Assessment 1: Environmental Analysis of the Global Automotive Industry

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Environmental Analysis of an industry - Assessment 1
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Table of Contents
Introduction......................................................................................................................................3
Environmental analysis....................................................................................................................4
Conclusion.....................................................................................................................................12
Reference list.................................................................................................................................13
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Introduction
Environmental analysis is used as a strategic tool to identify internal and external elements that
can influence the performance and productivity of the organisation (Meredith et al., 2016).
Various analysis methods are used to identify the factors affecting the organisational growth
such as SWOT analysis (Strengths, Weakness, Opportunities and Threat analysis), PESTEL
analysis, and use to identify political, economic, socio-cultural, technological, environmental and
legal factors and the Porter’s five forces analysis that use to identify threats and competitions in
the market. The analysis is important for business management as it provides the possible
opportunities and threats coming from the internal and external environment. The approaches of
the environmental analysis help the monument of the organization make a decision to deal with
such factors and develop its business.
In the essay, the environmental analysis will be discussed on the global automobile industry
based on the provided case study and recent global market to identify the factors that affect in
several fields such as competitions, economic growth, legal issues, and many others sectors. The
automobile industry is one of the most essential sectors that contribute to the growth of the
economy of the society. Due to this, it faces various problems in the operation to expand its
business in the global market.
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Environmental analysis
a) Assess the environment of the Global Automobile industry using PESTEL analysis. Note
that your answer to this should not be based only on the case study but also on your
understanding of the model
Since the foundation in the 19th century, the global automobile industry is considered as the
multi-billion industries that have a massive contribution to the growth of the global economy.
The industry consists of various large brands such as Audi, BMW, Skoda, Suzuki, and many
others and they compete against each other to gain competitive advantage and market shares in
the global market. Due to being a large sector, several factors such as political, economic, socio-
cultural, technological, environmental and legal factors influence its working environment and
the economic condition (Sharma and Aggarwal, 2019). In the 21st century, the automobile
industry has gained market shares and become the most significant sector for the growth of the
world. The country such as China, Slovakia, Romania and many other countries in Eastern
Europe has grown its automobile industry significantly. Apart from this, China has become the
largest automotive industry in the world. In addition to this, the industry has focused on
environmental friendliness in order to maintain social responsibility for global society. PESTEL
analysis will display how the political, economic, and other factors affect the global automotive
industry in several fields in their operations.
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Figure 1: Factors affecting the Global Automobile Industry
(Source: Sharma and Aggarwal, 2019)
Political factors play a significant role in the automotive industry and have a great impact on its
growth and profitability in the revenue of the company. The government all over the world
prefers to use low emission vehicles. As a result, the taxation on luxury vehicles and fuel
guzzlers has increased. The technologies such as low emission and fuel efficiency can be able to
pass the rules and regulations of the government in specific countries as the government body
supports the environment-friendly vehicles. In addition to this, the customers’ demand is also
high for these technologies-based vehicles (Law, 2017). Therefore, the government of a
particular country has a great impact on the revenue of the global automotive industry. Apart
from this, any changes in the government, rules and political regulations can affect the industry
in terms of their revenue and working efficiency. Furthermore, the import and export taxes also
affect the automakers in importation and exportation of the vehicles in other countries. In
Slovakia, a minimum tax over the vehicles is 19% and in East Europe, the offered incentives and
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implanted a flat- and simple tax on the employee's wages to gain corporate profits. Hence, the
companies have managed the force of the political factors and their cost structures in order to
gain profit and develop the automotive industry throughout the world. China and Eastern Europe
region has become the most favourable automotive industry in the world due to their low labour
cost and advanced technologies. Therefore, the political factors as government policies have a
great impact on the fortune of the global automotive industry.
An economic factor is essential for the automotive industry in order to gain profit and expand
the industry in the global market (Clements and Kockelman, 2017). The industry was affected by
the recent economic crisis. A bad economic condition affects mostly on the sales of vehicles and
the sales of cars reduce. The demand for luxury vehicles become lowered in this phase. In this
context, if the economic condition of a particular country is high, then the sales become high in
the amount that helps to develop the economic condition of the industry as well as the specific
country (Mangla et al., 2016). The sales of the higher priced vehicles are high in the countries
having a good economic condition such as Slovakia, China. The production of the vehicles also
becomes high in such countries. The United States had produced over twelve million vehicles in
2006 and that is nine percent more than that of the last year. In this context, Britain had faced a
reduction in the production of the vehicles in 2006 that is around 1.5 million from 1.8 million in
the last year, 2005.
Apart from that, the auto industries are highly dependent on the purchasing power of the
customers. Hence, the companies have to be focused on introducing the low-priced car in the
market, which can gain a massive number of customers and develop the economic condition of
the companies as well the countries.
