Car Production Surges In Eastern Europe

Car Production Surges In
Eastern Europe

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Assessment of environment of Global Automobile Industry using PESTEL Analysis...............1
Assessment of environment of Global Automobile Industry using Porter's Five Forces
framework....................................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Automobile industry is that sector which is engaged on designing, manufacturing,
repairing, developing, marketing as well as selling motor vehicles (Alanen, Nikula and Ruutsoo,
2017). It is considered as multibillion industry as numerous brands are competing within it to
capture market share. Global automobile industry contributes in development of world economy
as it is among the largest economic sector which earns huge revenues. Some of the players in
such industry are material processors, component suppliers, automobile manufacturers, material
producers and many more. The essay is based on global automobile industry. Some of the
brands within the industry are Volkswagen, Skoda, Renault, BMW, Ford and many more. The
essay includes discussion on assessment of environment of Global Automobile Industry by using
PESTLE Analysis along with Porter's Five Forces Analysis.
MAIN BODY
Assessment of environment of Global Automobile Industry using PESTEL Analysis.
Global automobile industry is mainly involved in operations related with designing,
manufacturing, selling motor vehicles in the market according to the customer demands. The
market structure of such industry is based on oligopolistic structure in which many players
performs actions to share profit as well as for competition. Market environment of global
automobile industry includes forces as well as actors which influences capability of any
company to operate all functions effectively to deliver products or services to end consumers.
These forces consists of internal along with external environment which performs actions as per
the position of organisation in the competitive market. To assess the macro environment,
PESTEL analysis is used (Internal and external analysis. 2018). Such analysis is a useful tool to
analyse along with monitoring environmental factors that results in impacting performance of
any company within the industry at great extent. Such analysis plays important role in
environmental scanning by conducting market research as to consider the nature of
environmental factors along with understanding business position, growth or decline rate of
market and many more. It includes political, economical, social,technological, legal and
environmental factors that impacts the work in the industry. The PESTEL analysis for Global
Automobile Industry is as follows:
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Political: Political factors are associated with political parties interference in working of
any industry. These are related with the areas such as tax policies, environmental laws, tariffs,
labour laws and political stability. Such factor has direct impact on automobile industry
profitability. With the changing scenario, political parties of UK are favouring organisations that
manufactures low emission vehicles, eco friendly vehicles and many more. For example,
companies such as Volkswagen and Ford are getting support from political parties as they are
manufacturing environmental friendly vehicles that helps them to invest the money in different
technologies, understanding environmental impacts as well as following regulations in effective
manner helps the organisations to position their image in the market which influences their
productivity and impacts in positive manner (Azis, 2015). In international context, there are
certain political factors such as changing government regimes in other countries and governing
new laws also causes unfavourable fluctuations which impacts in negative manner to the
companies. Such factor is outside the control of such organisation and sudden changes in such
factor results in mismanagement of costs along with work in the automobile industry.
Economical: Economical factors also plays important role in working of automobile
industry. These includes economic growth, interest rates, business cycle, exchange rates and
other factors. Such factors are associated with operations of business and decision making. In
UK market, there are economic crises felt by companies such as Renault and SUVs resulted in
shifting of consumers preferences towards compacted cars. Due to this, such industry has faced
decline in sales of vehicles that impacts on negative manner on the performance of companies in
national market (Pavlínek, 2017). On contrary, in relevance to international aspect, developed
market enjoys high sales of vehicles as the purchasing power of targetted customer is generally
high where as the developing or under developed markets are providing variants at low prices
which increases demands of the vehicles in such market. When economic conditions are not
good in global market, it impacts on the supply and demand of vehicles which impacts on
profitability in numerous manner.
Social: Global automobile industry is influenced by social factors. Such factors
encompasses attitude, experiences, styles of an individual. When there are changes in social
trends along with customer preferences then such industry is affected in negative manner as
manufacturing company has to adopt all such forces while producing and developing vehicles as
per the customer preferences that requires huge capital investments and decreases profitability of
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the company. In the market of UK, social trends are continuously changing and affecting
popularity of numerous brands for example, Skoda whose older models due to changing trends
have become obsolete as well as out of fashion due to which the company is facing negative
impacts. In contrary, in international aspect, companies like Audi are targetting populations that
are rich and according to their lifestyle or preferences, manufacturing as well as offering cars
which increases satisfaction of targetted audiences which reflects that in some countries one
model is preferred while in other different models are preferred that increases popularity of
organisational vehicles and impacting in positive manner on the working of industry (Brooke,
2016).
