbl/day. This notwithstanding, the automobile fuel/gasoline price has continuously been escalating, leaving the consumers with no option rather than pushed to the walls to reach fuel their cars. This just indicates the aggregate dependence of automobile fuel both to drive the economy and worth defending or going for at all costs (Aghion et al. 2005 p. 716). We are, therefore, pleased to announce the best alternative for our problem, the use of electric vehicles in our market. An electric vehicle works on the concept of the use of electricity (electric charge), by which, the battery in the vehicle is plugged in before use, with the electric charge which will be used to drive the automobile. The electric charge injected in the battery will depend on the capacity of the batteries in terms of charge and voltage. The charges will dictate the distance travelled. However, on average, a normal electric car is designed to take over five hundred hours when fully charged. In an attempt to bring down the consumers’ large budget on fuel, and the problems associated with the fluctuations in automobile fuels, Ecomotion is committed to see to it that it gives its customers the noble opportunity of using the electric vehicle at an affordable price. Ecomotion is also aware of the extensive diversity of its customers, and will offer both pure electric vehicle and the hybrid electric vehicles to the market (can use both fuel and electricity). BRIEFLY DESCRIBE THE CURRENT DOMESTIC AND INTERNATIONAL MARKETS FOR YOUR PRODUCT Currently in the UK car market, figures taken from the Society of Motor Manufacturers and Traders showed 110,179 cars produced in Jan 2011. This is an increase of 9% from the previous year Jan 2010. In 2010, there were 31,035,791 cars on the road in the UK which consisted of Diesel, Petrol and LPG. Six million existing car owners will see the cost of their road tax rise in 2011. Due to this, we have seen a shift with people thinking more about the kind of car they would purchase. The challenge is to make cars greener and cheaper to run (Gordon-Bloomfield 2010). An electric car is a plug in battery-powered car, which is propelled by electric motors. Electric cars have the potential of significantly reducing city pollution by having zero tail pipe emissions. Hybrid and electric cars has have been popular links in the international markets to present levels, they are particularly bought by consumers of older ages, more educated and endowed with quite satisfactory incomes than the average low earning consumer (Gordon-Bloomfield 2010). Nissan Leaf is the world’s first mass market car to be produced. It costs nearly £10,000 more than its equivalent petrol and diesel rivals. From Nissan sources, they defend the fact that most of their products are widely utilized, for example, on average, 2011 Nissan leaf owner was aged 45 years, being a young Baby Boomer. An average leaf owner, lucky to have at least college level, and whose income is about $125,000 per annum, hence, able to comfortably afford to drive over 50 miles a day, will own a garage in compound for the leaf charger (Dinopoulos & Segerstrom, 1999). In a recent study conducted by IBM’s (International Business Machines), Institute for Business Value (IBV) was interviewed together with the two company executives and customers in the united states of America, to identify the current views with regard to electric vehicles. IBV went ahead to interview consumers of fueled vehicles of their undeterred buying of gasoline even when prices have escalated (Gordon-Bloomfield 2010). Thus, IBV came to the conclusion that the elevated fuel prices and sustainability concerns were the major contributing factors of pushing customers to the new innovated electric cars. The imminent approaches from the IBM’s Institute for Business Value (IBV), are gotten from a recent survey of 1,700 US car owners. The car owners, interviews with the 123 automobile industry market for Electric Vehicles study supports the ideas that in these present days, a large number of the market will opt for the Electric Vehicle (Basu 1996). Over nineteen percent of car owners interviewed there for the idea that they were on the higher side ‘vey likely or likely to consider buying an pure electric vehicle as they went shopping for a new vehicle (Armonk 2011). This is evidenced, on the 42 percent of car owners being familiar with a little knowledge about the electric vehicle, thus giving the view that automakers should take up the pool of potential customers with sustained educational campaign (Armonk 2011). On the other hand 30% of car owners interviewed suggested that they would think of switching to the electric vehicle that goes for about 100 miles per charge. Presently the electric vehicles account for approximately 50-100 miles per charge. Forty percent of the car owners are likely to pay for over 20% for an electric only vehicle in constrast for a similar diesel or hybrid-powered vehicle. Customers were interviewed on what would give them more energy or increase their tendency to switch from a gasoline run vehicle to a hybrid of an electric vehicle. A similar question was posed to the