UAE Automobile Industry Analysis - Example

Industry Analysis: UAE Automobile Industry of Table of Contents Introduction 3 Industry Indicators 3 IndustryDriving Forces 6 PEST analysis 6 Porter’s five forces 7 Source: (Created by Author) 8 Value Chain Analysis 8 Industry Attractiveness 9 Current Position of the Companies 9 Future Outlook 9 References 10 Introduction The paper is based on the automotive industry in Dubai, UAE. In Dubai, the automotive industry has shown a rapid growth in the last four years. It has been recorded that the industry has grown to $4.7 billion in 2013 from $1.1 billion in 2004. The industry has seen growth in sales of both premium luxury cars and mid-ranged cars (UAEInteract, 2014). The high growth in the UAE automobile industry has attracted several international companies in the nation to conduct their business operations. The Dubai automobile industry consists of several well known brands such as Toyota, Audi, Volkswagen, Nissan, BMW, etc. and some exotic sports car brands as well such as Lamborghini, Porsche, Aston Martin, etc (Schimd and Grosche, 2013). This paper is focused on two car companies, Volkswagen and Toyota. Volkswagen Volkswagen is one of the leading global automobile companies, positioned in the third place in terms of market share just below Toyota and General Motors. The group company operates 60 manufacturing plants in 11 countries and sells its products in more than 150 counties. The company is owns several automobile brands for both mass and niche markets, which are Audi, Skoda, SEAT, Porche, Lamborghini, etc. The group has recorded revenue of $168,073 million in the financial year 2010 (Marketline, 2011). Toyota Toyota holds the highest position in the global automotive industry in terms of market share. The company has business collaborations with 50 manufacturing companies across 26 countries. The company manufactures automobiles in two segments, Conventional Vehicles and Hybrid Vehicles. It sells vehicles under the brand names Lexus, Hino and Daihatsu. The company has recorded a revenue generation of $215,772 million in the financial year of 2010 (Marketline, 2011). Industry Indicators Industry size and growth rate The size of the UAE industry has been recorded to be $4.7 billion in 2013. In the same year the car market has been evaluated at $ 2.5 billion, which has recorded a 15% annual growth as compared to the previous year (Scott, 2013). It has been predicted that the industry is likely to grow in a steady manner till 2020. By 2020, it is expected that the number of vehicles sold will reach 7 million (UAEInteract, 2014). Figure 1: Automotive Import in UAE Source: (RAK Investment Authority, 2009) Figure 2: Production of Automobile in Middle East Source: (RAK Investment Authority, 2009) Market size According to the reports of Makahleh (2013), the UAE automobile market has seen a 27% y-o-y growth in the first quarter of 2013. The number of vehicles sold has also increased from 305,000 in 2012 to 380,000 in 2013. Moreover, it has been also reported that the UAE stands among the top in a global perspective in terms of the market growth (Makahleh, 2013). Products or Services The Products or services offered in this industry includes several motor vehicles and after sales service. The vehicle consists of cars of various types such as luxury sports cars, family sedans, coupe, hatchbacks, SUV, etc. Other large vehicles like trucks are also available in the market. These firms also offer after sales servicing and maintenance of the vehicles (Scott, 2013). Profitability Based on the reports of Tsetsonis (2015), 90% of the automobile trade in the UAE consists of overseas imports. As a result, most of the firms need to pay overseas trade tax to sell their products in the country; this as a result reduces the profitability for the companies. Capital Requirements Entering in the UAE automotive industry requires high capital for any new entrant. However, after the accession to the World Trade Organization (WTO), it has become easier for international firms to enter into the UAE market in terms of taxes and trade regulations (WTO, 2015). Entry and Exist barriers The entry barrier in the UAE automobile industry is quite high. The industry is saturated with several well established brands; therefore, it is quite challenging for a new firm to make its brand awareness in the industry. Moreover, operating in an automobile business is quite capital extensive, which may not be viable for every firm. Since the initial capital investment of the firms is quite high, therefore it also increases the exit barrier, because the owner will have a lot of capital involved in the business. Level of Fragmentation or Consolidation Due to the availability of large number of product categories the UAE automotive industry is highly fragmented. It offers several product categories starting from family cars and sports cars to trucks. This wide range of product portfolio increases the level of fragmentation in the industry (Makahleh, 2013). Customer Characteristics The customers in the UAE automotive