Environment Analysis of Germany - Essay Example

Environment analysis of Germany and Expansion of BYD Co., Ltd Contents Contents 1.0 Introduction 2 2.0 Macro and Micro Environment analysis 3 2.1PESTEL Analysis 3 2.1.1 Political environment 3 2.1.2 Economic factors 4 2.1.3 Social environment 5 2.1.4 Technological environment: 5 2.1.5 Environment: 6 2.1.6 Legal factors 6 2.2Porter’s five forces analysis 7 2.2.1 Threat of new entrants 7 2.2.2 Threat of substitute product 7 2.2.3 Bargaining power of supplier 7 2.2.4 Bargaining power of buyer 8 2.2.5 Competitive Rivalry among existing competitors 8 3.0 Market entry strategy 8 4.0 Marketing Mix 10 5.0 Conclusion 13 1.0 Introduction Expansion at the global level is an important decision company made; many car companies has been taken place in Germany and term of car production it is known as the largest country in Europe. Germany has a favorable environment for car manufacturers. The Government gives full support to its automobile industry through funding them and by offering immense schemes. Country economic, political, legal, and social environment is favorable for the car industry and microenvironment as well. The paper has been divided into five sections in first section PESTLE analysis has been conducted section two caters microenvironmental analysis. The Third section is based on the recommendations of market entry strategy, and Section four includes marketing mix. The last section is based on the conclusion. 2.0 Macro and Micro Environment analysis Environment analysis can be divided into two segments macro and micro. The best common tool that is used to conduct the macro environmental analysis is PESTLE analysis (Bensoussan and Fleisehr 2012 and Jain, Trehan, and Trehan, 2009). 2.1PESTEL Analysis 2.1.1 Political environment 1) In Germany political conditions are in favor of the automobile industry, the government has policy to support the car industry through funding. In 2013, according to the estimates, the government made $1303 funding on per vehicle produced (The Conservation 2013). 2) The Country has policy to give a political response to the industry in case of crisis. For example, in response to 2008 crisis, a significant downturn in the European market by 11% was encountered; in response to the downturn, Germany introduced several scrapping schemes that helped in increasing the demand of cars (OECD, 2009). 3) The Government had significant policies to encourage the electro-mobility initiatives and had introduced a “national electro-mobility development program” with more than 500 million euro investment (Germany Trade & Invest 2013). 4) The Government has policies to invest in new technologies and committed to spending EUR 70 billion on research and development on annual basis. Germany is the leading nation in term of research and development expenditures and the auto industry acquire more 1/3 of the R&D expenditures (Raj 2014; Germany Trade & Invest 2013). Political factors have a significant impact on businesses. In Germany, the government has significant support to promote automobile manufacturers. The Government has policy to support manufacturers in crisis, has significant funding policies to encourage technological advancement and electro-mobility initiatives. Therefore, if the company decides to expand its operations in Germany, then it will have immense support from government and do not need to worry about funding. 2.1.2 Economic factors Economical environment include factors have a significant impact on the business working inflation, unemployment, income distribution, demand and supply, and so on (Carter et al. 2013). 1) Inflation has an impact on the purchasing power of consumer that also make affect over industry sales. The inflation rate in Germany declining by 0.2 % (Inftation.eu 2014; Mandra 2015). 2) The wages rate is constantly growing in all sectors of Germany that represents the healthy lifestyle of people and their increased buying power (Mandra 2015). 3) Unemployment rate in Germany is constantly declining after 2010 and in 2015 it has been encountered at least level in term of unemployment with 4.78% (Trading Economics 2015; Eurostat 2015), 4) The growth rate of Germany is up and came at more than twice in 2014 and in 2015 it grew by 1.5% growth rate (Bird, 2015; DW, 2015). The overall economic environment is posting positive picture; decreased inflation and unemployment with increased growth rates of wages and economy are showing the higher potential of growth of automobile industry in Germany. Therefore, it can be considered favorite for expansion. 2.1.3 Social environment 1) Germany is a highly populous country; it is considered the largest country of Europe in term of population. In 2014, the total population was 80780000 that were representing 15.9% of the total European population (European Union 2014). 2) Population has a cosmopolitan view with good education and due to multicultural aspects, several lifestyles exist (Weaver 2010; Bank 2009). 