automobile executives who came with their responses of as summarized in the table below: It therefore points out that automobile industry executives of IBM response for this interviews posed a much greater tendency than consumers on government regulations (74 percent to 40 percent) and more fundamentally higher gasoline prices (75 percent to 50 percent). The automobile executives went ahead to give a less emphasis on the portrayal of sustainability concerns as compared to the customers (a 35 percent to 45 percent). Further the IBV interview, on questions relating to improvement of mobility solutions, over 80 percent of automobile executives argued that the best solution was to change their product portfolio from petrol/gasoline fuelled vehicles to electric vehicles. Therefore, over half of the executives had high hopes that the yearly sales of the conventional vehicles will begin to decrease by the year 2020 (Encaoua & Ulph 2004 p. 345). Global Hybrid electric vehicles (HEV) and Battery electric vehicles BEV Sales by 2020 “Of the 5.2 million Hybrid electric vehicles (HEVs) and battery electric vehicles BEVS projected to sell internationally in the 2020s, about 4 million units are anticipated to be hybrid electric vehicles, as per the JD Power and Associates Global Forecast the amount for the third quarter of the year 2010. The leading markets for hybrid electric vehicles are the United States with a 1,700,000 units, Europe with 970,000 units and Japan 876,000 units. China sales are projected to be approximately 110,000 for hybrid electrical vehicles in 2020. However, Japan expected sales of about 100,000 sales will go down because of the country has suffered from a natural calamity; earthquake and a nuclear explosion as well which will immensely affect the consumers disposable income (Armonk 2011). UK Market Pollution of carbon (IV) by vehicles accounts for about 22%, and therefore a step to reduce fuelled cars will greatly boost environmental conservation which is key in today’s living. UK government launches £5,000 electric car grant scheme, experts hail 2011 as 'breakthrough' year for electric cars as mass-market manufacturers roll out new models (Brodie 2011). At the same time 55 electric cars were taken up by the UK market in the year, 2009, with consumers holding off until the grants took effect, the government's climate advisers, the Committee on Climate Change, says that the nation requires about 1.7 million of them by 2020 to boost their strides towards reduction of carbon effects (Ohnsman 2010). The London Congestion Charge is presently set at £10 those paying before midnight on the date of travel. However, if you pay before midnight the subsequent charging day you will have to add £2, and meeting your obligation through Auto Pay brings down the charge to £9. Its opening time is between 7:00am to 6:00pm in the normal five working days. Low carbon vehicles exempted from UK congestion charge. In addition to the new congestion charge exemption, low carbon vehicles are also exempt from paying vehicle excise duty in the UK, as part of a government drive to encourage their adoption. The government is also looking to fund £20 million for the construction of plug in points which will be spread throughout the UK. Majority of the cases, any electric vehicle can be recharged from any electric socket, which means that people can either charge the cars at work, business or home. Moreover, there are an increasing number of public and private charging points. Presently a large number of these charging points are free which puts the industry at a higher competitive advantage in terms of costs (Ohnsman 2010). This notwithstanding, a network of charging points has also been established where each electric vehicle owner has the option of subscribing at a certain fee to be able to access the service at any point and any time. For instance, London, the charging point networks are comprehensively developed, although it is worth noting that it is changing because of the ease of access to charging points even at home or work places. There are also increasing number of insurance companies who are currently offering policies to electric car owners. Examples include more than car insurance, who offers a green wheel policy which provides information on how to improve your driving style to make it more efficient. International market Car manufactures and the governments in the US, Europe, Japan and China are investing billions of dollars to enhance the improvement of autos consuming less gasoline to control greenhouse gas emissions and reduce exposure to oil-price swings. The United States has invested over $12 billion of taxpayer in an effort to boost Nissan, Ford Motor Co., Tesla Motors Inc. among others in manufacture of electric vehicles and complementing accessories, most important, the batteries. Various governments are offering to give electric grants, in an attempt to attract carmakers and supply chains to create job opportunities. For instance, the US government offers tax credit to motorists at $7,000 for vehicles like Volt and Leaf. Again, China gives electric vehicle manufactures a tax credit of £4,700 