Mercedes-Benz Company and Its Macro Environment Brings - Research Paper Example

I. Introduction Mercedes-Benz is one of the brands owned by Daimler AG, a car manufacturer based in Germany. Mercedes-Benz is a major player in the global automotive industry. As changes have sprouted during the past year which have impacted the industry as a whole and resulted into a decline in sales, it is vital for a company such as Mercedes-Benz to include situational analysis in order to come up with a plan, a strategy in order to address the major factors that its macro environment brings. This paper aims to conduct a situational analysis by utilizing frameworks such as the PESTLE—political, economic, social, technological, legal, and environmental analysis; OT analysis, or opportunities and threats that are derived from examining the major forces in the macro environment; and Porters five forces model. These strategic tools does not only help a company create a plan in order to thrive; it helps the company adapt with the changes in its environment which could help it make or break the success in its operations. The first part aims to give a bigger picture of the automotive industrys macro environment. This includes the industry size and the major happen-stances that have affected the current state of the industry as a whole. Next, the major forces in the environment (PESTLE) that can leave an impact on Mercedes-Benzs operations are analysed. These forces are then categorized as either opportunities to be leveraged on the part of the company, or threats to be addressed in order to minimize the damages they may cause Daimler AG. An industry analysis using Michael Porters five forces model follows the other analyses in order to determine the impact of industry forces on the companys profitability as well as efforts to thrive in the competition. Lastly, recommendations are given in order for the company to incorporate these analyses in its operations. These strategic tools provide insights on how the company can position itself especially to combat forces that are usually beyond its control. II. Macro Environment Mercedes-Benz is one of the major brands that operate globally within the automotive industry. The automotive industry is one of the industries that has been hit hard by the global financial crisis as well as the other economic changes across the globe during the past years. These changes result in a major decrease in global sales for the whole industry over the years. While the demand has decreased for the whole industry, demand in some markets remain pretty much stagnant, while some are still growing, especially in emerging markets. In 2008, it is estimated that the number of units automotive manufacturers have sold is approximately 52 million according to Scotia Bank (Plunkett Research 2009). According to Plunkett Research, this figure is even fewer than the 2007 figure by 2.9 million; in 2007 the automotive industry has produced and sold some 55 million units (2009). Among these 52.17 million units, Daimler, the manufacturer or Mercedes-Benz has sold some 1.29 million units; 9.37 million units sold by General Motors; 8.91 million units by Toyota; 6.55 million units by Ford; 3.93 million units by Honda; 2.08 units by Chrysler; and the rest by other auto mobile manufacturers around the world (Plunkett Research 2009). This decline has resulted in major bankruptcies within the industry which lead to mergers and acquisitions in order for some of the manufacturers to survive (Knox 2009). The automotive industry is also one of those that receive financial aids from governments as it is one of the industries that has been hit hard by the financial crisis (Plunkett Research 2009). The automotive industry has been increasing by 1.6% on the average from 1996 to 2003 (IMF Auto Report 2004, 57), and because of these economic forces, the growth has continued to be stagnant if not fluctuating especially at the start of 2009 (Plunkett Research). As a result of the crisis, credit financing has become unavailable to new buyers. Apart from this, factors that influence demand such as increase in the price of related goods such as gasoline have played a role in the decline of sales over the year. III. PESTLE analysis A. Political As a major player in the global automotive industry, Mercedes-Benz has to abide by different regulations in different countries where it operates. Some political forces that can impact the companys operations and the way the company does business include free trade agreements such as the NAFTA or North American Free Trade Agreement (IBM Consulting Services 2003, 2), as well as the AFTA or the Asian Free Trade Agreement(IMF Auto Report 2004, 13). The block exemption is also included (IBM Consulting Services 2003, 2). Block exemption has a positive impact on the company. Under block exemption, the whole automotive industry is exempted from regulations within the EU area (IBM Consulting Services 2003, 2). This entails greater flexibility for the company as regards its practices, especially for its operations within the EU area, as it has the full control over what can be sold in the market. The free trade agreements such as the NAFTA and AFTA also benefits the company in that it can enter more markets more easily, without incurring the regulatory costs that venturing to another country brings; however this also entails increased competition in new markets. These agreements also foster some opportunities for outsourcing abroad. B. Economic Some of the forces in the macro environment that have hit hard the automotive industry are economic forces such as the global financial crisis, rising costs of related goods such as gasoline, and