The Automobile Industry of Canada - Essay Example

? LAUNCH OF PEUGEOT CARS IN CANADA Submitted by Executive Summary Peugeot, a French company is ranked sixth in the international ranking of the automobile industry. It is known for its wide variety of vehicles ranging from personal cars to heavy vehicles and even motorcycles and cycles. It is famous for its innovative designing, stylish and luxurious cars. It is pioneer in the Hybrid diesel car. Peugeot vehicles are famous for their fuel efficiency and environment friendly technology which results in lesser carbon dioxide emissions. The automobile industry of Canada is growing after a period of recession and it is expected to grow in the near future. Globalization has resulted in increased pressure on the firms to achieve global competitive advantage. Automotive industry has recently witnessed large scale consolidation of organization resulting in mergers and acquisitions to capitalize the strengths of each market and organization. Most of the organizations in the automobile industry are doing business offshore. Automobile manufacturing contributes to 10% of the world GDP. Canadian Automobile industry also contributes significantly in the regional GDP. With WTO policies of free trade there is no more legislation in Canada which supports the BIG three of the US automobile industry. Many non-American firms such as Japanese have already entered Canadian market. Peugeot already has its existence in the Canadian market with their motorbikes. With fluctuating oil prices, growing environmental concerns and the expected forecast of growth the time is ripe for Peugeot to enter Canadian market with its full range of products. Peugeot has a competitive edge in the Canadian market with already developed distribution system. A large population of Canada speaks French so a French company will get some favors from the consumers. Contents Introduction 4 Market Characteristics 5 Market Review 6 SLEPT Analysis 6 Social 7 Political 7 Economical 7 Technological 8 Legal 8 Industry Climate Significant New Trends 8 French Automobile Industry 9 Situational Analysis 9 Current products 10 Existing Segments 10 Current Pricing 11 Current Distribution 11 Current Media and Communications 12 Objectives 12 Objectives for the Organizations 13 Objectives for the product/services 14 Objectives for Target market 14 Implementation 14 Segmentation 14 Positioning 15 Standardization VS Adaptation 15 Communication 16 Future Research 16 Bibliography 18 Introduction The Canadian car manufacturing industry is very huge with total revenue of $ 18.1 billion in 2010. In the recent past the growth has been negative. The compound annual rate of change (CARC) for the total revenue is -2.7% for the period 2006-2010. Total production along with the revenue has also declines in the same period and the CARC for the production volume of the industry is -2.8%. The total production volume in 2010 was 1,272,825 units. The picture is still not all that gloomy and that is the reason for my selection of this industry. The forecasts for the industry are encouraging. An upward trend is expected. For the next five years i.e. till 2015 the industry is expected to accelerate and grow. The forecast is a positive CARC although a little low at 0.4%. With this CARC the industry is expected to grow to a value of $18.4 billion by the end of 2015. 1(Data monitor, 2011) Peugeot has long history in France. Armond Peugeot launched the first quadricycle oil in 1890. Since then there has been no looking back for Peugeot. The second French manufacturer in early 1970’s developed partnership with Renault/Volvo, Fiat or BMW. This change in management led to the creation of Citroen PSA Peugeot-Citroen. Brand strengthened and the company has expanded globally. Peugeot has a distinctive history of providing elegant and unconventional designs. Peugeot 401 and 601 Eclipse shinned in 1934 with unconventional design of retractable rooftop designed by legendary Georges Paulin. It became such a success that it was preceded by a long queue of innovative and luxurious cars. Some of the most successful and popular ones are Pure line convertible 203 launched in 1951 Paris Salon, the elegant Grand Luxe in 1954, 205 in 80’s for delight etc. designing, elegance has always been their forte. Peugeot is the technology pioneer in heavy fuel and diesel technology. It has not only been the pioneer but has built up upon their strength over the years and now has become a bench mark for diesel performance and economy. Peugeot technology not only reduces fuel consumption but also environmental friendly. Its DPF particulate filter technology drastically reduces emission of carbon dioxide. 