for every car, yet France offers incentive schemes of £4,250, and Paris has opened its doors for a self-service hire scheme for electric vehicles in an effort to bring down the city’s traffic congestions. An Autolib scheme is scheduled for autumn this year, 2011, where over three thousand bubble-shaped, battery-powered vehicles will be accessible for hire at one thousand self service locations straddling both the city and Parisian suburbs. In the electric vehicle international market, on the trends of manufacturing, the approximation have suggested that equally the make and the model prices are to be expected to drop in the next five years. As observed with the advancement in technology and manufacture models, faster and less complicated set up layout have been established to make certain that for the coming five years, the difference in the costs of purchase of both gasoline and electric cars will be ruled out (Encaoua & Ulph 2004). Government Regulation The government of the US, the largest manufacturer of automotive internationally, has instituted mechanisms towards the improvement of fuel economy and bringing down the CO2 emissions. Although there is little knowledge about the timing in which the goals are to be accomplished, most nations are promoting hybrid electric vehicles, others are focusing on BEVs (battery electric vehicle), and still others are considering additional options. The most unanticipated feature of the 2020 outlook on the industry was the effect of more strict government regulations on implementation of certain technologies, limiting the manufacture to a small number of choices (Brodie 2011). For instance, China reserves the capacity to move rapidly, invest extensively in the development of one particular propulsion technology, and compulsory fuel economy or pollution standards that will support a specific technology or call for a decrease in sales penetration level for automobiles with a designated technology (Acemoglu et al. 2006 p. 42). Given the magnitude and growth rate of the Chinese automobile industry, such a coordinated regulatory statutes will give way for their companies to gain advantage of economies of scale and bring down the costs of hybrid or electric vehicles (Brodie 2011). Initial Screening We were convinced that the amount of fuel consumption level has often been arbitrary. However, our estimation has come to 110 Kilometers per liter in Europe, China Canada, Australia and New Zealand. The large demand for the electricity vehicles would be proportional to the demand for fuel as well. The market size is, therefore, large enough for our product. Market categorization would be in two according to the level of income (Encaoua & Ulph 2004, p. 346). Economic Factors We shall concentrate our market to the biggest consumers of the current fuel which are United States currently consuming over 20,700,000 bbl/day, China 7,600,000 bbl/day, and Russia, India, Germany, Brazil and Canada, averagely consuming slightly above 2,500,000 bbl per day (Encaoua & Ulph 2004, p. 545). However, the recent earthquake and nuclear explosion have made us not to fully advance on Japan as previously expected; their consumption was also as high as 5,000,000 bbl/ day. The large fuel consumption in these seven countries pushes us to consider providing both a hybrid electrical vehicle as well as pure electric vehicles. COUNTRY GDP 2010 ( international $ M) FUEL CONSUMPTION USA 47,123 20,700,000 China 7,518 7,600,000 Australia 39,454 2,800,000 India 3,275 2,700,000 Germany 35,930 2,550,000 Brazil 11,289 2,450,000 Canada 39,033 2,440,000 Japan 32,443 5,000,000 The large GDP depicted from the above countries illustrate their higher tendency to accept the product as indicated in the fuel consumption of each country. On the other hand, because Ecomotion is geared towards capturing a wider market share, it will also cater for each economy high and low. A closer analysis of the low gasoline consumers also proved to provide opportunities for the product to be highly demanded. COUNTRY GDP 2010 ( international $ M) FUEL CONSUMPTION Dominican Republic 10,540 120,000 bbl/day Qatar 88,242 109,000 bbl/day Lebanon 15,560 107,000 bbl/day Croatia 10,254 101,000 bbl/day Sri Lanka 5,103 87,000 bbl/day Sudan 2,466 79,500 bbl/day Guatemala 3,512 75,000 bbl/day Jamaica 2,605 74,000 bbl/day Kenya 1,784 66,000 bbl/day Ghana 1,609 50,000 bbl/day Cameroon 2,500 25,000 bbl/day The GDP indicates the potential of these countries (markets) considered to be bestowed with the potential of potential of acquiring the EV. Further the oil consumption indicates the level the capability that these consumers would otherwise opt not to use the fuel, but rather use the EV. Competition The launching of the new electric vehicles comes at a time when the value of the vehicles is increasing and price, quality, flexibility, durability and satisfaction, are important factors in the success of these electric vehicles in the market. Moreover, the competition from the use of fuel is stiff as already indicated from the above data showing the potential markets already capsized by the fuel producing firms (Aghion & Howitt 1992). However, with