Global Automobile Industry Analysis: PESTEL and Porter's Five Forces

Desklib provides past papers and solved assignments for students. This essay analyzes the automotive industry using PESTEL and Porter's Five Forces.

Environmental Analysis of an industry – Assessment 1
1 | P a g e

Introduction
The automotive industry comprises of a wider range of organizations which are involved in the
development, design, marketing, selling and manufacturing of vehicles. It is the most prominent
economic sector in the global market as most of the revenues are generated by this sector.
According to the given case study titled “Car Production Surges in Eastern Europe”, the
Eastern Europe is the most volatile platform for car manufacturing and hence there were many
foreign car makers that moved to Slovakia for acquiring the local carmakers after the collapse of
communism in 1989. The French executives from Peugeot Citroen built up an automobile
factory which costs up to $890 million in Slovakia in order to employ around 3,500 people and
produce approximately 300,000 cars. This essay aims to assess the environment of the Global
Automobile industry using PESTEL analysis and Porter’s Five Forces analysis for the
development of the automobile factory in the Eastern European countries.
2 | P a g e

Discussion
A) The automobile industry in the Eastern Europe has become one of the most prominent areas
for manufacturing cars (Wellington, 2019). The development of automobile industry by the
French executives of Peugeot Citroen in the states of Slovakia requires the knowledge of the
PESTEL analysis in order to attain maximum productivity. As described in the case study, the
Eastern European countries provide a healthy incentive to the automakers and maximum of the
companies take the initiative to capture this market. The political, economical, social,
technological, environmental and legal factors are analyzed by the automobile companies to
develop the manufacturing unit in the states of Eastern Europe.
Political factors: There is immense pressure from the government of the developed countries for
the automobile manufactures. This pressure is due to the increase in cost of the manufacturing
automobile units. The sector of automobile is the prime source of revenue generation for the
Government and due to this factor; the automobile manufacturers are unable to maintain the
competitive advantage globally (Sammut‐Bonnici and Galea, 2015). There is increase of political
corruption and instability is the main hurdle for the automobile manufacturers.
According to the case study, the French executives introduced an effective method of producing
the body of the new models in the assembly points of Eastern Europe and the other parts are
moved to the assembly points of Germany in order to eradicate the increase of production cost.
The steel coils are cheaper in Germany and hence the introduction of this new method reduced
the pressure from Government and increased the business productivity.
Economical factors: The economic crisis has an adverse effect on the sales of the automobiles.
As per case study, the effect of communism in the year 1989 deteriorated the economical
condition of the society and hence the production of SUV’s and big cars were minimized as the
automobile companies were running in loss in the Eastern Europe. In the case study, it is
mentioned that during this crisis, there were some automakers that were bought by the carmakers
of Western Europe in order to maintain the economic stability. By the year 2010 there will be
major investment in the Eastern European states in order to promote the production of the region.
According to the case study, the Central Europe wants the production cost in Euros in order to
maintain the healthy economical stability.
3 | P a g e

Social Factors: The whole society is revolutionized by the automobile industry. The initially
produced automobiles for the elite classes have now become a need for every individual. It has
become one of the most vital parts of the society as there are thousands of people associated with
the global business of automobile sector. The countries of Europe and UK have recognised the
adverse effect of using automobiles and hence nowadays, they prefer cycle for travelling to short
distances (Grünig and Morschett, 2017).
According to the case study, there are a large number of employees associated with the
automobile sector of the Eastern Europe as there is a high percentage of incentive for the
employees working in the automobile sector. The engineers in the automobile companies of
Slovakia earn less than that of the engineers working in the Western European automobile
companies. According to the society, there is a flat cut out of nineteen percent tax for the
employee wages and the corporate profits in the Eastern Europe and hence, the needs of the
society is much low than the needs of the people in the central and the western Europe. This
resulted in manufacturing of compact cars for the people of Eastern Europe. The spokeswoman
of the European Automobile Manufacturers Association said that making of cars is not like the
making of plastic bag and it requires closeness to the marketing flexibility and trends as well as
closeness to the customers in order to understand the needs of the customers and the market.
Technological Factors: There are different stages of innovation for the production of an
automobile unit. The customers are very much aware of the change in technology and hence
there are several demands of the customers regarding the introduction of new technological
features and accessories in the car. The introduction of internet has made the customers aware of
the recent technological trends and hence, it is one of the major problems for the automobile
sector to keep the pace with the advancement of technologies.
According to the case study, there has been introduction of a new 4X4 vehicle by the company
named Ford in order to cope up with the technological change. The automobile company in the
Eastern Europe prepared the four door cars, which can be opened by the touch of a finger as
there were censors associated with it.
4 | P a g e

