In addition, a big challenge to the car producers is to design cars which would fit in the global market. One of the biggest problems in this project is the oil and fuel efficiency. Excess global demand of oil in relation to its supply will increase the price of oil. This could make the car design more difficult, because income, standards and regulations (safety, emission standards, etc), driving conditions and consumers’ preferences differ from country to country.
Still, car manufacturers are reducing their part suppliers, in order to reduce costs and improve efficiency. They want to concentrate only in a few suppliers also because this will create purchases from global operating suppliers with superior technical aptitude, facilitating integration of the supply chain. The competition of car parts becomes more intensive then before.
Social
There are large differences in consumer tastes between the three major markets (N. America, Asia and Europe). For example, German market where buyers display a clear preference for German cars. However, the level and extent of globalisation has increased the access of consumers to different markets. The fierce competition and the rapid change in consumer preferences has led manufactures to develop new car models in a very fast pace. Consumers become more demanding in terms of size, design and material.
Environmental
Environmental protection has become increasingly important to the car industry. Regarding environmental protection, significant progress has been made in order to reduce pollutant emissions, greenhouse gases and waste. There will be a threat for the manufacturers who deal with environmental standard, such as transport and pollution policies. This can create difficulties since the environmental standards will be increasingly complex. Consequently, the manufacturers should enhance their ability in becoming more environmentally in order to obtain a competitive advantage.
Technological
Advancements are continuous and rapid in terms of technology in the GCI. Issues regarding customer safety, comfort and luxury have been improved continually in an attempt to differentiate one company or its brand from another. Technology has been a key differentiating factor in this quest with cars specialising in specific aspects of this technology. Nevertheless, one of the biggest advantages seems to be the use of the technology to organise supply chains and control stocks.
Fuel cell technology seems to be replacing safety as the number one issue. As a result of the social, economic and political concern of pollution and sustainable energy, there is obvious pressure on car manufacturers to use fuel cell technology, natural gas or electricity to replace the use of oil. However, increasing lack of capabilities in relation to new technology, this tends to reduce the speed with which car manufacturers can implement new technologies. The differentiation and complexity of technology will tie customers to authorised service dealers for the life of the vehicle. This would serve as a continuous stream of revenue to the company through servicing and replacements.
3.1 Stage One – see Appendix 1
The collaboration of Nissan and Renault makes them to become global car manufacturers, but Toyota and Honda have a broader product range in comparison. Both Japanese companies are the only real global players, which is the reason why they are placed in the 3 series. General Motors is also positioned in the 3 series, but closer to the international level, because it tries to become more a global player. It has the greatest volume in sales in the world, though its main sales market is still the United States. Daimler Chrysler and Volkswagen are in the 6 series. Volkswagen, for example, is now penetrating into the Chinese market, whereas Daimler-Benz and Chrysler Corporation still concentrate on setting up their common international strategy, after the so called “merger of equals”. Both French companies Peugeot and Citroen could be seen as international companies with a narrow product range. BMW, Porsche or Lotus are only a couple of examples of international companies, which are definitely placed in a niche market. The Italian manufacturer Fiat has a broad product range, but from a geographical point of view it sells more in its domestic market. With some exports in Europe and some sales of its most famous brand Ferrari, it is still on a domestic level, but with a higher international perspective.
3.2 Stage Two – see Appendix 2
Toyota, Honda and GM have a quite high brand perception and they serve the broadest number of market segments. This is because each of these brands offers a range of cars reaches as low as the cheapest e.g. Hyundai or Skoda, and none reaches as high as the most expensive Daimler Chrysler and BMW.
Ford and Volkswagen are located in the 2 series with high brand and differentiation. However, Daimler Chrysler with Mercedes and BMW are placed obviously in the 3 series, because they serve an elite market. These brands have high price and image of high quality. Nissan and Renault is more functional and considerable high brand perception. Peugeot, Citroen, Hyundai and Skoda are in the segment 7, because they have some exports and serve the low-income market segment with low price and low perceived quality. It is difficult to position Fiat because it has the luxury brand with a high brand perception, Ferrari. However, it has functional products and therefore it is located in the 8, leaning towards both functional and luxury sides.
