Porter's Five Forces Analysis and Global Environment

This assignment requires a detailed analysis of Porter's five forces model and its application to the global environment. It involves understanding the six factors - Political, Economical, Technological, Legal, Environmental, and Social (PESTLE) - that affect business operations. The student needs to demonstrate an in-depth understanding of these factors and their impact on a company's competitive position. Additionally, the assignment requires referencing relevant books and journals, as well as online resources, to provide a comprehensive analysis.

Global Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
PESTLE analysis of Global auto-mobile industry.................................................................1
Porter's five force model for Global auto-mobile industry.....................................................4
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Global Environment is defined as the overarching surroundings in which firm operates. It
involves various factors that can impact a business. This includes politics, geographic location,
economic status, culture and technology of global environment. It is also defined as the
surrounding in distinct sovereign countries, with variables exogenous to local environment of an
organisation that influence decision making of firm on utilization of resources and capabilities.
The present assignment is based on global auto mobile industry which is one of the rapidly
growing sector and is consider as world's most important economic sector in term of revenue
(Attfield, 2015). Automotive industry highly contributes in growth and development of European
economy as it contribute 4% in country's GDP and provide around 12 million jobs. In this report,
environment of global automotive industry is assessed by using PESTLE Analysis as well as
Porter's Five Force Analysis. By the application of these tools, factors of macro environment are
evaluated and effective strategies can be formulated that assists company in gaining high
competitive advantage in market.
PESTLE analysis of Global auto-mobile industry
Global auto-mobile industry is consider as a multi billion industry where large number of
brand compete for market share. All the major players tries to bring vehicles which provides
more fuel efficiency with low carbon emission in order to capture large share of market.
The European car industry has been evolving continuously due to recent inauguration of $890
million auto-mobile factories which was a major event and hence contribute toward the
economical development of Europe and is considered as a world's largest car manufacturing
region and largest market. For maintaining the economical growth and to avoid the events that
may affect the functioning of auto-mobile industry it is very essential to conduct environment
analysis. This analysis can be performed using an analytical tool known as PESTLE, stands for
Political, Economical, Social, Technological, Legal and Environmental. It help in analysing
various factors that are present i Firm requires to n external environment and can affect either
positive or negative impact over the functions and operations of auto-mobile industry (Axelrod
and VanDeveer, 2014). Following are the factors includes in PESTLE analysis.
Political:- It includes element which are related to government regulations and political
stability which a country have, these factors have an huge impact over the operations of industry.
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So, it is very essential to determine the government tax and policies which help in determining
the success possibility of industry within the global market. Global auto-mobile industry is under
the pressure of government, as they favour low emission vehicle and put certain standards which
auto-mobile manufacturers much meet in order to survive in market. European government
highly support the hybrid vehicles because of its eco friendly emission. So, car manufacturers
have to comply with certain EU vehicle emission Standards and regulations which are decided
by Europe government generally known as Euro Standards.
East European government offers incentives to car manufacturing companies for
financing their investments, so that they can offer a low flat and simple tax over employees
wages and corporate profit.
Economical:- It includes factors such as taxation rate, foreign exchange policies,
economical stability, inflation rate, FDI etc. which can influence the operations and growth of
auto-mobile industry (Hill, Jones and Schilling, 2015). The auto-mobile industry is very much
affected by the economic conditions. Global auto-mobile industry has experienced an increase in
sale from last decade due to increase in income level of people globally. The European auto-
mobile industry is very much affected by the economical and financial crises which results in
increasing unemployment rate and also affected the consumer spending. Economical crises leads
to tightening credit in bank sectors which results in rejection of vehicle financing application, it
affects the auto-mobile supply chain to large extend and industry lost around 20% of its revenue
and vehicle production.
But the inauguration of $890 million auto-mobile factories has change the scenario of
auto-mobile industry and Eastern Europe has became the Europe's backyard manufacturing
centre by producing 3.4 million cars annually. Increase in gas price of Western Europe leads
customers to shift from big cars to compact car which are the speciality of Eastern Europe that is
the major reason behind the worldwide growth of auto-mobile industry of that region. The
labour rate is also very cheap in this region hence it is the greater opportunity for car makers that
they can expand their operation in Eastern Europe which results in lowering the cost of company.
Social:- The social factors are related to the lifestyle, trends, social norms, values and
taste and preference of the customers which have direct impaustry. Recovering from recession
period also support in economical development of Europe by decreasing the rate of
unemployment from 13% to 5%. ct over the demand and purchasing habit of product's end user
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(Kirton and Trebilcock, 2017). The auto-mobile industry is highly affected by the buying pattern,
changes in fashion and taste as well as capacity of consumer to buy a car. Recession has changed
the demand of customer as it leads to decrease in spending over high priced cars and people
started shifting toward second-hand cars.
With the improvement over economical condition and changing demand of customer has
changed the industry's manufacturing pattern, as people are now started demanding for car which
provides high fuel efficiency and which keep emission at minimum. Increase in number of
middle class families in developing countries also started demanding for auto-mobiles which
provides growth opportunity to global auto-mobile industry. Recovering from recession period
also support in economical development of Europe by decreasing the rate of unemployment from
13% to 5%.
