Strategic Management - General Motors Corporation - Assignment Example

Strategic Management Table of Contents Task 3 Task 2 5 PESTLE Analysis 5 Value Chain Analysis 6 SWOT Analysis 7 Task 3 7 Porter’s 5 Forces 7 Recommendations 9 Reference List 12 Task 1 General Motors Corporation came into existence in the year 1908 and was founded by William C. Durant and Charles Stewart Mott. The company has it’s headquarter at Detroit, Michigan, United States. The company is basically involved in the business of designing, manufacturing, marketing and distributing vehicles and offering financial services. As of 2013, the company has operation in 157 countries and employs around 212,000 people. General Motors has been known as a company with a powerful vision and strategy. The company’s strategies have significantly developed over the course of its journey, which saw new business models and strategic framework being formulated every year. The company is focused towards a single global vision and that is to design, manufacture and sell the world’s best vehicles. This underlying motivation is the reason behind the world class products manufactured by the company, which are winning the market place. The strategic developments of GM come in the form of new business models that develops a self-sustaining sequence of reinvestment. This business model is responsible for driving consistent improvements that are being made in the automobile design, brand equity, manufacturing discipline, competitive pricing and margins. The business model involves four operations, which are design, build, sell and reinvest (Evans, 2014). The designing phase involves focusing on new and upcoming brands which are integral to the market. The company’s idea is to pull its global resources to develop the most gripping vehicle and technology and thereafter, lead the R&D of sophisticated technologies in order to reinvent the future of vehicle transportation. The build phase involves utilizing their global footprint in order to design and develop world class vehicles cost effectively. The underlying strategy is to enhance the efficiency of their operational facilities in an environment-friendly and responsible manner. The sell phase involves maximizing the value for the company by focusing on developing a robust brand strategy, thereby offering superior quality vehicles to their customers throughout the world and delivering high residual value at an appropriate price. Finally, the reinvest phase involves the reinvestments and available cash and profits in order to support vehicle and technology development at different points over the business cycle of the company. Apart from the operational activities, the philanthropic activities of the firm are also a crucial part of their business strategy. Apart from its operational activities, one of the key areas where the company focuses on is philanthropic activities. Studies have shown that GM has been a key contributor to the society. The company has donated around $23 million in cash to Nature Conservancy and for various other conservation projects. Such activities have not only allowed them to generate a sense of trust among the consumers but also offer them other benefits in the form of increased government confidence, greater market acceptability and direct financial benefits. Figure 1: GM business model (Source: GM, 2013) However, it has to be said that the company also met with certain strategic challenges, as far as their production domain and other business activities are concerned. A major strategic challenge that GM is facing is to maintain a lean manufacturing process. The company’s underlying objective is manufacture cars, according to the needs and suitability of their customers. Now, the major challenge in this case is that customer needs and requirements vary significantly (Song, Calantone and Di Benedetto, 2002; Swafford, Ghosh and Murthy, 2006). The country to which they belong plays a substantial role in this. It is not possible for GM to open a manufacturing hub in each and every customer country for manufacturing vehicles appropriate to their customers, as it would make the company’s production process inefficient. This suggests that the company faces steep challenge while adopting strategies with respect to each customer country. Another major strategic issue is pricing (Klum, 2014). The company has to adopt different pricing strategies, specific to their customer country. The pricing depends on whether their customer is based in a developed economy or a developing one. This is particularly because the purchasing power of a customer, based in developed economy, would always be higher compared to a customer based in the developing economy. Therefore, pricing becomes a challenge as it depends on the design and facilities offered in the car. Apart from that, despite remaining involved with the philanthropic activities, the company had faced criticisms over abusive labour practices, poor environmental record, off-shoring of production. Some of the authors have even pointed out that the philanthropic activities of the firm are being funded by illegal activities. Hence, the company is strongly suggested to bring transparency in their operations so as to achieve and experience greater benefits. In order to mitigate risks and challenges pertaining to pricing and production, ‘glocalized’ (think globally, act locally) approach would help in