Analysis of Automotive Industry Using PESTEL and Porter's Five Forces

The assignment analyzes the automotive industry using PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) factors to understand its external influences. It also applies Porter's Five Forces model to determine the attractiveness and level of competition within the industry. The analysis provides insights into the factors affecting the industry, including government policies, market trends, customer behavior, technological advancements, environmental concerns, and legal regulations. The assignment concludes by suggesting strategies for companies to effectively compete in this industry, such as revising products and services, improving supply chain management, and enhancing customer relationships.

Environmental
Analysis of an
industry

Table of Contents
INTRODUCTION...........................................................................................................................1
a) Assess the environment of the Global Auto mobile industry using PESTEL analysis...........1
b) Assess the environment of the Global Auto mobile industry using Porters Five forces
Model .........................................................................................................................................3
CONCLUSION................................................................................................................................6
.........................................................................................................................................................6
REFERENCES ...............................................................................................................................7

INTRODUCTION
Auto mobile industry started in the year 1890's and is a multi billion industry consisting
of several brands in order to capture the largest market share. This industry play a important role
in enhancing the growth of the economy. This project is based on the case study of Car
Production Surges in Eastern Europe (De Marchi, 2012). The report will throw highlights on
determining the impact of the political, social legal, technological and economic factors on
global auto mobile industry as well as provides an understanding of the respective industry using
Porters Five forces analysis. This will provide an understanding of the various external
environment factors which affects the functioning of the global auto mobile industry.
a) Assess the environment of the Global Auto mobile industry using PESTEL analysis.
Since the foundation of auto mobile industry it has become the integral part of the
nations economy in terms of enhancing the revenue. Due to the large brand, growth of the
company is impacted by several factors. Apart from this frequent changes in the European auto
mobile industry has noted various factors which affect the auto mobile industry are as follows-
Political Factors- It is concerned with the rules and regulations of the government which
affects the performance of the European auto mobile industry includes the following such as
Governmental foreign policies and taxes in Eastern Europe are stable as government offers
incentives from financing some of its investments to a very simple and flat tax rate at a 19
percent. This will allow the production to uplift in that regions as the manufactures can easily
get the finance. It has a advantage of stable economy and determines the success of the
respective industry in the global market. The main concern of the government is to manufacture
cares while reducing the environmental issues, but the manufacturers are receiving higher
governmental support from the government. Because of the stable economy it assist the auto
mobile company regarding effective performance and enhances interrupted work (Grant, 2016).
Economic Factors- This factors is concerned with with the exchange rate, inflation rate
and the economic growth of the particular nation. In context to the case study with the increase in
the production of cares in the eastern and western Europe is because of the stable economy.
Within the three years company is going to expand its dealer network in the region by 80 to
about 480. This expansion had reduced the unemployment rate to 5% from 13% and provides
standard of living to the individuals. Even though workforce of Slovakia around 2.3 million are
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unionised. This led to the growth of economy and moreover surplus buying power in developing
economies have made Europe a global market place. This is because of the stable economy
which enhances the employment opportunities and greatly avoided the problem of pnverty.
Social Factors- In context to the social factors which influences the auto mobile industry
consist of factors such as culture, demographics and the buying patterns of the consumers. As
customers demand cars with high fuel efficiency and reduced emission. This led the auto mobile
industry to produce cars according to the requirement of the customer as because of the
increased awareness of the harmful emissions. As with the high gas prices in the Western
