Analysis of the Global Environment in the Auto Industry

This report assesses the global environment's impact on the auto industry, employing PESTEL and Porter's Five Forces frameworks. It examines political, economic, social, technological, legal, and environmental factors, highlighting their influence on the sector's operations and profitability. The analysis explores government policies, economic conditions, socio-cultural trends, technological innovations, and legal regulations. Furthermore, it evaluates the competitive landscape using Porter's Five Forces, including the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitutes, and competitive rivalry, to understand the industry's competitive intensity and attractiveness. The report emphasizes the importance of strategic planning to navigate the complexities of the global automotive market.

Global Environment

With the commencement of globalisation, numerous factors emerged in global
environment which can affect functioning of a business in current market. It is very essential to
assess them for formulating strategies in order to sustain in an economy. There are many reasons
due to which these aspect arises and are regarded to be uncontrollable by any enterprise.
Therefore, it is very necessary to analyse them and form defence planning in order to provide
effective growth as well as expansion. In this report, environment of the Global Auto mobile
industry has been assessed by using PESTEL analysis and Porter's five forces in order to carry
out good understanding over automotive market.
PESTLE analysis is considered to meet the assessment of macro environment and its
associated impacts that affects the functioning and operations of the industry. These factors occur
externally and are needed to be identified for successful operating in Global Environment. It
investigates political, economical, social, technological, legal and environmental factors of the
atmosphere.
Political factor has a significant role and has a direct impact on profitability of auto
mobile industry. Government of several nations are preferring those vehicles having low
emission. There are numerous taxes which are levied on all luxury as well as fuel auto mobiles.
For instance, in United Kingdom, authorised bodies are providing subsidies for vehicles
featuring low emission. It has been noticed that there is an increase demand of environment
friendly transports. They are getting high support from government of various countries due to
their less harmful impact on ecological surroundings (Alarcón, 2014). Rules and regulation
which are assigned by the authorised legal structure of nation has a strong affect on revenue
generated by this sector. Vehicles having latest technology of fuel has the ability to pass every
criteria which is set by several nations across the world. There are other aspect of political
scenario such as policies regarding import as well as export and apart from this, associated taxes
can differ according to several nation. Also, export and import legislation which changes across
the countries and also jeopardise the work of automaker and ca be headache for them. Hence, the
policies of state is remarkable extent which influence the business of automotive industry
allowing them to trade overseas.
Also, in context of economic environment of business, there are several forces that
affects the financial stability of auto mobile sector. This industry is very prone to economic
crisis. When the economic conditions of global world is not good then they face a fall in their
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sales perspective. Demand related to high prices or luxury vehicles is completely affected by
poor conditions of an economy. Apart from this, there is a high tax which is levied on costly
transports. Sales of vehicles in a country depends upon developing status of the economy. As in
developed market demand and sales of vehicles is very high as compared to those nations which
are developing or under developed. It has been observed that economy size and the related
economical conditions of global countries that has an immense impact on profitability of this
industry (Govindan, Khodaverdi and Vafadarnikjoo, 2015). Apart from this, there are many
factors in an economy such as inflation rate, recession, trade barriers that can influence the
survival of auto mobile sector in that particular nation. Car business is growing rapidly as
different nations are tend to gaining huge support and revenues from the industry. As per the
reverberation, US is producing nearby 12.6 million cars, Japan 10.3million which has increased
in recent years. This affects the financial stability of manufacturers who are related to this
sector.
Market is directly influenced by forces which are related to socio-cultural aspects. Auto
mobile sector is also impacted by dynamic social as well as cultural trends and the preferences of
individual. Manufacturer of vehicles must consider these factors. Every new model is released by
keeping every aspect in mind which is associated with preferences of customers in a particular
market. Apart from this, there are several specific models which are demanded at specific nation
only. For examples, in some markets Sedan can be in demand or SUVs, that can be dependent
upon likes and dislikes of individuals who are living there. Age distribution criteria can be
regarded as the most important factor for formulating targeting strategies (Kumar and Rahman,
2016). Also, person belonging to different culture have varied style as well as preferences. It is
very important to consider demographical characteristics in order to choose particular segment of
the customers for targeting which can lead to increase their sales in an effective manner. For
example due to traffic or pollution aspect now individuals are shifting towards preferring public
transports or use of compact cars that definitely affects sale all over the world.
