Global Environment

The global automotive sector is analysed as multi billion industry with several international brands competing for market share.After foundation in 19th century, this industry has grown tobecomean significant part of world economy in terms of revenues. Afterthe communism, internal automotive manufacturers rushed for acquiring local car producers and created their own factories in countries like Slovakia, Poland and Czech republic.From last several years, these manufacturing organizations have doubled their production to more than a million cars (Berner and Berner, 2012).

Global Environment

Global environment can regarded as surroundings in different overseas nations, with the
factors exogenous to the home environment of enterprises, influencing decision making or
utilization of resources and capabilities. With the rapid development in Automotive sector,
managing environments are becoming more diverse and multifaceted. Global firms are those
which regulate business and compete in more than one country. Business environment of these
organizations are considered as set of forces and conditions external from the boundaries of
organization that influence the way it operates and shapes its behaviour.
Auto-mobile industry is analysed as one of the fastest growing sector across countries
which has provided major growth to economy. Present report is based on analysis of global
automotive industry by using PESTLE and porter's five forces model. Further, facts and figures
are stated from given case study to determine the growth of manufacturing companies in Auto-
mobile industry.
The global automotive sector is analysed as multi billion industry with several
international brands competing for market share. After foundation in 19th century, this industry
has grown to become an significant part of world economy in terms of revenues. After the
communism, internal automotive manufacturers companies rushed for acquiring local car
producers and created their own factories in countries like Slovakia, Poland and Czech republic.
From last several years, these manufacturing organizations have doubled their production to
more than a million cars (Berner and Berner, 2012). In Easter Europe, Car manufacturing
companies like Toyota, General Motors, Peugeot, Hyundai and Suzuki etc. have also announced
their plans for continuous expansion of manufacturing plants in the region.
On the other hand, due to large size of global automotive sector, its decisions, sales,
expansion plans, growth and revenues are highly influenced by external factors. In global
business environment, recent financial crisis had hit this sector very hard (Cames and Helmers,
2013).
Apart from production of vehicles across countries, this industry has also involved in
marketing and sales of automotive. In recent years, European and Asian market have proved very
profitable for international automotive brands. European union remains 2nd largest with 29% of
total car production with 17 million cars and china has specifically grown to about 4.4 % which
makes them the world's big market for vehicles and has produced 29% of all cars globally.
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In present scenario, technology and continuous innovation have become a basis of
differentiation for automotive manufacturing companies. Apart from it, production of cars in
Europe is on the way to exceed the production to approximate 2.7 million vehicles (Smmt news
UK manufacturing, 2017). These car manufacturers from Asia, US and Europe have made a
large investment in local factories for increasing innovation to meet customers requirements. In
order to understand and examine the external environment of automobile industry of EU,
PESTEL analysis has been done.
Political environment plays a significant role and provide direct influence on production,
sales and profitability of Automotive industry. Government in major developed and developing
economies are providing their major focus on production low emission vehicles. Moreover, taxes
on luxury and commercial vehicles have increased higher (Grant, 2016). World's largest
economies, EU and UK are offering government subsidies for manufacturing of low emission
vehicles. Demand of environmental friendly cars have grown globally due to increase in
restrictions of Authorities.
As such, government laws and restrictions highly influenced the production capabilities
and sales revenues of international business enterprise. Continuous changing government law as
well political restrictions have cause both favourable and unfavourable fluctuations. However,
these factors are generally outside the control of international brands (Pucciarelli and Kaplan,
2016). Their influence can considered from the fact that car manufacturers in international
market have shifted their manufacturing plants in countries where the wage regulations are
lenient. For example: Volkswagen manufactures and assembles its Touareg SUV and Big Q7 of
its Audi Affiliate in the Slovakia. Porsche assembles its luxuries cars in the factory near
Bratislava and then ships them to Germany for finishing. These government laws and political
restrictions highly influence business decision and operations of Automotive companies.
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Illustration 11: Pestle Analysis
Source 1: Scanning the Environment: PESTEL Analysis, (2016)
These forces also have their specific importance in context of the automotive industry.
This sector was continuously hit hard by the recent economic crisis. Decline in economic
conditions cause fall in sales of automotive organization and their production. The requirement
for luxury and high prices cars is also influenced due to poor economic conditions of nations.
Moreover, taxation policy of government are also different for car makers in every country
(Frynas and Mellahi, 2015). Further, in developed countries tax rates have been reduced to boost
the sales of Automotive sector. As per the given case, along with other countries of Eastern
Europe in EU, cars from the region will enter the western cost without tax or other duties,
significantly erasing boundaries for Automotive industry (Pratap, 2016). In addition, developed
markets consider higher sales because the purchasing power is high as compared to developing
countries. Thus, the size of economy and global economic conditions have a major influence on
profitability of automotive industry in various markets.
