Strategic Management of Automobile Industry - Research Paper Example

Strategic Management Automobile industry comprises of all the vehicles starting from motorcycle to buses and trucks. The industry is considered to bethe largest manufacturing industry providing jobs to millions of people and generating billions of revenues each year. Industry History The industry was born in 1859 when Jean-Joseph-Etienne built the first internal combustion engine which was further modified by Nokolaus August Otto. "Germans, Gottlieb Diamler and Karl Benz (MsnEncarta, 2007) in 1885, were the first one to introduce a true automobile when they attached a motor to the automobile and this was recognized as the earliest shape of today's modern cars. Then there started a series of advancement in the industry with several design and specification variations were offered to customers. Then Mr. Henry Ford came up with an idea of Car for Every one. With this idea he laid down the foundation of Ford Motor Company and start manufacturing cars at a large scale to reduce price, what we call mass production. New players also entered the market with different products than that of Ford like Mercedes, BMW, and GM. Automobile Industry Today Automobile industry is facing immense competition these days which has shifted manufacturers' concern to reduce their cost. A right balance of input and outputs can give manufacturers the edge which will be helpful for them to increase their sales and their profit margins. All this happens due to the customers' better access to knowledge. These days the customers are better informed compared to the previous days therefore even the decision of an average customer is well informed. Along with being price conscious, customers are also after quality and fuel efficiency. The hiking prices of fuel have asked customers to look for a car with better mileage. The car markets are moving fast into globalization. One can find the best of BMW's car is being driven in India, the Mercedes in America and the Ford in United Arab Emirates. Hence the manufacturers are more looking for ways to have a centralized product research and development centre and manufacturing at lowest rates since the competition has enhanced due to globalization. Market Segmentation In terms of customers' buying practice, market can be divided into Fleet buyers, Business buyers and Private buyers. Fleet buyers are those buyers which buy cars in big numbers to further their business. They usually required cars which are low priced, good in fuel economy and can run smoothly for a considerable period of time without asking any major maintenance. They include hotels, cab companies, and car rental companies. Business buyers are those which buy cars to give their executives and employees. They require cars which match the designation of the person given the car. They usually go for moderately highly priced cars. Private Buyers buy cars for their personal use. Now depending upon their social class which they belong to, they have different choices of cars. Some buy low priced, durable cars from Toyota, Honda, GM and Ford while others may go for quality and performance and opt for BMW, Mercedes or Audi. There are some, like celebrities or people with big fortunes that buy cars as a status symbol and to show their taste for uniqueness. They usually go for Ferrari, Lamborghini, Bugatti, MayBach. Competitors' Analysis There are many players in the market striving to increase their size of pie. From America we have General Motors, Daimler Chrysler, and Ford Motor Co. From Japan we have Toyota and Honda. From Germany we have Mercedes, BMW and Audi and from Italy we have Lamborghini, Ferrari and Bugatti. But BMW faces a direct competition with Mercedes and Audi as they fall in the same class with respect to performance and price. 1. Mercedes Mercedes Benz is present in the industry in the form of a giant. Mercedes Benz is the major direct competitor to BMW just like Pepsi is for Coke. It is considered to be an established brand within the industry among many competitors and among customers. It has built great brand equity and the major associations with its name are Quality and Comfort. As told in Company's website Mercedes sold around 220000 vehicles in U.S. during 2004. Mercedes has been known for its classy looks and is very popular among executives. Company's merger with Daimler Chrysler has been an effort to include more technology in their product range. The company is in the process of implementing Lean Manufacturing system to reduce cost and improve upon quality. Their strategy for being leader in technology, presence in global market and a strong brand has been successful so far. 2. Audi Audi is a German Car with the name of Volkswagen group behind it. It is also a major competitor to BMW in premium market. The luxury car from Volkswagen is competing against the two giants well. The strategy is simple; if they can't beat any of the two giants. BMW and Mercedes, in any product type, they offer the same product at lower price or they keep the price same but offer better features. So far their strategy has been successful and they have enjoyed good sales growth over the years. Now they are heading towards achieving the sales target of 1 million cars in a year by 2008. Audi has a strong support from Volkswagen group in regard of resources and technology assistance. They are known for early identifier of upcoming technology and transform it to integrate in their cars to be presented in the market. Innovation in Technology has been their competitive advantage as they think it is the lasting source of advantage over its competitors. Porter's Five Forces Analysis Now we will use Porter's Five Forces Model to examine the presence and extent of different elements in the industry that shapes up attractiveness or unattractiveness of that industry. Threats of Substitutes By substitute it doesn't only mean that the customer can switch to different brand of car but it also means what other mode of conveyance are available to customer to replace cars. We find a lot of businesses providing transportation facilities according to various needs of customers. They include bus services, rent a car, cab and underground train services. The switching to these substitute depends upon may variables