input costs have played a key part in the slump that the global automotive industry has faced. The global financial crisis have hit hard the industry in that it has reduced the demand due to the unavailability of credit financing (Plunkett Research 2009). Even though Mercedes-Benzs target market includes the luxury segment of the car market, the fact that people have less access to credit financing due to the weakening of the financial systems across the globe, especially in developed countries which comprise some of its biggest markets, the company is definitely affected. The rising input costs also play a huge impact on the companys operations. The increasing input costs cannot allow the company to maintain a huge margin over its prices, although it operates in the luxury segment of the car market, thus has an effect on the companys profitability. Apart from these, the rising costs of related goods especially gasoline has affected the demand for cars (Plunkett Research). The costs to maintaining an auto mobile becomes a major consideration among consumers which has affected the demand. C. Social Social factors like trends that dictate consumer preferences are one of the driving forces in the automotive industry. The new technology has allowed consumers to have a better say as regards the development of products, which must be tailored to their specific needs and wants. Customization is one of the trends in the automotive industry (Plunkett Research 2009). The internet provides consumers better way to interact with companies to communicate how they want to customize the units that they purchase: as according to Veloso and Kumar, consumers have a myriad of options they want to customize “from power steering, to power seats, and cruise control (2002, 3).” As auto-motives have more electronic functions that are incorporated within the system of their units (Veloso and Kumar 2002, 3), Mercedes-Benz has to be keen with these changing consumer preferences over the years. D. Technological According to Veloso and Kumar, it is technology that defines the level of competition in the marketplace nowadays. In these times where efficiency and cutting down costs through the advance technologies is the trend, a car manufacturers struggle is also driven by factors such as the environment. These environmental factors that has influenced the consumers preferences, and resulted in many regulations call for a better technology. This signifies some benefit on the part of a progressive company in terms of research and development such as Mercedes-Benz. As the company has developed an award-winning unit, the “Gelber Engel 2009” or the “Yellow Angel 2009” which runs on lithium-ion battery (Knox 2009), the company gains a significant edge in terms of technological breakthrough. Although these emerging technologies impact not only a companys way of doing things, they also impact the whole industrys way of doing things, as they become the new standards. The internet for example, introduced new ways for companies like Mercedes-Benz to reach and interact with its consumers. The new technologies not only impact the engines of the units that are produced, the overall systems are also affected. These newer technologies especially the incorporation of electronics in many units allow sophisticated customization options for consumers to choose from (Veloso and Kumar 2002, 5). E. Legal As the automotive industry has grown over the past decades, it has attracted the attention of law-makers and regulatory committees. These entities have increased the regulations over the industry, more specifically to address concerns about safety as well as fuel efficiency. Some of these standards affect Mercedes-Benz in that these regulations impose certain requirements that the company has to abide. Some of these regulations include TREAD, the CAFE standards, and other environmental as well as safety laws (IBM Consulting Services 2003, 2). TREAD or Transportation Recall Enhancement, Accountability and Documentation requires the company to meet minimum standards in terms of the tire that it uses in the manufacture of its units, thus invest and include in its system quality checks for parts such as tires (IBM Consulting Services 2003, 2). As according to Veloso and Kumar, regulations in Europe, Japan and the US have long started way back in 1960s (2002, 4). These regulations that aim to address safety of the units that are manufactured include “regulations for mandatory devices such as seatbelts, and later on air bags and auto-break systems (ABS) (Veloso and Kumar 2002, 4).” Similarly, CAFE or Corporate Average Fuel Economy act requires automotive manufacturers like Mercedes-Benz to improve its fuel engines in order ensure fuel efficiency (IBM Consulting Services 2003, 2). Apart from these, “laws to regulate tailpipe emissions (Veloso and Kumar 2002, 4)” are included. The impact of this act on the company is that it has to invest in more research and development in order to ensure that it has the technological feasibility in order to meet the requirements. F. Environmental The major force over the years that has shaken the industry over the years is the environmental movement that has started during the 1980s. This environmental movement has lead to other major forces including political and social forces. As the number of cars increase in the world, consumption of resources that can never be replenished such as oil and gas has attracted major concerns (Plunkett Research 2009). The effect of fuel consumption to global warming also impacts Mercedes-Benzs way of doing operations. The call for greener and more fuel-efficient technology has started during 1980s when environmental