3) According to Hoftstede, the culture of Germany are high on long term orientation, medium on Individualism, masculinity and uncertainty avoidance while comparatively low on power distance and indulgence (ITIM International, 2015). Low on power distance and high on long term orientation provides opportunity for the business to generate a team base on corporate culture that will have a potential to produce results in the long term. 4) People have an immense awareness of environmental issues and prefer to buy environmental friendly products, and more than 4 million people are associated with the environmental organization (Embassy of the Federal Republic of Germany London, 2015). Multicultural aspects of the country will encourage the variety of products; people are long-term oriented and avoid uncertainty which means the safety standards in the automobile industry will be high. People have a great awareness of the environment and prefer to buy environmental friendly products that show immense scope for hybrid e6. 2.1.4 Technological environment: 1) Germany has left many countries behind in term of technology; thehuge amount is spent on research and development in order to make developments in environmental friendly technologies (MIG 2015a). 2) Germany hada noticeable position in Europe in term of technological advancement and considered as a pioneer of environmental and energy technology (MIG 2015b). 3) The automobile industry is highly developed, and high technology features are used in cars; even Germany is thinking to formulate laws for driverless cars (Connolly 2015). 4) The German automobile industry is known for its high safety, quality, and high technological innovations. The Country is incredibly good in technological terms (CMDL, 2014). Germany has the incredible technological environment, and the major focus is on environmental technologies. The scope for hybrid e6 is good in Germany, but the company will have to work hard to meet the technological standards of the country. 2.1.5 Environment: 1) In Germany, engineers are enthusiastic to make fuel efficient and lightweight cars and use novel construction techniques for this purpose (Griffiths, 2014). 2) The plastic recycling and other car parts recycling issues have gained immense importance due to environmental concerns (Cole, 1993). 3) The automobile sector in Germany is the largest one amongst Europe and industry acquire 29% market share of total European automobile market with immense government support (Invest in EU 2013). 4) The competition is high in the industry and dominated by few large players (Invest in EU 2013). Volkswagen, BMW, Daimler AG, and Audi and Opel. The environment analysis represents that the environment of Germany is positive for hybrid e6 because fuel efficient and lightweight cars are encouraged, and industry is supported by government through funding and incentives that are in favor of the company. 2.1.6 Legal factors 1) Germany has legal requirements of eco-labeling that should inform customers regarding car’s effectiveness and efficiency (CBI 2011). 2) it has been made a mandatory target achieve that all new cars must be 130 grams of CO2 per kilometer and target for the makers of more pollutes and larger vehicles is higher in order to keep the rules fair (Mock, 2014). 3) In Germany, taxation is used as a fiscal measure in order to reduce the “CO2 emissions” (Osswald 2007) 4) Germany has complex standards regarding safety and has legal requirements regarding the recycling and waste management of batteries (Export.gov 2015). The taxation rules, safety standards, emissions standards, and eco-labeling requirements are high in Germany that can make the entry of the company difficult. However, tax incentives for fuel-efficient cars are an attractive and positive sign for the company. 2.2Porter’s five forces analysis 2.2.1 Threat of new entrants 1) Government policies are favorable policies for car companies that are taking initiatives for the introduction the fuel-efficient or hybrid cars (The Conservation 2013). 2) Tax policies are complex and tough in Germany and vary with the emission standards of vehicles; the more the car is fuel-efficient, the less tax will be applied to it (Osswald, 2006). 3) The automobile industry is a capital-intensive industry; normally the capital requirements are high for automobile industry but in Germany, capital requirements are relatively low due to governmental support (Weihrich, 1999). 4) Distribution channels play a significant role in the success of the company; German automobile industry has easy access to the distribution channels (IXPOS 2015). The overall elaboration expresses that the threat of new entrant is lower because the government has a favorable environment for the encouragement of environmental friendly cars. The company will have support in making an expansion in Germany. 2.2.2 Threat of substitute product 1) Used vehicles and other companies are the threats,to the organization. Germany in term of used car sale comes at number 2 after US (BCA 2013). 2) The switching cost for users is low in Germany, and it has been encountered that most of the German car used switched to another brand (Younhap News Agency 2015). 3) Public transport is used widely, and numbers of trips are increasing (Buehler and Pucher, 2012). The overall situation elaborates that the threat of substitute is high in Germany. The company will have to be competitive in all terms. 2.2.3 Bargaining power of supplier 1) Suppliers of automotive components, wheels, insulation material and other are large in numbers (Marketline, 2015). 2) Suppliers do not have monopoly due to little differentiation in material (Weak power) (Marketline, 2015). 3) Due to the mass of suppliers, automobile companies have option to switch to another (Marketline, 2015). 4) Germany’s automotive market is the largest one of Europe, which means large number of the material buyer (strengthen suppliers). The overall situation shows the moderate power of suppliers. The company will not be able to avail economic of scale advantage at a larger extent. 