Innovation as well as technology is regarded as an essential determinants of market share
in auto-mobile sector. These aspects can lead to increase the market share. The industry
completely relies on the research and development departments and makes huge investment in
order to provide effective model that can satisfy the demands of customers. In present scenario,
auto mobile sector is focusing on developing as well as producing such vehicles that creates less
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pollution to environment. There are many major technological giants taking interest to enter in
this industry. In current global scenario, technological innovation is regarded to be very crucial
for the success of every auto mobile. As customers are not preferring highly advanced features
along with fuel efficiency and high mileage, becoming major reasons for focusing on
development of vehicles. It is very essential to grab the market which is facilitated by effective
positioning (Larsen and et.al., 2015). This can be done by producing a vehicle that can satisfy
various needs of a customers in a different manner which leads to serve the competitive
advantage among other rivals present. It is regarded to be very effective strategy that can lead to
attract customers which can lead to increase the sale and form a strong base of customers. Now
there are several kind of new technologies which are merged with auto mobile sector such as
hybrid cars which are providing a greater ease for less consumption of energy.
Legal factor is regarded as very important that affects the performance as well as
profitability of various brands of auto-mobiles. Selling several kinds of transport in an
international market is supported by many laws and policies which are related to safety and
quality of product. Rules related to pollution are now more strict and every vehicle producing
company has to comply with this. Vehicles which are need to be exported are passed through
strict emission controls. Any default in an auto-mobile with regards to safety of passenger has to
take back their all models from the market in order to improve (Law, 2017). There are several
laws which are related to environment, taxes and other aspects which are regarded to be very
necessary. Strict legal structure can hinders the growth of auto mobile sector as manufacture has
to pass several test in order to promote their models in market of that particular nation.
There are many laws which are implied in order to protect environment from the
harmful effects which are caused by manufacturing unit as well as the produced models of auto
mobile industry. It is very essential for all the major players of this sector to produce those kind
of vehicles which has less emission of harmful gases. Auto mobiles possessing less harmful
effects such as low emissions as well as fuel consumption that leads to receive several tax
subsidies and are mostly favoured by government as well as laws of a particular nation. Apart
from this, test which are related to pollution aspect has become more strict and it is very
important to pass these test as it leads to provide effective entry in a market (Liu and Shankar,
2015). It is the most influential factor that every country has to take care of in order to produce
effective results and position in an economy.
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Hence, through understanding the external business environment and managing
competition in the market, proper knowledge and information can be carried out on the
automotive industry. In order to consider deriving forces and successfully determine competitive
intensity and their attractiveness of an auto-mobile industry, Porter's five forces is employed in
report. Porter's Five Forces is considered to be a tool which is used for analysing several
competition in a business. These forces generally affects the ability of a sector to serve their
customers as well as make profit from it. A change in any of these produces a requirement of
reassessing the market that can affect the overall strategy of an industry. These five forces are
discussed as below:
Threat of New Entrants is regarded to be a weak because it is very difficult for a new
brand to enter auto mobile industry as their are many aspects needed to be fulfilled. For entering
into this sector, it requires a huge amount of investment which is not easy to be raised and
requires a lot of time. Apart from this, there is a need to set up several manufacturing facilities,
distributive networks as well as highly skilled employees. Another barrier can be regarded as
great level of competition among present brands (Luthra, Garg and Haleem, 2015). It is very
important to bring up something innovative in order to gain high amount of market share.
For acquiring a competitive advantage, manufacturer focuses on producing something
which is completely differentiated. While considering all laws act as a threatening barrier and
there are other challenges faced by industry such as development of effective brand image and
reputation. Apart from this, a new firm shall has to focus on engineering as well as quality of
product and has to make efficacious strategies for promoting themselves in the market where
there are already well established rival having a strong base of loyal customers towards their
brand. In the initial phase, it can be easy to access all inventories very easily but achieving
economy of scale can be very difficult for small companies. Also, some government has levied
huge taxes on import for discouraging foreign brands. Therefore, it is not easy to enter auto-
mobile sector as there are many aspects which are needed to be taken care for establishing
themselves in market.