serving the purpose, in which the company will be acting as per the local trends. Task 2 PESTLE Analysis Political factors The environmental concerns that surround the government as well as the customers of GM have imposed a strong supremacy over the company’s business growth, since its inception. The company had to bring about specific changes in its operations due to these concerns. Economic factors The automobile industry plays a crucial role as far as strengthening the economy of countries is concerned. Such has also been the case of the US economy owing to the presence of companies like, GM, Daimler and Chrysler, Ford motors and so on and so forth. Socio-cultural factors The society that we live in today tends to judge people on the basis of the car they drive. Manufacturers are aware of this fact and they target their market on the basis of this. A person driving a quality vehicle is thought to be wealthy. In addition to that, customers tend to give a top priority to the driving experience and that is why they choose to buy luxurious car more often than not, even if it is a bit out of budget. That is where GM needs to focus on. They can produce superior quality cars and that too at a cheaper price than its competitors, in order to gain significant competitive advantage. Technological factors The development in information technology has affected every industry throughout the world and also, had a significant impact on the automotive industry. Previous researches have shown that about of 60% of buyers refers to the internet before buying a car. They also refer to auto websites before booking for a test drive. Thus, this factor is an advantage for GM as they can do effective web marketing in order to draw attention of wider base of potential customers. Environmental factors The automobile industry in US has faced quite a few steep challenges over the last decade, particularly because of certain environmental protection act formulated and passed by the United States Environmental Protection Agency. Legal factors The major legal factor that affects the US automobile industry is the country’s relationship with China. This is primarily because majority of the automobile parts are outsourced from China. Besides that, another legal factor affecting the US automobile industry is the regulation imposed on the endorsement of vehicles (Arif, 2012). Having done the PESTLE analysis, it can be affirmed that the competitive capabilities of GM are in correlation with its competitive capabilities. The company’s strategy from the very beginning was to be a product differentiator. The company has a very diverse mix of products, which gives it a competitive edge over its rivals. The company manufactures cars that suit every purse and purpose. The company’s strategic capabilities have made it the most successful car manufacturer and it was the world’s largest manufacturer till 2008, after which Toyota took over the throne. The increasing competition in the market has enhanced the competitive capabilities of GM (Kalnins, 2005; Lee, Madanoglu and Ko, 2013). In order to beat the competition, GM is implementing robust competitive strategies and that is to build superior quality vehicles which will be sold at a much lower price, in order to make them easily accessible and affordable to customers. The proceeds from the deal will, henceforth, be reinvested to achieve technological advancements. In-depth analysis tools such as value chain and SWOT would further help in getting deeper insights into the company’s internal environment. Value Chain Analysis In this context, the focus of this analysis will be on the primary activities: - In bound Logistics: - The Company acquires raw material from a variety of organizations. Apart from that the company has also entered into alliance with logistics providers. Operation: - The Company assembles the raw materials at 11 engineering centres alone in the US. Outbound Logistics: - The Company has entered into treaty with logistics service providers and the service providers are responsible for distributing the finished products to the house of distributers. Marketing & Sales: - GM gives importance to all the elements of marketing. Brand positioning and television commercial is one of the crucial marketing tools. After Sales Service: - GM opened company owned as well as franchised servicing outlets at convenient locations to offer after sales support. 24*7 call centres support is also provided for better support. SWOT Analysis Strengths The company has a global presence that allows them to cater to a wide range of customers and greater market size. The company has been to maintain a strong brand portfolio. Stable financial situation which allows them to explore new business avenues. Weakness A number of car recalls due to manufacturing errors have ruined the prestige of the company. The bureaucratic culture often acts as a hindrance to the firm. Brand dilution is another major cause of concern for the firms. Opportunities The company has been exhibiting positive stance towards the green vehicles. The shifting customer trends can be a positive factor. The company also has the opportunity to offer new and innovative products. Threats Fluctuating price of the fuels can impact in the overall sales. Changes in the exchange rate might disrupt company’s overseas business. Intense rivalry is another cause of concern. Task 3 Porter’s 5 Forces In