Analyzing the Automotive Industry

This assignment analyzes the influence of the macro environment on the UK automotive industry. It utilizes tools like PESTEL, Porter's Five Forces, and the value chain model to understand the challenges and opportunities facing businesses in this sector. The report highlights how these analytical frameworks provide insights into various factors influencing the automotive market.

Industry Analysis and
Possible Adaptations

TABLE OF CONTENTS
INTRODUCTION:.........................................................................................................................1
TASK 1............................................................................................................................................1
A) PESTEL and porter's five force model analysis of BMW.....................................................1
B) Value chain model of BMW .................................................................................................5
C) Porter's 5 force in developing external environment of BMW .............................................8
CONCLUSION:...............................................................................................................................9
REFERENCES:.............................................................................................................................10

INTRODUCTION:
Business environment is the key to success for any organisation. By understanding its
surrounding environment business can survive for long term. It is very essential for every
business to have a depth knowledge of environment as it helps in growth of business. The
various factors are persons, place, things and natural resources. All these factors and forces are
combined together and is known as called business environment. It consists of micro and macro
factors in which business operations are performed. Macro forces are external environment
which can not be controlled and affects the performance of business while micro consists of
internal environment that exist within the business. This assignment will throw light on the
macro and micro environmental influences and how they are affecting auto mobile sector in UK.
In addition to this how internal business environment is analysed by using value chain model is
discussed. At the last how five force model helps in understanding the external environment of
business in auto mobile sector in UK has been described.
For undertaking this present organisation selected is Bayerische Motoren Werke (BMW).
The cited firm belongs to auto-mobile sector and operates globally. The existence of the
company on such a great level requires understanding its business environment. Thus, this report
will help in developing a relevant one for the cited establishment.
TASK 1
A) PESTEL and porter's five force model analysis of BMW
In the recent times it is very important to analyse the external factors that affects the business
operations. Every business is somehow affected by various factors. It is because these factors
influence business decisions that is taken. PESTEL is a concept that defines the marketing
principles. It is a mnemonic which denotes P for political, E for economical, S for social, T for
technological, E for environmental and L for legal. The business like BMW will analyse these
factors while taking decisions (Welford,, 2013) The explanation of these factors are given below:

Political factors- It includes various decisions like changes in fiscal policy, import – export
duties and tariffs, etc. that are taken within the country for trade. These decisions are taken by
government and it influences business strategies and decisions to a great extent. BMW operates
globally so various political pressure of different government affects their business decisions and
overall strategies. They have to develop strategies according to different political environment.
This sector contributes a huge part in GDP oh the country as many other industries are also
related to it (Hamilto. and Webster, 2015) Further, Asian and European market are different in
many ways. So BMW growth is dependent on both these markets.
Economic factors- It includes elements like GDP, inflation rate, and national income of the
nation. Through this the foreign exchange rate and economic growth and development of country
is identified. They affect long term growth strategies of company it is because industries like
steel , glass are related to it that provides additional benefits to them. UK economy is expanding
a very fast rate allowing opportunities to big companies to start their business. Further, UK exit
from EU has now allowed them to take independent decisions regarding the economic policies.
The other side of this factor is uncertainty in the economic conditions which arises due to the fall
in currency rates because of their exit from EU. BMW usually focuses on producing car as they
get most of their sales by selling cars. In this way they have developed a market position in UK.
Social factors- It is formed by the society culture and needs of people. It shows the living
standard and lifestyle of people in the society (Welford,, 2013) Culture of UK people is based on
Illustration 1: PESTEL

the high standard of living so every family owns a car. BMW fulfil their needs by providing
variety of cars. It enhances level of society and changes the living standards of people.
Technological factors- It refers to innovation in production process or development of new
product. These innovations bring changes in society and market and lead to growth and
development of entire nation. With the help of new technology the cost of per unit is reduced
and it increases profits (Menychtas, and et.al., 2014) BMW invests huge amount of funds in
developing new cars due to their dignity and reputation in the market. Producing a car required a
lot of parts and components so a minute defect in them can lead to loss of life. BMW also
produces buses, trucks, motor bikes ,etc. so they have to do depth research before developing
deign or structure of product. The variety in their products allows them to use advanced
technology that attracts customers. Further, they producers cars according to different segments.
Due to this use of advanced technology is more in Europe as compared to different countries.
Moreover, BMW has to compete with their rivals like Volkswagen and Hyundai in UK to
maintain competition.
Environmental factors- it consists of internal as well as external environment in which business
is operating. They are useful in determining the culture of organisation. It shows how people are
working and how they protect the society. The cars uses the petrol or diesel which leads increase
in pollution level of that nation. The cars uses the petrol or diesel which leads to increase in
pollution . Due to the incident of London smog in 1952 government has taken strong actions
against auto mobile sector and has imposed complex laws to protect environment. In addition to
this raw materials used in producing cars such as rubber, steel, etc. they decompose waste
materials that affects the environment (.Bah, and Fang,., 2015) BMW ensures that no harm is
done to environment and contributes by corporate social responsibility.
Legal factors- it includes the rules and regulations that are made by management within the
organisation. These rules are made according to the laws that is imposed by the government. It
consists of consumers, safety laws, etc. it describes the way business respond to society and
people. The UK government has imposed some laws like minimum wage, labour law, etc that is
applicable to every company. It is done to make ensure that no firm do business by wrong means

