Why the US and China Are the Most Suitable Countries for Montar Vehicles - Essay Example

Montar Vehicles Contents Introduction 1 Production 2 Target Group 2 Domestic Market for luxury vehicles 3 International Market 4 Screening process 5 Conclusion 6 Bibliography 7 Appendix Abstract The purpose of this international report is based on the launch of a new product which would be successful in the 2 markets selected. The product chosen for this is a luxury vehicle. As the vehicle will be launched in one high income country and one medium or low country, a number of screening processes will be taken in order for the 227 starting countries to be narrowed down to just 2 countries. An explanation of how each country was eliminated will be given in the report. Throughout the report many different sources have been used to collate the different types of data and external reading surrounding the different types of vehicles which are required for this report. Introduction 1.1 Product Description Montar Vehicles is a fleet of vehicles that will range from 2 door coupes to 4 door saloons, in terms of the vehicles itself it will be fitted with the latest technology to ensure both the driver and the passengers have a luxury traveling experience. Such technology for the driver would include rear and front camera, automatic aid reversing whilst the passenger are able to watch movies in surround sound whilst drinking their preferred beverage ‘ice cold’ from the drinks cooler provided. Executive options can be added for chauffeur driven styles like the hand stitched leather upholstery, wooden oak glazed interior, making it a direct competitor to the existing high end luxury car vehicles that are well established. The price range for these vehicles will be between £100,000- £350,000 depending on the car chosen, with the lower boundary competing with car brands Mercedes-Benz, BMW & Audi whilst the upper price boundaries will compete with the likes of Bentley, Maybach and Rolls Royce. 1.2 Target Group To appreciate the high-price, high-end range of Montar vehicles, the customer must have a certain sensibility and regard for finer things. The customer will typically belong to the affluent class of society and will have a taste for exclusive, expensive things. He will also understand that driving a certain vehicle bespeaks a lot about a person’s individuality, preferences and personality. The Montar 2 door coupe and the 4 door saloon is a vehicle that would be aimed at the high net worth individuals that have the purchasing power to enjoy such vehicle. The coupe is aimed at the younger members of the affluent class, aged between 18 and 35, who are looking for the classier driving experience. They have great-looking possessions, successful and happening lives and similar social circles to move in. On the other hand, the more prudent saloon is seen more as a chauffeur driven vehicle for the extremely wealthy, senior level professionals and businessmen. The classy exterior would appease their aesthetic sensibilities and the comfortable, first-class interior would allow the passengers to travel in comfort. The target audience comprises of individuals who already own chauffeur driven vehicles like the Rolls Royce Phantom. The positioning will be such that owning a Montar will display the individual’s financial standing and robustness. Along the same lines, industrialists, media moguls and celebrities would be another important target audience of the Montar due to the fact that many people would become aware of the vehicle through the publicity. Domestic and Global Market for Luxury Vehicles UK Market for Luxury Vehicles. With the onset of the global recession in 2007, almost every industry was faced with tighter cash flows and faltering sales figures. The auto industry saw very similar circumstances with key consumers having tighter finances and reluctance to put large amounts of money into buying luxury vehicles. This trend continued well through the next two years. There was a staggering 59% fall in sales from the previous year, which stressed the direness of the recession. Fig: Auto Manufacturer Market Share In The UK-February 2011 Source www.goodcarbadcar.net (1) However, by the middle of 2010, the auto industry started gaining strength: many older cars actually were valued at more than they were two years ago (Sutton, 2011). This remarkable phenomenon was a result of a couple of factors working jointly: Firstly, the ‘Car scrap-age scheme’ which was introduced by the Government helped to create more car sales. Also, the previous two years were remarkably low and the new investment £2.6billion in March 2011 again made by the Government. According to the goodcarbadcar website, which has the latest