order to be able to provide recommendations, regarding the ways GM can sustain or improve its current level of performance, we need to do Porter’s five forces analysis that sets five factors. a. Rivalry between existing competitors. b. Threats to entry from new competitors. c. Price pressure from alternative or complementary products. d. Bargaining power of suppliers. e. Bargaining power of buyers. Figure 2: Porter’s five forces model (Source: Porter, 2008) Rivalry between existing competitors With the onset of foreign companies such as. Honda, Toyota and Nissan, the competition in the US automobile industry has become very intense. Firms compete with each other in pricing and non-pricing dimension. The competition, in terms of lowering the price, deteriorates the company’s profitability and hence, affects the profit margin. The non-pricing competition such as, interest free loans and rebates on cars, elevates the fixed costs as well as the marginal costs of the company. Moreover, another reason that contributes to the steep competition is lack of differentiation opportunities. Threats to entry from new competitors The existence of new firms in a particular industry forces companies to lower the prices of their products, which in turn affects the profitability of the company significantly. However, there are certain barriers to entry that, more often than not, protects firms which are established. It is generally expected that a new entrant will always face a barrier while trying to realize economies of scale, during manufacturing automobiles. The newbie company will have to attain extensive market share in order to realize an efficient economy of scale. If it fails to do so, then it would mean a severe cost disadvantage for the company. Price pressure from alternative or complementary products Although the five forces do not take into account the demand factor, yet it certainly considers two factors that stimulate demand, which are complements and substitutes. Given that brand new cars are slightly expensive, suggesting certain substitutes such as, rapid transit and bus, the demand for a new model is very sensitive to its price, primarily because of the availability of the closest substitutes for a particular model. In addition to that, the change in the prices of complimentary products such as, batteries, gasoline and tyres, also has a significant impact on the demand for automobiles. The rising price of fuel and other complimentary products would more likely affect the financial performance of firms. However, that will depend on the vehicle composition. The recently rising price of fuel is likely to affect the big three companies (GM, Daimler-Chrysler and Ford motors), who are manufacturing pick-up trucks and SUVs in bulk. Bargaining power of suppliers Automobile manufacturers need raw materials, car parts, input-labourers and other services. The cost associated with these inputs affects the profitability of the company significantly. The strength of supplier depends heavily on the bargaining power that they can exercise over automobile manufacturers. The automobile manufacturing companies have a large network of suppliers that tend to exercise very little bargaining power. Nonetheless, over the recent past, the United Auto Workers have been able to cut sizeable deals with the big three, which has enhanced its bargaining power significantly. As far as the American market is considered, the strengthening position of suppliers can prove to be a big threat to profitability of the automobile manufacturing companies (Winter and Priddle, 2001). Bargaining power of buyers The bargaining power of buyers refers to their ability to negotiate prices in order to accrue profit from the seller. Their power to negotiate also has a significant influence over the prices of the products. This is particularly because if their negotiations are somehow not met with, then they have the flexibility to switch to other auto dealers. Furthermore, customers now have a greater access to information such as, prices and maintenance costs of cars, which augments their negotiation power. Recommendations This section provides a list of efficient strategies that GM can implement in order to boost its profits and ensure the sustainability of the company. Market development: - Market development is adjudged as a growth strategy that has the ability to identify and develop new segments of market for its current products. As a result of that when a company seeks market development it refers to targeting non-buying customers in the currently segmented market. It is also seen as a strategy where the potential market is expanded through new customers. With the implementation of market development strategy, General Motors can target new customers and can increase the overall sales. The untapped segment can be targeted or made aware with new promotional techniques. Product development: - The development of a new product is another feasible way by which a company can embrace development. New product development has always been a driver of businesses and companies have hardly succeeded without developing a new product. A new product helps a company to movie at par with the societal trends and satisfies the new age requirements. In the context of GM, a new car will allow them to target new customers. It would be wise decision for the firm if they focus more on the development of eco friendly