Strategic Business Planning: Motor Vehicle Industry - Case Study Example

STRATEGIC BUSINESS PLANNING (PRESENTATION OF MOTOR VEHICLE INDUSTRY REPORT) By (Name) Code+ course name Professor’s name University name City, State Introduction In the last couple of years, automotive industry has come up with massive innovations in order to fulfill the underlying demands of the market. Different models of vehicles come every season, signaling increased demand. Generally, the motor vehicle industry is composed of all firms that are involved with the production and supply of motor vehicles, including the body parts and accessories (Hiraoka, 2011). The most important factor as far as this industry is concerned is value creation and durability. This paper seeks to address some of the emerging issues in the motor vehicle industry. It will also analyze the factors (environmental) that affects the industry both internally and externally. It will therefore come up with a reliable conclusion that best discuss the topic. The most recent innovation has focused mainly on the aspect of environmental and energy utilization issues. Thus, hybrid car has been introduced. Hybrid car is a product of very many years of research and advancement. It is more efficient and uses two power sources for movement. Known in the market as electric car, different modifications and models like the Toyota Prius and the Honda civic hybrids have been met by a lot of admiration and reactions. A HEV uses a combination of the internal combustion engine with electrical motors to make the vehicle move. Its dual engine characteristic will advance the fuel efficiency and even help in escalation of the performance of the vehicle The worldwide exhaustion of natural resources has necessitated the need to think beyond the conventionally usual vehicles that consume a lot of fuel. In fact, researchers have invented some alternative energy technology like the electric car as mentioned above. Despite its efficiency however, the car was found to be unable to go long distances and had some setbacks owing to its need for frequent recharge situations. Thus, the hybrid electric car technology actually combine the benefits of both conventional fuel powered car and electric car. But, it will involve large amount of money in order to invent and develop a new technology. So, what are the rationales that move automakers, such as Toyota to into hybrid vehicle production? The purpose of the paper is to investigate the rationale behind firms in motor vehicle industry like Toyota into hybrid vehicle production. This paper will also analyze the threats, opportunity, strength and possible weaknesses of the industry in order to address the objectives of the topic. It will also use the PESTEL analysis will be very critical in identifying the industrial related factors. PESTEL Analysis Under PESTEL analysis, the key concern regards how the key factors like political, economical, socio-cultural, technological, environmental, and legal factors has affected (or continue to affect) the industry. The study discusses each of these factors in the following sequence: External Environment Analysis Political Factors These Factors may be altered by the government’s influence on a country’s infrastructure. The stability of the industry in terms of operating costs and operating environment is dependent on the surrounding political stability. Political factors often impose costs upon organization such as taxes. According to Stephens (2008), governments are often trying to safeguard local firms from foreign competition through tariffs and import restrictions, and to encourage their development through cheap loans and large government contracts. The operations of the motor vehicle industry have been under immense pressure of a policy of separate nation that is enforced by each government particularly in those nations that the company operates in. For instance, there are activist groups in Europe and US, which demand the acts of governmental power with regard to the medical value of meals of fast food industry. The same would soon be pressed upon the motor vehicle industry in the respective nations. The recent search for alternative energy source is a political concern despite the fact that it is an economic and environmental concern. Government restrictions, particularly on imports of body parts and sell of cars, may affect the industry immensely (Hiraoka, 2011). Owing to unfavourable political environment, the industry has fallen pray of ugly circumstances of the last couple of decades. In respect to the hybrid vehicle, for instance the US government introduced policies in their extension of the Energy Policy Act of 2005, Energy Independence and Security Act 2007, Energy and Improvement and Extension Act of 2008 and Recovery and Reinvestment Act of 2009 that were favorable for encouraging and producing hybrid vehicles. The political factors are therefore summarized into; i. Political concern for environment: the current concerns on environment would make people be prone to consider environmental-friendly vehicles, like the hybrid cars. ii. Regulations: the government can control (or restrict) entry of cars that have high emission into the country. It can also restrict issuance of license plates for such vehicles. iii. Strict monitoring of driving in the cosmopolitan areas Economic Factors Economic factors affect value for money (exchange rates), imports and export and other macroeconomic variables that are directly linked to the operations of the motor vehicle industry. Through diversification and international strategies, the motor vehicle industry has spread its operations into various nations. However, during economic