2(Peugeot, 2011) The oil crisis of the 70’s gave a real boost to Peugeot diesel cars. Its 604 became the first turbo diesel car in Europe. With fluctuating oil prices usually following the upward trend and the growing concern about the environment I think the time is ripe for Peugeot cars to enter the Canadian market. Canadian automobile manufacturing as already discussed is growing Peugeot can tap this opportunity with its diesel hybrid cars, taxis and a whole range of other innovative, sophisticated, economical, environment friendly and stylish products. Market Characteristics A brief review of the market characteristics such as major competitors, market share, target market and its segmentation, potential market etc is needed to develop a clear understanding of the scenario. In this global age almost no industry has remained untouched by the global competitive forces. Companies who were enjoying and were accustomed to great prominence in their native countries earlier now have to face global pressures from all corners of the world. Growth of international markets has given rise to aggressive and innovative competitors. Flow of knowledge, technology, products and services, ideas and management practices is so rapid and convenient that these days home advantage hardly exists. In this global environment forces such as political, legal, social, cultural and other macroeconomic forces become very difficult. These forces actually shape the international strategy. Gaining and maintain competitive advantage in such a competitive world is very difficult. How firms can compete in the global environment is defined by global strategy. Some of the issues before any company decides to enter any market are nature of global advantage, strategic alliance, competing in emerging markets, knowledge of global management practices, legal and ethical issues. Global strategic management needs a broader view which means organizations itself and the surrounding strategic management issues. For this purpose organizations conduct internal and external to develop a deep understanding of the situation. 3(Andrew C. Inkpen, Kannan Ramaswamy, 2006) Before deciding to enter any new market, organizations need to conduct a thorough analysis. There are various tools available for this task. I have conducted Pest analysis to analyze external analysis and Porter analysis to study industry attractiveness. Market Review Size of the Canadian automobile industry is huge. The total production volume in 2010 was 1,272,825 units. The Canadian automotive industry produces a wide range of products which includes light and heavy duty vehicle such as cars, vans, pickup trucks, buses and military vehicles. Canadian industry is also involved in the production of parts and components of the vehicles. It also possesses a world class dealer network and a very advanced distribution system. Canadian automotive is also integrated with NAFTA (it includes Canada, USA and Mexico). It is one of the eighth largest industries in the world with a positive balance of trade. It is also a major contributor to Canadian economy. There are three major regions in the world where automobile manufacturing is being done they are Europe, Japan, North American countries and the rest of the world. In these ratio North American countries has the least share. 4(Johannes Van Biesebroeck, 2006) The three giants of the automobile industry in North America are General Motors, Ford and Chrysler. They are giants not in terms of units of production only but they are also giant employers and have strong influence over the economy. Before deciding to enter any new market, organizations need to conduct a thorough analysis. There are various tools available for this task. I have conducted Pest analysis to analyze external analysis and Porter analysis to study industry attractiveness. SLEPT Analysis Pest analysis is done to gauge the impact of four major forces i.e. political, economical, social and technological on the industry and the organization. Social Canada is the second largest country in the world it is only after Russian federation. Official language of Canada is English and French. Almost 9 million of the population speaks French. French company such as Peugeot will have some natural advantage. Literacy rate is very high so there is growing concern for environment and trend of using environment friendly products. Political The three big giants have very strong political influence as well on the Economy. It will not be politically easy for any new entrant in the market. Economical Automotive industry has played a very important and historic role in driving the economy of Canada. Its contribution to the regional GDP is only 3% but it supports many value added for suppliers in material, equipment and machinery etc. which altogether makes the contribution in GDP 4%. The contribution in employment is 2.3%. This industry also has the most prominent supply chain in the region. The three main auto manufacturers have their three assembly plants in the region. Recently there has been a little change in the climate. In the southern united states many plants for manufacturing final assembly and parts has started working. The eroding market share of three big giants has resulted in the flow of parts from China. It has eroded the competitive advantage of Canada. 