awareness has begun taking place. These result in changing consumer preferences which has helped boost the demand for hybrid cars over the years. As environmental damage has greatly attracted concerns of major political entities and lobbying groups, laws have been passed to penalise companies that do not abide to certain standards to reduce the damages to the environment. This major shift has changed the way car companies compete in the modern marketplace. IV. Opportunities and threats The different forces definitely have some implications to Mercedes-Benz as either as opportunities or threats. Opportunities would be factors that the company can capitalize on, while the threats are factors that could harm the companys operations. The block exemption for example is an opportunity for Mercedes-Benz. With fewer regulations, the company has more space to introduce new products that could bring profit to the company. This means that the company will be less restricted as regards what to offer the market. Apart from this, new market and outsourcing opportunities that come along with the free trade agreements such as the NAFTA and AFTA should be taken advantage of. In line with the changing preferences, Mercedes-Benz can view the trend in line with the environmental movement and opportunity. As the company has secured a technological advantage by inventing the lithium-ion technology for its Yellow Angel car, the company can compete in the segment of consumers which gives more emphasis on fuel efficiency as well as corporate social responsibility in relation to the environment. The company must view the increased regulations not as threats but opportunities as well. Although these entail higher costs, abiding by these regulations and surpassing consumers expectation of the company can result in a much revered and admired brand in the end. Thus, it has an effect on the companys image and reputation, powerful intangibles from which the company can benefit a lot. Some of the biggest threats include the economic forces. The fluctuating costs of oil and gas is a threat that the company should address and be prepared for. The company has to look for ways to minimize costs for its inputs and raw materials as a drastic change and increase in their prices can significantly affect Mercedes-Benz, or Daimler AG, its parent companys profitability. Apart from these, the rapid changes in consumer preferences and their increasing powers to demand lower priced units is a threat that a company should watch out for. V. Porters five forces analysis A. Bargaining power of suppliers The bargaining power of suppliers in the automotive industry is growing weaker these times. The global financial crisis forces companies to merge and acquire each other in order to survive. These mergers and acquisitions are aimed to produce economies of scale. As companies merge and their operations become one, their bargaining power as customers counter the bargaining power of their suppliers. The larger they are, the larger the volume they manufacture, the more powerful they become. Thus, suppliers do not have sufficient power to counter their forces as customers, much less to bargain with these automotive companies. B. Bargaining power of customers The bargaining power of customers is strong, thanks to the onset of new technologies such as the Internet which has changed the way companies do business. As consumers become co-creators of value, they can demand companies to bring down prices as they become more price sensitive. Bargaining power of customers usually becomes strong when there are few customers in the market from which the profit can be derived. As for the luxury segment of the market, the number of people that constitute this market is small but their purchasing power is high. Therefore, the bargaining power of customers in the automotive industry, especially in the luxury market is high. C. Threat of new entrant The threat of new entrant in the automotive industry is weak as barriers to entry are high. These barriers to entry include high costs in terms of investment in property, plant and equipment, as well as investment in technology through research and development. Other barriers include the incumbent companies processes that lead to economies of scale have serve as competitive advantages, thus constantly increasing their returns for every expansion, making it harder for a new entrant to catch up. The huge costs that new regulations entail also serve as barriers for a new entrant to consider. A new entrant would have to put up very high investments which would be hard to realize given the current level of competition within the industry. D. Threat of substitutes The threat of substitute is strong in the automotive industry, mainly because the existence of public transport has given more benefits to consumers especially in the times of higher fuel prices. The cost of car maintenance is one of the considerations of consumers, therefore the rise in related goods can prompt people to less costly alternatives of public transport. Therefore, the threat of substitute is strong. E. Degree of rivalry The degree of rivalry is a result of the interaction of the various forces in the market. The low bargaining power of suppliers is a result of the mergers and acquisitions of major companies within the industry. This frees up most of the profits from the suppliers to the companies themselves. Although the threat of new entrant is low and leaves the industry in the hands of the few, bigger players, the threat of substitute is high. A major consideration on the part of consumers is the cost to maintain a car, therefore, as substitutes such as public transport is high, the