statics on the global car market, we can see that the leading car manufacturer was the Volkswagen & Porsche group with a 22% share of the market. BMW and Mercedes-Benz, which produce vehicles for the more upper class, have seen their UK market share increase to 7.5% and 7.4% respectively. International Market Taking a look the global light vehicle sales report1, we are able to see that the auto industry is robust and competitive. Very few economies show declining rates of auto sales in 2011. This is manifestation of the fact that the auto industry has recovered from the impact of the global recession of 2007 and since last year at least has picked up momentum. This year has also seen unprecedented sales achievements by biggest luxury car companies. BMW recorded its highest quarter sale this year. Rolls Royce, which does not work with volumes but with individual units produced and sold, has also seen its sales doubled this year. With its operations spanning continents now, RR can bank on this trend to continue. Manufacturer Units Sold Change YTD March Quarter % BMW 134,892 321,175 20.80 BMW Group 165,842 382,758 21.30 Rolls Royce 261 723 100.00 Daimler 118,357 280,500 12.70 Audi 125,700 312,600 18.40 The World Wealth Report (2010) further comments on the state of the luxury car market, calling its performance had ‘floundered’ in both the developing and the developed world. However, the newly emerging bigwigs such as China and Brazil managed to add strength to the industry. There is much evidence, especially in the latter half of 2010 and into 2011, pointing to the overall resurgence of the luxury car market. It is the right time to be in this industry and that is what Montar Cars intend to do. Screening Process The screening process, which follows, will be a detailed tool which will help decide which of the two countries the Montar car should be introduced in. This thorough analysis will cut down countries which do not match the criteria we require and will lead us from the 227 countries’ count to the final and required 2. Phase One: Initial screening for Demand and volume Based on information researched a strong argument will be given on the elimination, this will show me the countries that are interested and have the purchasing potential to have my product. Key Decision-making Factors To investigate which countries should be targeted for this exercise, key determinants are decided which reflect the desire for having our product, the ability to have it and the volume of consumers existing there which makes it financially and holistically feasible to enter that market. For this purpose, the following three parameters will be studied in detail: A. Demand for Luxury Cars B. Density of target population C. Potential for Sales A. High-Demand Markets for Luxury Cars Like any luxury item, a people must have the taste and aesthetics to appreciate and rejoice in the beauty of having a luxury car. People all over the world might appreciate looking at one but that does not mean that they will also spend the money to call one their own. . On the contrary, emerging economies of Russia, China and Brazil have observed increasing sales of regular and luxury over the past decade. Pretty much unfazed by the economic recession, these countries are still going strong. Sales figures of the competitors To further streamline the discussion, it will be feasible to look at the current sales figures of one of our competitors. This will show us in which regions and countries they have been successful in selling their product. As we work through this report, I will be able to match success rates of sales with actual market potential. Sales Figures of Audi: 2011 from 2010 The sales figures for Audi show that as a region, the most profitable is Western Europe, contributing to over 50% of the total sales for the month of Januray. Among these, the biggest contributor continues to be Deutschland, followed by Great Britain and Italy. Taking the figures on standalone basis, however, will prove to be misleading because the biggest sales growth displayed country-wise displays a very different picture: although France ranks lower overall sales volume wise, it is indeed the country showing the highest sales growth spurt from last year. This is followed by Spain. And when we take into consideration the growth rates, we realize that the countries displaying the highest growth rates are in Asia-Pacific (at 30.8% increase) and China and Hong Kong (with the highest sales growth rate on 32.1%). These rates are very important as decision making tools because these display the potential of the market, rather than existing figures; the markets such as Germany and Great Britain might already have reached stagnation. Studying