Technological: Such factor is related with technological aspects such as automation,
technological changing rates, research and development activity, technology incentives and
many more. In international market, technology along with innovation are considered as
important determinants in global automotive industry. Brands such as Hyundai, Toyota,
Volkswagen are making huge investment in environmental friendly as well as low emission
vehicles (Patel, 2017). For example, Ford launches self driving vehicle technology in UK market
which will increase purchasing decisions for such technology that will enhance profit margin
along with publicity of the company which results in positive impact for the operations of such
company. Due to frequent changes in technological rates, domestic companies faces tough
competition from big brands in national market that impacts on negative manner on working of
such brands in automobile industry.
Environmental: Environmental factors are associated with ecological aspects. Changes
in ecological trends influences supply chains, resource availability and product usage. In
international aspects, environmental friendliness laws as well as carbon commissions are
increasing stiffer which increases emphasis of major players such as Jaguar, Land Rover, Ford,
Alexander Dennis and more towards low emission vehicles (Corkill, 2017). The vehicles that
have passed pollution control tests are only allowed in UK market as government is focussing
on pollution controls by favouring motor vehicles with lower CO2 emission. They have framed a
provision that if any vehicle is found with high emission rates then the companies of such
vehicles will be charged high tax rates (Petit, 2017). Various companies in such industry have
focussed in solving problems related with public transportation along with enhancing hybrid
vehicles to address increasing concerns on air quality effects of automobile commissions resulted
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in improving sustainable standings by building corporate image that provides positive outcomes
for the working of automobile industry.
Legal: These are the external factors that are concerned with the ways laws impacts on
business operations as well as customers behaviour. It includes employment law, consumer law,
health as well as safety law, discrimination law and many more. Such factor determines
numerous manners in which legal systems influences automobile industry. For example, in
international market, vehicle brands such as Ford, Volkswagen and hence forth are subject to
manufacture vehicles as per the laws governed by authorities related to product quality as well as
safety of employees. The motor vehicles that are exported overseas by such companies have to
pass emission control tests and by complying with product safety laws which impacts on vehicles
sales in positive manner. In UK market, numerous automobile companies have recall vehicles
due to faulty airbags that resulted in putting consumer safety at risk that impacts on
organisational position in negative manner. In the dynamic market, several other laws such as
environmental laws, employment laws and other laws which are mandatory for vehicles
company to comply in smooth functions as to reduce negative impacts on working of respective
industry (Elsom, 2014).
Thus, all the PESTEL forces plays important role in smooth functioning of working of
automobile industry. The importance of understanding all above mentioned factors is growing
among vehicle companies and they are more focusing towards low emission, low cost along with
high mileage vehicles. All major players are investing in innovation as well as technology in
order to grab larger market share in national as well as international market.
Assessment of environment of Global Automobile Industry using Porter's Five Forces
framework.
Porter's Five Forces analysis
Porter's five forces was propounded by Michael Porter in order to analyse external factors
along with their impacts on business pertaining with industrial environment. Global automobile
industry is extremely competitive as it includes major players who performs functions to
leverage advantages in order to acquire large market share (Gilbert, 2014). Such framework is a
tool that helps in examining industrial attractiveness and the forces determines profitability of
any industry. Porter's Five Forces analysis for global automobile industry is as follows:
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Threat of new entrant: It is very difficult for new motor vehicle brands to enter inside
automobile industry as it requires large amount of investments such as high capital costs, high
brand development costs and so on. In context to national aspect, government of UK, has set
strong provisions for new brands to enter inside such industry for example, if any company has
innovative vehicle product then they are allowed to work within the industry. The existing
brands such as Ford have already captured market share of domestic market that increases threats
for new entrant. In international aspect, the level of competition is very high among existing
brands that becomes challenge for new entrant to expand its business and penetrate new market
within global automobile industry (Gstöhl and De Bièvre, 2017). Thus, the threat of entrant is
weak for the existing company to enter inside into international market due to high entry barriers.
Supplier bargaining power: The bargaining power of suppliers is moderate as there are
only small players in the national market and few players have significant size in international
market. The suppliers are responsible to supply vehicle components, parts along with assembly
line workers. In international market, numerous suppliers are available to supply vehicle parts to
companies that results in moderate suppliers power. For example, Ford company is dependent on
numerous suppliers in order to deliver parts of vehicles in international as well as national
market that helps the company to negotiate with suppliers by making contractual agreements to
deliver different vehicle parts. Thus, different suppliers deliver different parts which lowers their
powers and the company member scan easily between inputs and standardized suppliers.
Buyer bargaining Power: The buyers are general audiences which makes purchase
decision of the vehicles. The buyers are provided the position to negotiate the prices and bargains
for lower product prices (Pugh, 2016). They switches to another brands that will provide them
products at lower prices that provides them moderately strong powers. In national or
international market, Ford's customers influences the business in automobile industry. Such
customers easily with little cost frequently switch to another automobile dealer who is providing
them more profits.