such as cost to benefit analysis between car and its substitutes money, time, comfort and ease of availability. With the presence of such a good number of substitutes the threat of substitutes in car industries is high. Threats of new entrants The ease or difficulty for new players to enter the industry determines the extent the this threat. Car industry is highly capital and labor intensive and a high amount of initial investment is required in terms of fixed assets such as plant and equipment. Therefore it is not easy for new entrants to enter the industry and hence the industry has low threat of new entrants. Threat of Customers The customers in this industry are very much price sensitive. They will easily shift to other brand if they find the same product with lesser price or any other substitute if it is costing them less than owning a car. The customers have many options with them therefore manufacturers have to meet their expectation every time and if they fail to do so they will lose their sale immediately. Therefore the bargaining power of customers is high and hence the threat of buyers in this industry is High. Threat of Suppliers The industry has many suppliers supplying the fabricated parts or raw material to the industry. Many manufacturers outsource the manufacturing of many of the parts required for assembling to fabricators in Asian countries especially China where Labour and raw material costs are very low. Therefore the bargaining power of supplier in this industry is Low. Threat of internal rivalry The industry is full of players from all around the world. It has manufacturers from Italy, Germany, United Kingdom, United States and Japan. Fiat, Daimler Chrysler, BMW, Mercedes, Ferrari, Ford, GM, Bugatti, Lamborghini, all are offering a wide range of products to the market. When BMW goes for quality and premium price, Toyota offers low priced, quality cars for day to day use due to the low cost it incurred due to adoption of lean manufacturing systems. Therefore the threat of internal rivalry in the industry is High. The analysis of Porter's Five Forces for car industry results in an overall unattractiveness for car industry. Industry Life Cycle With respect to industry maturity cycle the industry is at the end of growth and about to enter maturity stage. The reason is simple the industry has already seen much of growth and profits. Now the profit margins for manufacturers have started shrinking. The sales targets are hard to achieve. Now the manufacturers required something very unique to attract customers from other brand and increase their sale. BMW Profile BMW was founded in 1916 as an aircraft engine manufacturing company. And from there, they moved into the car industry and were very successful over its life. BMW group also produces motorcycles. It acquired Rover later on. Today BMW is a huge company with around 118000 employees producing over 1000 different model. The hallmark of their product is the driving pleasure that vehicles provide to their drivers and so it is called the ultimate driving machine. "BMW Group's production is organized in a strong and flexible system of linked plants. Suppliers are increasingly included in production processes at international level. The further integration of logistical systems created essential conditions for the increasingly efficient supply of production materials and the delivery of cars to customers (Dossantos, 2007)". SWOT Analysis Strengths BMW is a world renowned brand in premium cars market. Rolls Royce is the best car in the super luxury class. Their strength lie in the Research and development activities for which they spend the highest among all the players in the industry. Weaknesses BMW is spending too much in costs due to its German base as compared to its competitors who have shifted their plants to lower cost locations. Opportunities China is coming up as the largest market for BMW and the inclusion of more countries in EU has increased the chances of sales growth for BMW. Threats Rising prices of raw materials and the decline of dollar against euro are the two major threats being faced by BMW. PESTEL Analysis Political Stress is being laid on use of public transport rather than private cars. The road network is needed to be built so as to provide better transportation means. Bus lanes are being expanded which will attract more customers to prefer public transport over private cars. Economical Car owners are heavily taxed. Huge amount of investment is required to improve road network. Social Factors Teens and young adults want to hold cars as early as possible. Older people require cars to ensure their mobility and independence. Unique and stylish cars are becoming one source of status symbol. People want to attach themselves to good brand of cars and they are ready to pay premium prices for that. Technological Factor Six straight petrol engines, hybrid cars, introduction of AI systems in cars are some advancement that will change the whole scenario of car industry. People have already started waiting for flying cars as there are some prototypes being displayed in some motor shows. Environment The environment is becoming technology friendly day by day. But at the same time people are also conscious of pollution and other matters and they want cars which are less harmful for the environment. Legal We see new laws were put into effect regarding the speed control for fast cars. People are expected to take separate kind of driving license for sports cars. Speed limits are defined everywhere to prohibit over speeding. Cars above a certain speed and acceleration are not allowed to be driven in city areas. BMW's Current Positioning (Source: www.marketingteacher.com) Key Issues The key issues for BMW after the detailed analysis are: 1. It needs to shifts its plan from Germany to other Locations to reduce its cost 2. Technological innovation will be a key area of competence among competitors. 3. More and more learned customers will require extra efforts to be satisfied. Bibliography Msnencarta, (2007). "Car Industry". Retrieved on April 16, 2007: http://encarta.msn.com/encyclopedia_761563934_3/Automobile_Industry.html#s24 Dossantos, (2007). "BMW Company". Retrieved on April 15, 2007: http://dossantos.cbpa.louisville.edu/cbpa1/students/athens3/BMW2.htm Read More