Table of Contents INTRODUCTION...........................................................................................................................1 1.1 Assessing the environment of the Global Automobile industry using PESTEL analysis1 1.2 Assessing the environment of the Global Auto-mobile industry using Porters five force analysis...................................................................................................................................5 CONCLUSION................................................................................................................................8 REFERENCES................................................................................................................................9
Illustration Index Illustration 1: PESTLE Analysis..................................................................................................5 Illustration 2: Porter's Five Force Model....................................................................................9
INTRODUCTION Global environment have a major impact on a company that how it operates in a particular country. The report helps to understand meaning of global business in an automobileauto mobileindustry. Every firm wants to expand its business at global level and being engage in this will be highly beneficial for a company. The report deals with current scenario of auto-mobile industry in UK and describe various external factorsthatwhich affect industry such that by using PESTLE analysis as a competitive tool which help to identify how political, social, economical, technological and environmental factors impact on an industry while on the other side by using Porter's five force model will help to determine its competitive advantage and its current position in market. 1.1 Assessing the environment of the Global Automobile industry using PESTEL analysis Automobile industryis a variety of companieswhich offer different types of cars that who areinvolvedin theirdesigns, development and manufacturing of motor industry. It has been analysed that automobile sector is considered as world's most important sector in the terms of profit earning.This sector is also affected by its external factors due to having such a large size, its growth and revenue are impacted by external as well as internal forces (Pestle analysis of automobile industry,2018). A recent financial crisis had really hit an industry in such ashard way that its overall financial marketgoesisaffected. However,as the global recession is passed,thesales of automotive are again on track, this sectorisnot only work for manufacturing of vehicles but it also deal for marketing as well as sales and in UK, the auto-mobile industriesyare affectedingfrom various external factors such as political, environmental, social etc. These are mention below: 1
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Political Factors:Political factors plays an important role and gives a direct impact on the profit of automobile industry.Basically,this factor affect political condition of a country and that creates direct impact on business performanceThis factor consider or effects of political trends as well as conditions of a business performance of an automotive industry (Markey and et.al.,2018).It has been analyses that government of UK favour to low emission vehicle and raise taxes on luxurious auto mobile sector.As the government in a world mostly favouring low emission vehicle and even taxes on luxury vehicles are also grown higher.But the government of UK also provide government subsidy for low emission of vehicles and the manufacturersalsostartedmanufacturingenvironmentalfriendlyvehiclesasper instruction given by government in order to protect environment from pollution and automobile industry also receiving higher government support for low environmental impact but on the other side government rules and regulations highly affect this sector in theaterms of money. If a manufacturer introduce new vehicle which is relatedto advanceto advancetechnologies,then this can easily passesall governmentalrules in UK. 2 Illustration1: PESTLE Analysis (Source:(PESTLE Analysis, 2018)
There are so many governmentaland political factors that affectsthe business environmentofanautomotiveindustrysuchthatchanginggovernmentrulescause fluctuation inathebusiness that affect really hard. It is also analysedsthat China is considered customer's favourite brand because it offer its product and services in such a cheap rate with low labour cost. Another political factor is export and import law that variesineverynation.Itisanotherconcerningfactorbecausemanufacturerface difficulties while importing or exporting products in the case where laws are quite stiff. It is also assessedingthat in this year, car production in Central and Eastern Europe (except Russia) is again back on track which exceed 2.4 million vehicles from Asia and United States. Economic Factors:This is another most important factor that affect automobile industry. Recently,the sector ishit hardaffect negatively on business environmentbecause of having some economic crisis such that when country's economic condition is not good, the sales of vehicles arealso affecti.e. decreases(fall).At a time of low or poor condition of a country, the demand of vehicles are also affectedDuring poor condition, the demand of luxury or high cost vehicles also affected.adversely.Therefore,the tax on high price vehiclesremains high in certain markets (Smith and et.al., 2018). While it has been critically evaluated that if the economic condition of a country is good,then sales will alsoremainincreases. In well developed countries, the sales are generally high and on the other side, in under- developed countries,it is quite low as compared to them. As having a higher salesin market, the purchasing power of customers are also high andinonanother side, developing and under- developed countries people demand low price. This shows the size of economy and globally economic conditions which have a major impact ontheaprofitability of an automobile industry. There are various angles through which importance of economic factors of an industry can be analyses and one of the most important factor is purchasing power of a users.The overall industry is completely depend on purchasing power of customers and if company offer high rates of productsthen user will start shifting and as a result there will be loss suffered by many companiesAs whole industry sector is depend on buying power of a customers and if there is a large numbers of brands then they mostly focus on purchasing low cost cars from a market just because theyknowcustomer'sknow customer’sshifting sector(Chandler, 2018). 3
