Social
Recently GKN opened a new facility for truck engine cylinder linears in China. When assessing whether to move to this location GKN consider the social factors which are based on whether there were sufficient people to work over in the new plant, education and training within communities among other factors.
GKN has been operating “successfully in China for 17 years” and currently employs “2,000 people across our wholly owned businesses and joint ventures”. This demonstrates that they are currently operating well within China and the prospect of new plant will benefit the country as employment will be increased by “4,000, doubling China’s workforce”. (GKN)
Technological
Technology plays an important part to the overall running of GKN. Manufacturing and producing components for aerospace and vehicles, GKN require being efficient when reviewing their development of technology.
GKN plan to introduce “breakthrough technology” (Indiciar), that will provide lighter driveshaft components and improved fuel economy. Therefore this will improve the business overall vehicle performance.
Natural Environment
Businesses nowadays are more aware of promoting an image of being environmentally friendly. The green scheme is a scheme which recognizes and rewards group companies which have shown ways of reducing their environmental impact. GKN was the overall winner in 2005 “for the development of a technique for composting organic and other wastes arising from the production process”. GKN Report
Therefore GKN strives to be more aware of the damage their business plays in the environment and shows potential customers that they are a company which is not wholly concerned with their profits.
Businesses have to be more culture aware for them to operating in various countries. GKN adopted China’s culture when opening their facility. They looked at various factors for instance beliefs and customs, language barrier among other things.
2.2. Competitive environment analysis
Another way of looking and evaluating the external environment of GKN PLC would be by using the model of the five competitive forces which was developed by Michael E Porter in his book ‘Competitive Strategy: The Techniques For analyzing Industries and Competitors (1980). The model claims that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strengths of five forces (The Business Environment): bargaining power of the suppliers, bargaining power of the customers, threat of new entrants, threat of substitutes and competitive rivalry between existing players.
This is the model of Porters five-force model of industry competitors:
World Web Library
2.2.1 Bargaining power of supplier
In the case of GKN being a manufacturing company it produces the components it needs in the production process; therefore the power of suppliers is very low as the products from the design to the manufacturing of the materials and the production of automotive driveline systems such as constant velocity joints are highly specialized products that the firm manufacturers therefore this also reduces the power of other suppliers cutting theirs costs.
2.2.2 Bargaining power of the customer
The competition between buyers will have an impact on the firms external environment, As GKN is an independent supplier of composite of aircraft structures therefore is specialized and therefore is evidently targeted at a specific customer base which include aircraft companies including major customers such as military aircrafts, however the company do have a large enough market share as they have competitors such as Arvin Meritor, Dana and Midas which does raise the bargaining power of the buyer however as the products are specialized and will always be needed the firm have a stronger position then the buyers.
2.2.3 Threat of new entrants
The threat of new entrants in the manufacturing of vehicles and aircrafts industry can be seen quite high due to the fact that there are not very many companies that specialize in products that GKN PLC does therefore the barriers to entry can be seen quite high which can lead to unexpected competition which can potentially harm the firm, however one advantage the firm to possible potential competitors is that GKN’s production process is as the firm continues to expands they are subject to economies of scale which reduces the average cost of production, this therefore reduces any potential competitors harming their business.
2.2.4 Threat of substitutes
As GKN produce specialized products there are no alternative products that are cheaper that can be used therefore face very little competition and have a great deal of market share. As GKN have differentiated their products they have reduced the threat of substitute products.
2.2.5 Threat of competitive rivalry between existing players.
GKN do have a large market share in their industry, however do not have a monopoly which is firstly illegal and secondly competition can be seen healthy for a firms external environment, however firms have gained a competitive advantage as competitors are offering the same concept of production as GKN which can harm the firm slightly, however as GKN has expanded to other areas apart for aerospace they still have a competitive advantage amongst other competitors.
3.0 Internal Analysis
3.1 Resources
3.1.1 Human Resources
GKN gives great importance to its human resource department, which gives them a great edge over their competitors. The company encourages their employees to fulfil their potential for the benefit of both them selves and the organisation. Also GKN inspires groups and individual for outstanding performances, efforts highly recognised and rewarded. In order to raise team work and individual achievements the company aims in empowerment.
As Earl Rezendes, compensation manager at GKN automotive claimed the company motivates its employees to use the methods of self serve as that way they get more information and they come back with questions. That way you empower the work force. The company wants to put capability in the hands of its managers and employees for more value added work.
3.1.2 Technological
GKN'S technical excellence is relied on by the world's leading civil and military automotive and aerospace manufacturers. Due to its outstanding services GKN has become United Kingdom’s aerospace design services organisation. GKN offers complete series of outsourced engineering and design services to the aerospace, marine and rail markets. Engineers provide calculations and designs of structures to customers that determine whether parts can be manufactured.
GKN use MathCAD, a specialized program that Calculates, models and visualizes technical ideas. MathCAD provides hundreds of operators and built-in functions for solving technical problems.
GKN’S new technology has created a new generation of stable speed joints which are ahead of their competition and GKN’S group is using its knowledge of automotive driveline dynamics to manufacture devices and systems which deliver superior stability, traction and comfort.