2.2.4 Bargaining power of buyer 1) The differentiation of products is high in the automobile industry (strength of the buyer) (Volpato and Stochetti, 2008). 2) Large numbers of buyers exist in the industry, so companies have the option to sale others (weaken buyers). 3) Availability of substitute is high (strengthen buyers). 4) Price competition is high and buyers has great information (strengthen buyers) (Martinuzzi et al., 2011). The overall situation presents that the bargaining power of the buyer is high. So the company will have to differentiate its products from others. 2.2.5 Competitive Rivalry among existing competitors 1) The industry is dominated by few players such as Volkswagen, Opel, BMW, Daimler AG, and Audi and Opel (Invest in EU 2013). 2) The industry is growing rapidly and operating in surplus condition (Katzenstein 1989). 3) Rivals differentiate their product through diversification (IXPOS 2015). 4) The concentration of industry players is on hybrid cars, fuel and gas efficient cars (IEA 2011). Competition is tough, therefore; when the company will enter, it has to be efficient in operations and manufacturing in order to be competitive or successive. 3.0 Market entry strategy Market entry strategy is a designed method of selling services or goods to targeted market (Gekonge 2013). When an organization expands their business at the global level, they have to face issues of marketing, sourcing, and investment and control. There are several options available to the company while making expansion at a global level. The company can choose to enter into market by exporting, licensing, franchising; by making the joint venture. The company can make merger and acquisition, can decide to go to fully owned manufacturing facility, and can do counter trade (Tielmann, 2010). For example ford motors expanded its operation by making acquisition and general motor acquired the joint venture entry strategy (John and Gillies, 1996). Exporting is the most traditional way of entering into new market and acquires several advantages; same as partnering, joint venture and other market entering strategies. No single strategy is best all has some advantages and disadvantages. The recommended strategy for BYD Co. Ltd in order to enter in Germany is a joint venture. This concept was developed united states (Trost 2013) joint venture is a strategy through which two different organizations make an agreement to work together in order to attain a particular goal. This agreement is temporary in nature and allows companies to maintain their identities and independence. This joint venture is also known as strategic partnership. Behind recommending joint venture strategy there are some reasons that have been defined as follow: The company through making joint venture can take advantages of sharing expertise and expenses. Entering intonew market through fully owned manufacturing facility requires an immense amount of time and money; the company at the start will not have ideas that at what extent product will work, which is a huge risk. However, the company making joint venture can maintain its identity, independence, and can had better anticipate its competitive position in the German automobile industry. The company does not need to make huge investment in distribution Channels Company can share these expenses with the company making the joint venture. The most common advantage that the company will gain is the rapid growth in sales due to easy access to the market; the company will not have to wait to establish a strong distribution network for having growth in sales. The company can also share technological expertise with the existing company that will allow the company to provide its product at more competitive price. By acquiring this strategy, the company will not have to face greater risk, and high technological implementation will result in higher profitability. Moreover, organization after having good identity and profitability can eliminate this contract and can establish its production facility in Germany after having experience of the country. The company can make an informed decision for future operational activities (Campbell 2009). In such a competitive environment, this strategy will work best for BYD Co. Ltd and the company will have time to establish its image and get the financial strength to set its fully-owned manufacturing facility in Germany. 4.0 Marketing Mix Marketing mix works as a foundation of marketing strategy. It helps in formulating the marketing strategy in structured and systematic manners (Ramesh 2008). Product: There are two very common strategies that are implemented by product manufacturers while enter in the new market called adaptation strategy and standardization strategy (Troestler and Lee 2007; Hill 2011). Standardization strategy demands the common manufacturing of the product for all countries; it calls for the possibility of coordination of activities across different segments, markets, and reducing the cost of the product. Unlike standardization, adaptation strategy demands the country-specific production of the product; it requires the adjustments of offers by localizing or customizing the product in order to meet the local needs of the country (Pehrson 2012). The recommended strategy for BYD Co. Ltd is adaptation because, in order to meet the emission, quality