5(OECD publication, 2010) With the recent recession of 2008 Canadian economy which is highly dependent on US economy also suffered. It resulted in high unemployment level and shrinking benefits. All this had led to the demand of a cost effective and fuel efficient cars. Technological Canadian firms are mostly suppliers and not assemblers so they are not very technically advanced. Peugeot cars with its highly advanced technology especially in diesel efficiency can become market leaders. Legal Earlier there was an auto pact between Canada and the United states according to which certain US manufactures were allowed to import duty free vehicles part with certain conditions. This law was discriminatory and was putting offshore companies at a disadvantage. It was designed to develop and encourage automotive industry in Canada. After a dispute WTO has now dissolved this pact. Currently there is no legislation which bars any foreign company to enter Canada. Peugeot already has its presence in Canada with Motor Bikes. 6(Louis W Pauly, William Donald Coleman, 2008) Industry Climate Significant New Trends Peugeot of France is ranked sixth in the international ranking in terms of the units of cars produced. General Motor of USA tops this list followed by Toyota, Volkswagen, Ford and Hyundai. An upward trend in the automobile industry is expected. Automobile industry has witnessed a wave of cross border mergers and acquisitions. 7(Peter Dickens, 2007). The US giants of automobile industry are continuously investing in Canadian markets and have made them global leaders in automotive engineering. The emerging trends of the global automobile industry have three main factors. They are namely global market dynamics, Industry consolidation and expansion in overseas market, production of fuel efficient cars. With increasing global trade and growth of commercial distribution system global competition among automobile manufacturers has increased manifold. It has lead to the trend of innovative production method and facilities in an attempt to reduce cost. World’s largest automobile manufacturers are investing in emerging markets like China, Latin America, and Malaysia etc to reduce cost. 8(Maxton, P. Graeme, 2004) There have been strategic partnerships, mergers and acquisitions by the industry giant in an attempt to strengthen their position. The general trend is of expansion in overseas markets. Another emerging trend in the global market is the production of fuel efficient cars. CUV’s the car based cross over vehicle is the latest trend. There is also a trend of new products and hybrid cars are one such example. Peugeot is not behind even in this aspect. They are pioneers in diesel hybrid cars. Peugeot's 308 Hybrid is considered the greenest car on the road for its lesser carbon dioxide emission. The industry of automotive components is growing rapidly. It has increased from USD 876 billion to USD 1.1 trillion in 2010. According to a research conducted by Original Equipment Manufacturers Association (OEMA) its growth rate is 3.4%.. Western Balkan states have competitive advantage in this industry because of their advanced skills, infrastructure and cost competitiveness. 15(OECD, 2009) French Automobile Industry French automobile manufacturing is about 10% of the GDP and hence is very important for the country. The recent trend of expanding business in offshore countries has been successful for the French companies as well as other companies. If Peugeot ventures in the Canadian market it will be very beneficial for the company and the country as well. Situational Analysis Situational analysis will analyze where the organization stands now. Following factors will analyze the current standing of the company. Current products and services Existing segments Current pricing Current distribution Current media and communications Current products Current products of Peugeot can be divided into four categories. Cars Vans Cycles Motorcycles There is wide variety of cars which Peugeot is currently producing. Peugeot has a special numbering system to name their cars. All the cars have a number as its name. The names of the cars are 107, 1007, 206, 207, 308, RCZ, 3008, 407, 4007, 508, 5008, 807. i0n, Bipper, Tepee, partner origin, partner Tepee and Expert Tepee. Vans are Bipper, Partner, Partner origin, Expert and Boxer. Peugeot also manufacture Cycles and Motorcycles. Peugeot in its motorcycle manufacturing is ranked no three in Europe. Peugeot provides a comprehensive range of products with five ranges of engine capacity in motorcycles ranging from 50 to 500 cc. it provides 14 models of scooters, multi-gear bikes and mopeds. The same