- Financial Analysis
It is vitally important to consider GKN’S financial situation in order to gain a sufficient knowledge about the internal workings and the strength of the company. Therefore we will financially analyze GKN’S performance through focusing on their financial trend and carrying out financial ratio analysis, namely current, performance and gross profit margin ratios.
Financial Trend
Over the past five years GKN has been experiencing a steady increase in sales. The chart below shows the growth in GKN’S sales and the graphs illustrate the sales increases ever further.
The graph below shows the company’s sales in its five sections.
As shown in the graph above, company sales were increased for the year 2005 by £67 million (2%)
Financial Ratios
Gross Profit
Gross profit refers to the profit of a business made before all expenses or revenues such as liabilities and tax are deducted.
The table above indicates how GKN has experienced a decrease in profits, the largest decreased occurred in 2004.
Performance Ratio
Performance ratios indicate how well a company has transformed inputs into profits, return is compared to either turnover or against its capital. In order to gain some insight into GKN’S performance we will use the return on sales ratio which assesses the profit made per £ sold, the equation is as follows:
Return on Sales = (Gross Profit/Total Sales) x 100
Current Ratio
Liquidity ratios assess whether a company can meet its short-term debts, this ratio is extremely helpful in assessing whether the company is experiencing financial trouble. There are two ratios that can be used, the current ratio or the quick ratio. In this situation we chose to use the current ratio as we want to see if GKN is able to meet their short term obligations. The equation used is as follows:
Current ratio = Current assets/Current liabilities
The chart above illustrates the liquidity ratios of the past 5 years. Current ratios that fall between 1.5 and 2.0 are most suitable for a company of GKN’S size and percentages which fall between these figures show that a company is able to meet their short term obligations, in other terms this means how quickly current assets can be converted into money in order to pay their debts.
Gross Profit Margin
Gross Profit Margin calculates the degree to which a firm can meet its short-term obligations. The table below indicates GKN’S results over the last 5 years; these results have been calculated through the use of the following equation:
Gross Profit Margin = Sales – Cost of goods sold/sales
- Competencies/Capabilities
Competencies are divided into core, distinct and level of expertise. Core competencies are in way how they add greater perceived value then competitors products. GKN was named among “most agile” (bizjournals) companies. Companies that made this list were noted for high standards or competence, creativity, leadership and accomplishment in the information technology field
Technology is vital for competitive advantage and is a major driver of globalization.
another article found shows how gkn have helped hybrid technology move from cars to vans. Gkn helped produce a system for commercial vehicles to be run by computers to take account of speed and fuel consumption and then to minimize it to the most efficient way by letting an electric motor run the van through cities
“GKN Autostructures is responsible for project management, vehicle integration and structural integrity of the vehicle.”
http://www.shropshirestar.com/show_article.php?aID=44545
4.0 SWOT Analysis
Strengths
Employees 40,000 workers worldwide. This is a strength because its possible for government help to open plants in high unemployed areas.
Huge global company that has joint ventures in over 30 countries.
Gkn wins contracts for innovative products such as “Wing Trailing Edge panels” for air buses.
They also win awards such as the award for best agriculture supplier of the year 2005
Weaknesses
Sales from automotive sector are down due to lack of demand and contracts going to competition
There automotive sales are down from 17% in 2004 to 16% in 2005
Gkns share price has dropped in several months from 20.54p to 17.97p
Opportunities
Gkn have helped develop a hybrid system that will be used in commercial vehicles to help with fuel efficiency.
Gkn have an opportunity to supply Nissan (cars) with a cv joint contract worth £56million
Threats
300 jobs are to be expected by the end of 2006 in an automotive plant in America this can lower staff morale. Staff members may start looking for other jobs if they think they might lose there jobs
The gkns aerospace plant faces tough competition from France and Germany for the manufacture of large scale wing structures
Gkn supply general motors, general motors have had slow car sales if this carries on they may need to cut supplies.
5.0 Conclusion
For the external environment analysis, the most effective tool was the pest analysis; we found this helpful as it allowed us to focus on the political and legal influences. SWOT analysis was also used in order to analyze both the internal and external forces. This helped us compare the two environments, which was the reason for the use of this tool. After completing a full analysis of both the internal and external environment of our assigned company, GKN plc, many conclusions have been reached regarding the environment, in which the company operates.
In our analysis of both the internal and external environment of GKN PLC, many different areas of the company were studied and researched, as well as the industry in which they operate. This research along with our chosen tools of analysis was very successful in establishing that GKN, has opted to dedicate much time, effort and resources into ensuring all aspects of their business environment coincide with the aspirations and goals of the company in general.
The dedication given working within GKN’S strategic business environment appears to have been very successful and this is clear through the high profits made annually, in addition to the continual expansion of the company into different areas of business, as well the growth within their current trades.
Bibliography
Book:
Business Strategy
The A to Z of Materials:
Accessed: 20/04/06.
Employment Legislation:
Accessed on: 24/04/06.
Business Wire
Accessed on: 28/04/06.
GKN
accessed on 3/4/06
Indiacar:
http://www.indiacar.net/news/n20097.htm
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Bizjournals
http://www.shropshirestar.com/show_article.php?aID=44545
BUS 2500 Strategic Business Environment -