industry are highly brand conscious and are quite concerned about their social status (Marketline, 2014). Moreover, the extremely strong economic structure of the country indicates that the overall disposable income of the customers are also quite high, which as a result is quite lucrative for the luxury automobile companies. Capacity Utilization The capacity utilization of the industry is quite high which is reflected in the high sales figures of the industry. Moreover, the automobile companies in the UAE are able to generate high return on investment due to the high affordability of the customers. Industry Driving Forces The key driving forces behind the constantly growing automotive industry in the UAE is the high market demand of the customers and the high affordability. Owing to the advent of globalization, the UAE customers are highly influenced by the western culture of consumerism, which drives them to purchase luxury cars. Moreover, the high brand consciousness among the UAE citizen is also the reason why the luxury cars are so popular in the country (Makahleh, 2013). PEST analysis The environment analysis of the UAE has been discussed in this section. Political: The political structure of a nation largely influences the business activities of a firm. The political structure of the UAE is quite stable and moreover, it holds a good political relationship with the UK. This as a result has improved the overseas business opportunities with the European countries. However, the absence of democracy has given maximum control to the government who can easily regulate the international business laws. As a result, the companies like Toyota and Volkswagen maintain a good working relationship with the government so as to ensure a sustainable business operation in the country (Marketline, 2014). Economic: A stronger economic structure indicates that the customers have a high disposable income and they are capable of purchasing luxury goods. The economic condition of UAE is quite strong, which as a result has allowed the customers to purchase luxury vehicles (Marketline, 2014). The strong economic factor has been leveraged by Volkswagen by introducing its premium brands like Lamborghini, Audi, Bugatti, etc (Volkswagen, 2015). Social: The social structure of a nation indicates the overall consumer behavior of a nation. The customers in the UAE are highly status conscious and prefer to buy premium brands to show off their financial prowess. This has helped the car companies to leverage their brand image and attract the customers towards their premium vehicles (Marketline, 2014). Technological: The technological advancement of a nation determines the efficiency of the operational activities of a firm. In the Middle East region UAE is one of the most technologically superior countries. This allows the automobile firms to efficiently run its business operations (Marketline, 2014). Thus, from the PEST analysis is can be stated that the car companies like Volkswagen has been able to leverage the high political stability, high affordability of the customers to sell its premium vehicles. Moreover, Toyota has also been able to push its premium brands like the GT series (Gulf Business, 2014). Porter’s five forces Power of Buyers: The UAE automobile industry is saturated with several automobile manufacturing companies that offer near to identical products and services (Tsetsonis, 2015). This as a result has reduced the switching costs of the customers, as they can easily shift from one brand to another. Thus, the overall power of buyers is high. Power of Suppliers: The number of suppliers in the automotive industry is quite high, which reduces the switching costs of the car companies, thereby reducing the suppliers’ power (Tsetsonis, 2015). However, in order to ensure a steady supply of high quality raw materials and certain rare equipment, the major industry players are dependent on their suppliers. Therefore, the overall power of supplier is assessed to be low. Threat of new entrants: The UAE automotive industry consists of several well established brands like Toyota, Volkswagen, etc. which increases the barrier to entry (UAEInteract, 2014). Moreover, in order to enter in the automotive manufacturing business, a firm required high capital investment which may not be viable for a new entrant. Thus, the threat of new entrant is low. Threat of substitutes: The direct substitute of purchasing automobile is using public transport. However, owing to high affordability and social structure of the UAE, purchasing a personal vehicle has become a necessity. Hence, the threat of substitute has been assessed to be low. Rivalry among firms: The industry is characterized by high competitiveness among the well established brands like Audi, BMW, Mercedes, etc. The firms seek out for new ways to improve their brand image and attract customers. The mass market is dominated by Toyota and rival companies like Volkswagen is trying to increase its market share by aggressive marketing strategies. Thus, the rivalry among firms is high (Tsetsonis, 2015). Figure 