theme of fuel efficiency and environment friendly products is followed here. Existing Segments Market segmentation is a very technical and important process of marketing. Identification of market segments decides the approach to reach target market. It is all based on positioning of the product. Positioning is a process of creating a distinctive image in the minds of the customer about the product. This distinction enhances the image of the product and hence helps in differentiating it from its rival products. Segmentation of products helps in identifying the need of a particular segment so that product can be specifically developed and positioned to cater to that specific need. Proper identification of segments is of vital importance for the success of any product. 9(Sally Dibb, Lindon Simkin, 2004) Peugeot follows a combination of market segmentation strategy. It makes use of all four types of segmentation i.e. demographic, psychographic, geographic and behaviorist. 10( William M. Pride, Robert J. Hughes, Jack R. Kapoor, 2008) Demographic segmentation with its Cycle and motorcycles targeted towards youth, psychographic segmentation with its broad range of personal cars ranging from comfortable to luxury and stylish cars to match the need of different life styles. It also makes use of geographic segmentation. All ranges of its products are not available in every region they operate e.g. in Canada they launched only motorcycles and in some of the European countries they only do business in public transportation such as taxis and Vans. It also follows behaviorist segmentation with its classy elegant Hybrid cars that are price sensitive. Brand loyalty comes in this type of segmentation. In short we can say that Peugeot follows differentiated approach for marketing segmentation. Current Pricing There are two types of pricing strategies are cost based pricing and demand based pricing. Peugeot mainly follows cost based pricing. Peugeot for example divides its cars range into family cars, city cars, coupes and cabriolets and Tepee range. City car prices range from ? 8,695 to ? 16,095, whereas family car prices range from ? 17,445 to ? 24,895. Similarly coupes and cabriolets which are stylish and luxurious cars range from ? 16,545 to ? 20,895. Price range for Tepee is ? 11,445 to ? 22, 995. 11(Peugeot, 2011) Current Distribution Channel of distribution depends on pricing strategy, product positioning and target market. The company can use a combination of distribution channels according to the specific requirements of the product. For example for a premium product a retail store is the best choice which is symbolic of it positioning and carries the image of the product. 12(David W Cravins, 2009) Peugeot also utilizes a combination of distribution channels which includes direct distribution, use of intermediaries and indirect distribution channels for premium product. Peugeot once held a competition for potential buyers where they could design their own premium product and the best design selected was awarded in a fair held by them. Such internet based distribution channels are usually for premium products only. Peugeot has a very strong and effective distribution channel. Current Media and Communications Commercial success of any organization depends a lot upon its communication strategy. This process is very crucial for automobile industry because it not only requires not only marketing the product by emphasizing and highlighting strengths of the vehicle and its intrinsic qualities but it has to go much further. Customers of this industry demand a full range of services from the company and the dealer. Some of the services include warranty, repair time and financing services etc. company needs to build a healthy quality relationship to ensure brand loyalty. It can only be made possible through effective and reliable communication. To facilitate its customers Peugeot has online service where interactive calls techniques are utilized to develop and build personal and direct dialogue with customers using visual and informative internet services. Peugeot also supply its dealers with online services along with all the multimedia, information and telecommunication strategy to facilitate its customers. Peugeot also utilizes web to advertise its new models and products. GPRS is another system utilized to communicate with the customers. These technological innovations has its own limitation but Peugeot tries to maximizes on its strength and tries to make better use of these technologies along with the conventional methods of communication and media strategy. 