Europe has encouraged customers to start shifting from big cars to the kind of Compact cars
which have a speciality in Eastern Europe. With this Ford introduces sub compact model such as
“ka” where Fiat
will assemble a new version of its popular Cinquecento. This moves by the company will led to
meet the customers expectations and will results in the higher sales of the company
(Hemmelskamp, Rennings and Leone, 2013). As because of the customer awareness regarding
harmful emissions their buying patterns changes, this puts pressure on the auto mobile industry
to update the manufacturing of the cars to fulfil the requirement of the customers.
Technological factors- Increased customer awareness has led to the improvements in the
technology. In order to sustain in this competitive business environment it is necessary for the
manufacturers to use technological improvements in the manufacturing of energy efficient
vehicles . The largest challenge that the auto mobile industry is facing In Europe off is potential
shortage of qualified labour. Moreover prices for the labours are also increasing which the
company is facing problem. In order to work and manufacture cars by using modern
technologies industry requires potential manpower and should update its products. In context to
the case study companies start using updated technology such as Volkswagen assembles its
Touareg
S.U.V. and the big Q7 of its Audi affiliate in Slovakia; Porsche assembles the body of its
expensive Cayenne in a factory near Bratislava. This led to the improvement in the car
manufacturing where new features are added to the product so as to attract customers. Moreover
with the technology it has led to online sales of auto mobiles (Victor, 2017).
Legal Factors- It is concerned with legal laws which affects the working of auto mobile
industry. Respective industry in Europe is affected by laws, regulations and restrictions which
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are aimed at reducing and controlling pollution. It has been analysed that because of the intense
competition from the economies such as India and China forced the European Commission to
launch the Cars 21. It is an auto mobile regulatory system for the 21 century designed to enhance
the strength and competitiveness in the employment sector. It is an integrated approach which
aims to reduce emission and assist in better coordination of European Policies. This way it will
help in proper regulation of the business activities. There are various other laws such as
environment law, tax law and several other laws which the auto mobile industry should comply
and to adhere with. This will help in proper conduct of the business practices within the auto
mobile industry (Wallace, 2017).
Environmental Factors- This factor is concerned with the enhanced and increased
global awareness which are one of the major environmental factors affects the working of
European auto mobile industry. Moreover with the increased awareness of the customer
regarding environment pollution they start demanding hybrid cars, fuel cell cars and more
environmental friendly cars. Even though with the increase in the gas prices customers demand
shifted from large cars to compact cars and more environment friendly cars. This factors needs to
be considered by the Cars manufacturers in Europe to fulfil the customers demand. Many
companies have introduced the environmental friendly plug in hybrid cars such as BMW i3 and
Toyota Prius Plug-in and Kia Niro. These are the updated cars produced by the company so as
to capture larger market share (Keith, 2017).
The above Pestle analysis for auto mobile industry in Europe provides an understanding
of the changes in the various factors and assist the companies to take effective decision regarding
expansion and start and assist in formulation of strategies in a proper manner. These factors have
a greater influence on the the working and functioning of auto mobile industry and helps in the
formulation of strategies effectively in order to reduce the impact of such factors and effectively
sustain in this competitive market place. Apart from this because of the stable economy and a
simple tax rate it enhances the growth of auto mobile industry in Europe and leads to large scale
production.
b) Assess the environment of the Global Auto mobile industry using Porters Five forces Model
Five forces Model which is developed by Michael Porter is a framework which
determines and analyses company's competitive position in the global environment. It assist the
companies regarding effective development of strategies and determines the intensity of the
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competition and the attractiveness of the market. This is an effective model which helps the
global auto mobile industry to adopt and implement effective strategies and determines the
attractiveness of the industry. This five forces model is explained as below-
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Illustration 1: Illustration 1: Porters five forces, 2019
Source: (Porters five forces, 2019)