That is why it is necessary to move withcustomerscustomer’sperspective. Another factor is rising competition in developing market which also affect or createsfluctuation in market segments. To decrease level of competition, it is necessary for an automobile industry to sell their products in low price as compared to their rivals which helpsto increasestheir financial status of a company. Social Factors:An automotive sector is also influenced by social factors anditplays another important role.By keeping customer's preference, producer start producing new item every year this shows that how social factor affect company's profitabilityManufacturer always produce those products as per their customers demand and every year, new models are continuously released by keeping people's preference in mind..It has been analysedsthat there is increasinglypopularity of low carbon lifestyle and many peoples choose specific styles in certain cultures while in other markets, SUVs are on higher demand. So it shows that each and every person demand differently and have their own expectations which has to be filled by a sector (Lewis and et.al., 2017). Age distribution is another factor that must be kept in mind while targeting customers and these social changes are continuously affecting brand nameandmodelsand modelstoo. Beside this, from culture to culture, public's style and preference are also differ and as a result some particular model will sell in a market. Due to these social factors or changing trends sometime make older modelout of dateoutdatedand company faces big loss. In UK,people demand forself drivingself-driving cars that help to promote growth through sale of cars while on the other side, there is another increasing demand for vehicle sharing and creates ride- hailing programs that help to improve transportation. Technological Factors:These are consider one the most important and crucial factor in an automobile industry and all brands in this sectors are also make huge investment regarding research and development such as Toyota, Hyundai and Volkswagen are investing in low emission with environmental friendly vehicles. Apart from this,Toyota is also planning to introduce driverless car in coming years (Kirton and Maclaren, 2018). All the industry who are based on this industry are more focusing on technological factors that help to attract wide number of customers towards them. Now a days, technological innovation becomes a major basis forthedifferentiation for the makers of automotive and 4
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it is so becausetheitfocus of customers are shifted towards a fuel efficient as well as high mileage. It is also consideredthatthesale of low emission and fuel efficient vehicles are quite high as compared to others and this shows that technology is one ofthea most important factor that affect sales and profitability of an industry. Legal factors:Legal factors are anotherfactorcausethat affect the performance of a company. If a country sell vehicle to another state,then they must follow all the laws related to product quality and safety (Singh, Singh and Singh, 2018). While on theother side in automobile industry, the pollution laws are strict in which,if the vehicles are being exported, they have to pass rule related to emission control. Next laws are related to safety that creates an important impact on the sales of products or services. A recent example is Toyota which had to recall its vehicle just because of its faulty airbags. Due to such cases, government start imposing new laws with strict safety of their customers. Beside this, every firmhas to deal with safetylaw,,taxlawand environmental law in order to operate in international market. Environmental Factors:Ecological as well as environmental factors also affect the working environment of automobile industry and it is considered asone of the most challenging issue that threatinat entireworld. Therefore, car manufacturer has to pay attention on it. The laws related to environment and carbon emissions are becoming strict from past and the industry has to focus upon low emission vehicles (Rees and et.al., 2018). Thoseevehicles which emit lowgasesandhelp to consumelessfuel consumptionuel, they receive tax subsidies and even are favoured by government as well as laws. In UK, only those vehicles are considered which passes pollution test and environment friendliness has become a most important test for producers in thiscenturytime perioddue to government start focusing on pollution control. 1.2 Assessing the environment of the Global Auto-mobile industry using Porters five force analysis Recession had createdbad impact on the working environment of a company and there are so many factors that affect a sector one of then is Porter's five force model which affect its competitiveness as well as attractiveness in market which is discussed below:by using Porter's five force model it will help to analyses its competitiveness and this is describe below: 5
Threat of new entrants (weak):The threat of new entrant in an automobile industry is quite weak because it is difficult for a new brands to enter innewbrand-newmarket as it requires alot of investment. At initial level, it requireshuge investment to set up their business such asrequire facility related to manufacturing, network system of selling as well as distribution, new employees while on the other side if a new brand emerges into a market then it definitelycomeswithnewinnovativeproductsneedmanufacturingfacility,networkof distribution and hire skilled staff. On the other if new brand enter in a market and brings many innovative products with them, it will creates barrier for an existing brands because of chances to gain market becomes low. Still brand image and their reputation are consider one of the most important challenge.Now a days and even it is competitive advantage for them too.For smaller companies, it is quite difficult for them to achieve economies of scale because every new brand has to focus on the quality of product that they are offered (Porters five force model,2018). On the other side, penetrating new market is not so easy because government applied different import taxes just to discourage foreign brands. It 6 Illustration2: Porter's Five Force Model (Source:(Porter's Five Force Model, 2018)