company that can give the most efficient car can reap the rewards from preventing consumers to resort to substitutes. This has an impact on the industrys degree of rivalry. This is intensified by the high bargaining power of customers, which can prompt to shift their choices from one brand to the other, depending on how which company can meet these customers demands and expectations. Therefore, the degree of rivalry in the automotive industry is moderate. VI. Other observations A. How these forces may drive the company’s profitability? As the degree of rivalry is moderate and the growth rate within the automotive industry is small, Mercedes-Benz has a small room to grow on its own. This means that Mercedes-Benz has to increase its efforts in order to nudge the customers of other car manufacturers to shift to its brand in order to ensure profitability. Also, as some companies resort in mergers and acquisitions, their power in the market has increased. This means they have more resources to compete, which can rob Mercedes-Benz of its other consumers, which can significantly impact its profitability. B. Key success factors, Industry Prospects and attractiveness The automotive industry does not look so attractive given the current state of the market. However, a company can still succeed within the industry both by keeping its costs low by investing in research and development, and satisfying the desires of its consumers. By developing a strong brand which is the frontrunner in terms of technology that creates value for the consumers. C. Any major players competitors? Whom to watch? While Mercedes-Benz has ranked as the leader in terms of sales of true luxury cars—cars amounting to more than $45,000 (Teahen 2009), competitors in the same segment of the market should also be closely watched. These include Lexus, BMW, and Cadillac. They have fared well as luxury brands, some fared better than Mercedes-Benz as a whole. These are close competitors which should be observed as regards their actions. The closest competitor of Mercedes-Benz are the two German auto makers BMW and Audi. While all these luxury brands convey a premium status in the car market, according to a survey of five European markets, these three are also voted for overall brand quality (PRNewswire.co.uk 2008). Mercedes-Benz tops the list, with BMW and Audi following it in the European market. This means that in terms of brand quality, conveying values such as financial security and success, these are the major competitors of Mercedes-Benz. Although Audi ranks third behind BMW and Mercedes-Benz, this is a competitor that grows far faster than the latter two (Edmondson 2007). According to an article in Business Week, this success of Audi is driven by the new models, which “has dazzled car buyers with upmarket sporty cars and cutting-edge design ever since the 1998 launch of the iconic TT roadster (Edmondson 2007).” Apart from it, the race among the three for fuel economy is now being led by Audi. According to an article in Automotive News Europe, Audi has already been offering the technology in terms of gasoline direct injection engines in the market (Wernle & Meiners 2006). BMW and Mercedes-Benz plan to follow as fuel efficiency, apart from horsepower alone becomes a major consideration for the choices of their target market. As for BMW, the company must watch over its value-added services that it offers to its customers. According to an article in Wards Dealer Business, the vice president and general manager of at the southliem California dealership claims that BMW is saved by the downturn by its pre-paid maintenance (Mayne 2009, 12). According to the article, “the auto makers program offers free oil changes, brake pads, brake rotors, wiper-blade inserts and scheduled inspection for four year or 50,000 miles (80,000 km) (Mayne 2009, 12).” As the luxury market becomes more concerned with fuel efficiency, Mercedes-Benz is lagging behind most of the luxury brands. Mercedes-Benz has to maintain its top position by putting more money in research and development in order to develop technology to make its cars greener. Those who are members of the luxury market may become more concerned with the environment and even though Mercedes-Benz ranks the highest in terms of overall brand quality, concern for fuel efficiency and other factors may rob it of its glory, which its close competitors such as Lexus (Toyota), BMW and Audi are heading towards. VII. Conclusion The automotive industry is facing serious changes due to unforeseen circumstances and events that have impacted the industry. These factors bring either opportunities to be leveraged or threats to be addressed. The importance of strategic planning and management for a major player such as Mercedes-Benz cannot be underestimated. Some of factors such as free trade agreements and discovery of new technology bring opportunities to Mercedes-Benz. Some other factors such as the global financial crisis has posed certain threats to the companys operations. The increasing input costs also pose some threat over its profitability. The forces within the industry have made the situation worse for Mercedes-Benz. The moderate degree of rivalry makes the industry less attractive in terms of profitability, coupled with the low growth in the market. The company however cannot lose hope in the process. With the help of strategic tools such as PEST, SWOT and Porters five forces analyses, the true picture of the market is determined. The company is then better equipped with information in order to craft certain strategies to survive as well as thrive in the marketplace. VIII. Recommendations In the situations where the competition is stiff, the