and gives power to consumer to take legal actions against them. BMW operates in around 40
countries so it has to follow these laws to ensure security to people.
Porter's five force model- It was developed by Michael E. porter to identify and analyse forces
that helps in determining strengths and weakness of industry. It shows five forces that analyse
corporate strategy as well as industry structure. These forces are:-
Industry rivalry- It shows the number of competitors that are existing in the industry. If there
are more competitors than competition will be very tough. It shows that products and services
provided by them are similar to BMW. More competition means each company will be having
less power to attract customers. This is known as competitive rivalry. It means that a company
will have greater power to earn profits by attracting customers if competition is less.
New entrants- A company with strong barriers implemented in the industry will restrict the
entry of new ones. If new companies enter in the market it influences existing ones and entire
industry situation (Epifanova, and et.al 2015) Company can operate in industry with fewer
competitors by applying strong barriers.
Suppliers power- It states that suppliers can influence the market by changing the price of goods
and services. This happens when there are few suppliers of similar products and they have power
Illustration 2: Porter's five force model

to change the price. It is because company is dependent on them to supply the goods. BMW is
dependent upon supplier because only few suppliers exist and they easily influence price of
product.
Customers power- It shows that large number of customers can affect the price of product to
rise or fall. It is due to variety of options are available to them in the market. It also states that if
a company is low client base , more power it will hold. BMW is having large number of
customers that are based all over the world so it affects their pricing policy and decision making
power .
Substitute threat- It means that other product can be used in place of a product. If it happens it
affects overall industry of auto mobile ( Belás, and et.al 2014) It means that if people starts using
two wheelers rather than cars it will be very difficult for these industries to survive. BMW
produces both but it majorly focuses on four wheelers. So it can focus on two wheelers to gain
market share. In UK most people prefer to travel using public transportation so it affects BMW
sales and profits.
B) Value chain model of BMW
It is a model that has been described by Porter. It helps in identifying the production process of
organisation. It shows that how raw materials are in bounded and finished goods are delivered to
customers. It is made up of sub systems that consists of input, output, operations, services ,etc.
that is used in producing goods. The activities are classified into two :-

Primary activities- These activities are related to physical creation of goods that includes sales,
support of service. It helps in creating value of product and providing competitive advantage.
 Inbound logistics- It is related to storing, receiving, distributing, etc. raw materials to the
production department. BMW effectively distributes its raw materials to production
plants that are located in different places. BMW should make warehouses in each country
so that they can reduce their in bound cost and make production faster.
 Operations- It includes machinery, packaging, etc. in which inputs are transformed to be
converted into finished goods ( Savrul, Incekara,and Sener., 2014) It is the most
important stage as value of product is created. BMW operations are very effective as they
produce cars by using advanced technology and skilled labour. This makes them the
world top class company in auto mobile sector. BMW should ensure production by
effectively utilising resources and employees.
 Outbound logistics- It includes those activities that are related to delivering finished
goods to final consumers. It involves transportation, warehousing, order fulfilment, etc.
of goods. BMW logistics are very well managed but sometimes they have to face critical
situations. These situations are related to import and export because in this many rules
Illustration 3: Value chain model

and duties have to be followed. This can lead to decrease in sales as customers demand
will not be fulfilled at right time. BMW should improve their out bound logistics by
following rules of different country, this will help in meeting the demand and increase in
sales.
 Marketing and sales- It includes all the activities that are related advertising product in
the market. Activities like promotion, selling, pricing, etc. are combined together for
attracting the customers. Every company mostly focuses on marketing their product so
that they can attract a lot of consumers to increase their sales. It will lead in gaining
market share and increasing revenues (Khan,. and Quaddus,, 2015). BMW is having
attractive advertising strategies by which customers are attracted. They just need to focus
on middle class people so that they can gain more market share.
 Service- It is related to after sales service including maintained, customer support, that is
performed to satisfy customers. It also helps in retaining customer by maintaining the
value of product. BMW's is able to maintain their product value by improving these
activities. They recruit experienced people that solves customers problem quickly. BMW
can also improve this by calling experts.
Secondary activities- these activities provide support to primary activities by managing and
controlling them. It contains various elements like:-
 Procurement- It involves purchasing raw materials and other parts from supplier at
cheapest price (Shehu,. and Mahmood., 2014 ) Various vendors are found and then all
prices are compared. Finally, the best price and quality raw material is selected. It is
done so that better quality product can be produced and per unit price of product is kept
low. BMW produces goods in one country so different goods are purchased from
different vendor.
 Human resource management- It consists of all activities that are done to hire, select,
recruit, etc of employees in the organisation. BMW can create good image by developing
good HR practices. It will help in improving employees productivity and smooth running
of operations. BMW policies are influenced by different countries legal factors so they
have to modify them to operate in that country.