shows that there are so many factors that affect threat of new entrant in automobile industry. Bargaining power of suppliers (weak):The bargaining power of suppliers of car sector is quite weak in many region. As manufacturer require so many inputs such as labour, raw material etc. which creates direct impact on the profitability of a company.For example, in Slovakia, it spends $ 890 million for its inauguration of automobile factory which becomes a major event and even after collapsing of communism, many foreign car manufacturers movedtowards a local market in order to build their own factories in Poland, Romania and Hungary.After this,a result cameomes,thatwhichshows,As a result, suppliers are extremely openrelatedto their demands as well as their requirements and theseysuppliershave to perform theirm entirework as per set by brandsstoreonlywhile o. But on the other side, these brandsstore didarenot face any problem to switch from one suppliers to another. This is the only reasonthat is whythat showsbargaining power of suppliers are consider quite low for an automobile industry in UK (Lewis and et.al., 2017). In Eastern Europe, producers are not making cheap rate care, as Volkswagen assembles to Touareg, SUV's and even Q7 Audi and then ships all of them to Germany for their finishing which help to attract many suppliers towards them. Bargaining power of buyers (moderate):The bargaining power of buyers are consider so strong as compared to another factor in order to determine competitive advantage.It has been analyses that there are so many government agencies which help to increase purchasing power of stores and they buy those products at cheap ratesIt is also analysesdthat even government agencies and corporations are buy a group of vehicle that help to increases buying power of customers but at lower rates(Von Bredow, 2017).But on the other sideEven thebuyers arealsoquite sensitive related to theirpricesensitivethateventhey can switch to another brand who offer best quality product at reasonable rates as compared to other ones. High gas prices in West side also encouraged consumers to start shifting from big cars as well as SUV's and as a result many countries startedproducing products as per customer's demand. However, no buyer have a threat of backward integrationingand it shows that the bargaining power of this sector is quite strong and now big brands are more focusing on buildingcustomers loyalty by means of design, quality as well as offered prices. 7
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Threatofsubstitutes(weak):Automobileindustryhaveweakthreatof substitution,eeventhoughtherearesomanyotheroptionsavailableasmodeof transportation which includes bus, trains and planes etc. But none of themwill provide that much comfort and convenience that your own cars do. That is why people chooses car while goingfor travelling while on the other side choosing other mode of transportation, they have to wait or there is so many chances to miss those alternatives (Brack,2017). So it shows that threat of substitute is quite weak. Apart from this, still there are few threat from substitute products where daily people searches for cheaper and easier way of travelling. Now people demand for those products in automobile industry which are based upon fuel efficiency andwhichhelp tosaves time, money and efforts but many developed countries try to releases new products as per their demand. So it proves that there is weak threat of substitutionein automobile sector. Competitive rivalry in industry (Quite strong):In automobile sector, there is a tough competition in all over world and it is also analysed that the number of brands is low and the exit barriers are high and if a brand try to exit then they have to bear a large amount of loss. Every company have their own rivals and to become superior in market,it is quite necessary for them so offer their products/ services at cheap rate as compared to their competitors. Each firmwants to maintain itscustomerscustomer’sloyalty,which shows the exact market share of a company (Brown,2018). Moreover, different brands target various market segments but yet they covered because brands only compete on the basis of its products cost, design, customer loyalty, quality and cope up with new and latest technologies. To maintain their brand image in market, everybrandtrade nametries to introduce new products in order to satisfy their customers need and maintain users segments too. CONCLUSION By summing up above report,it has been concluded that global environment plays an important role in an automotive industry and to expand the sector in international level, it is necessary to follow all the rules and regulation made by government. In this report it is also concluded that there are some external factors that affect company's performance which can be analysed by PESTLE which includes political, social, economic, legal and 8
environmental factors. On the other side the report also shows its competitiveness by using Porter's five force model which help to determine its bargaining power of suppliers, buyers and threat of new entrants, substitute. 9
REFERENCES Books and Journals Brack, D., 2017.International trade and the Montreal Protocol. Routledge. Brown, S., 2018.International relations in a changing global system: toward a theory of the world polity. Routledge. Chandler, W., 2018.Energy and Environment in the Transition Economies: Between Cold War and Global Warming. Routledge. Kirton, J. J. and Maclaren, V. W., 2018.Linking trade, environment, and social cohesion: NAFTA experiences, global challenges. Routledge. Lewis, H. and et.al., 2017.Design+ environment: a global guide to designing greener goods. Routledge. Markey,R.andet.al.,2018.ModelsofEmployeeParticipationinaChangingGlobal Environment: Diversity and Interaction: Diversity and Interaction. Routledge. Rees, S. E. and et.al., 2018. Defining the qualitative elements of Aichi Biodiversity Target 11 with regard to the marine and coastal environment in order to strengthen global effortsformarinebiodiversityconservationoutlinedintheUnitedNations Sustainable Development Goal 14.Marine Policy.93. pp.241-250. Singh, G., Singh, P. and Singh, M., 2018. Thinking Globally, Leading Locally: Defining Leadership in Diverse Workforce. InManagement Techniques for a Diverse and Cross-Cultural Workforce(pp. 98-115). IGI Global. Smith, A. D. and et.al., 2018. Radio Frequency Identification Systems Within a Lean Supply Chain in a Global Environment. InEncyclopedia of Information Science and Technology, Fourth Edition(pp. 5516-5526). IGI Global. Von Bredow, W., 2017. Re-Nationalization of Military Strategy?: New Challenges for the Armed Forces in a Changing Global Environment. InMilitary and Society in 21st Century Europe(pp. 45-54). Routledge. Online Pestleanalysisofautomobileindustry.2018.[Online]Available through:<https://studentshare.org/macro-microeconomics/1483512-pestel-analysis- of-the-automotive-industry-in-united-kingdom>. Portersfiveforcemodel.2018.[Online].Availablethrough: <https://www.ukessays.com/essays/marketing/five-forces-of-the-automotive- industry-marketing-essay.php>. 10