Environmental factors: The automobile sector is the biggest culprit for damaging the
environment. The customers are knowledgeable enough to understand the issues of
environmental degradation due to the effects of automobiles. The market share of the
environmental friendly cars is very less but the demands of these cars will improve in the near
future.
According to the case study, the executives of Peugeot Citroen identified the needs of
environmental friendly cars and hence manufactured more compact cars that run with gas. This
minimises the effect of carbon emission.
Legal factors: The safety of the automobiles is the biggest concern for the global law makers.
Thus, there has been imposing of several different global rules, quality standards and regulations
for the automobiles. The manufacturers of automobiles are in immense pressure to attain these
rules, quality standards and regulations and moreover, the manufactures are not given permission
for increasing the prices of the cars without the approval from the government. The automobile
sector is growing gradually in the developed countries but still they are facing the problems of
acquiring the rules and regulations of such countries (Speaking Times, 2019).
According to the case study, the unions of the central and the Western Europe continuously
pressurizes the Eastern European automobile manufacturers to decrease the amount of incentives
offered by the Eastern European government. It is highlighted in the case study that the rate of
unemployment is quite low in the states of Ryton and hence, the workers settle for inferior jobs.
The Eastern European government are more focused on the quality materials rather than the
wages of the employees and hence there is “15 percent share of salaries in the price of cars”.
There are major opportunities for improvement and growth by the automobile factory developed
by the French executives of Peugeot Citroen, as presented in the above PESTEL analysis. This
organization can enhance their product innovation for addressing the several opportunities that
are linked to the demand for electric and hybrid cars, climate change and other external factors.
The macro environment of this organization offers several opportunities of growth by expanding
the market in the high growth economically developed countries.
5 | P a g e

B) The market growth of Eastern Europe is quite high in the field of automobile sector and the
French executives of Peugeot Citroen thus developed an automobile company worth $890
million in order to capture the market. According to Michael Porter, a company has to
understand the strategies and analyze the market of the competitors and rivals in order to
increase the productivity of the company by considering the power and forces, which are
mentioned in the analysis of the Porter’s five forces (Pratap, 2019). The analysis for this
organization is provided below.
Threat of Substitutes: The increase of the fuel prices pushes many of the urban drivers for using
public transportation. It is agreed by the most of the vehicle users that using the personal vehicles
have an adverse effect on the increasing of fuel consumption (Aithal, 2017). The automobile
manufacturers have to provide a solution for cost efficient emission in order to eradicate this
threat.
According to the case study, the newly built automobile organization by the French executive of
Peugeot Citroen has provided immense effort in eradicating the pressure from the substitutes
such as public transport. This company invested in the fuel efficient power engines in order to
provide a benefit to the customers and eradicate the problem of new substitutes. It is highlighted
in the case study that there will be a production of around three million compact cars with fuel
efficient engines and a new transmission of six speed gearboxes in order to reduce the threat of
substitutes. The customers are quite knowledgeable to understand the impact of the usage of cars
to the society and hence maximum of the people in Europe and UK have started to use cycles for
short distances in order to reduce the environmental degradation. On the other hand, the car
manufacturers of the newly introduced organization in Slovakia use the technology of gas to run
the cars.
Threat of New Entrants: There are several high barriers in this industry which makes a low threat
of new entrants. The investment of capital is quite high in this industry for manufacturing
facilities and developing a prominent distribution network. There have been many multinational
competitors that provide a healthy pricing about the variants of the car models and hence the
introduction of new entrants cannot provide this competitive pricing and thus there is low
possibility of threats of new entrants. There is an added difficulty for the new entrants regarding
6 | P a g e

