Analysis of European Auto-Mobile Industry

The assignment delves into the European auto-mobile industry, examining its business environment and external factors. It analyzes how economy and technology have a positive effect, while politics, law, and environment have negative effects on the industry's operation and growth. The supplier power is also discussed in the context of luxury car makers, with threat of substitution and new entry being significant concerns. The analysis aims to provide insights into the complexities of the European auto-mobile industry and its business environment.

GLOBAL BUSINESS
ENVIRONMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
A) Assessing the environment of the global auto-mobile industry (PESTLE Analysis).......1
B) Assessing the environment of the global auto-mobile industry (Porter's five forces
analysis)..................................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
The global business environment can be defined as the surrounding in various sovereign
countries that consist some factors that can influence decision making on use and capabilities of
resources (Global Business Environment, 2019). It can be classified as external and internal
environment. The individual essay aims to evaluate the business environment of global Auto-
mobile industry in Central and Eastern Europe. The European car industries has been
continuously evolving from its early years. The analysis will be done through PESTLE Analysis
that includes various factors; Political, Economic, Socio-Cultural, Technological, Legal and
Environmental elements that are responsible to affect the business environment of the industries.
On the other hand, Porter's Five Forces Analysis will be done that help the organisations to
analyse the forces that can affect the industry in the region.
MAIN BODY
A) Assessing the environment of the global auto-mobile industry (PESTLE Analysis)
The Eastern European is the world's largest car manufacturing region and largest market
in the world (Adekola and Sergi, 2016). It is one of the main manufacturing sectors in the Europe
including; Western, Central and Eastern and remains important in terms of production, wealth
and jobs. The number of auto-mobile production in the Eastern Europe is increasing rapidly.
Beside US, Western Europe is the strongest auto-mobile manufacturing area. EU build around 16
million auto-mobile every year that is about 30% of the world's car production. There are more
than 20 vehicles producers in the region, with the largest car-maker with their brand such as;
Peugeot Citroen, VW, Daimler Chrysler, Fiat and GM and along with it, there are also some
independent car manufacturer; BMW, Porsche and Baritone (Calabrese, 2016). The vehicle
production of the European automotive organisation has shown a great increase over the last 10
years. There are many issues and challenges that the industry faces in the new era such as; rising
oil prices, air pollution, etc. are the reason that forced the car makers to rethink about its
management, objective, marketing and goal. The issues and challenges in the external
environment for the globalisation and threat for the car industry can be identified by the PESTLE
analysis.
Political and legal factor
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This factor plays a crucial role on the development of the any industry and shape the rules
of competition, operational cost and supply chain requirement (Cumming and Zahra, 2016). The
political and legal factor include; employment laws, political stability, tax policy, safety
regulations. Competition regulations, etc. The changes in legislation and government policies in
certain eastern European countries will have significant impact on the level of demand in the
industry. Global instability of the Eastern Europe enhances the oil prices by 15% in past 5 years
that affected the companies and has damaged the sales of larger engine sized cars. Peugot
affected by the unemployment rate that lower down from 13% to 4% in 2017. The Brexit is also
a big issue for the car manufacturer in the European region.
On the other hand European commission appears as an advantage for the auto-motive
companies. The EU government provide sufficient protection and incentives to the auto-makers
that encourage them for innovation and protection for intellectual property rights (Gaspar and et.
al., 2016). The region has tighter regulations on the control emission and the companies that are
invested in cosmologies that reduce such emission will gain competitive advantage in the future.
Volkswagen was hit by the emission scandal in 2017 that rocked the company's global credibility
and reputation. The east European government offer incentives to the industries if they invested
to offer a low flat and simple tax on corporate profits and employee wages. Trade agreements
can foster growth, innovation and prosperity for the EU (Hamilton and Webster, 2018).
Socio-Cultural factor
This dimension of the general environment represents the demographic characteristics of
the production and supplying countries, it includes; culture, norms, value of the population,
trend, etc. Compact and Hybrid cars are being trend for the consumers that influence their
demand. High gas prices in Europe change the preference of the consumers for the selection of
the car and they shifted from S.U.V to the compact cars and towards the hybrid cars, specially in
Eastern Europe (Kasemsap, 2018). Environment friendly vehicles have grown in demand at
global level. The trend and demand adopts by Peugeot Citroen and they churn out 300,000
compact cars a year.
One of the socio-cultural influence on the business environment is the degree of the
nationalism that prevails the country. For instance; there is a high level of nationalism in
Germany; it is priority for many Germans to have German manufactured cars. Every year new
model released keeping preference of consumers in mind (Adekola and Sergi, 2016). The
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locality/community of the country in Europe region as well as on the global level have high
demand of luxury cars that is an opportunity for luxury car manufacturer like; BMW, Porsche to
grab a wide market. Along with it, many industries that were known for their budget products are
entering in the luxury segment that have impact on the management and operation of the
industries (Kasemsap, 2018).