Threat of New Entry- Auto mobile is the most huge and attractive industry enhancing
the growth of nations economy. Setting up an auto mobile industry requires huge capital,
technology and labours to capture the larger market share, moreover prior setting an auto mobile
industry it is necessary to have enhanced brand image and brand equity in the market and it also
lot of time to enhance its brand equity which makes it difficult for the individual to make a
strong brand equity. It is difficult for the individual to take immediate decision of manufacturing
auto mobiles. Therefore the threat of new entry under the auto mobiles sector is low which
greatly benefits the existing companies to take the advantage of capturing larger market share.
Moreover with the already settled companies such as Ford and Volkswagen with a established
brand image makes difficult for the new entrants to start an auto mobile manufacturing company.
Bargaining Power of Suppliers- In the auto mobile industry, suppliers provide products
as auto mobile parts, components and performs electronic work. As the respective industry is
fragmented and rely on suppliers to provides parts of the vehicle in a timely manner. As there are
lot of suppliers available in the market but car manufacturing companies rely on some specific
suppliers for taking the auto mobile components (Plumlee, 2015). Therefore suppliers business is
totally dependent on the demands and requirements of the auto mobile manufacturer. Therefore
bargaining power of the suppliers within the industry is medium as the firm have some specific
suppliers towards the auto parts for example when Volkswagen assembles its Touareg
S.U.V. and the big Q7 of its Audi affiliate in Slovakia; Porsche assembles the body of its
expensive Cayenne in a factory near Bratislava, and then ships them to Germany for finishing.
This shows that there are various suppliers within the industry so the bargaining power is
medium..
Bargaining Power of Customers- As there are lots of consumers for purchasing the auto
mobiles, it becomes necessary for the companies to provided updated models of cars so as to
meet the requirement of the customers. When customers become dissatisfied with company's
they start searching for alternatives mostly the foreign cars. Therefore Bargaining power of
customers are high as they can easily switch towards the auto mobiles of different company. For
example when the customer of Ford are not satisfied with their products and services they can
easily switch to Volkswagen company and avail their products and service. Hence it can be said
that bargaining power of customers are comparatively high.
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Competitive Rivalry- It is concerned with the level of the competition in the market
place. Therefore highly competitive industries earns low returns because of the high cost of
competition. In such condition firms need to provide updated and modified auto mobiles
according to the requirement of the customer and sustains effectively in the competitive business
environment. Under the specific industry there is a price based competition which the different
companies should understand and sets effective prices for their products. Therefore competitive
rivalry among the industry is high and auto mobile manufacturers should effectively update their
products so as to remain competitive in the market place. Moreover there is intense competition
between the auto mobile manufacturers between the Eastern Europe and Western Europe. As
Eastern Europe manufacturers produces small compact cars and western Europe auto mobile
manufacturers high updated cars. This creates intense competition between the two. Though
there is almost high level of competition within the industry (Ryan, 2012).
Threat of Substitutes- It is concerned with the similar type of product that the different
company offers and benefits the customers in a positive way. Substitute products contains level
of risk that the firm faces when the customer switches towards the substitute products. For auto
mobile industry substitute products are mainly the vehicles which are manufactured by different
companies as well as the public transport facilities which are cheap and easily available and
mainly affordable for various customers. Therefore there are many substitute products for auto
mobiles, customers can easily switch their preference and can avail the service as according to
their requirement. This affects the profits of the auto mobile sector as well as makes it difficult
for them to capture larger market share within a short period of time. Hence it can be said that
threat of substitutes for auto mobiles sector is high.
From the above five forces model it greatly helps the global automotive industry in
determining the attractiveness and the competitiveness of the industry. Thereby assist in
developing and implementing effective strategies so as to sustain in this competitive global
environment. Auto mobile industries in Europe and through out the globe should come up with
advanced features so as to attract customers and can survive profitability in this competitive
market place(Therivel, 2013). Threat of new entrants in this auto mobile industry is low as it
requires huge capital and technology to enter into such a huge industry as well as bargaining
power of the suppliers is moderate but the bargaining power of customers is high as because of
the various competitive products, it becomes easy for the customer to switch towards the product
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and purchase the vehicle of the company according to their requirements. Therefore there is high
level of competitiveness within the industry, respective auto mobile companies should
manufacture revised and updated products so as to compete effectively in the market place and
sustain in the market for a long period of time.
CONCLUSION
From the above report it has been concluded that auto mobile industry is the most
profitable as well as the labour intensive industry providing employment opportunities to
thousands of people. In order to capture larger market share and sustain in this competitive
business environment it is necessary for the industry to analyse the influence of PESTEL factors
as well as determines the attractiveness and level of competition within the industry with the help
of Porters five forces model. Both the models greatly assist the company in developing and
implementing strategies and performs the business activities in a effective manner, this leads
them to effectively sustain in this competitive business environment.
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REFERENCES
Books and Journals
De Marchi, V., 2012. Environmental innovation and R&D cooperation: Empirical evidence from
Spanish manufacturing firms. Research policy. 41(3). pp.614-623.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hemmelskamp, J., Rennings, K. and Leone, F. eds., 2013. Innovation-oriented environmental
regulation: theoretical approaches and empirical analysis (Vol. 10). Springer Science
& Business Media.
Keith, L., 2017. Environmental sampling and analysis: a practical guide. Routledge.
Plumlee, M., Brown, D., Hayes, R.M. and Marshall, R.S., 2015. Voluntary environmental
disclosure quality and firm value: Further evidence. Journal of Accounting and Public
Policy. 34(4). pp.336-361.
Ryan, S.P., 2012. The costs of environmental regulation in a concentrated industry.
Econometrica. 80(3). pp.1019-1061.
Ryan, S.P., 2012. The costs of environmental regulation in a concentrated industry.
Econometrica. 80(3) . pp.1019-1061.
Therivel, R., Wilson, E., Heaney, D. and Thompson, S., 2013. Strategic environmental
assessment. Routledge.
Victor, P.A., 2017. Pollution: economy and environment. Routledge.
Wallace, D., 2017. Environmental policy and industrial innovation: Strategies in Europe, the
USA and Japan. Routledge.
Online
Porters Five Forces. 2019. [Online]. Available through:
<https://www.strategicmanagementinsight.com/tools/porters-five-forces.htmll>
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