best way to win is to remain strategic in all functions with marketing being the frontrunner. By knowing closely where to focus on in terms of profitable segments, and satisfying the market well in order to build a steady customer base, keep the current market share as well as grow it will determine if a company can survive in the long run despite the unforeseen events and circumstances. The customers will bring the company the necessary profits to grow again and counter the damages that certain threats can bring. Strategic marketing will also focus on customer acquisition apart from retention, therefore even in a low growth market, the company can grow by convincing customers to shift brands. Next, is to maintain strategic logistics and supply chain; to cut down costs where the value to the customer will not be affected. This can be done by investing further in research and development. Other people say that during the harder times should companies refrain from investing in R&D and keep away from innovating, but it is the companies who spend so much in R&D thrive in the long run. These can also benefit Mercedes-Benz as it better technology usually cuts the costs to doing operations. Lastly, keep staff functions such as HR and finance strategic as well. The company has to utilize the most optimal capital structure in order to protect it during the harsher times, or to make it in its policy to maintain ample amount of retained earnings so it can survive through the hard times and avoid bankruptcies. As Mercedes-Benz remains strategic in HR, it can find the best people to help it grow the business even with the presence of threats. It will also be less costly to the company if it employs strategic HR in terms of turnover and loss from decline in productivity. References Edmondson, G. (2007 July 31). “Audi shifts into overdrive.” Business Week Online. Date accessed April 29, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=12&sid=e375ec22-7cf1-4326-91f4-55ec3a01cab6%40SRCSM2&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=26053477 Franey, J. (2008 June 9). “Audi, Mercedes target X3.” Automotive News Europe. Volume 13 Issue 12. Date accessed April 29, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=3&sid=b40e5e2f-01a0-488e-9f7d-f8fe9438d25a%40sessionmgr2&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=33130183 IBM Consulting Services (2003). “The automotive industry: On the road to demand.” IBM.com. Date accessed April 11, 2009 from http://www-935.ibm.com/services/ph/index.wss/ibvstudy/igs/x1020319?cntxt=x1020665 International Metalworkers Federation. (2004). “Auto Report 2004.” IMFMetal.org. Date accessed April 11, 2009 from http://www.imfmetal.org/main/files/AR2004_english.pdf Knox, Jon. (2009). “Auto industry is expecting insolvencies, mergers and acquisitions but emerging markets and alternati.” Automotive Industries. Volume 189 Issue 2. Date accessed April 11, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=2&sid=ed08a0a3-c90d-427e-a931-5c83ed040c77%40sessionmgr3&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=37032189 Knox, Jon. (2009). “Daimler AG and Continental receive Yellow Angel award for lithium-ion technology.” Automotive Industries. Volume 189 Issue 2. Date accessed April 11, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=2&sid=2e582012-7804-4649-bc24-ae0b4cc0bd8b%40sessionmgr2&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=37032196 Mayne, E. (2009 January). “Luxury vehicle market hurting.” Wards DealerBusiness. Date accessed April 29, 2009 from http://web.ebscohost.com/ehost/pdf?vid=1&hid=12&sid=1c7cea92-b91a-4dff-a76b-5ed447af53ef%40sessionmgr2 Plunkett Research, Ltd. (2009). “Auto mobile industry introduction.” PlunkettResearch.com. Date accessed April 11, 2009 from http://www.plunkettresearch.com/Industries/AutomobilesTrucks/AutomobileTrends/tabid/89/Default.aspx Plunkett Research, Ltd. (2009). “Automotive industry overview.” PlunkettResearch.com. Date accessed April 11, 2009 from http://www.plunkettresearch.com/Industries/AutomobilesTrucks/AutomobilesandTrucksStatistics/tabid/90/Default.aspx PRNewswire. (2008 September 13). “Mercedes Benz, BMW and Audi seen as top three car manufacturers in terms of overall brand quality by Europeans, according to New Harris Interactive survey.” PRNewswire.co.uk. Date accessed April 29, 2009 from http://www.prnewswire.co.uk/cgi/news/release?id=153569 Teahen Jr., J. K. (2009 February 16). “Mercedes again leads true-luxury class.” Automotive News. Volume 83 Issue 6347. Date accessed April 11, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=5&sid=a604c0fb-24dd-498d-8b46-884dc8376f88%40sessionmgr7&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=36922313 Veloso, F. & Kumar, R. (2002 January). “The automotive supply chain: global trends and Asian perspective.” Asian Development Bank. ERD Working Paper Series No.3. Date accessed April 11, 2009 from http://www.adb.org/Documents/ERD/Working_Papers/WP003.pdf Wernle, B. & Meiners, J. (2006 March 20). “BMW, Mercedes revive GDI.” Automotive News Europe. Volume 11 Issue 6. Date accessed April 29, 2009 from http://web.ebscohost.com/ehost/detail?vid=1&hid=101&sid=3256d185-3e26-454f-a1ed-a45302a62f11%40sessionmgr103&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=20364327 I. Case 1: Electrolux A. Explain what the issues facing Electrolux were strategic. First, changes in the market have been one of the issues that face Electrolux. In order to preserve its lead, how should it proceed? Should it diversify, or should it focus more on its core competencies? Should it offer more products, or concentrate on ways to make its existing products better reach consumers? Should it utilize