Impact of Macro Environmental Factors on Volvo Cars

This report analyzes the impact of macro environmental factors on the performance of Volvo Cars, including a PESTEL analysis and discussion of Porter's five forces. It also explores the organizational changes and reasons for change in the company.

Eclectic Vehicles
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Contents
1. INTRODUCTION.......................................................................................................................3
2.PESTEL ANALYSIS..........................................................................................................3
2.2 Porter’s five forces...........................................................................................................6
3.Organization Changes.........................................................................................................9
4. Reason for organizational change......................................................................................9
5. Conclusion...................................................................................................................................9
REFERENCES..............................................................................................................................10
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1. INTRODUCTION
Business environment is a set of individuals, elements, entities and many other factor that
impact on the growth as well as performance of an entity. It includes both internal and external
factors that is technology, economy, social factor, customer, employees, suppliers and so on. In
order to analyse the impact of all this factors on business performance, the managers uses
different frameworks as well as strategies. It is important for higher authorities to consider all the
internal and external factors and their impact on growth and development. For the present report,
Volvo cars is taken into consideration. It is a Swedish luxury brand that was established in the
year 1927. The company head office is located at Gothenburg, Sweden and at present it offer
product in more than 12 countries worldwide. the company mainly manufactures SUVs (sport
utility vehicles) and ensure that quality and safety is given to the customers. With the change in
customer demand of electrified vehicles, the company will planning to launch electric vehicle
that is XC 40 Recharge by the end of year 2020. The report covers PESTLE analysis which assist
managers to know about the impact of macro environmental factors on performance of Volvo. In
addition to this, there is discussion about Porter’s five forces, which identify the competition
level prevailing at the marketplace.
2.PESTEL ANALYSIS
The PESTEL analysis is a successful marketing tool which is used to analyze and scrutinize the
external environment which is affect the company in various ways. External environment affect
the business organization and it is uncontrollable but PESTEL analysis is helpful in order to
identify factors which affect the business. This is very effective tool which is really helpful in
recognizing the threat and weaknesses by examine the Political, Economic, Social,
Technological, Environmental, Legal factors in the market. External environment is also
affecting the automobile sector because there is high level of competition faced by this sector.
Impact of external factors on Volvo cars in Europe is analyze below –
Political Factors - There are many political factors which affect the company like
government rules and regulations, control on trade, various allegations on import duties, tax
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policies etc. In Europe there are various political factors which affect the business of Volvo
electrify cars. Issues – Volvo affected by high tax rates and variations in the rates of tax in
Europe this affect the business of electric cars in Europe. Government various rules and
regulations in automobile sectors also a big issue for the company in Europe. Another political
issue is increase in prices of insurance & change in rules and regulation of safety also affect
business of electric cars in Europe.
Economic Factor – These factors have notable impact on business organization,
economic factors are based on the way an organization perform their business tasks and how
successful or profitable is business. Economic factors consist – growth of economic, interest
rates, exchange rates, consumer’s income inflation. There are various economic factors which
affect the electric cars business in Europe. Issues – in Europe inflation rate is high which affect
the buying behaviour of the consumer and this become an issue for the company. Variations or
changes in interest rates also affect the Volvo car sales. Income of consumer change the behavior
and this also affect the Volvo electric cars in Europe.
Social Factors – social-cultural factors comprise the area of shared belief, faith, reliance
and point of view of people. These factors involve growth in population, age distribution, health
awareness, etc. All these factors focus on health and safety, life style, consumer’s purchasing
habits, religion & faith of person. Social issues also affect the business. Issues – The market
trends switch or change rapidly and this affect buying behavior of consumers this create issue in
automobile sector and affect Volvo electric cars business. Sometime consumers custom and
belief also affect the business so companies always need to take care of their belief and custom.
Consumer is really worried about their health and safety sometime this thing also creates an issue
for electric cars in Europe.
Technology Factors – Now a day’s fastest and rapid changes only happen in
technological sector and this affect the whole market. Technological factors consist fundamental
infrastructure level, technological changes rates, level and incentives of technology used in
automobile sector. This is fastest changing factor with various issues. Issues – Rapid
technological changes create issues because it is hard for Volvo to accept these changes easily it
takes time. Technological sector is also including various rules and regulations which affect the
electric cars manufacturing in Europe. Innovation of new machines and replacement of old this
affect the cost of a company.
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Environmental Factors – This factor involves rising scarcity of raw material, pollution
target, availability of energy & change in climate. This factor includes all-natural disaster which
affect the company. Issues related to economic factors affect the automobile sector. Issues –
changing climate in Europe affect the company because of this raw material availability affects.
Diminishing of various energy which is useful to manufacture electric cars also a big issue faced
by company. Scarcity of raw material also affect the electric cars business in Europe.
Legal Factor – These factors are changes in law, such as rules and regulations regarding
environment protection, pollution clean for companies it is important to produce eco-friendly
products. Issues – Volvo always need to take care of environment and for this in Europe there is
act which company have to follow sometime this become issues for company to follow that act
according to government.
Factors Issues
Political  High tax rates and variations in the
rates of tax.
 Many rules and regulations by
European government.
 Rise in prices of insurance & change
in rules and regulation of safety.
Economical  High inflation rate.
 Variations or changes in interest rates.
 Income of consumer change the
behavior.
