The Future of Car Industry in UK - Essay Example

The Future of Car Industry in UK Introduction Automobile industry is one of the most critical industries in this industrialized world. It is one of the fastest growing industries. Automobile industry’s contribution to the economy of a country is very huge. The industry can be divided into segments like passenger cars, commercial vehicles, two wheelers, etc. Automobile industry is characterized by faster growth in terms of the product features and industry regulations. Technology is used in a big way in automobile industry both at the product and process level. Automobile companies try hard to differentiate their products from each other by attempting to make the product more technologically advanced than the other. Therefore, companies are investing heavily in Research & Development. US, UK, Europe, etc are the biggest automobile markets in the world. But the recent recession has shown the big losses being faced by auto majors in these countries due to the absence of sufficient demand. Companies like Toyota, which had not continuous profits for the past many decades have reported losses during this period. But even at this critical time, it was the Asian market that helped the automobile companies to cushion the big losses. When inventories were piled up in developed countries, Asia was reporting tremendous growth in the sales figures. This shows the potential of the largest continent as largest automobile market. This essay is intended to analyze the major drivers of the automobile industry. Small car market is one of the most flourishing among the auto sector. This essay will discuss the major drivers of small car market and its future prospects. In the recent years it is seen that Asia is emerging as a big market for automobiles, especially small cars. US and UK were the well known small car markets in the world. Now the wind is in the Asian market. China and India, two of the fastest growing countries in Asia, marks the high growth small car markets in Asia. Middle East is also a high potential market. But the recent crisis had cast some shade on the growth of the segment. Main body This part of the essay makes an analysis of the critical factors by using Impact Model. The PEST analysis of Asian car industry has shown that the market is driven by several critical factors. In order to be successful in this market, the auto manufacturers will have to consider the impact of these factors properly. The critical factors are GDP, fuel efficiency, lower emissions, value and safety. The impact of these critical factors on the industry is discussed below. GDP: GDP is one of the most important drivers of small car industry. GDP is closely associated with the disposable incomes of people. It is seen that India and China has reported good growth rate in GDP when developed nations were facing negative growth. It is also notable that when world over, countries were speaking about recession automobile market in India and China was showing double digit growth. Several new models were introduced by the auto manufacturers during this period. Fuel Efficiency: Fuel efficiency is another factor that drives the demand for cars in the Asian market. As the fastest growing car markets in Asia depend heavily on other countries for oil, the fuel prices in these countries are considerably higher than anywhere else. Therefore, people are very much concerned about the fuel efficiency of cars. Fuel efficiency is one important factor for selection of cars. The most successful small car models sold in the Asian markets are the most fuel efficient ones. Lower Emissions: At Copenhagen, many Asian countries have committed to reduce their emissions. This will definitely impact the regulations on automobile sector. Most Asian countries have imposed regulations on vehicle emissions. They are moving to the emission standards of developed nations. India, China and other developing nations have introduced huge tax benefits for fuel efficient, low emission cars. Hybrid cars are given tax and duty concessions by Chinese, Indian and other governments. Therefore, car manufacturers can avail this benefit only when they manufacture low emission cars. Value: Asian customers are the one who seek highest value for the products they purchase. Value for money is of utmost importance in any products that are purchased by them. The customers expect utmost quality for the cars they buy. Compared to other nations, Asian customers buy a car as long term asset. Unlike in the developed nations they don’t change the car very frequently. Thus value for money is an important factor that determines the success of Asian car market. Safety: Safety is another important factor that determines the market for small cars in Asia. Before, advanced safety features were only found in luxury cars. But as the markets for small cars grew heavily, manufacturers introduced cars that feature advanced safety features. Airbags and ABS are now common features in most of the small cars. Safety is linked to value for money. The critical factors affecting the industry are listed above. The possible outcomes are also listed as above. Therefore it is important for companies to formulate strategies in order to take a favourable turn in the market. Based on the possible impacts and uncertainty of the above factors, a company can either adapt their strategies to the market conditions or shape a new strategy to survive in the market. Strategy should be adopted based on the influence and uncertainty on the factors. Experts say that if a company can influence factors on which uncertainty is very high then they should adopt shaping strategy. Similarly, if the company has less influence on the uncertain factors then they should adopt adapting strategy. In the given critical factors companies have good influence on safety, value, emissions and fuel efficiency. But it has less influence on GDP. This means that adapting strategy can be used by companies in the case of GDP. GDP is a factor where companies have no influence. Therefore, companies can focus on the countries that are posting high growth in their GDP. Companies should identify the countries that will give highest growth. They should also set up production facilities in Asian region. Korean Auto major Hyundai has set up its plant in India and now it has established India as an export hub. Companies can adopt shaping strategies in the case of factors like safety, value, emissions and fuel efficiency. Safety is directly linked to technology. People are much concerned about safety features and the cars that do not meet the necessary safety standards will simply fail in the market. Governments are also very strict on the safety of cars sold in the country. Investing in research and development is a solution for this. Automobile companies should invest heavily in R & D facilities in Asian continent. India is one of the potential countries in terms of technically qualified workforce. Therefore, establishing an R & D facility in India will pay off well in future. China is potential in terms of cheap labour. As of now, in small cars, airbags are only available