downswings, the industry suffers just like other industries. For economic reasons, many industry take great measures in determining where to do their businesses (Odaka, 2003). For instance, one of the drives for Toyota to venture into hybrid vehicle was due economic circumstances of its customers. The increasing oil price in the global market affects spending as well as investments and also affects automobile industry as well. The situation represents fluctuating economic conditions which creates uncertainties in the industry. New inventions of cars, like the Hybrid car is designed for efficiency and economic balance during economic downswings (Odaka, 2003). However, the industrial efforts to counter the effects of both macroeconomic and microeconomic variables may prove futile. The economic effect of fuel emissions is translated into the industry’s overall operation cost in two phases; mitigation costs and adaptation costs. The mitigation cost includes those issues which are related to activities that reverse or halt the emission problem. These costs make the industry in invest heavily new clean energy technologies development with the hope of reducing the overall energy prices. Economic factors are summarized as; i. Globalization, economic growth, and development have and have continued to spread to all other parts of the world from the traditional strong countries like USA and European countries. This has enabled growth of the industry as well. ii. Developed countries present a stable automobile market since most of their social, economic and political variables are stable. iii. Poor transport network and infrastructure has been hurting the industry in many developing countries. Aims to perfect and repair them shall boost the industry. iv. As mentioned above, the fluctuating prices of fuel cost, and the demand for specific classes of cars creates necessary development on research to produce economically efficient vehicles. Socio-Cultural Factors Some countries, especially in developing economies, owning a car is associated with class (social status) in addition to transportation. In this case, the social-attachment of individuals to owning cars is by convenient to the suppliers, manufactures and the industry. The demand, quality, and prices were strategically positioned at their levels of expectation. Public is becoming alarmed about their souring and the need to protect environment. The industrial manufactures are heavily investing in research and development to produce vehicles which are environmental friendly. Moreover, most governments have are fighting to wipe un-road-worthy vehicles out of the road. Technological Factors Automobile has been historically been known to be a changing industry. Automobiles started with steam, gasoline engine, and electrical cars. Few hundred years ago, the automobile vehicle such as gas powered car, steam powered car which are very inconvenient to people were introduced into the industry. According to Wortley & Ross (2007), many governments have stepped their strategies and policies to reduce and/or wipe out cases of road accidents. The recent example was the robotized monitoring in the United States. Advancement in production of electric engines is eminent and some countries have planned ahead for the adventure of electric vehicle’s infrastructure. This will be a big technological boost in the world. Legal factors Legal factors are concerned with safety of the vehicles, durability, taxes, and other custom duties that are connected to the automobile industry. Environmental Factors The paramount perspective of automotive industry goes beyond just Human safety to environmental safety. Ecosystem has harmed by emissions and exhaustion of natural resources. One of the emerging environmental issues is the key concern to produce automobiles that are environmental friendly. The most important aspects are the current environmental initiatives of the industry. Environmental factors are those environmental regulations that are consistent with the automobile industry, by production, usage, supplies, and business. Hybrid vehicle uses electrical motor thus reducing sound emission (sound pollution) compared to fuel-powered cars. The Market Outlook Advancements in technology and innovations are constantly changing the industry. The changing economic conditions in the world have made commuters to regulate their fuel and air consumptions over the years (Jones, 2008). Advancements in the exhaust emission systems are improving quality of air and aiming at reducing environmental harm. The electric vehicle has presented the Automobile market as being environmentally concerned, no matter the cost. These new concerns have varied effects on the industrial strategies as discussed below based on the above explained external environment and the Porter’s five forces: i. Based on the Porter’s competitive design, most firms in the industry adopt low cost and differentiated leadership. ii. Diversification into new markets and dynamic environments for growth is one of the basic strategies of most firms in the industry, for instance, Toyota has diversified its production in many countries all over the world to maximize its profits and competitiveness. Most automobiles are targeted towards stable market environment where there are efficient strategies designed to maintain the current customers. Strategy Formulation Process The cost leadership strategy is Hybrid Toyota’s global competitive strategy for instance, and according to the competitive forces designed by Porter, the focus was mainly on operating efficiency, products, and procedure standardization. Five Forces of Competition Porter described, in his strategic