This Automotive industry is highly influenced by socio cultural factors which involves
values, perception, culture and other variables. Decisions of customers and brands are highly
influenced due to continuous changing economic trends and individual's preference. Automotive
brands in Global business environment needs to analyse and adopt these forces. Perception of
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customers usually get influenced by the prices and quality of products offered by companies
(Rushton, Croucher and Baker, 2014). As per the given case, “Europe is a price market” where
consumers purchase decisions are based on low prices. Increase in prices of products tends to
change the decision and switch customers towards other competitors in market.
In addition, Automotive firms also release new model keeping individual's preferences in
mind because specific styles and technologies are preferred by customer of different culture. In
some countries, age distribution is also significant factors which influence car manufacturers to
keep in mind while targeting customers. For example: Cars manufacturers like Volkswagen and
Porsche always release vehicles on the basis of preference of their target population. By 2018,
new investments will lift the region's products to just below of other countries which are
expected to be manufacturing 3059 million vehicles more than twice of UK.
In this competitive environment, technology and continuous innovation has become
significant component for increasing market share in the automotive sector. The more innovative
organization, the higher is its customer loyalty and market share. In Global market, all major
companies make high investment in research and development (Frumkin, 2016). After
government and political restrictions, brands like Hyundai, Toyota, Volkswagen and Ford are
making investing their resources in manufacturing process of low emission and environmental
friendly vehicles. New machinery is introduced every year and utilised to build various designs
and eco friendly technologies help create vehicles that cause lower amounts of pollutants as well
as cut down manufacturing costs. This changes create challenge for companies in influencing
customers to buy vehicles and required huge investment to conquer market.
Laws associated with environmental friendliness and carbon emission are also growing
complexities for automotive sector across the globe. It is specified that all key players in
automotive industry needs to focus on production of low emission vehicles. Further, companies
developing low emission vehicles and fuel consumptions which will get tax subsidies from
government and laws (Moutinho and Phillips, 2018). The pollution test have also grown stricter
and vehicles passing these tests only are allowed in some specific markets involving China,
Europe and UK. Countries other than European union like Russia also created restrictions on
Vehicles manufacturing companies to produce low emission vehicles and strict. Therefore, it is
clear that legal regulation like Environment protection and Emission act of government provide
influence on Automotive industry across the globe.
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Laws are considered as another environmental factor which tends to influence the
profitability and performance of vehicles brands. Vehicles which are selling in international
markets are considered as subject to laws associated with the products quality and safety. There
are various regulation like Health and safety, employment rights, transportation act. The vehicles
exported overseas needs to pass the strict emission controls (Ülengin and et.al, 2014). Another
law is related to products safety which impact on sales. Recently, in Europe, Toyota has recalled
its vehicles due to faulty airbags. There are various similar cases in the past have been occurred
putting safety of customers under questions. Due to this, government in every nation has made
laws which provide significant impact on sales of vehicles. The increase of sexual harassment
and discrimination of employees has created issues in automotive industry and policies have to
be formed by companies for employee rights which include pay equity. High risks of
international legal issues has led to creation of a complicated regulatory environment for this
industry.
Hence, all the above factors determine the emergence of new markets which has affected
the decisions, production, sales and profitability of consumers.
In global environment, analysis of external environment involves identification of micro
and macro environment factors which influence operations of Automotive companies. These
factors involve suppliers, employees, shareholders, customers, competitors and government.
They directly influence the sales and profitability of organization in market. Other than this,
great recession in previous years has provide negative influence where some brands was arrived
at verge of extinction.
With government interview, it was difficult for companies to survive in market place. In
present context, Auto mobile companies have achieved wide capabilities to sustain in market
with technology and continuous innovation in Vehicles (Gülcan, 2017). There are several
significant factors which influence the vehicle industry globally. Porter's five force model of
global Automotive industry which discusses the five important forces affects its competitiveness
as well as attractiveness in national and international markets. This analytical model is developed
by Michael E porter and it is used in industry wide to keep track on competition for generating
competitive advantage.
Threats of New entrants is considered essential for new brands to enter the auto mobile
industry as there is requirement of large investment. High amount of investment is required to
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set up manufacturing facilities. Distribution network and to hire skilled staff. Another Barrier is
level of competition from the existing brands (Bartlmann, 2015). Unless the new brand has
emerged with innovative products and idea in Auto mobile sector, the opportunities to gain
market share are very low and law does not create a barrier for the new entrants. Thus, it is clear
that threats of new entrants for global automotive companies is weak because penetrating new
markets is not easier for new firms. Government of some nations have applied to high import
taxes to discourage foreign brands. So, there are various factors which minimize the threats
from new players.