Economic factor
Economic forces have specific importance in the context of the auto-motive industries.
When the economic condition of the country are not well, the sales of vehicles are fall. The GDP
is rising for the last 5 years consequently that led to enhance the purchasing power. The market
of EU is over mature and the turnover is generated by the automotive sector represents 6.9% of
EU GDP (Laudon and Traver, 2016). The value of Foreign direct investment consist of many
factors such as; low risk for investment, low transaction cost, high expenditure in R&D and a
liberal economy. Industries suffered with economic crisis in 2016 at the time of Brexit Vote for
Europe and UK. Along with it, from past 4 years 5.3% of the EU workforce employed in the
auto-motive sector that enhance the employment. This has a positive impact on the industries as
income and buying power enhance in the country's economy. Economy of the Europe is
favourable for the car industries and this attract many more industries from other countries such
as; China, UK, etc. in auto-mobile sector to being in the partnership agreement with the countries
in the Europe in terms of build up their plant or supply (Pavlínek, 2015). The sustainable
economy allow many foreign car makers to build their own factories in countries like; Hungary,
Slovakia, Poland, Romania and Czech Republic. The labour rate is the cheapest in the region that
is beneficial for the industries.
Technological factor
This factor consists many elements such as; new discoveries and development, speed of
technology transfer, use and cost of technology, spending of government on research, impact of
the information technology on the industries, internet (Pavlínek, 2015).
The technological factor has high level of impact on the auto-motive industries in the
country as the competition come up with many new technologies in the other countries that can
have major impact on the companies. Innovation and technologies have become essential
determinants of the market share in the auto-mobile industry. Market share will be high if the
company is more innovative. Brands in the Europe countries like; Ford, Hyundai and Toyota are
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investing environment friendly and low emission vehicles (Cumming and Zahra, 2016). In the
recent years, technological development and innovation has remained a major basis of
differentiation for the car makers.
In the market, the sale of fuel efficient and low emission vehicles is always high. In 2016,
the sale of the hybrid cars is around 50,000 in the European region. Along with that, it is
mentioned that European government have many support rules for the car industry in R&D that
help them to innovate much more in their products. The use of internet is becoming high in the
car industry, for instance; G.M. are planning to bring online around $127 million plant to
assemble about 25,000 vehicles per year. This put pressure on other companies to be innovative
in their products and services to stay ahead from the competitors (Salvatore, 2015).
Environmental factor
Auto-mobile industries are the biggest culprit in the region that damaging the
environment. This factor includes; increasing traffic noise in the cities, higher consumption rate,
carbon foot print, etc. The legislation regarding the environment friendliness and carbon
emission are growing stiffer across the globe. All the major players in the car maker industry had
to focus upon low emission vehicles (Adekola and Sergi, 2016). The government favoured and
support the vehicles that have low emission and that supports environment. EU government
make strict law for the vehicles to pass the pollution test that can have impact on high fuel and
high discharge car industry.
As result, manufacturers has started to develop environment friendly cars but the
downside is that the market share of these types of cars have low market share.
B) Assessing the environment of the global auto-mobile industry (Porter's five forces analysis)
Porter's five forces is an analytical tool that determines the competitive
attractiveness and intensity of a specific market. The model mainly consist 5 forces including;
bargaining power of supplier and buyer, competition level, availability of substitute products and
threat of new entrants in the market.
Supplier power
Power of supplier increased after the Brexit vote. All the industries are dependent on the
supplier for the raw material and decision of exit of UK from EU made some level of impact on
the supply of the raw material (Calabrese, 2016). The power of supplier in the auto-mobile
industry is high. Industries in all the country raise their level and quantity of production. Luxury
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car manufacturer in European region such as; BMW, Porsche face high level of bargaining
power as the company required high quality raw material and the suppliers are in limited
percentage that state that they are highly depends on the supplier. On the other hand compact
cars and medium price segment cars such as; Daimler Chrysler, Fiat and GM have many supplier
in the Central and Eastern Europe that state that they are not highly depends on the supplier. In
past 5 years the level of supplier is enhanced in the region by 24%. For example; Ford followed
the Japanese supplier lead (Cumming and Zahra, 2016).