cars/electric cars. Industry experts believe that eco friendly cars/electric cars are the future of automobile sector and therefore investment in this domain will prove to be beneficial for the firm. Restructuring: - Restructuring refers to the act of reorganizing legal structure of the firm. The purpose of restructuring is to become more profitable and streamline business process. Some of the other key reasons are change of ownership, repositioning, buyout etc. The company in this context can change the organizational hierarchy to convert it into centralized operating unit. Retrenchment: - Often companies require retrenchment for the purpose of remaining profitable in the market place. The company in this regards can reduce the number of distribution plants and can undertake more efficient strategies which will streamline the distribution channel. Expunging unnecessary intermediaries will also aid the process. Profit reinvestment: - Whenever a company starts making profit, the owners are often in two minds i.e. whether to reinvest the profit or realise it. In the context of GM, reinvestment of profits will allow the firm to get bigger in size. Apart from that it will also act as a evidence of confidence. One of the greatest advantages of undertaking such initiatives is that it allows the firm to attract new investors and gain confidence in the minds of the customers. For example, if the company spends certain percentage of profit into CSR activities, the result will be really beneficial for the firm (Kotler and Keller, 2009; Johnson, Scholes and Whittington, 2008; Grant, 2008) GM has to bring about improvement in their product and implement strategies that would help it to attain market growth (Niederhut-Bollmann and Theuvsen, 2008; Schlie and Yip, 2000). Thereafter, the company has to adopt proper restructuring and reinvestment strategies. The reason that product development has been given a higher priority is because the company needs to develop hybrid vehicles in order to stand apart in the competition. A major step ahead in this case would be to develop a hybrid SUV. In that way, the company can maintain its strong hold over the SUV segment and at the same time, diversify its products by focusing on the hybrid segment. The company needs to reassess its market that they are eyeing. This is primarily because their products, till date, have been associated with a traditional outlook. The market is becoming trendier now, which is why they need to manufacture vehicles that suit the market type. They need to be one-step ahead of their competitors (Twarowska and Kąkol, 2013; Diez-Vial, 2009). One way of doing so is to design futuristic cars which run on electricity, rather than fuel. With the rising price of fuel, this will be a good strategy to implement, which would fetch the company a significant competitive advantage. Therefore, the company needs to reinvest a certain part of its profit to achieve technological advancements (Arif, 2012). Reference List Arif, K. K., 2012. General Motors strategic management. [online] Available at: [Accessed 17 January 2014]. Diez-Vial, S., 2009. Firm size effects on vertical boundaries. Journal of Small Business Management, 47(2), pp. 137-153. Evans, H., 2014. GM develops new global marketing strategy. [online] Available at: [Accessed 16 January 2014]. GM, 2013. Corporate Strategy. [online] Available at: [Accessed 16 January 2014]. Grant, M., 2008. Contemporary Strategy Analysis. 6th edn. United Kingdom: Blackwell Publishing. Johnson, G., Scholes, K. and Whittington, R., 2008. Exploring Corporate Strategy. 8th edn. London: FT Prentice Hall. Kalnins, A., 2005. Overestimation and venture survival: an empirical analysis of development commitments in international master franchising ventures. Journal of Economics & Management Strategy, 14(4), pp. 933-953. Klum, E., 2014. General Motors Growth Strategy. [online] Available at: [Accessed 16 January 2014]. Kotler, P. and Keller, K. L., 2009. Marketing Management. 13th edn. New Jersey: Pearson Education. Lee, K., Madanoglu, M. and Ko, F. Y., 2013. Developing a competitive international service strategy: a case of international joint venture in the global service industry. Journal of Services Marketing, 27(3), pp. 245-255. Niederhut-Bollmann, C. and Theuvsen, L., 2008. Strategic management in turbulent markets: The case of the German and Croatia brewing industries. Journal for East European Management Studies, 13(1), pp. 63-88. Porter, M. E., 2008. The five competitive forces that shape strategy. Harvard Business Review, 86(1): pp. 78-93. Schlie, E. and Yip, G., 2000. Regional follows global: Strategy mixes in the world automotive industry. European Management Journal, 18(4), pp. 343–354 Song, M., Calantone, J. and Di Benedetto, C., 2002. Competitive Forces and Strategic Choice Decisions: An Experimental Investigation in the United States and Japan. Strategic Management Journal, 23(10), pp. 969-978. Swafford, M., Ghosh, S. and Murthy, N., 2006. A framework for assessing value chain agility. International Journal of Operations & Production Management, 26(1/2), pp. 118-140. Twarowska, K. and Kąkol, M., 2013. International business strategy - reasons and forms of expansion into foreign markets. [pdf] Make learn Available at: [Accessed 16 January 2014]. Winter, D. and Priddle, A., 2001. GM Revamping Purchasing Strategy. [online] Available at: [Accessed 16 January 2014]. Read More