and technological requirements BYD Co. Ltd will have to manufacture accordingly. Price: There are several pricing strategies are acquired by organizations such as competitive; value-based, penetration, and so on. The recommended pricing strategy for hybrid e6 is competitive pricing strategy. Therefore, the price of the car should be $30,000 (Electric Car Report, 2014). The recommended price is based on the fact that leading players have like General Motors had to revise from the initial price of $40,000 at the time of launch. Currently, these leading players gave also revised their prices in order to push the demand up for the electric cars. Further, it is anticipated that price for the new electric cars to be launched will be around $34,995 (Cobb, 2015). Hence with these factors at affect, the competitive price of $.30,000 is worth it Place: This is the core element of marketing mix and success of the vehicles is highly dependent upon the selection of the distribution channel. Among various sources include the dealers, Schwacke Liste (which is magazine listing value of second hand cars) available car dealers. Also, dealers making discounts to professions are another ways to place the cars with different dealers (Expatica, 2011). There are several modes of distribution can be used by automobile companies such as BYD Co. Ltd can use online medium to sell cars, BYD Co. Ltd can open its showroom for direct sales or make partnership with other showroom owners, can distribute product through franchise, and can acquire dealership. The recommended strategy for BYD Co. Ltd is franchise dealership; because company through this agreement will take advantage of maintenance and after sale service advantage. After selling, the product dealers will be liable to provide after sale services such as repair, insurance, and warranties. BYD Co. Ltd will make dealership agreement with BCA, AMAG, AVAG, DAH, and Willi Betz (Automotive News Europe, 2010). BYD Co. Ltd will make five dealership agreements with top dealers of Germany in term of the sale and place its products at different showrooms. In addition to this, Mobile.de and auto.m are online market places for cars in Germany (mobile.de, n.d. and auto-m, n,d). The importance of online shopping cannot be avoided, therefore; online distribution will take place as well. Promotional mix: Promotional strategies play an important role in the success of the product (Kalp and Press 2012) through communicating the benefits of the product. In order to get the product promoted, different tools of promotion will be utilized. BYD Co. Ltd will use both online and offline strategies in order to promote the product aggressively. The major emphasis will be on social media promotions because in Germany up to 86.2 % population use internet and the growth rate of internet utilization is 190.7% has been recorded from 2000 to 2013 (Internet World Stats 2013). Social media: In order to communicate the detailed features of the product and to have rapid recognition. YouTube will be utilized and through videos consumer experience will be discussed and rational advertisement technique will be used (Khan 2014). Facebook and Twitter: It has been determined that one from every five utilizes twitter and up to 82.7% population use Facebook in Germany. Therefore, it is recommended that BYD Co. Ltd must use Facebook promotional strategies in order to communicate the price and product features; it will serve BYD Co. Ltd with feedback as well (Bennett 2013). Billboard and newspaper advertisement The massive amount of billboard and newspaper advertisement is utilized in Germany (G2mi. com). Therefore, it has been recommended that BYD Co. Ltd should use billboard in front of main dealer’s shops and the main road. This tactic will enhance the sale of the cars and BYD Co. Ltd in order to enhance the sales must promote the after sale services to buyers this will show the immediate impact. Newspapers BYD Co. Ltd can offer discounts for maintenance services and can promote detail regarding after sale services. BYD Co. Ltd through newspaper can communicate the unique feature of hybrid e6 because customers seek for differentiation. BYD Co. Ltd through communicating the differentiating points can attract customers and can enhance the sale of the product. Direct marketing Technological advancement has changed the rules of the game; BYD Co. Ltd use emails and other techniques to directly target the customers. It has been suggested to BYD Co. Ltd that it utilizes direct marketing techniques. This will allow the organization to have a direct impact on sales and BYD Co. Ltd can reduce the cost of advertisement through targeting customers directly. These are the most appropriate techniques that have been utilizing by car manufacturers for years and by analyzing the statistical appropriateness have been recommended to BYD Co. Ltd. It has been recommended to BYD Co. Ltd that the major focus should be on social media advertisement because internet has use tremendously by German population, and this is also a lower cost technique. 5.0 Conclusion It has been recognized that Germany is a tough country in term of safety and emission laws. Country over all macro environments is in favor of BYD Co. Ltd and company has chances to grow in German automobile market with its hybrid e6 because Germany is also focusing on fuel-efficient cars and making significant efforts in this domain. 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