3.3 Stage Three – see Appendix 3
Toyota and Honda grow organically. They are focus on low cost and differentiation (stuck in the middle) for growth. While Daimler Chrysler, BMW and GM concentrate on market offensives in the premium segment and focus on quality, innovation and excellence. They concentrate on a growth strategy to gain economies of scale and expertise. Strategic alliances between Nissan and Renault are accessing into a new market successfully. However, Fiat and Ford probably focus on low cost and concentrate on different growth strategy
Contrast the effect of three environmental forces on segments 3 and 5 on the stage two map.
1. Technological factor
Technological factor plays very important in the success of any business. In the car industry - the high luxury cars which are specially targeted for upper class customers. The success of these brands largely depends upon technology. As technology is changing and the demands and needs of customers are also changing, therefore these high brands are to be on top of their strategies in order to gain competitive advantage over other brands. These companies spend a large amount of their money on research and development to be more innovative and creative in order to gain key success factor for that particular company. These cars are the cash cow for the company and can generate high revenues by selling those cars.
As compared to these luxury cars, the other type which comes under differentiation and it can be said that they do not spend heavily on research and development. This category is more or less the same strategy with their competitors but can take an edge in slight innovation. They are mostly targeted to middle or upper middle class that they are afford to buy.
- Political Factors
Political factors are quite important in most kind of businesses. Government stability could be crucial in this case. Changing of regulation every now and then can harm any industry, because the new regulation could affect on the investors and both categories. Any increase in taxes or duties can harm the import and export of the car industry.
3. Economic Factors
Economic factors may include the usage of oil. The demand of oil is increasing day by day and most of the developing countries are trying hard to save the oil for future. This can be resulted in the increase in the oil prices and which in turn will be reduced the use of cars.
The strong pressure within the European market, forces the manufactures to expand geographically, mainly in emerging and less developed countries. Market such as Eastern Europe, South American and various Asian countries are of major interest of high value cars. This development has and will continue to create opportunities for the manufacturer to find new ways of expanding. These markets have characteristics that are very distinctive from the EU market and local adaptation could become a major source of competitive advantage.
5. Use Porter’s Five Forces to compare the attractiveness of segments 3, 5 and 7
The Comparison of Porters five forces model and the attractiveness of segments 3, 5 and 7 on the stage two map needs a separate view to each segment for itself. Beginning with segment 3 (high brand perception and luxury product positioning) the threat of entrants is high. BMW for example acquire Rolls-Royce to enter in the high premium market. This segment is very attractive for the companies because of its high yields. The bargaining power of the customers is also very high in this segment. But it is an advantage for the companies because the costs of change are very high. High potential customers are more related to the companies and the brands than in the lower segment. The bargaining power of suppliers is very low because the premium brands dictate the needs of the customers to the suppliers. As mentioned before the relationship between customer and car makers is more important in this segment than in the other ones, this has also an impact to the threat of substitutes which is therefore lower than in the other segments.
The attractiveness of segment 5 (medium brand perception and some product differentiation) is different to the others. The bargaining power of the customers is very high, this is related to the threat of substitutes, which is also very high. The tremendous competition combined with many competitors and similar products decreases the cost of change enormously. The attractiveness in this segment is related to economies of scale and the higher brand perception in comparison to the segment 7. The spread between low segment and high premium segment makes segment 5 very attractive for car makers. The bargaining power of suppliers is higher compared to the premium sector. Also the threat of entrants is high.
Focusing on the last segment 7 (low brand perception and function product positioning) it is obvious that the threat of entrants in this segment is very high. The disposal income of the majority of the people is low and their demand is driven by need, so therefore it is attractive for companies to enter this segment. Mass production and economies of scale make the segment interesting for car makers, but there is only a little margin to gain because of the tremendous price pressure according to the high bargain power of buyers. Cars in segment can be seen as a perfectly elastic product, where an increase of the price has a huge impact on the sales. This is related to the high threat of substitutes.