Threat of substitutes: Substitutes are those products that can be used in place of another.
In automotive industry, there are numerous companies that offer homogeneous vehicles or
services at lower costs that results in threat of substitute weaker for automobile industry. For
instance, in order to travel from one place to another in national country, substitutes for car are
buses and trains that are opted by customers (Jacoby, 2014). Hence, substitute to Ford vehicle
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products are public transportation and other transportation modes. The combination of external
factors creates moderate substitution threats which the managers of Ford must address to
increase the accessibility, conveniently and affordability of motor vehicle.
Industrial competitive rivalry: In international and national market, automobile
manufacturers pursue fierce competition. Motor firms competes against prices, product
developments, advertisement campaigns and many more which keeps them towards the edge of
profitability as well as innovation. Some of the key players in international aspects against Ford
in global automobile industry are Toyota, Tesla, General Motors Limited, Honda Motor
Company and many more. On contrary, in national aspects or in UK market, the competitors of
Ford are Volkswagen, Renault and many others (Macharzina and Staehle, 2019). The
automobile industry of UK has high barriers for exit that shows motor players have to compete
against Ford instead of closing their business due to involvement of high costs along with huge
investments.
Limitations of Porter's Five forces Framework: Some of the limitations of such
framework are as follows:
 Such framework fails clearly define the nature of industry as it assumes the market
structure as classic perfect market and is based on static market structure.
 It does not consider strategic alliances, information system electronic linkage and only
provides snapshot of the environment without a clear description (Paik, Kwon and Chen,
2017).
 Such framework does not provide actual mechanisms to determine the ways in which
forces affects the performance of automobile industry.
CONCLUSION
From the above essay it can be concluded that global automobile industry plays
significant role in contributing towards development of economic sector. It comprises various
organisations that performs actions in designing, manufacturing, marketing, development and
increasing sales of motor vehicles across the boundaries of a nation. The motor vehicle industry
products are heavy trucks, auto mobiles, sport utility products and many more. The environment
is the totality of external along with internal factors which significantly influences working
system of the company. The environment of global automobile industry is based on
manufacturers, vehicle assemblers and network of component suppliers. The environment of
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global automobile industry is assessed through using PESTEL analysis and Porter's Five forces
framework.
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REFERENCES
Books and Journals:
Alanen, I., Nikula, J. and Ruutsoo, R., 2017. Decollectivisation, destruction and disillusionment:
A community study in southern Estonia. Routledge.
Azis, I. J., 2015. Integration, contagion, and income distribution. In Regional Science Matters
(pp. 131-161). Springer, Cham.
Brooke, M. Z., 2016. Handbook of international financial management. Springer.
Corkill, D., 2017. Portugal's Changing Integration into the European and Global Economy. In
Contemporary Portugal(pp. 25-45). Routledge.
Elsom, D., 2014. Smog alert: managing urban air quality. Routledge.
Gilbert, M., 2014. Cold War Europe: The Politics of a Contested Continent. Rowman &
Littlefield.
Gstöhl, S. and De Bièvre, D., 2017. The trade policy of the European Union. Macmillan
International Higher Education.
Jacoby, W., 2014. Different cases, different faces: Chinese investment in Central and Eastern
Europe. Asia Europe Journal. 12(1-2). pp.199-214.
Macharzina, K. and Staehle, W.H. Eds., 2019. European approaches to international
management. Walter de Gruyter GmbH & Co KG.
Paik, Y., Kwon, J. W. and Chen, D., 2017. Global Business: Connecting Theory to Reality.
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Patel, K. K., 2017. The New Deal: a global history (Vol. 21). Princeton University Press.
Pavlínek, P., 2017. Dependent Growth: Foreign Investment and the Development of the
Automotive Industry in East-Central Europe. Springer.
Petit, V., 2017. Energy Transition. Springer International Publishing AG.
Pugh, M., 2016. Corporate peace: Crisis in economic peacebuilding 1. In Peacebuilding in Crisis
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Schaffmeister, N. and Haller, F., 2018. Brand building and marketing in key emerging markets.
Gabler.
Shulzhenko, E., 2017. Reforming the Russian industrial workplace: International management
standards meet the Soviet legacy. Routledge.
Underhill, G., 2016. Industrial crisis and the open economy: politics, global trade and the textile
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Online:
Internal and external analysis. 2018. [Online]. Available through:
<https://www.urbanpro.com/bba-tuition/an-analysis-of-internal-and-external-
environmental >
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