for driver and front passenger. Companies should try to introduce airbags in the rear too. For the customer to feel that a car is value for money, the car should provide reasonable features. Companies should always be keen to note the features that are introduced by rivals. A good market research can provide necessary information to the company about the customer perception. Emission and fuel efficiency are factors where companies can take necessary strategies. Fuel efficiency should be the core objective while introducing a car model. Design of cars used to be a selling factor. But nowadays customers even prefer cars that are not well designed. The main reason is that they provide better fuel efficiency. Automobile companies should develop cars that will adhere to the emission standards of all Asian countries so that they need not make country specific changes. This strategy will help the companies to reduce additional cost thereby increasing the profit margins. Scenarios An analysis of the impact shows that fuel efficiency, emission standards and safety has the highest influence on the business in future. Companies’ ability to take necessary steps on these grounds will determine the success of a company in future. Based on the impact the following scenarios are expected in the future for car manufacturers. Scenario 1 - Cocoon Car: Cocoon car is the scenario that defines the car of the future. Just as a silk worm is protected inside a cocoon, the passengers should be protected inside a car. A car with insufficient safety features will simply fail in the market. Safety standards are nowadays different from one country to the other. This will widen more in the future. Therefore, companies with insufficient safety standards will not be permitted to market their products in a country. Scenario 2 - Oxygen Car: Oxygen car is the term that describes the extent of environmental friendliness of a car. This means that the cars should not be the one that emits less carbon, but it should be the one that emits zero carbon. Companies should find alternate technology that will result in zero carbon emissions. Scenario 3 – Hundred Dollar Car: Hundred dollar car is a scenario that describes low cost cars. As economy grows people will have more money. Young people will have more money in their hands. People of every social class will prefer to own cars. Therefore, low cost small cars will rule the market in future. Scenario 4 – Car Super market: This scenario describes the competition of the market in future. Wide varieties of cars will be introduced by companies and the customers will find it difficult to choose from among them as there will be very few differentiating factors between those. Impact of the above scenarios on Hyundai Motors The above scenarios will have considerable influence on Hyundai Motors. In order face the scenarios Hyundai will have to invest heavily in Research and Development activities. Hyundai has grown tremendously in the Asian markets. Hyundai manufactures almost all models in its Indian plant and exports majority of the models made in this plant. The highest growth was achieved in the last five years. Japanese automakers are the biggest competitors to Hyundai. The best case scenario is that Hyundai Motors will be able to meet the expectation of the given scenarios. If that is the case Hyundai will be the market leader in small car market. The worst case scenario is that rival companies will make better small cars than Hyundai, thus capturing the market share of Hyundai. Conclusion The essay has given a clear idea about the Asian car markets. The essay has particularly dealt with small car segment. Small car segment is one of the fastest growing among the automobile segment. If Hyundai takes care of the critical success factors by formulating necessary strategies at the right time Hyundai will have a good position in the future small car market. Works cited Xinhua, 2010. Despite uncertainties, Asian economies heading towards full recovery in 2010. [Online] Available at: http://news.xinhuanet.com/english2010/indepth/2010-02/13/c_13174472.htm [Accessed 1 April 2010] David Twomey, 2009. China bans Renault Cars – City Safety Issues. [Online] Available at: http://www.caradvice.com.au/32538/china-bans-renault-cars-cites-safety-issues/ [Accessed 1 April 2010] Appendix PEST analysis of Asian Car Industry Political Factors: Political factors of Asian market are tougher than the developed countries outside Asia. Countries like India and China which is the fastest growing destinations in the Asian region is politically very stringent. Both these countries are very stringent in the case of Foreign Direct Investments in their countries. Though regulations are tougher in these countries they are politically stable. Developing countries in Asia are also imposing strict regulations on the emission standards of vehicles. There are several countries in Asia where political stability is very low. Countries like Pakistan, Afghanistan, etc are very unstable. Economical Factors: Asia has the fastest growing economies in the world. The fastest growing economies in Asia are India and China. Most of the Asian countries are expected to record growth of around 8%. But India and China is expected to post a rate more than this. But Middle East is expected to grow slowly due to the recent crisis that hit Dubai. Middle East is one of the most potential small car markets in the world. Overall the economic factors of Asian countries are very much favourable for small car market. Socio Cultural Factors: In the economic factors it is seen that most of the Asian countries has shown very high growth in the past. Information and communication technology has brought tremendous changes in the life of the people. More economic growth and more GDP means that people have more disposable income. Due to the more disposable income of people, the demands for cars have also shown highest growth. Technological Factors: Technological factors are very crucial to small car industry. Technology is important in the product side as well as the process side. Technology is employed more in improving the safety of cars. Airbag was one of the most important safety equipment of a car. Before, airbags were only found in luxury cars. But now it can be seen that even small hatchback cars have airbags in it. Technology is also used for improving the fuel efficiency of the cars. Impact of Scenarios Scenario HR IT Infra Marketing Market Share Cocoon Car Technically qualified employees required More investments required in the IT infrastructure Considerable investments required in Marketing Market share of the company will introduce Oxygen Car Technically qualified employees required More investments required in the IT infrastructure Comparatively less investments required Considerable increase in market share Hundred Dollar Car More investments in employees in R & D Considerably less investments in IT Less marketing expenses Increase in Market expenses Car Supermarket Not much increase in employees No changes in the IT infrastructure Higher marketing expenses Market share might increase or decrease Future Scenarios Read More