 Technological development- It consists of activities such as research and development,
designing of product, etc. it helps in sharing information with other departments so that
changes in products can be made according to customers demand. BMW designs product
according to different countries situations factors like technological, economical etc. they
help in growth of under developed countries by using the latest technology design.
 Infrastructure- It is the most important as it defines companies legal, accounting,
systems, structure, etc. (Savrul,, Incekara, and Sener,., 2014). These all are dependent
upon the countries rules and regulations. BMW ensures that rules are effectively followed
so that business operations are smoothly operated and run. Political factors directly affect
these activities.
Porter value chain can be useful in creating business value and effectively ensuring business
operations. Porters suggested five steps to do this:-
Step 1 identify sub activity for primary- In this direct, indirect and quality assurance activities
are identified. Direct are those task in which value is created . Indirect allows direct task to run
smoothly and quality ensures that both these activities meet the set standards.
Step 2 identify sub activity for secondary- in this secondary are linked to primary activities to
ensure proper functioning of business organisation.
Step 3 identify links- it will help in identifying links between all the activities that are described
above. For example- to increase sales, HR can hire more sales force as an investment.
Step 4 opportunity to increase value- find out the opportunity to enhance the value of product
that is offered to customers (. Hamilton,and Webster, , 2015).
C) Porter's 5 force in developing external environment of BMW
It is very essential to analyse Porter's five force model to understand external business
environment of auto mobile sector. It helps in understanding factors that affects the business
strategies and decisions. These factors directly influence objectives and goals that are set. This is
done for planning further growth and development of firm and also ensures the long tern
success. It consists five factors that are included by porters:

Industry rivalry- By analysing this it will help in finding out the types and number of
competitors that exist in country. It can be analysed by political , legal and economic factors. If
political condition of country changes and it allows more industries to establish then it will lead
to more competition in the market. This will create a competitive rivalry among firms to take
over more customers. BMW will be highly affected by it as many rivals like Volkswagen,
Toyota, etc. already exist (Welford,, 2013). So political changes can lead to increasing
competition.
New entrants- If there is any change in economic factors of country like decrease in income of
people, then there are possible chances of new companies to establish. Also, if there is any
change in environmental or technological factors it will lead to development of new entrants. It is
because now customers will demand advanced product so that it do not harm the climate.
Changes in taste and preference of customers can lead to new companies to emerge. They will
identify needs and satisfy their demands.
Suppliers power-By analysing the legal and political factors the influence of suppliers power
can be found out. If government wants to enhance suppliers contribution in GDP, they can force
companies to sell their products through suppliers. Thus, it will influence price of products and
increase in suppliers power in controlling the price (Bah, and Fang, 2015). Moreover, if there is
any change in legal policies of country and taxes, companies use suppliers to sell their products
for tax saving. It will encourage role of suppliers and they will control price to great extent.
Customers power-It can be done by analysing social factor. If people of society changes their
taste and preference then it will highly affect their choices. This can divert them to company
whose customer-base is small. In this situation product price will be dependent on customers.
Company will not be able to control their price. Further, if there is change in economic factors
like people income increases or inflation goes down, it will increase the demand of product in the
market. The price of product will vary according to companies customer-base. So larger amount
of base, more power they will and more influence it will have on price.
Substitute threat- It can come with change in all external factors. If people changes from one
product to another it is because either there is change in taste or factor. It happens due to

modification in social factors or customers is not having enough capability to purchase that
product. This will lead to rise of substitute in order to fulfil their needs. It will impact the auto
mobile sector and industries related to it (Belás, and et.al 2014).
CONCLUSION:
From this report it is concluded that macro environment affects business in auto mobile
sector to a very large extent. For this PESTEL along with porter's five force model must be
analysed that will help in better understanding of various problems and issues in this sector.
Moreover, how value chain model that contains primary and secondary activities helps in
controlling the factors of external environment is shown. In the end how five force helps in
understanding business in auto mobile sector in UK.