6. Mobility barriers between segment 5 and 7 (see Appendix 2)
As the stage two demonstrated that the car makers in the segment 7 mainly provide functional product and have a low brand perception. On the other hand, those manufacturers in segment 5 are more well-known and could provide more product differentiation. The car producers in each segment who intent to enter the opposite part should reconsider the new environment they will join in which could affect their technology improvement, cost and marketing strategies.
The new entrants from segments 7 to segment 5 will involve in a more complex environment since they enter a wider international market. The environment factors contain economic level, government policies, ecological issues and customer’s needs. The economic level and customers’ income are various between regions which have a close relation with the car sales price. Government policies is also a key factor, the import tariff make all the import products’ price increased; the fluctuation of exchange rate between countries is another important element, for instance the devaluation of US dollars would make the American cars more “cheaper” in European market; the oil price in the EU countries is much higher than that in the US due to the different oil policies, as a result the consumer’s tastes are quite different. Another example in China, the oil price used to be very low and people bought high exhaust vehicles enjoying the strong power feature. When the hatchback cars are prevalent in Europe, people found that the same cars could not be sold to China directly. Because they need to be refitted as saloon cars since people just prefer such outward appearance. But with progressive increasing of oil price in recent years, the hatchback cars and small cars are more acceptable by the consumers. Moreover, customers’ requirements are diversified and at a higher level that people need the car contain multi-functions rather than just a means of transportation. In addition, more and more nations pay much attention on ecological issues, reduction of pollution, adoption of recycling raw material are also important factors. The car producers in segment 5 need have a broader products range to meet the various requirements in the international market. However, all these require more investments in R&D and technology improvement that inevitably will raise the cost of the car manufacturing. In addition, car producers need to establish various distribution channels in different regions, sometimes include collaboration with the local car producers.
On the other hand, the car makers in segment 7 have small international market share and the main battlefield is domestic market which is more limited. Comparing with that in segments 5 the government policies and economic level are more stable and do not have much different influence on all the car producers. The most important is that people care the cars basic function, so some added functions may not necessarily, consumers’ needs are also not quite different, since the different manufacturers may provide the similar products, so the main competition is focus on the price. Then the main task for R&D is to decrease the manufacturing costs and try to make something different with the limited investments.
So we can see that the market of segment 5 is more competitive and variable for car makers from segment 7 and it requires more investments and larger economic scales. The car makers need to obtain more advanced technology and execute flexible marketing strategies. On the contrary, mobility barriers for the car producers from segment 5 to segment 7 are monotonous political and economic environment, lower investment on R&D but intense cost and price competition.
7. Conclusion
The forces of powerful political factors, changeable economic situation, various customers’ needs and continuous technology improvement will combine affect and made the global car market more dynamic as well as the sharp competition will continue. Superior quality, multi-function, lower fuel consuming, recycling materials adoption could be the key elements for the car which manufacturers should supply in the future.
Various customers’ needs and different consuming group divide the global market into different segments, car makers need to use distinct strategies to their goal market. Generally, the car producers tend to have more collaboration and acquisition under the pressure of increasing cost and intense competition and only few big manufacturers play in the future global market and China will be the biggest battlefield.
APPENDIX 1
Stage 1
APPENDIX 2
Stage 2
APPENDIX 3
Stage 3
APPENDIX 4
Porter’s Five Forces in Relation to PEST analysis
References
Case study: Potter N. (2005) The Global Car Industry: Facing the challenges of the 21st Century, ECCH the case forlearning. Reference no 305-302-1.
Grant M. R. (2001) Contemporary Strategy analysis, 4th Ed., Blackwell
Johnson G., Scholes K. and Whittington (2006) Exploring Corporate Strategy: Text and Cases, Prentice-Hall.
Hill, C.W.L. and Jones, G.R. (2004) “Strategic Management Theory-An Integrated Approach”, 6th Ed., Houghton Mifflin Company.
Porter, M. E. (1980) “Competitive Strategy: Techniques for Analysing Industries and Competitors, New York, The Free Press.
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