Technological:- These factors includes innovation in technologies which an industry uses
and that may affect the operation of industry. It refers to automation, technological awareness,
new invention, research & development (Law and et. al., 2014). The increase in customer
awareness leads to technological improvement which in turn has increased the efficiency of
manufacturing plant. It leads global auto-mobile industry to produce vehicles which are energy
efficient and emit less carbon that do not cause environmental pollution, hence industry is highly
supported by the government.
Car manufacturer of Eastern Europe are now started introducing alternative energy
vehicle that uses electricity or fuel cell, which is the solution to lowering environmental pollution
and energy efficiency. Some technologies such as computer-aided design software, JIT
management etc. helps industry in increasing their efficiency and save money.
Legal:- These factors generally includes certain laws and regulation which are imposed
by government and has to follow by an industry to order to perform its business operations
within a particular regions. It includes employment law, discrimination law, safety standards,
consumer law etc. Auto-mobile industry faces various obstacles throughout world as different
countries have different rules and regulation related to manufacturing and selling of vehicles
which sometimes decreases the profitability of companies that operates its operations globally.
The global auto-mobile industry is highly affected by laws imposed by government in order to
curbing out pollution and various standards which the car manufacturers have to pass before
launching their products (Lewis and et. al., 2017).
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The European commission has launched a regulatory system known as CARS21 which
is a 21st century system for the regulation of auto-mobile industry, it influences the performance
of industry within Europe.
Environment:- These factors includes geographical location, climate change,
environmental offset as well as various laws related to environmental safety and protection
which have a direct impact over the functioning of business operations. Environmental pollution
is one of the major threat which affects that auto-mobile industry globally. Certain standards
related to safeguarding the environment are the most challenging issues that may threaten the car
manufacturers, so they have to put more attention toward their production process. Companies
must transform their technologies and tries to produce the vehicles which help in saving energy
and reduce emission, as nowadays customer prefer cars which are environment friendly.
Increasing awareness related to the global warming, burnout and greenhouse effects leads to shift
in the preferences of customers toward cars that are fuel cells, emit less carbon and are hybrid
cars. The auto-mobile industry is also affected by strict application of EURO norm within
Eastern European countries in order to curb pollution.
These all are the macro environmental factors present in external environment which
have an direct impact over the growth and functioning of industry. As, Europe is consider as the
world's largest car manufacturing region with incorporated operations includes design,
production, research, development and sales (Pan and et. al., 2014). So , it is very essential for
auto-mobile industry to use PESTLE analyse to determine the factors that may affect its
operations. This analysis will identify the major drivers that can be used to predict the future
scenario and opportunities that will also assist in future growth.
Porter's five force model for Global auto-mobile industry
Michael E. Porters five force model is most widely known for the structural analysis of
industry and competition present in order to determine the attractiveness of an industry. It help
in identifying the various opportunities and challenges that may arises from increasing
competition. Porter's five force model help in analysis factors that influence industry which
includes degree of rivalry, threat of substitute, bargaining power of buyer, bargaining power of
suppliers and barriers to entry (Porters Five Forces, 2018). It also help in understanding whether
the new product or services are potentially profitable and the area of weakness which needs
improvement and strength which contribute toward the industrial growth.
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(Source: Porter’s five forces of competitive position analysis, 2018)
Above given image shows the number of forces used in five force model in order to
develop the competitive advantage and is also help in increasing the profitability of the industry.
Following are the factors which are analysed under porter's five force model:
 Threats of new entrant:-
This force help in determining that how easy it is to enter into a particular industry. If the
industry is having few barriers to entry and is more profitable it is easier for a rivalry to enter
which in turn will reduce the profit of other organisation within the industry (Pearce, 2014).
The threats to new entrant in global auto-mobile industry is generally lower as companies
require huge investment and innovative auto mobile model in order to deal with other players
present within industry. On the other hand European market is the world's largest car
manufacturing region and because of which for entering into this market new brand is need to
invest more. Initially, huge investment is required by the company in order to set up the
manufacturing facilities, distribution networks and to hire skilled staff (R. Kattman, 2014).
Another barrier to entry is level of competition from the existing brand, unless the new brand
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Illustration 1: Porter’s five forces of competitive position analysis

come up with some innovative and differential product in market, chances to gain market share is
minimum.
 Bargaining power of suppliers:- This factor includes an assessment of how easy it is for
supplier to drive up the prices of material they provide. Bargaining power of supplier is
affected by number of suppliers of each essential input, product and service uniqueness
they offer, strength of suppliers and cost of switching the supplier (Rosenzweig and et.
al., 2014). The bargaining power of suppliers in auto-mobile industry is weaker because
there are numerous supplier present world wide whereas the car companies are limited,
hence the suppliers have to play as per the rules given by the brands. The brands of
Eastern Europe holds immense clout because of the easy availability of raw material and
switching from one supplier to another is also not incurred huge cost.
Therefore, globalization has greatly increases the chances of getting lower-cost raw material
from the larger pool of emerging countries because of which car manufacturer have significant
power to set quality standards for parts purchased from suppliers.