3: Porter’s five forces analysis Source: (Created by Author) Value Chain Analysis Firm Infrastructure The infrastructure of Volkswagen and Toyota is quite strong. They hold the first and second position in the global automotive industry respectively (7days, 2014). Human Resources These firms are best known for their human work forces that slow the company to efficiently add value to the customers. Technological Development Volkswagen is known for its technological innovation and has successfully managed to improve its operational activities and develop new products. Procurement The raw materials are procured from the best suppliers in the industry to ensure high product quality. Inbound Logistics Operations Outbound Logistics Marketing Service The raw materials are procured from companies all across the world though advanced logistics system for fast delivery. The operational actives of the firms are conducted at several places. China has most of the manufacturing plants owing to its low cost labor (Delloitte, (2014). The finished products are transported to several parts of the world. Firms like Volkswagen and Toyota highly depend on promotional activities to build strong brand image (Toyota, 2015). The firms provide high quality after sales services to ensure customers retention. Industry Attractiveness The UAE automotive industry is highly attractive owing to its steady forecasted growth. This as a result attracts a lot of international car companies to conduct their business operations in the country. Furthermore, UAE has become one of the largest business centers of the world, which as a result has improved the overall economic condition of the nation, thereby improving the industry attractiveness (Tsetsonis, 2015). Current Position of the Companies Toyota holds the leading position in the UAE market followed by Volkswagen. Toyota has managed to earn the highest revenue in the industry by focusing on the mass market and high quality service (Jordan, 2013). However, Volkswagen is more established in the luxury car segment owing to its wide product portfolio of premium brands (Statista, 2014). Future Outlook In the near future it can be predicted that the UAE will be among the top three nations to have the largest automotive market in the world. This as a result will attract several car companies to aggressively market their products in the country. Eventually, it will further increase the competitiveness of the industry, thereby pushing the firms to strengthen their brand image by aggressive promotional activities. References 7days. (2014). Al Futtaim Motors and Toyota bring popular TRD performance packages to UAE. Retrieved from http://7daysindubai.com/al-futtaim-motors-brings-popular-trd-racing-uae Delloitte. (2014). Accelerating toward 2020 —An automotive industry transformed. Retrieved from http://www.oesa.org/Doc-Vault/Knowledge-Center/Industry-Overview/Deloitte-Accelerating-toward-2020.pdf Gulf Business. (2014). The UAE: A Thriving Japanese Car Market. Retrieved from http://gulfbusiness.com/2014/04/uae-thriving-japanese-car-market/#.VSYvWNyUcZM Jordan, J. (2013). Toyota sales race to record in Middle East. Retrieved from http://www.thenational.ae/business/industry-insights/retail/toyota-sales-race-to-record-in-middle-east Makahleh, S. A. (2013). UAE auto market to record 27% growth in 2013. Retrieved from http://gulfnews.com/business/sectors/automotives/uae-auto-market-to-record-27-growth-in-2013-1.1179913 Marketline. (2014). United Arab Emirates. Retrieved from www.marketline.com Marketline. (2011) Global Automobiles. Retrieved from www.marketline.com RAK Investment Authority. (2009). Investment Opportunities in Automotive Sector in RAK. Retrieved from http://www.rak-realestate.de/rak_pic/d03/d03i/Auto%20Survey%20report-12-1-10l.pdf Schimd, S and Grosche, P. (2013). Managing the International Value Chain in the Automotive Industry. Retrieved from http://www.escp-eap.eu/uploads/media/Managing_the_International_Value_Chain_in_the_Automotive_Industr.pdf Scott, A. (2013). UAE used car market moves into fast lane. Retrieved from http://www.thenational.ae/business/retail/uae-used-car-market-moves-into-fast-lane Statista. (2014). Revenue of the leading automotive manufacturers worldwide. Retrieved from http://www.statista.com/statistics/232958/revenue-of-the-leading-car-manufacturers-worldwide/ Toyota. (2015). About Us. Retrieved from http://www.toyota.com/rental/about-us.html Tsetsonis, A. (2015). UAE’s automotive sector overview. Retrieved from http://www.emiratesnbd.com/plugins/ResearchDocsManagement/Documents/Research/Emirates%20NBD%20Research%20UAE%27s%20Automotive%20Sector%20Overview%204%20February%202015.pdf UAEInteract. (2014). The Economy - Automobile Industry. Retrieved from http://www.uaeinteract.com/news/default3.asp?ID=320 Volkswagen. (2015). Brands and Products. Retrieved from http://www.volkswagenag.com/content/vwcorp/content/en/brands_and_products.html WTO. (2015). United Arab Emirates and the WTO. Retrieved from https://www.wto.org/english/thewto_e/countries_e/united_arab_emirates_e.htm Read More