the sales performance of Mercedes Benz cars2 for an even clearer picture of the global luxury car sales’ scenario, we see that Mercedes has actually observed negative growths in some regions. These figures have improved since 2009 but do, at the moment, signal careful treading into tried and tested territories such as Germany. With much of Western Europe, including car-making hub Germany, observing snail-paced economies, consumption of luxury vehicles is, in comparison, falling down. As with Audi, Asia Pacific, fuelled by China, displays the most remarkable growth. Western Europe, again similar to Audi, displays slower sales rate. North America, on the other hand, displays a steady purchase as a result of the recovering U.S. economy. B. Density of target population We have defined the target market to be primarily high net worth individuals who appreciate fine things in life and are willing to spend money in things which appease this need. Based on this definition, I have done an analysis of the high net worth individuals present in the targeted countries. Income Status Population World 10 000 000 USA H 2 886 200 JAPAN H 1 650 000 GERMANY H 861 500 CHINA L 477 400 UK H 448 100 FRANCE H 383 000 CANADA H 257 300 SWITZERLAND H 222 000 ITALY H 179 000 AUSTRALIA H 173 600 BRAZIL M 146 700 SPAIN H 143 000 INDIA L 126 700 NETHERLANDS H 121 700 SOUTH KOREA H 118 000 RUSSIA M 117 000 UAE M 78 000 SINGAPORE H 77 000 HONG KONG H 75 628 TAIWAN H 58 000 HNWI are a rudimentary part of our target market group. Countries having the highest concentration of these HNWI are: USA, Japan, Germany, China, UK, France, Canada, Switzerland, Italy, Australia, Brazil, Spain, India, Netherlands, South Korea, Russia, UAE, Singapore, Hong Kong and Taiwan. It is further seen that these countries account for a staggering 86% of the world’s HNWI (See Appendix). The World Wealth Report further states that the density of HNWI is highest in U.S., Japan and Germany, even if it has decreased from 54% in 2008 to 53.5% at the end of 2009. Population of HNWI 2006-2009 Source: The World Wealth Report Based on this, it can be assumed that concentrating our efforts in launching the Montar cars in a country other than these twenty might not result in volumes high enough to justify the investment of such a launch. The world has approximately 10 million millionaires or High Net-Worth Individuals (World Wealth Report 2010), with their total wealth amounting to US$39 trillion. What is worth mentioning here is that the HNWI wealth in Asia-Pacific and Latin American regions have seen overall highs like never before.; furthermore, the overall population of high net worth individuals in Asia Pacific is as high as that in Europe, i.e. 3 million. This phenomenon is largely due to the robust economies in the countries which make up Asia Pacific, especially China, Hong Kong and India. Not just in population, the wealth of HNWIs in Asia Pacific stood higher at US$9.7 trillion than Europe (at USD9.5 trillion). B. Potential for Sales Recovering gingerly from the economic collapse of 2007, the world wealth and the world millionaires are seeing a resurgence in their wealth. According to the World Wealth Report 2010, the rich and the mighty of the world are returning ‘cautiously’ to financial markets and are more open towards investments in ‘passion investments’ which includes jewelry, art and luxury vehicles (Fig 13). Investment in luxury collectibles is witnessing a steady rise in the past couple of years, with investments in luxury automobiles and such accounting for almost 30% of the total spending; majority of this increased spending is seen in Europe, Latin America and Asia-Pacific. HNWI from North America, China, Europe and Latin America contributed the most to overall investment in luxury collectibles. The annual light vehicle sales4 (of which Luxury Vehicles are a part), before the 2007 economic recession, display an almost flat graph in Europe. The slight increase in sales witnessed was primarily due to newly developed nations such as Poland, which skewed the otherwise flat graph of the more mature European countries such as Italy, Span and France. The years 2008 and 2009 saw an even worse period for these economies, with negative auto sales growth in some bigwig developed countries including Germany. These economies have only started showing signs of recovery, but experts deem the recovery time to be prolonged in coming Possible Export Markets Having a significant number of high net worth individuals set as the prerequisite for being a potential market for the Montar range of cars, the initial round of screening has wiped out 227 countries to 20. As the U.K. is not to be considered, that leaves us with 19 countries