Social  The market trends switch or change
rapidly and this affect buying behavior
of consumers.
 Sometime consumers custom and
belief also affect the business.
 Consumer is really worried about
their health and safety sometime this
thing also creates an issue.
Technological  Rapid technological changes create
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issue.
 Rules & regulations related
technology.
 Innovation of new machines and
replacement of old.
Environmental  Changing climate in Europe.
 Various natural energies diminishing.
 Scarcity of raw material.
Legal  Various legal acts, related to
environment, pollution.
 Legislation on electricity
consumption.
2.2 Porter’s five forces
It is a framework that is used by companies in order to identify the competition level prevailing
in that particular industry in which the deal. This model assist business as well as managers to
analyse attractiveness & potential profitability of a sector. This framework include five
competitive forces, which shape industry & help in determining strength as well as weaknesses
(Khillari, 2020). Porter’s five forces model can be applied to any industry and segment of an
economy and increases an organisation long-term profitability. The competition in the
automobile industry is high as companies develop new models and offer unique features in order
to attract more number of customer. This industry is attractive to new entrants but need to
resolve many issues such as industry demand. Customer preferences, environmental demand and
many more. Nowadays, the demand of people is getting changed and they are shifting from
combustion engine cars to electric vehicles. In order to deal with this and deal with customer
demand, Volvo company is soon going launch XC 40 Recharge which is totally an electric car.
The managers of Volvo cars using this model in order to gain understanding about the level of
competition in the marketplace. The five competitor forces is given below in relation to the
chosen company:
Threat of new entrants: The threat of new entrant in this industry is low, as it require high
investment and it is not easy to enter in this market. It is an advantage to Volvo to gain an
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opportunity and to develop market position strong. It is determine that achieving economies of
scale in the mobile industry is difficult that assist company to take cost advantage and earn
higher profits as well (Batra and Na 2019). The government policies in the automobile industry
require licensing & legal formalities fulfilled which make the new entrant difficult to join in this
industry. It is important for Volvo to emphasise on innovation in order to differentiate its product
in market. In addition to this, require to build effective relationship with customers that will help
in engaging customer for longer time period instead of losing them at the time of new entrant in
industry.
Bargaining power of suppliers: There are ample number of suppliers in industry in which
company deals as compare to the buyers which means the bargaining power of supplier is weak
and they have no control over the prices. In relation to Volvo, its managers have the choice to
shift from one supplier to another if the switching cost is low. The overall profit margin of Volvo
is depend on the price charged by suppliers of providing the raw material to company. It is
essential for Volvo to maintain good relationship with suppliers so that they can gain raw
material at reasonable and low price that directly impact positively on the profits of company.
Bargaining power of buyers: In this industry, the buyers have firms to choose with and
there are less firms who offer electric vehicles that mean bargaining power of buyer is low in this
industry. It is important for Volvo to produce differentiate product and provide quality at
reasonable price as it attract more number of people which directly leads to raise in sales as well
as profitability of the organisation.
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Threat of substitutes: There are very less substitutes available for the goods produced by
the Volvo which mean threat of substitute is medium. The substitute is the companies that offer
quality at lower price so it is essential for Volvo to maintain quality in its products (Li, 2018). In
addition to this, the company need to ensure that it offers differentiate product so that customers
find something in its product and prefer to buy Volvo cars.
Rivalry among existing firms: There are many competitors in the industry in which Volvo
deal such as Ford, Tesla and many more. Most of these companies is large and spent more on
attracting people. In order to compete with this, it is important for Volvo cars to develop
effective strategies for attracting new customer and conduct market research in order to identify
customer requirements and market conditions. It will help company to attain competitive
advantage and enhance their level of profitability and market share as well.
From the above discussion, it is determine that company need to maintain good
relationship with customers so that they did not shift to any other substitute product (Khillari,
2020). In addition to this, it is important for Volvo to offer unique design and features in order to
compete with rivals and attain competitive advantage of market place. There are very less
companies which offer electric vehicles so the company have the opportunity to attract more
number of people and earn higher profits.
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3.Organization Changes
Organizational changes take place when changes taking place in the external market.
Organization changes includes change in the structure, technology, policies and culture of an
organization. Political, social, economic, changes affect the organization and due to this
organization have to do some changes according to the market. Volvo bring electric car in the
market which needs organizational change and this new innovation increase the competition in
the market. Automobile sector is rapidly growing with this rapid growth every company need to
make changes in their organization. In order to run successful business Volvo, need to change
their organization.
4. Reason for organizational change
The foremost reason for change is to get fastest growth and success in business. Change is also
required to attract more and more customers towards the company. Volvo introduce their first
electric car in Europe which bring effective change in automobile sector and this change also
give competitive advantage to Volvo. This step of company brings various changes in their
organization such as changes in company’s policies, development of some new strategies and
various technological changes also take place in an organization. The reason behind introducing
electric car is to reduce the cost fuel to customer and to get competitive advantage in market also
to attract customers.
5. Conclusion
From the above study, it has been analysed that there is both positive and negative impact of
macro environmental factors on the performance of the organisation. In addition to this, PESTLE
analysis assist company determine the impact of uncontrollable factors on the productivity of
company. Porter’s five forces framework is used by mangers of an entity to order to determine
the competition level prevailing in the industry.
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