the MPC for fuel being 0.4 it is estimated that the shift in prices will less affect the fuel products as opposed to the electric vehicles products. This s because, the electric vehicles are quite new to the market less integrated as essential as the fuel themselves (Encaoua & Ulph 2004, p. 345). However, considering the two markets, it is quite clear that the first market which is considered to have a high economic status will be less affected with the price changes, but competition will come in utility maximization where each consumer will pursue satisfaction with comparison to the fuel cars. Initial cost of the electric vehicles will be proportionately rated with the continuous replacement of the vehicle batteries, as compared to the usual car fuelling (Encaoua & Ulph 2004 p. 455). For instance, the producers of the electric cars Nissan and Mitsubishi (the i-mjev), have considered the running costs to be slightly higher than the normal fuelled car i.e. Fiat 501, 1.15a, this is confirmed by the costs of the electric cars in over four years to be £ 10, 600 as compared to the petrol run vehicles costs going for £ 9,400. This is due to the range of the types of the electric cars. The electric vehicles will definitely require the recharging of the vehicle batteries, and subsequent replacement when the batteries are unable to store the charge for a long time. Thus, the estimated charge daily costs will be about 1p-2p per mile which is quite high and the car drivers will have a higher hand as compared to the fuelled cars that get the effect of tax indirectly with the fluctuations in prices (Brodie 2011). The maintenance costs are less; the sources indicate that after this year, 2011, the government of UK will be giving a subsidy of £ 500 for each EV purchased. It is thus important to note also that the main competitive advantage for electric vehicles that would be taken up by most consumers would be the stable prices attached to the EV and following costs (Denicolò 2001, p. 1801). On the contrary the Electric Vehicles batteries are estimated to be expensive in the long run. This is due to timely replacements after every 70,000 – 100, 000 miles travelled. But, the utility will definitely put our products at a higher hand, because fuelling also calls for daily expenses (Ohnsman 2010). The EV will effectively compete on quality, flexibility and secure use of the vehicle. Apart from the silent speedy EV car, it will have the ability to (hybrid EV) to be fuelled with petrol or gasoline as well as use the electric charge. Just to operate on the same level, the insurance costs shall be same as the fuelled cars, because risks are not determined by the engine, but by the driver. However, it is worth noting that the EV will be highly computerized assuring the owners of safely of the vehicle and security in case it is stolen, or he/she is hijacked (Encaoua & Ulph 2004, p. 345). Second screening Infrastructure A further intensive study on the selected markets proved to be productive because of the key features focused at this point. The facility location, layout and building in these markets with respect to the governing regulations proved to be expensive and incompatible with our requests. Low carbon vehicles exempted from UK congestion charge. In addition to the new congestion charge exemption, low carbon vehicles are also exempt from paying vehicle excise duty in the UK; this was one of the government initiatives to encourage their adoption. However, the ease of use of the electric cars was more pronounced on developed countries because of their infrastructure. Government Regulation and Political stability The political stability and general security of the counties were keenly considered, that lead us to conclude not to advance on certain markets that seemed to have the potential for our markets. The retreating from Egypt, Kenya and Liberia was due to the unstable government. However, in future we shall consider reviewing such potential markets. Also, the low income earning markets have shown tendencies of improving with the new legislation, in future; we shall consider reviewing Kenya particularly because of the government’s commitment to meet the 2030 vision. The Two Economy Profiles We shall concentrate our market to the biggest consumers of the current fuel which are United States currently consuming over 20,700,000 bbl/day, China 7,600,000 bbl/day, and Russia, India, Germany, Brazil and Canada averagely consuming slightly above 2,500,000 bbl per day. However, the recent earthquake and nuclear explosion have made us not to fully advance on Japan as previously expected; their consumption was also as high as 5,000,000 bbl/ day. The large fuel consumption in these seven countries pushes us to consider provide both a hybrid electrical vehicle as well as pure electric vehicles. COUNTRY GDP 2010 ( international $ M) FUEL CONSUMPTION USA 47,123 20,700,000 China 7,518 7,600,000 Germany 35,930 2,550,000 Brazil 11,289 2,450,000 The large GDP depicted from the above countries illustrate their higher tendency to accept the product as indicated in the fuel consumption of each country, hence considering