as potential markets. Of these countries which are densely populated with high net worth individuals, 15 are developed, high-income countries and five are low or middle income countries. Let us take a look at these countries income-wise. High-Income Candidates Our analysis of the demand, sales potential and target market has revealed a couple of things: a) even when the market has some demand, it might not be financially feasible or profitable to enter it; b) the target market and the demand both might indicate a firm readiness for our product but now might not be the right time to enter the market. Germany is biggest luxury carmaker in the world. It has a very high number of high net worth clients and there is high demand for luxury goods as well. But the market is rife with too much choice but has reached a stage of complacency. For these reasons, the German market witnessed flat sales growth, which even went negative between 2008 and 2009. For these reasons and continued dwindling sales figures in 2010 is not the ideal place to market a new luxury brand at the moment. Germany will not be our target market. Low-Income Candidates Among these are China, India, Russia, Brazil and UAE. The financial catastrophe that became the root cause of the collapse of financial institutions in the UAE had left its mark. The UAE customer has become cost-conscious to the point of being frugal. Unlike the customer that he was five years ago, he will not be so willing to spend money to purchase a luxury vehicle. Even though the HNWI ratio in the country is present, the willingness to spend is not there at the time being. That means that UAE must not be considered at the moment. The remaining four we will carry forward to the next stage of elimination. Consequently, the shortlisted countries are: USA, Japan, China, France, Canada, Switzerland, Italy, Australia, Spain, India, Netherlands, South Korea, Russia, Brazil, Singapore, Taiwan and Hong Kong. Phase Two: detailed country-wise Screening Brazil is one of the main players in the world economy due to its significance as an emerging market. For the consumption of luxury goods as well Brazil has noted remarkable numbers this year. According to J.D. Power Forecasting, Brazil’s February 2011 sales numbers reached a record breaking high of 4.06 million units/year. March estimates are also very optimistic. However, the country is faced with very high inflation. To curb it, the central bank has decided upon a tightening of the monetary policy, which will have a direct impact on the spending of the Brazilian consumer as well. This policy will not entice him to spend on luxury items. For this reason, Brazil will be dropped from the race for Montar cars.   South Korea, also, is witnessing rising inflation. Although this has not impacted sales of autos directly right now, with sales so far pretty much on the mark, with the passage of time, the central bank will have to take remedial steps to counter inflation. In the event of that happening, a new luxury car company will have to struggle to make its mark in a saving driven economy. Therefore, we’ll let Korea out of our pool of candidates for now. The per capita income of a Chinese customer is very little when compared to that of his developed-country counterpart. In addition to that, he has to pay almost double the amount of money for acquiring a luxury car because of extra taxes that go along with it (Chris 2010). Getting a luxury car in China is definitely not a cheap thing. However, the affluent Chinese customer is happy and willing to pay any requested amount for the car. Tax laws specific to nations are able to determine efficiently whether the nationals of that country will be inclined to purchase imported goods or not. In Australia, for example, a bill was passed and okayed by the government that raised the Luxury Car Tax from 25% to 33%. This decision by the Australian government has decreased the pool of potential customers of the luxury car, rendering it a tad too expensive. Thus, Australia is also out from our consideration as an export market. Car dealers and sellers in India have to depend upon financial supplementary industry to provide financial services and products to customers for them to easily purchase goods. This is because 75% of passenger cars and 60% of luxury cars in India are purchased through financing, according to the Raygain Technologies report. For this purpose, BMW even introduced BMW Financial Services India which was targeted to these group of people alone. It would be very difficult to enter such a market which is closely linked with supplementary industries in such a way that operating without them is not easy. To be on the safe side, we will eliminate India from