forces, that any business that has an effective competitive desire is obliged to know the changing pattern of the industry and markets. Forces that derive competition and attractiveness of a market; the competitive environment is created by these five different forces that have direct impact on the business (Max, 2012). In addition to rivalry among different players in the industry together with there are also threats from new firms that enter the industry, supplier bargaining power, consumer bargaining power and threats from related products(like substitutes) also have immense influence on the industrial competition levels. These forces are interconnected and affect automobile companies’ strategy and prompt them to position well their strategies. Any change in these forces generally demand for the company to reassess its competitive strategies. Industrial Rivalry For purposes of competitive analysis, there are many automobile companies in the world that manufacture parts and body equipments. Most local firms buy from international firms to compete at their levels. The high differentiation and the relatively low number of suppliers in major segments of the industry have reduced the effects of rivalry in the industry (Max, 2012). Globally, the level of rivalry auto parts industry is still indicatively high due to advancements and developments, particularly in the East (China, South Korea, Hungary etc). Market Permeability (Entry Barriers) One of the main barriers for many firms to enter in to the automobile industry is the huge initial investments required to stat production, due to high capital intensity needed of the industry. High technology required is also a factor since they increase cost significantly (Hiraoka, 2011).. The amount of human resource required also makes it difficult to enter the industry, considering additional and frequent training. Threats of substitutes The industry has no possible adventure of new products that can replace automobiles and other vehicles. However, prices of oil could have significant impact on the demand of automobiles and affects the industry. Bargaining power of the Suppliers In the motor vehicle industry, it is evidently true that the bargaining power of the suppliers depends highly on the bargaining power of the buyer. Supply increases when demand for the motor vehicle increases, thereby prompting supplier bargaining power in the industry. Bargaining Power of Buyers Most manufacturers of certain motors vehicles are also their suppliers at the same time. I this case, buyers will depend on the level of production. In most cases, the buyers depend on automobile factories who buy directly from the suppliers and/or manufactures directly. Therefore, the bargaining power of the buyer depends largely on the distribution channels and the level of supply in the market. SWOT Analysis This SWOT analysis for Motor Vehicle industry can provide a competitive advantage for many automobile firms as it shows strength, weaknesses, opportunities and threats. Strength i. high growth rate ii. existing distribution and sales networks iii. experienced business units iv. skilled workforce Weaknesses i. competitive market ii. brand portfolios iii. tax structure iv. small business units Opportunities i. growing economy ii. new acquisitions iii. New market segments identification iv. New technology adoption v. Internal energy improvement vi. Brand development Threats i. growing competition and lower profitability ii. financial capacity iii. increasing costs iv. external business risks v. price changes vi. rising cost of raw materials vii. increase in labour costs Conclusion In rush to cope with the rate of globalization, diversification, and rapidly advancing technology, there have been industrial hit and momentum to pace up their production levels. Motor vehicle industry is one of the technological oriented industries, due to the changing tastes and preferences of the market. The global automobile industry involves manufacturing and selling automobiles and other related retail activities like gas station retail and sale of body parts. Constant improvements in the industry have ensured great stability, not only for the vehicles (cars), but also financial stability. The industrial yearly growth rates are expected to hit 5.5% from 2010 to 2015 with a value of above $5.1 trillion by 2015. The industry is one of the great drivers of globalization and economic growth and employs millions of people worldwide. Many governments makes billions of dollars out of manufactures of motor vehicles and has been taking a leading role in research and development. Reference List: Hiraoka, L. S. 2011. Global alliances in the motor vehicle industry. Westport, Conn. [u.a.], Quorum Books. Odaka, K. 2003. The Motor vehicle industry in Asia: a study of ancillary firm development. [Singapore], Published for Council for Asian Manpower Studies by Singapore University Press. Wortley, J., & Ross, R. 2007. Motor vehicle industry trends: U.S. and Michigan. Lansing, Mich, Senate Fiscal Agency. Great Britain. 2006. The British motor vehicle industry. London, H.M.S.O. Stephens, M. A. 2008. An analysis of the Brazilian motor vehicle industry: the political economy of its development and its significance to the Brazilian economy. Thesis (Ph. D.)--University of Tennessee, Knoxville, 1985. Jones, D. T. 2008. Measuring technological advantage in the motor vehicle industry. [Cambridge, Mass.], International Motor Vehicle Program, Massachusetts Institute of Technology. Max, M. 2012. The Strategy Book. New York: FT Prentice Hall. Hafford-Letchfield, T. 2011. Social Care Management, Strategy and Business Planning. London: Jessica Kingsley Publishers Read More