Challenges Faced by Automotive Industry in UK

This case study examines the challenges faced by the automotive industry in the UK, including weak vehicle sales on the continent and the need for supply chain security. It also explores the marketing strategies used by leading manufacturers to position themselves in the market.

A CASE STUDY ON AUTOMOBILE INDUSTRY OF UK
INTRODUCTION
In UK, automotive industry is known as the major factor of economic growth and success. The
country’s global leadership in advanced technologies used in high performance cars. First and
foremost, a key distinctive factor of the luxury car market is that its performance is less affected by
changes in the macro environment. The recent financial crisis severely hit the car manufacturing
industry, however, the demand fluctuation in emerging markets was offset by a growing desire for
luxury cars in emerging markets. The luxury car market is dominated by three brands, ASTON
MARTIN, ROLLS ROYCE, FERRARI which are altogether controlling the majority of the sales in this
sector. The industry is expected to grow in the future, however, manufacturers and resellers must
ensure that they closely follow developments in their external environment.
As globalization has increased, many companies realised that strategic decisions with respect to
globalization must be made are issue companies must face is that, what works in one country or region
will not necessarily work in another, and strategies must be carefully crafted to take these variabilities’
into account. Another issue is the threat of political or social upheaval. Still another issue is the
difficulty of coordinating and managing far-flung operations. Indeed, in today global markets people
don't have to go abroad to experience international competition
PORTER’S 5 FORCES MODEL
Barriers to entry: The new launch of automobile companies, i.e. ASTON MARTIN, ROLLS ROYCE,
FERRARI requires high capital investment for the manufacturing of our new car which is
environmental friendly and targeting a specific segment of the market. So the risk of new entrant is
high as other big players might try to imitate the same concept. Apart from this, the ideas and
knowledge that provides competitive advantage over others is its unique hydrogen-based technology
which creates barrier to entry.
Product Differentiation: As the new product has to be different and accepted by the customers. So,
we are providing our customers with the expected attributes of premium luxury cars. In addition, a
well-developed distribution is must for its success when a new product is launched in the market
Buyers: As it is first of its kind, so they have no options to switch over. The bargaining power of
buyer is low as there we have mentioned in our switching cost that there are barriers to new entrants.
There is no forward integration of buyers.
Suppliers: The willingness of the customers to buy this product will be because of the higher
efficiency and good quality of an eco-friendly premium luxury car.
Competitive rivalry: the amount of competition in the car industry which appears to be in the luxury
cars such as ASTON MARTIN, ROLLS ROYCE , FERRARI in Europe. If the new product fails in
the market, then it is not easy for the company to exit because of the involvement of huge capital
investments. To maintain its new generation premium luxury car industry has to make manufacturing
improvements continuously to further keep uplift its quality.
"The company has a multifaceted strategy to position itself as a leading manufacturer of premium
vehicles offering high-quality products tailored to specific markets. The success of the industry is tied
to its investment in product development, and is reflected in the strategic focus on capital expenditure,
R&D and product design." The strategic position of Automobile industry as can be seen through the
previous analyses is strong within their target market. It can be seen that aims of automotive industries,
like - ASTON MARTIN, ROLLS ROYCE , FERRARI is to maintain this position through research
and development are indeed, how they are maintaining this position in reality.
The British car market is classified as a mass market which keeps growing. The smaller car market
finds itself at the peak of this growing market. Due to the variety of different models of cars, they can
be classified into two different car segments. Most models are located in the city/mini/supermini
segment and some in the lower medium/small family The trend towards higher sales of supermini
models is clearly visible, with 44% growth in that category stimulated by the continual addition of new
and more sophisticated features by manufacturers.
Challenges faced by automotive industry in UK
Challenges faced by automotive industry in UK
While the UK market has performed strongly in recent years and is set to exceed previous levels of
production, weak vehicle sales on the Continent are encouraging consolidation across the European sector as
makers look to cut costs and drive efficiencies. UK and European automotive suppliers are heavily integrated
and such significant changes in the industry will inevitably create some risk in the supply chain. There are a
number of financial solutions that can help businesses mitigate the risks of trading, one such is supply chain
finance (SCF) which can provide financial security to individual firms, while also adding stability and
sustainability to the wider sector. With SCF, a business can obtain early payment of their invoices with the
buyer’s bank, giving them greater access to working capital, but at no extra cost or debt to the buyer.