consideration. Western European powerhouses are faced with a precarious European Union which is forced to join hands and bail out fellow members such as Greece, which are facing financial turmoil. Besides this, the depreciation of the dollar against the euro is making exports too expensive for buyers. The hardworking Europeans are additionally burdened with bulky but slow economies which have reached a saturation point so they need time to unwind before they can pick up again. Most of these economies are sitting at less than one percent Gross Domestic Product. A steady inflation of up to 3% and interest rates going nowhere at 1%, Western Europe does not offer much excitement. To top it off, it will take added effort to entice the Europeans to purchase high end, expensive products on such snail-paced economies. All of these economic factors render the stable but slow economies of France, Spain, Switzerland, Italy and the Netherlands unattractive for an attractive new product. Japan has undergone some very unfortunate times recently. The earthquake that shook the nation is a very sad disaster that the nation is still reeling from. To continue the misery, the nuclear facilities became a victim to the natural disaster as well. The people of Japan are focused on relief and help. On the business side, Japan has seen a declining growth rate of luxury car sales. Resultantly, Japan does not seem to be the ideal choice for investing at the moment. All the developing countries have been screened and the last choice that remains on the table is China. Let us take a look again at the high income countries that are yet to be considered in detail: USA, Canada, Singapore, Taiwan and Hong Kong. Taiwan, Singapore and Hong Kong are countries in the Far East having much in common. All of these have very hard working people who have high nationalistic values. They also believe strongly in leader-follower relationships and never question when something is asked of them by their leader. This makes them very respectful and obedient. They are also collectivist in nature, having more in common with Japan, than our home base of U.K. The U.K. has an individualistic environment. We feel everyone must make his or her own mark in the world and put himself first, before anyone else. That is our belief system. Operating in a country that follows a belief system different from your own is difficult: the orgizational culture will be different, marketing practices and symbols are unique, social communication means different things and there is bound to be culture shock for the people who head the product in a foreign location. For these reasons, I feel it would be best if we stick with what ‘we know’. What this implies is that we move in people that we undertand better so we can focus solely on the selling the product and running the company, rather than understanding and deciphering cultural practices and paraphernalia, which take quite some time to be understood anyway. For these reasons, I will eliminate these countries from my list. That leaves us with Canada and the United States. These two nations do not just share a border: they understand each other’s language, have similar work and home culture, they dress similarly and they can easily travel to and fro. So let us consider each country on its own merits: Canada is a developed economy with educated and hardworking people and a well rounded country with good infrastructure in place. The United States is a lot larger in terms of population, has the highest number of High net worth individuals in the world and has a rife market for luxury cars. The U.S. has a mature market for luxury cars but the huge population of the country along with the reloaded growth rate offer a lot more potential, in my eyes. Because I see the most potential for my product in the U.S., it will be my final selection. Conclusion With the resurgence in Luxury car sales, we want our product to be right in the centre of the action. For that to happen, we must be at the right place at the right time. The right time is now, and the right places are the U.S. and China. United States Having the most number of the richest people in the world, the U.S. should be the ideal market for our product. Besides having the biggest customer base, the U.S. is also a great place to do business in. Also, as we went through the screening process, it was learnt that the United States is one of the most profitable regions as well. The cost of doing business in the U.S. will also be comparatively less due to the ease of availability of resources. The U.S. also ranks very highly among the countries offer ease of doing business (doingbusiness.com). Although other high income countries do rank higher on some