13(Daniel Zamaprini, 2000) Objectives The recent growth in the production of automobile industry is partly because non-American international companies especially from Japan are investing in North American countries. Initially they were a substitute for importing but now they are involved in domestic production. This shift has been mainly due to the overcapacity issue especially in Asia. 14(Stephen Cooney, Brent D. Yacobucci, 2007) Automobile industry is one of the booming industries in the world and it is very rapidly moving towards consolidation. It has affected every aspect of our lives. There are more than 400 million passenger cars alone on the roads. Earlier United States was responsible for 90% of the world’s automotive industry which gave rise to the three big giants but in recent times it has shrunk to only 23%. This change can be attributed to the booming economies of Japan, Germany, Canada, France and many other nations. The big Three Ford, General motors and Chrysler are responsible for 23% of worlds motor vehicle production, Japan has a share of 21% while Germany is third with 9% share. France, Canada, Spain and South Korea each has share of 5 % in world’s automotive industry. Increased global competition and the entry of foreigners have made the automobile industry an oligopoly with limited number of players in the industry. No one company has a strong control over the industry. In such a situation it is the right time for Peugeot to enter the Canadian market and make its presence felt. The Canadian car manufacturing industry is very huge with total revenue of $ 18.1 billion in 2010. The forecast for the industry is positive growth which is the opportunity Peugeot needs to capitalize. An upward trend is expected. For the next five years i.e. till 2015 the industry is expected to accelerate and grow. The industry is expected to grow to a value of $18.4 billion by the end of 2015. With oil price fluctuations and ever rising oil prices there is global shift towards alternative fuel cars. Although this trend is minor and still 955 of the cars use petroleum fuel. With this trend in the initial phase Peugeot can create brand loyalty for them. The goals which Peugeot can set for itself for the entry in the Canadian market and the targets to be achieved in the next five years can be divided into three categories objective for the Organization, for the products, for the target market. Objectives for the Organizations Peugeot can set following objective to be achieved as an organization. Make successful entry in the Canadian market. To achieve minimum market share of 5% in the first five years. To develop and maintain the same global brand image. Objectives for the product/services Market penetration through its differentiated high quality fuel economical diesel cars. Create niche market for diesel hybrid cars in which they are pioneers Effective utilization of strong Canadian distribution channel to market automotive components and cars. Provide the same high level of service to the customers. To grab market share in the growing automotive components market. Objectives for Target market Identification of the target markets for each type of the product and marketing segment. Canada has a large French speaking population. A French company may have competitive advantage there. Implementation Well defined objectives and targets need an equally good implementation. Implementation requires a defined policies and practices derived from the strategy how the targets can be achieved. Implementation also requires close monitoring if the company is going in the right direction to achieve its target. For this purpose intermediate targets are set so that the performance can be empirically judged and corrective measures can be taken. How this is implemented on each marketing process is discussed below. Segmentation Defining segmentations is a complex process. It is not necessary that the segmentations of one market apply to another as well. Sometimes we even have to make use of multiple segmentation approaches at the same time. While applying multiple segmentation basis we can even prioritize them for example social class can be the major criteria for segmentation with sub segments such as age and life style. 16(Bob Perry, 2006) Segmentation in the Canadian market will remain more or less the same as for the French market with little differences. Some of the differences are listed below More emphasis on the geographic segmentation to tap the French population in Canada. Behavioral segmentation for the luxurious premium cars which are environmental friendly as well. There is much concern in Canada over environmental pollution and active environment protecting organizations. They can emphasize on “going green” on the road with lesser carbon dioxide emissions. Same social segmentation to promote fuel friendly and economical cars. Niche market for first Diesel Hybrid car. Positioning Competitive positioning of any company depends on environmental analysis, company analysis and core strategy of the company which in turn is derived from the business purpose. 