our markets, it is therefore evident that our market selection for the economies with a higher economic status will be the United States of America, China, Germany and Brazil which have high GDP per capita. According to their per capita, on average, 80% of the population presently owning cars will be able to afford the Electric Vehicles (Encaoua & Ulph 2004 p. 348). On the other hand, because Ecomotion is geared towards capturing a wider market share, it will also cater for each economy, high and low. A closer analysis of the low gasoline consumers also proved to provide opportunities for the product to be highly demanded. COUNTRY GDP 2010 ( international $ M) FUEL CONSUMPTION Dominican Republic 10,540 120,000 bbl/day Lebanon 15,560 107,000 bbl/day Croatia 10,254 101,000 bbl/day Sri Lanka 5,103 87,000 bbl/day Guatemala 3,512 75,000 bbl/day Jamaica 2,605 74,000 bbl/day Ghana 1,609 50,000 bbl/day Cameroon 2,500 25,000 bbl/day The GDP indicates the potential of these countries (markets) considered to be bestowed with the potential of acquiring the EV. Further the oil consumption indicates the level the capability that these consumers would otherwise opt not to use the fuel, but rather use the EV. Hence, the countries that we will advance to provide the products will be Dominican Republic, Sri Lanka, Guatemala, Jamaica, Ghana, Lebanon and Cameroon. Conclusion It is, therefore, clear that we are geared towards success if we provide the above markets with our products, considering that their economies are active irrespective of size or status. The best alternative for our problem is the use of electric vehicles in our market (Aghion et al. 2001, p. 65). An electric vehicle works on the concept of the use of electricity (electric charge), by which, the battery in the vehicle is plugged in before use, with the electric charge that will be used to run the vehicle. The electric charge injected in the battery will depend on the capacity of the batteries in terms of charge and voltage. The charges will dictate the distance travelled. However, on average, a normal electric car is designed to take over five hundred hours when fully charged. In an attempt to bring down the consumers large budget on fuel, and the problems associated with the fluctuations in automobile fuels, Ecomotion is committed to see to it that it gives its customers the noble opportunity of using the electric vehicle at an affordable price. Ecomotion is also aware of the extensive diversity of its customers and will offer both pure electric vehicle and the hybrid electric vehicles to the market in the best quality, reliability and flexibility (hybrid electric vehicle). Reference Acemoglu, D., Aghion, P. and F. Zilibotti, 2006, Distance to frontier, selection, and economic growth, Journal of the European Economic Association, 4, 37-74. Aghion, P., R.W. Blundell, N. Bloom and R. Griffith, 2005, Competition and innovation: An inverted-U relationship, Quarterly Journal of Economics, 120, 701-728. Aghion P, & R, Griffith, 2005, Competition and growth. Reconciling theory and evidence, Cambridge, MA, MIT Press. Aghion, P., C. Harris and J. Vickers, 1997, Competition and growth with stepby-step innovation: An example, European Economic Review, 41, 771-782. Aghion, P., C. Harris, P. Howitt and J. Vickers, 2001, Competition and growth with step-by-step innovation, Review of Economic Studies, 68, 467-492. Aghion, P. and P. Howitt, 1992, A model of growth through creative destruction, Econometrica, 60, 323-351. Aghion, P. andM. Schankerman, 1999, Competition, entry and the social returns to infrastructure in transition economies, Economics of Transition, 79-104. Aghion, P. and M. Schankerman, 2004, On the welfare effects and political economy of competition-enhancing policies, Economic Journal, 114, 800-824. Basu, S., 1996, Procyclical productivity: Increasing returns or cyclical utilization?, The Quarterly Journal of Economics, 111, 719-51. Denicolò, V., 2001, Growth with non-drastic innovations and the persistence of leadership, European Economic Review, 45, 1399-1413. Dinopoulos, E. and P. S. Segerstrom, 1999, A Schumpeterian model of protection and relative wages, American Economic Review, 89, 450-472. Dockner E.J., 1992, A dynamic theory of conjectural variations, Journal of Industrial Economics, 40, 377-395. Encaoua, D. and D. Ulph, 2004, Catching up or leapfrogging? The effects of competition on innovation and growth, mimeo, University of Paris I. Etro, F., 2004, Innovation by leaders, Economic Journal, 114, 281-303. Grossman, G. M. and E. Helpman, 1991, Innovation and Growth in the Global Economy, Cambridge (Mass.), MIT Press Ohnsman, A 2010, Hybrid, Battery Car Demand Overhyped, J.D. Power Says, Viewed March 24, 2011, Gordon-Bloomfield, N 2010, Just Who Is A Typical 2011 Nissan Leaf Buyer? We Find Out, Viewed March 24, 2011, Brodie, B 2011, Canada prepares for the electric car. Are we ready?, Viewed March 24, 2011 Armonk, NY 2011, IBM Study: Electric Cars Stir Interest but Face Obstacles Nearly one-fifth of drivers are likely to consider an electric vehicle Drivers reluctant to bear the cost of home charging, Viewed March 24, 2011 Read More