the traditional dealers, or focus more on larger retailers to reach customers? Issues regarding the companys positioning, strategic marketing and strategic logistics were the types of issues that the company has faced. The major issue about the companys positioning is in line with the emerging trend in the market due to globalisation where homogenisation of products may result to turning products into commodities where Electrolux can lose its position. Therefore, by anticipating this trend in the market, the issue of establishing its position in the market is a key strategic issue to the company. In line with this, another strategic issue that the company faced is whether it should come focus on its core competencies, offering its current line of product to the market, or it should diversify to other products in different markets. Apart from it, the choice between choosing its distribution strategy in order to reach its consumers is also a major issue. B. What levels of strategy can you identify with Electrolux? In the case of Electrolux, there were three levels of strategy that the company employs: corporate-level strategy, business-level strategy, and functional-level strategy. The corporate-level strategy of Electrolux is apparent in its decision to pursue focus and retain its line of products that is really within its expertise. With focus strategy, it aims to differentiate itself from the competition at the same time maintaining its costs levels low by focusing on a segment in the market. Its decision to come up with a global brand that will incorporate the positioning of Electrolux as a top manufacturer of consumer durables is part of its business-level strategy. Electrolux employs functional-level strategy after it has decided to link finding consumer insights to its various moves in order to pursue an effective branding. C. Identify the main factors about the strategic position of Electrolux. List these separately under environment, capability and expectations. What do you think are the most important factors? Environment. The market itself as well as the industry is changing. As better products at cheaper prices have flooded the market, the challenge for Electrolux is to cut through the clutter and establish itself as a major manufacturer that could lead the market. The shift in the industrys power dynamics as retailers have a firmer grasp on the market has also impacted Electroluxs position. Capability. The companys long experience in the consumer durables market has enabled Electrolux to both acquire the resources as well as the competences that are needed to survive the marketplace. The companys long expertise in the market gives it a lot of incentive to build its name based on those competences, as well as acquire similar products. Its capabilities can also be traced from its resource advantages given its long trail of operations which allowed it to grow in the consumer durable market. Expectations. The companys position as the top consumer durables manufacturer has provided some expectation on the part of the company which it should maintain and live up to. This has also influenced the companys strategic position by wanting it to defend itself and maintain its position in the market. The most important factors are those of the environment. In the long run, a company has to create an outside-in competitive advantage which focuses more on consumers or the market, as capability and expectation will eventually change as dictated by the changes in the environment. II. Case 2: European Brewing Industry A. Using the data from the case, conduct a PESTEL analysis and a five forces analysis for the European brewing industry focusing on the beer sector. What do you conclude? The European brewing industry is affected by forces in the macro environment that such as political, economic, social, technological, environmental and legal factors. As for the political factors, the government has introduced campaigns against drunk driving. These campaigns have legal implications as binge drinking and drunken driving come with penalties. Apart from these campaigns, the changing consumer preferences and attitude toward drinking beer and maintaining their health and being fit is a social factor that has affected the European brewing industry. As for the economic factors, countries such as Brazil and China, with their large population and the growing purchasing power of their people creates a huge opportunity for new markets that the industry can venture into. The effect of new technology in terms of globalisation has also enables the companies to pursue a global strategy in order to maintain efficiency, as well as pursue further innovation. The threat of new entrants in the beer industry is strong, as apparent in the emergence of smaller players in the market. The process of beer-making does not require much capital in the process, that is why the beer industry has almost become homogeneous and larger companies should focus on creating brands. The threat of substitute is also strong in the industry, as it is stated in the case that wine has become more popular in the Northern European market which competes with beer as its close substitute. The bargaining power of suppliers are high—the European packaging industry is concentrated and dominated by two powerful players, especially in cans and in bottles. These powerful players, because there are plenty of customers, which are brewing companies can increase their prices, which is the evidence of their high bargaining power. The bargaining power of customers is also high—the brewers immediate customers being the large retailers that sell off-trade beers, and constitute a large chunk in the