17(Graham Hooley, 2008). Peugeot has to follow a combination of cost leadership strategy and differentiation strategy. For its premium products in which Peugeot is the pioneer it needs to position it as differentiated market leader. Whereas the products which are designed for low cost fuel economy it should strive for cost leadership. So for Peugeot it will be combination of differentiation and cost leadership. Standardization VS Adaptation There are no such big differences in the Canadian market and French market so Peugeot should follow the standardization policy. Adaptation policy is very costly so it should only be used only when it is inevitable. Peugeot is looking for cost leadership for many of its product so it has to avoid unnecessary costs. Following global value chain helps in driving out the cost. With globalization and increased pressure on global competitive advantage pressure on keeping the cost low is increasing. 18(Arthur A Thompson, 2006) Communication Communication will also be more or less the same. Main emphasis should be on Advertising/media, Merchandizing, publicity through Trade shows and exhibits, web marketing and endorsement by celebrities. In the later stages when the product has passed the awareness stage Peugeot should introduce promotions, sales incentives. Market penetration can be achieved through dealer incentives terms and sales support material and special offers. For premium products niche marketing strategies such as personal selling can be utilized. Future Research Peugeot needs to conduct further quantitative and qualitative research before entering the Canadian market. An example of quantitative study is the price elasticity, income elasticity and the study of the correlation of various important variables which determines consumer behavior. A study of price elasticity will give an insight about how price sensitive is Canadian market? Quantitative research is very helpful in determining the market size and selecting target market, segmentation etc. Qualitative research is usually done in developing the hypothesis and defining the variables. It is also used when enough quantitative data is not available. 19(Naresh K Malhotra, 2011) I would suggest Peugeot to conduct some qualitative research in identifying the promotional methodology and advertising campaigns suitable for this country. Qualitative research includes focus groups, in depth interviews to discover the sensory feelings which are important for the customers. It helps in developing the Tag line for the company as well. These fine nuances of the market cannot be identified through quantitative research. There are several examples already available where companies have done such qualitative research to gain insight into consumer behavior. A good combination of qualitative and quantitative will help Peugeot in developing a market insight. Correct positioning of the company, brand image, segmentation, market size and potential, valid existing market segmentation, target market helps in setting the Sensible, accurate and achievable organizational and marketing objectives. Bibliography 1(Data monitor, 2011, Car market in Canada to 2015, Available from www.Companiesandmarkets.com, [Accessed at 23rd March 2011] 2(Peugeot, 2011, Available from www.peugeot.fr, [Accessed at 23rd March 2011] 3(Andrew C. Inkpen, Kannan Ramaswamy, 2006, Global Strategy: creating and sustaining advantage across border, London, oxford University Press) 4(Johannes Van Biesebroeck, 2006, Canadian Automotive Market, Available from www.international.gc.ca [Accessed at 23rd March 2011] 5(OECD publication, Organization for Economic Cooperation and Development, 2010, OECD Territorial reviews: Toronto, Canada 2009, OECD Publications) 6(Louis W Pauly, William Donald Coleman, 2008, Global Ordering: Institutions and Autonomy in a Changing World, Canada, UBC Press) 7(Peter Dickens, 2007, Global Shift: mapping the Changing Contours of the World Economy, London, Sage Publications) 8(Maxton, Graeme P. Time for a Model Change: Re-engineering the Global Automobile Industry for the 21st Century. New York: Cambridge University Press, 2004.) 9(Sally Dibb, Lindon Simkin, 2004, Marketing briefs: A revision and study guide, Oxford, Butterworth-Heinemann) 10(William M. Pride, Robert J. Hughes, Jack R. 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Yacobucci, 2007, U.S. automotive industry: policy overview and recent history, New York, Nova Science Publishers) 15(OECD, 2009, Sector specific sources of competitiveness in the Western Balkans, OECD publications) 16(Bob Perry, 2006, CIMA Learning Systems 2007 Organizational Management and Information Systems, Oxford, CIMA Publishing) 17(Graham Hooley, 2008, Marketing Strategy and Competitive positioning, New Delhi, Dorling Kindersley) 18(Arthur A Thompson, 2006, Strategic Management, Academic Internet Publishers) 19(Naresh K Malhotra, 2011, Marketing Research: An Applied Orientation, New Delhi, Dorling Kindersley) Read More