Buyer Power
It is refers to the capability of the purchaser to negotiate prices that extract profit from the
seller and made negative impact on the company. In 1990 the automotive industry in countries of
Europe was highly protected by high charges and tight import actions. Bargaining power of
purchaser is high because of the accelerating overcapacity issue and high intensity of
competition on the worldwide scale and low switching cost. There is low switching cost of
consumers from VW to Ford costs that depends the budget of the consumers. The end consumer
specifically have no bargaining power (Hamilton and Webster, 2018). Today's customer are well
educated about the different products and their impact on the environment and on their income.
So the buyer power is high. As competition is high the switching cost of the individual is low to
buy the products from other country's products that make them more powerful and that have
negative impact on the industry as well as on the country.
Threat of substitution
The European region consist many car-maker industries from which consumers can select
according to their preference, taste and budget. Increase in fuel price and other factors influence
the demand of customers towards the passenger cars that is a big threat for the established
companies. It also pushing the urban drivers to use public transportation. But the company like
Ford did not put any effort into easing the pressure of substitute like public transport. Consumer
can get the benefit of fuel efficient trains by Ford that is their larger investment (Kasemsap,
2018).
One of the factor that pose the strong challenge for the auto-mobiles in EU is the cheap
option of other transport. Not all the people can afford car so they look for another options like
Motorcycle or Bicycle.
Threat of new entry
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One of the reason that European auto-mobile industry is competitive in the global market
is the ease at which new comers into the market. But there is high level of entry barriers in the
independent industries like; BMW, Porsche, etc. as the new entrants need to invest a super
amount of money and in innovation and R&D to become the competitor to those industries. So
the new entrant level is low (Laudon and Traver, 2016). The European auto-mobile market is of
$350 billion and the economies of the scale is very high. So the new entrants are very low. New
entrant required; a huge amount of investment, marketing strategy, time to establish the business
in the market.
Competitive rivalry
The Automotive market in Europe is highly collective. The main competition involves
General Motors, Ford, Renault, BMW, Volkswagen, BMW, Citoren, Peugeot and Toyota
(Cumming and Zahra, 2016). In the region, there is threat of intense price wars and need of
differentiation of the products the presence of powerful competitors with the established brand in
the European country. It makes impact on the industries and leads to increase in promotional
costs and overcapacity develop a price pressure. There are three main strategies to survive in the
market with competition; innovation, serve and satisfy the need of emerging market segment,
supply chain improvement techniques and lastly new product development strategy. All the
competitors implement various strategies to market their product and attract consumers
effectively. In the past Ford was very successful because of their advantage regarding to scale
and volume and it was interpreted that they could be the best player in the General motors
(Laudon and Traver, 2016).
Apart from that, competition can be other countries in terms of European Region as the
whole and many industries from other countries can be a big competition of the auto-mobile
companies in the EU region.
CONCLUSION
From the present essay it has been evaluated that European region have the best
environment for the auto-mobile industries. In the countries there are all type of car makers from
low to luxury that covers all the segment of consumers. The countries or region's external
environment had effect on the business environment that operates there or are attached
somewhere to the region. The most suitable factors that has positive effect on the industries are
economy and technological environment and in contrast, political and legal, environmental have
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negative effect on the industries and it limits their operation and growth. High supplier power
was analysed mainly in the context of luxury car maker and threat of substitution, new entry was
seen in the context of car makers like; Hyundai, Ford, etc.
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REFERENCES
Books and Journals
Adekola, A. and Sergi, B. S., 2016. Global business management: A cross-cultural perspective.
Routledge.
Calabrese, G. ed., 2016. The greening of the automotive industry. Springer.
Cumming, D. J. and Zahra, S. A., 2016. International business and entrepreneurship implications
of Brexit. British Journal of Management. 27(4). pp.687-692.
Gaspar, J. and et. al., 2016. Introduction to global business: Understanding the international
environment & global business functions. Nelson Education.
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University
Press.
Kasemsap, K., 2018. Mastering business process management and business intelligence in global
business. In Global Business Expansion: Concepts, Methodologies, Tools, and
Applications. (pp. 76-96). IGI Global.
Laudon, K. C. and Traver, C. G., 2016. E-commerce: business, technology, society.
Pavlínek, P., 2015. Foreign direct investment and the development of the automotive industry in
central and eastern Europe. Foreign Investment in Eastern and Southern Europe
Galgóczi. pp.209-256.
Pavlínek, P., 2015. The impact of the 2008–2009 crisis on the automotive industry: global trends
and firm-level effects in Central Europe. European Urban and Regional Studies. 22(1).
pp.20-40.
Salvatore, D., 2015. Managerial economics in a global economy. OUP Catalogue.
Online
Global Business Environment. 2019. [Online]. Available
Through:<https://www.reference.com/world-view/definition-global-business-
environment-47496caa3110fa52>.
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