market. These retailers because of their scale and size can bargain with brewing companies in order to lower down their prices. All in all the degree of rivalry in the industry is very high, as a result of interaction of these forces. B. How these trends will impact differently on the chosen company? The relative strengths and weaknesses of the chosen company? The forces in the macro environment or those that constitute the PESTLE will push Heineken to either push the demand by transforming the negative attitude toward beer drinking, or go to markets that are less regulated especially those that are booming and promising in terms of potential for growth in the future. The high bargaining power of suppliers and consumers can impact the companys operations, in that these suppliers can absorb much of the profit of Heineken especially if these decide to increase the current prices; the retailers as consumers, can bargain for much lower prices with the availability of other brands which are Heinekens competitors. The threat of substitute can push Heineken to make efforts especially in terms of marketing in order to position itself as a better choice than wine; wine is the closest substitute to beer and the threat in the North European market is quite high. As for the threat of new entrants, the company can compete on the basis of its brands. Heinekens major weakness is that it is still a family-business which leaves it with little room in terms of flexibility in raising additional funds to compete in the market. The companys major strength is in its brands, which are known internationally. As with the companys strategy, these brands are used when the company acquires local brands; the company introduces the Heineken and Amstel brands in order to strengthen the local brands that are acquired. III. Case 3: Make eBay work A. How do you think Meg Whitman would describe eBays strategic capabilities? Ebays strategic capabilities include the business model as well as the companys management team. The companys business model is not only based on technology, but based on building a community among buyers and sellers, and making these community a co-creator of value to the company. The community supports the level of technology, as technology will supply the needs and wants of the consumers. Thus, this business model of eBay is one of its strategic capabilities, as its system is based on incorporating processes to enhance customer experiences. Ebays management team, or its key people are also included in its strategic capabilities. By putting people who can best adapt to the changing needs of the market as well as people who know how to listen well, these are some of the key success factors in the company. The companys values of focusing intently on smaller details through monitoring data in order to spot opportunities or address problems, and specifically improve the processes of the company to continually adapt and innovate is part of the companys strategic capability as well. B. Give your own explanation of eBays strategic capabilities with particular emphasis on: a, identifying linkages of activities; b, identifying core competences. How might eBay manage the future development of its strategic capabilities? Ebays business model is a strategic capability in that the community has provided feedback to the company which is useful in crafting policies and strategies. The companys ability to increase value by incorporating value-added services such as the acquisition of Skype in order to integrate online call advertisements, as well as acquisition of Paypal in order to facilitate easier payments is part of its business model. The company has developed its capability by listening to its consumers, determining what they need, and in the process creating more activities that will enhance their experience and help them get what they want from using the services of the company. The companys core competencies include its unique online community and its people. The online community has set eBay apart from other dot-coms that are later on watered down, as the online community has provided eBay information that the company can use to adapt to the marketplace. The online community is a co-creator of value, in that with the interactivity that Internet offers, this community can help eBay determine what other ways the company can enhance the experience of consumers. This is a very important competency of eBay. Apart from it, its key people are included in its core competences. Its management team with the leadership of Whitman has created a culture that can support its strategy—a culture that is able to listen to consumers and other employees in order to constantly improve the processes of the business and be able to adapt to the changes in the marketplace in a faster manner, as apparent in the speed of response and action that is required among its employees. Their ability to sift through data and act on them is also part of the values that are imparted by the management team. The composition of the companys key people who influences the values of the company is a key competence, one that supports the companys strategy in the process. Ebays strategic capabilities are also connected to the consumers in general. Therefore, in order for eBay to develop its strategic capabilities in the future, it has to include in its current processes, to be supported by its values and culture its practice of sticking closely and listening to consumers, Only by preserving its online community and listening to its customers well then add services that can enhance their experience, thus create value will eBay be able to better develop its strategic capabilities. Read More