 Bargaining power of buyers:- It refers to the assessment of how easily a buyer can
drive price down. Bargaining power of buyers is influenced by number of factors such as
buyers in the market, importance of each individual buyer, cost of switching etc. The
global auto-mobile industry offer its customer different brands and variety of models
which are differ in term of their performance, pricing, quality, appearance and additional
features. Hence the bargaining power of buyers are moderately strong as there is no big
cost involve in switching the another brand. The buyers are more sensitive to price and
features, therefore they switch to another brand which offers lower price.
Auto-mobile industry of Eastern Europe is much more focused toward building customer
loyalty by providing unique designs, quality and by offering competitive pricing in order to
eliminate the threat of switching of brand by buyers.
 Threats of substitute:- This force is threaten the companies when buyer can easily find
the substitute product which are of better quality and offer it with attractive price and
when buyers can easily switch from one product to another without spending much cost
over it (Rowell, 2017). There are number of substitutes and alternative mode of
transportation are present which includes buses, trains, taxis and plans. But none of them
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provide the conveniences and kind of accessibility which an auto-mobile provides.
Therefore the threats of substitute is generally lower.
 Competitive rivalry with in the industry:- This force help in analysing how profitable
and competitive an industry is. There are number of competitors which offer
undifferentiated product and services that reduces the market attractiveness (Ryu,
Sohrabi and Acharya, 2014). The number of recognized and influential brand is relatively
low and the barriers to exit is generally higher that means any brand which want to exit
would have to bear heavy losses. This is because the level of customer loyalty and the
industry is large and matured which leads to competition intensified.
As there are number of brands which compete over global market and targets
different market segments yet they overlaps. Brand compete on the basis of price, quality
, technology, customer safety, design and several other points. With the increasing
number of foreign competitors, rivalry of auto-mobile industry are becoming more
intense as companies have to compete with both price and non price dimensions.
Different brands started offering incentives in various other forms in order to attract large
number of customers for purchasing their vehicle which in turn will leads to higher
competition in auto-mobile industry.
Limitations of theory
Porter's five force models has two major weaknesses. First limitation is its composition,
being a static model it provides a picture of wider industry at some point of time in past.
Therefore, it is useful for forming short term strategy but is not suitable for long term planning as
the trends and demand of customers keep on changing because of technological advancement
and globalization.
The other weakness is that number of people uses this model in way which was never
intended. Application of model over specific company instead of industry is the most common
mistake which affects the strategical decisions.
CONCLUSION
As per the above mentioned report, it has been concluded that PESTLE Analysis and
Porter's five force model are very essential tools that assists organisation in determining various
forces that exist in business environment and put negative impact on activities and operations of
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business. It also assists firm in analysing competitive strength and position of company in
market. PESTLE analysis includes six factors, i.e., Political, Economical, Technological, Legal,
Environmental and Social factors that help in formulating effective strategies and in developing
competitive advantage. Firm requires to compliance with all the legislations and regulations
made by government so that business operations can be run smoothly and efficiently.
Technological up-gradations are also an essential factor that contributes in growth of business so,
auto-mobile manufacturers are require to be aware with all the technological changes so that high
quality products can be manufactured.
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REFERENCES
Books and Journals
Attfield, R., 2015. Ethics of the global environment. Edinburgh University Press.
Axelrod, R. S. and VanDeveer, S. D. eds., 2014. The global environment: institutions, law, and
policy. CQ Press.
Hill, C. W., Jones, G. R. and Schilling, M. A., 2015. Strategic management theory. Cengage
Learning,.
Kirton, J. J. and Trebilcock, M. J., 2017. Hard choices, soft law: Voluntary standards in global
trade, environment and social governance. Routledge.
Law, R. J., and et. al., 2014. Levels and trends of PBDEs and HBCDs in the global environment:
status at the end of 2012. Environment international. 65. pp.147-158.
Lewis, H., and et. al., 2017. Design environment: a global guide to designing greener goods.
Routledge.
Pan, S., and et. al., 2014. Modeling and monitoring terrestrial primary production in a changing
global environment: toward a multiscale synthesis of observation and
simulation. Advances in Meteorology, 2014.
Pearce, D. W., 2014. Blueprint 4: capturing global environmental value. Routledge.
R. Kattman, B., 2014. In today's global environment organizational culture dominates national
culture!. Benchmarking: An International Journal. 21(4). pp.651-664.
Rosenzweig, C., and et. al., 2014. Assessing agricultural risks of climate change in the 21st
century in a global gridded crop model intercomparison. Proceedings of the National
Academy of Sciences. 111(9). pp.3268-3273.
Rowell, A., 2017. Green backlash: Global subversion of the environment movement. Routledge.
Ryu, J. H., Sohrabi, M. and Acharya, A., 2014. Toward mapping gridded drought indices to
evaluate local drought in a rapidly changing global environment. Water resources
management. 28(11). pp.3859-3869.
Online
Porters Five Forces. 2018. [Online] Available
through<https://www.themanager.org/2015/11/porters-five-forces/>./
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