parameters, the complete package that the U.S. offers makes it the perfect high income target market for Montar cars. China China has become the hotbed for luxury cars and is expected to contribute to almost half of Asia Pacific’s sales of luxury cars (Presse 2009). The Chinese market represents excitement and interest in this segment therefore they are willing to spend millions of dollars on cars (2010). China is a closed economy so doing business there will not be as easy as in the United States; however, the economy is gradually opening up to new businesses. Also, with the kind of fixation the Chinese are displaying with luxury cars, they would be more than welcoming to new entrants in the field. The projected figures show huge profits in this segment in China. Source: Finance China Bibliography (n.d.) Raygain Technologies Pvt. Ltd. Indian Luxury Car Market – An Insight “Audis May 2010 Global Sales Rise 14.6% - Maintains Lead Over Mercedes-Benz” (2010). Retrieved http://www.autospies.com/news/Audi-s-May-2010-Global-Sales-Rise-14-6-Maintains-Lead-Over-Mercedes-Benz-54954/ “BMW, Mercedes outpace rivals as China clamps down on hedonism”. Retrieved from http://www.autonews.com/apps/pbcs.dll/article?AID=/20110418/ANE/110419903/1131#ixzz1JvtWnPIE Chris (2010). Chinas luxury car market is on fire, literally. Retrieved from http://www.wudaokou.com/article/Chinas_luxury_car_market_is_on_fire_literally Doing Business. Retrieved from http://www.doingbusiness.org/rankings France-Presse, Agence (2009). Rolls-Royce says Luxury Car Market Growing in Asia. Retrieved http://www.industryweek.com/articles/rolls-royce_says_luxury_car_market_growing_in_asia_20490.aspxFrance-Presse, Agence (2011). German Luxury Car Makers Report Strong Sales Forecast record sales for all of 2011. Jin, Vivian (2010). Chinas Luxury-Car Love Affair Goes On.. Insideline.com. Retrieved http://www.insideline.com/bugatti/chinas-luxury-car-love-affair-goes-on.html Hammerton, Ron (2009). “Luxury car market struggles to its feet under weight of tax and global gloom”. Retrieved http://www.goauto.com.au/mellor/mellor.nsf/story2/2CC641E74874EDCECA2576400023285B Hodzic, Muamer (2009) Mercedes-Benz Boosts Sales by 7% in October. (RSS feed) Retreieved http://www.benzinsider.com/2009/11/mercedes-benz-boosts-sales-by-7-in-october/ Streda, Robert (2008). Retrieved http://www.dbrs.com/research/223642/automotive-industry/presentation-slides.pdf Auto Industry Review. 2008. Sutton, Clive (2010). Market Report - New second edition. Retrieved http://www.clivesutton.co.uk/market-report.php World Wealth Report (2010). Retrieved http://www.france-info.com/IMG/pdf/World_Wealth_Report_2010.pdf “ZhengTong Auto (1728.HK), a star dealer of luxury brands”. (2011). Finance China. Retrieved http://news.fnchn.com/ZhengTong_Auto_1728_HK_a_102454.aspx Appendix 1. High Networth Individuals by country – 2009 (Source: World Wealth Report) Income Status Population World 10 000 000 USA H 2 886 200 JAPAN H 1 650 000 GERMANY H 861 500 CHINA L 477 400 UK H 448 100 FRANCE H 383 000 CANADA H 257 300 SWITZERLAND H 222 000 ITALY H 179 000 AUSTRALIA H 173 600 BRAZIL M 146 700 SPAIN H 143 000 INDIA L 126 700 NETHERLANDS H 121 700 SOUTH KOREA H 118 000 RUSSIA M 117 000 UAE M 78 000 SINGAPORE H 77 000 HONG KONG H 75 628 TAIWAN H 58 000 2. GDP Per Capita (Source: WorldBank.org) Country Name 2007 2008 2009 Australia 40,660.40 48,498.73 42,278.74 Austria 44,850.12 49,739.05 45,561.86 Belgium 43,161.37 47,193.99 43,671.48 Brazil 7,184.84 8,608.74 8,230.31 Canada 43,184.91 45,002.85 39,599.04 China 2,651.26 3,413.59 3,744.36 Denmark 56,893.63 62,035.78 55,992.24 Finland 46,505.05 50,905.01 44,580.70 France 40,644.21 44,471.50 41,050.89 Germany 40,467.87 44,264.06 40,669.67 Hong Kong SAR, China 29,898.21 30,833.67 30,065.31 India 1,104.59 1,066.69 1,192.08 Ireland 59,607.58 60,178.22 51,049.39 Israel 23,257.28 27,651.80 26,256.33 Italy 35,641.12 38,384.51 35,083.65 Japan 34,264.05 38,267.92 39,738.13 Korea, Rep. 21,653.38 19,161.89 17,078.21 Kuwait 43,087.08 54,260.08   Liechtenstein 130,226.84 138,354.01 134,392.46 Lithuania 11,584.24 14,034.31 11,141.00 Luxembourg 106,831.14 117,954.68 105,043.65 Monaco 183,150.57 201,164.00 186,174.90 Netherlands 47,511.05 53,075.91 47,916.90 New Zealand 32,712.15 27,598.80 29,352.44 Norway 82,294.16 94,567.91 79,089.13 Oman 15,372.10 21,648.57 16,206.58 Qatar 70,986.43 86,435.82 69,754.21 Saudi Arabia 15,880.73 19,200.42 14,799.14 Singapore 38,522.93 39,949.51 36,536.96 Spain 32,104.96 35,000.35 31,773.81 Sweden 50,558.40 52,884.46 43,653.69 Switzerland 57,490.39 65,699.35 63,628.66 United Arab Emirates 47,565.06 58,272.39 50,069.99 United Kingdom 45,900.73 43,360.77 35,164.86 United States 46,627.10 47,208.54 45,989.18 Read More