the safety; durability and reliability of the car model as maximum of the customers are more
focused on gathering of information regarding these factors from the performance of the
previous manufacturing unit (Biznow.biz, 2019).
According to the case study, there is very low possibility of threat of new entrants for the newly
opened automobile company as the global market of this company is well acquainted with all the
features that a customer demand. The case study also highlights the fact there will be fresh
investment of million dollars into the local factories of the Eastern Europe by the carmakers of
Europe, Asia and United States to attain a maximum production of around three million vehicles.
This case study also focuses on the matter that, the new automobile company of Slovakia wants
to get back the track of high rate of employment in the Eastern Europe in order to satisfy the
needs of the local people. The effects of communism in the Eastern Europe are well managed by
this company and the entry of new entrants will require some time to gain the power in the
market.
Bargaining power of the suppliers: The power of suppliers is low in this industry as there are
several other potential suppliers that can provide the same services as offered by the previous
supplier. The automobile manufactures requires good quality raw materials, services and input
labours in order to attain a healthy profitability in the market.
According to the case study, there were several problems faced by the newly opened automobile
company regarding the quality of the equipments as there were several suppliers appointed for
their requirement of different parts. It was also highlighted in the case study that the costs of
compatibility were too expensive as compared to the cost of buying these various parts from the
suppliers. It was highlighted in the case study that, the new automobile company followed the
same path that of other automobile industries where the automobile companies set up different
assemble points in different parts of the world in order to minimise the cost of the suppliers. This
company assembled the body part of the new car model in the Eastern Europe and then shift it to
France for the steel coils as it is cheaper over there and then finally shipped to Germany for
finishing. The suppliers thus have to provide a quality raw materials or services in order to
maintain their relation with the company.
7 | P a g e

Bargaining Power of Buyers: The buying power of the individuals refers to the ability of
negotiating the prices from the sellers. The private individuals, governments and commercial
companies are the main buyers of motor vehicles. The buyer has the power to change their
purchase criteria if the requirements are not met by the manufacturer. The individual consumers
are more concerned over the pricing within the dealership but they possess very little power over
manufacturers.
According to the case study, the financial conditions of the people of Eastern Europe are quite
low and hence the newly opened automobile company has to focus on the development of
compact cars in order to maintain the needs of the customers. The cost of the big cars and SUV’s
are quite high which enhances the fact that the company will run in loss as the sales of the
company will not increase according to the projection.
Rivalry among Competitors: The rivalry among the automotive industry has become very
intense with the rise of several foreign competitors. The firms compete among themselves
regarding the dimensions of price as well as the non pricing dimensions (Grant, 2016).
According to the case study, the automobile companies of Eastern Europe provide a healthy
incentive to the customers in order to attract the customers for the purchasing of the vehicles. It
is also highlighted in the case study that the Eastern European countries have become the
backyard for car manufacturing and hence there is intense rivalry in the market. According to the
case study, the collapse of communism in the Eastern Europe provided a way for several car
manufacturers and the newly opened automobile factory took this advantage to gather the
markets of Eastern Europe.
8 | P a g e

Conclusion
In the end, it can be concluded that the PESTEL analysis helps the newly developed automobile
company to assess the environment of the automobile industry and then develop different
strategic plan accordingly. The business environment in the Eastern Europe is quite volatile and
it requires the development of a quality automobile industry. Porter’s five forces analysis help
the new automobile company to assess the threats that are being posed by its competitors in order
to acquire the market. The Eastern European market has seen the rise of many automobile
companies but the collapse of communism had an adverse effect on these companies. The new
automobile organization thus has to include a thorough research on the environment as well as
on the marketplace in order to sustain in the global business market effectively.
9 | P a g e

References
Aithal, P.S., 2017. Industry Analysis–The First Step in Business Management Scholarly
Research.
Biznow.biz. (2019). Hybrid Engine Vehicles Market Technological Innovation by Leading Key
Players: TOYOTA, BYD, Tesla, Nissan, BMW, Mitsubishi, Volkswagen, etc – The Biz Now.
Available at: https://www.biznow.biz/hybrid-engine-vehicles-market-technological-innovation-
by-leading-key-players-toyota-byd-tesla-nissan-bmw-mitsubishi-volkswagen-etc/18018/
[Accessed 1 Apr. 2019].
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Grünig, R. and Morschett, D., 2017. Developing international strategies. Springer Berlin
Heidelberg.
Pratap, A. (2019). Five Forces Analysis of the Automotive Industry. notesmatic. Available at:
https://notesmatic.com/automotive-industry-five-forces-analysis/ [Accessed 1 Apr. 2019].
Sammut‐Bonnici, T. and Galea, D., 2015. PEST analysis. Wiley Encyclopedia of management,
pp.1-1.
Speaking Times. (2019). Automotive Adhesives Market with Industry Capacity, Future
Prospects, Economic Aspect and Forecast To 2024 | Speaking Times. Available at:
https://speakingtimes.com/automotive-adhesives-market-with-industry-capacity-future-
prospects-economic-aspect-and-forecast-to-2024/ [Accessed 2 Apr. 2019].
Wellington, N. (2019). Automotive Industry PESTEL/PESTLE/PEST Analysis by Cheshnotes.
notesmatic. Available at: https://notesmatic.com/2016/09/automotive-industry-pestel/ [Accessed
19 Mar. 2019].
10 | P a g e