Bargaining power of Suppliers is regarded as a weak threat because in an auto-mobile
industry they are mostly small players. Only some are considered to be significant in an aspect of
size. The threat related to forward integration is known to be very minimum from the perspective
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of suppliers. They have to act according to the rules which are set by various brands present in
this sector. Companies have the potential of holding immense amount of clout as they always
have plenty of raw material and taking decision for switching to another supplier is not hard as
there are of sufficient numbers. Therefore, these aspects does not provide enough power to them.
Thus, it does not possess much threat which can affect the functioning of several brands (Luthra,
Garg and Haleem, 2016). As the business of auto-mobile supply is regarded to be fragmented
and most of the suppliers rely on few companies for buying majority of their manufactured
products. If a brand tends to switch and choose another supplier than it can be devastating for the
business of that supplier. As an outcome, they are completely susceptible to their demands and
needs.
Bargaining power of Buyers is considered to be moderately strong as large part of total
buyers prefer to opt for single vehicle. There are several cooperation as well as government
agencies that prefers to buy fleets of numerous vehicles. These buyers have the potential for
bargaining for lower prices. Buyers can easily switch to other brand as there is no cost involved.
Without any involvement of any huge amount of cost for opting another choices regarding auto
mobiles can make their buying power to be strong for the brand manufacturers and apart from
this huge base of customers would lead to make their profitability as well as survival to be very
high. None of any customer from a huge corporation to even a small buyer possesses threat
related to backward integration (Porter's Five Forces, 2018). Hence, every brand works in
developing a great customer loyalty through the process of designing, quality and also through
offering competitive prices.
Threats of Substitutes is weak in the autombile industry due to various causes. Buyers
mostly seek for the products which are more comparable and have no switching cost associated
with it. There are many options as well as alternative modes related to transportation. It includes
several taxis, buses, planes, trains etc. Many of them can lead to provide several kind of
accessibility and related convenience which tends to own by auto mobile. There are several
manufacturers which are producing several kinds of vehicles that can lead to satisfy needs of
customers but consumers prefer a car because it is regarded to be a matter of convenience as well
as prestige. This factor makes the threat produced by substitute to be more weaker. Hence, sales
of auto mobiles does not get affected by the availability of other modes of transport. Apart from
this, there are many individuals who commutes with public transports and prefer to opt these
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vehicles instead of buying a new car. Therefore, it can be regarded as a threat because a number
of segments shifts towards that perspective because they consider it as cheap and easy to opt for
a bus or train. There are various aspects which affects the choices of the buyers for the
substitutes which are available such as price, performance of that commodity as well as the
willingness of the buyer.
Competitive Rivalry is known to be a very strong threat which can affect the
functionality of every brand working under the sector of auto-mobile. As there is an abundance
of several influential brands and exit is also considered to be very difficult. Any manufacturer
who plans to exit from the industry would lead to bear a high amount of loss. Loyalty of
customers who are associated with this brand is know to be very high and industry is considered
to be large and also matured enough. This factor has lead to intensify the level of competition or
shares in an associated market (Govindan, Khodaverdi and Vafadarnikjoo, 2015). Otherwise,
competition in auto-mobile industry can mostly force a lot of strong competition by several rivals
who are already established and have a huge base of customers that provides an effective reason
for strong competition.
It is very important to opt for global trading as it provides international recognition
around the world, which is considered to be essential for survival in the auto mobile market.
Through trading in the international market, an organisation can not only expand their business,
but can enable the global recognition of their company as well as provide their innovative and
inventory services and products globally.
It has been concluded that global environment is providing several factors which can
hinder as well as foster the growth of every industry. There is requirement of analysing these
factors in order to make effective strategies which can lead to boost up the sector in various
aspects. There are two types of methods which are used for assessing macro factors. It can be
PESTEL analysis as well as Porter's five forces which focuses on these aspects. There are many
external factors which influences the growth and stability of a company in many ways. PESTEL
includes Political, economical, social, technological, environmental and legal aspects. Apart
from these, bargaining power of customer is considered to be moderately strong threat and
competitive rivalry to be very strong threat. Also, bargaining power of suppliers, threat of new
entrants and substitutes are regarded to be low threat.
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