With complex network suppliers in the UK and globally, it could be highly advantageous to have a
programme like this in place to enable suppliers ‘down the chain’ to benefit from the financial strength of the
industry’s biggest names. The consideration of supply chain security will be vital to the future health of the
automotive sector as a whole and help large manufacturers to avoid any interruptions in production as change
permeates the industry.
Marketing strategy of Automobile industry
At the highest level, the UK trade balance over time shows the degree to which the UK came to rely on
services as the main contributor to the overall trade balance. The manufacturing sector is showing an
increasing trade deficit (meaning that the manufactured products demanded by the UK are increasingly
imported), and the automotive sector is following this trend also. Both were often seen as ‘sunset industries’,
and the trade balance very clearly reflects the effects of a policy that has promoted (financial) service as the
main driver of a ‘post‐industrial’ economy.
OPPORTUNITIES FOR AUTOMOTIVE INDUSTRY IN UK MARKET
Investment and growth – Investment had made over the next two years is due to hold firm at 19 per cent of
turnover and forecast a 15 per cent growth in turnover over the next two years, providing there are no political
or economic shocks affecting demand or supply. Almost four in ten businesses (39 per cent) expect growth to
come from new product development. While some plan to support growth by investing in infrastructure (22
per cent) and pursuing mergers and acquisitions (20 per cent), this fell back significantly on last year, from 43
per cent and 35 per cent, respectively.
International Opportunities - Automotive firms appear determined to pursue new international opportunities
as, over three quarters of firms (77 per cent) are investing or planning to engage with new international
customers in the next two years. The number of firms planning to engage new customers in Western Europe
slightly to 65 per cent, from 61 per cent last year.
Job creation - The vast majority (87 per cent) of automotive manufacturers plan to create new jobs over the
next two years. If their plans are replicated across the UK’s automotive manufacturing firms, it would create
almost 85,000 new jobs – a figure that remains unchanged year-on-year. These job creation plans are
underpinned by manufacturers’ reshoring activity. The last time the research was carried out 58 per cent of
firms said they planned to bring some manufacturing back to the UK within two years, growing to 64%.
Marketing strategy of Automobile industry
"The company has a multifaceted strategy to position itself as a
leading manufacturer of premium vehicles offering high-quality
products tailored to specific markets. The success of the industry
is tied to its investment in product development, and is reflected
in the strategic focus on capital expenditure, R&D and product
design." The strategic position of Automobile industry as can be
seen through the previous analyses is strong within their target
market. It can be seen that aims of automotive industries, like -
ASTON MARTIN, ROLLS ROYCE , FERRARI is to maintain
this position through research and development are indeed, how
they are maintaining this position in reality. If automotive
industry wishes to strengthen this position, however, they must
improve their image as being eco-friendly. This could be
achieved through their already well established research and
development department.
While the UK market has performed strongly in recent years and
is set to exceed previous levels of production, weak vehicle sales
on the Continent are encouraging consolidation across the
European sector as makers look to cut costs and drive
efficiencies. UK and European automotive suppliers are heavily
integrated and such significant changes in the industry will
inevitably create some risk in the supply chain.
There are a number of financial solutions that can help
businesses mitigate the risks of trading, one such is supply chain
finance (SCF) which can provide financial security to individual
firms, while also adding stability and sustainability to the wider
sector. With SCF, a business can obtain early payment of their
invoices with the buyer’s bank, giving them greater access to
working capital, but at no extra cost or debt to the buyer.
Kumaraswamy, A. and et. al., 2012. Catch-up strategies in the Indian auto components industry: Domestic
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Lee, J. W., Abosag, I. and Kwak, J., 2012. The role of networking and commitment in foreign market entry
process: Multinational corporations in the Chinese automobile industry. International Business Review. 21(1).
pp.27-39.