Bargaining power of suppliers implies to the power of bargaining of suppliers from
which organization purchase raw material for manufacturing its products. Global brands like
Volkswagen, Toyota, Porsche have various distributors through which they get supplies that is
required for manufacturing of their vehicles. As per analysis, Bargaining power of suppliers in
Eastern Europe, US, China and other countries for global Auto mobile sector firms are weak
because most of them are small players (Wedeniwski, 2015). There are large number of suppliers
are available for companies in different countries which provide similar products at competitive
prices. The threat of forward integration is minimum from the suppliers for reasons discussed in
the first category. These major suppliers have to play as per rules set by the brands that holds
immense pressure because raw materials is available in plenty and switching from one supplier
to another is not difficult for them. The bargaining power of suppliers is considerably low.
Bargaining power of buyers is a vital as the buyers are the small individuals buyers that
buy single vehicles. However, there are some corporations and government agencies which
provide fleets of vehicles. These buyers are in a position bargain for lowest prices. Increase in
technology has provided major subscription for buyers to assess different brands products on
internet and make comparison between their prices, product features and other aspects. This
factors have provided major influence on customer's buying behaviour and sale of products in
market (Govindan and et. al, 2014). However, there are corporations and government agencies
that buy fleets of vehicles. Such buyers are in a position to bargain for lower prices. Whether
small or large brands can easily switch to new brands in market. However, some buyers whether
big corporation or individuals small buyers poses a threat of backward integration. Brands needs
to focus on creating customer loyalty by implementing innovative designs, quality and by
offering competitive prices.
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Threats of substitutes implies to the products and services of other brands in market
which influence the sales and profitability of organization in market. In developed countries,
there are many automotive brands such as Volkswagen, Nissan, Honda and Toyota which
provide similar vehicles with similar kind of technology and designs to attract customers. They
have also adopted similar policies to influence customer and maximizing profits. Increase in
emission control programs have also influence the people in Asian countries to travel other
transportation facilities to remove traffic and pollution (Victor, 2017). However, substitutes
transportation facilities are not able to provide such kind of leisure and convenience. These
important threats can provide influence on purchase repetition of customers to take care about
various sources. Substitutes in market have provide major influence on customer's behaviour
because they offer facilities at low prices which can affordable by large number of buyers.
As per analysis, it is clear customers having incomes group are usually associated with
their favourite brand and does not switch their perception towards substitutes. It is also
considered as significant for management to stated that there is requirement
Increase in technology and aims of profit maximization among global auto mobile
companies have affected the decisions of competitors in market. Moreover, the number of
recognised and influential brands in international market is low and exist barriers are very high.
Large number of auto mobile manufacturing companies across countries have influence the sales
and perception of customers to buy products at lowest possible prices (Timmer and et.al, 2015).
On other hand, any brand trying to exit from the would have to bear very large losses.
The level of customers loyalty is very high because people would prefer to buy products which
are feasible and provide them better convenience. This factor clearly determine the competition
and market share. Further, it is analysed that different companies in Automotive sector targets
different market segments but they also overlap for production of goods and services.
International trading is profitable for automobile companies because they can increase sales and
profits, gain a wide range of customers and make themselves a trusted brand. Successful
companies have the ability to provide their products and flourish in international markets. This is
beneficial for improving their global brand image.
Henceforth, it is concluded that global environment involves various essential factors that
influence the business or industry in both positive and negative manner. PESTEL analysis model
provides clear understanding that government restriction highly influence the automotive
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industry such as Emission policy of government which influence the Automotive brands to
manufacture the low emission vehicles. Heavy taxation policy also affects the manufacturing
and selling process of companies along with their cost of operations. Porter's five force analysis
provide understanding external environment provide major influence on business operations of
enterprise both in positive and negative. However, organisation needs to provide on technology
and continuous innovation of products to sustain their market share.
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REFERENCES
Books and Journals
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Princeton University Press.
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comparison, environmental effects and various national strategies. Environmental
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Frumkin, H., 2016. Environmental health: from global to local. John Wiley & Sons.
Frynas, J. G. and Mellahi, K., 2015. Global strategic management. Oxford University Press,
USA.
Govindan, K., and et. al., 2014. Barriers analysis for green supply chain management
implementation in Indian industries using analytic hierarchy process. International
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Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Gülcan, E., 2017. An Analysis of the Partnership Between Jaguar Land Rover and Chery
Automobile Company Ltd.
Moutinho, L. and Phillips, P., 2018. Strategic analysis. In Contemporary Issues in Strategic
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Pucciarelli, F. and Kaplan, A., 2016. Competition and strategy in higher education: Managing
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Timmer, M. P. and et. al, 2015. An illustrated user guide to the world input–output database: the
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Ülengin, F. and et. al, 2014. A decision support methodology to enhance the competitiveness of
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Victor, P. A., 2017. Pollution: Economy and environment. Routledge.
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Online
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