The socio-cultural factors are related to cultural trends and the customers’ preferences. As a
result, the automakers have to adopt the issues in their operation and accordingly create new
models of vehicles (Redshaw, 2017). Customers in most of the countries prefer S.U.V. model
and in some countries, the customers prefer sedans. In this context, the companies in the West
European region have encouraged the customers to purchase the compact typed cars rather the
S.U.V. models and big cars. Apart from this, the local people of the home countries are
employed in automotive companies. In the four Central European countries, the number of
manufacturing jobs had risen up to 284,507 in 2004 compared to the last five years and the figure
was 235, 826. According to the mayor of Trnava, Stefan Bosnak, the unemployment rate had
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reduced to three percent from thirteen percent of 70,000 citizens in 2006 as compared to the last
years. In this context, the companies have to select the best employees in order to operate the
process efficiently.
Product differentiation is the best way to cope up with the socio-cultural factors as the products
are created in a new model and may have the low-price facility. As a result, the companies gain
higher number of customers to purchase their vehicles. In the Eastern region, the companies have
launched several low-cost models as well as a new attractive model such as, as well as a new
attractive model such as Volkswagen, of the Audi brand. In addition to this, companies import
several new parts of vehicles such as Porsche had assembled the body of the Cayenne model
from Bratislava and shifted it to Germany for the finishing. Changing demands may offer the
companies to transform the old model into a new attractive model and that is beneficial for the
automotive industry. Hence, the socio-cultural factors have a higher impact on the global
automotive industry.
Technologies are used to introduce the model of the vehicles and operate effectively in the
working place of the auto companies. The industry gains higher market shares incorporating
innovation in the model of vehicles (Coffman et al., 2017). The top brands such as Toyota, Ford,
and Hyundai have introduced environmental friendly and low-emission vehicles. Toyota has
planned to launch the driverless cars in the market. Hence, the technological factors give a
positive impact on the automotive industry in product differentiation and implementing the
innovative concept in the production of the vehicles. The government as well as the customers
priorities the vehicles having high mileage and fuel efficiency. As a result, the sales of such
vehicles are always high as compared to other luxury and high-priced model. Therefore, the
technologies are the most important factors in selling vehicles and gaining higher profit in the
global market.
Environmental factors are related to the safety and health issues of society. The technologies
such as low on emission and fuel consumption are the most effective way to take care of the
environmental conditions of the society as the technologies help to maintain pollution free
environment (Luthra et al., 2015). The government bodies, as well as the customers, tend to use
such vehicles to maintain pollution free atmosphere in the surroundings. As a result, the
companies producing such environment-friendly vehicles receive tax subsidies. Apart from this,
the companies have to maintain a safe environment inside its working field as it encourages the
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employees to perform being committed and loyal towards the company and their own
responsibilities. It also helps to helps to create a connection between the employers and
employees. As a result, the productivity of the companies increases and that results in gaining
massive profit in the revenue of the global automobile industry. Hence, it shows that the
environmental factors are important and effective in order to fulfil the customer's’ demands as
well as employees and that helps the companies to increase productivity and expand the business
in the global market.
Legal factors are the laws and their rules and regulations that must be implanted in the working
process of the automobile industry. The legal factors mostly affect the profitability and the
productivity and performance of the industry. The laws focus on the safety and quality of the
products (Cooter and Ulen, 2016). The government proposed the pollution laws in order to
maintain safety and healthy norms in the environment. As a result, the companies have
implanted fuel consumption and low-emission vehicles in the market. Apart from this, the laws
focus on the safety of products and that have a significant impact on the sales of the vehicles.
Recently, the Toyota Company has found fault in the airbags. Thereafter, the government has
strictly proposed the passenger's safety laws in order to prevent accidents. In addition to these
laws, the companies have to focus on the tax laws to import and export vehicles from and to
other countries. Hence, the legal factors influence mainly on the safety issues of both the
environment and environment as well.
b) Assess the environment of Global Automobile industry using Porter’s Five Forces
analysis. Note that your answer to this should not be based only on the case study but also
on your understanding of the model
Due to the recent recession, most of the automobile companies have faced major issues and that
tends to verge some of the companies. The government has helped the companies to reform its
business and survive in the market. The companies have worked on implanting several
technologies and redesigned the vehicles to gain a higher number of customers and that result in
gaining profit. In addition to this, the companies focus on the safety of the passengers and the
environment as well. Porter’s five forces will display the five major factors that affect the
competitiveness and attractiveness of the business in the global market. Michael E. Porter to
gain a competitive advantage over other companies in the market established the model
(Lüttgens and Diener, 2016).
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Figure 2: Porter’s Five Forces
(Source: Lüttgens and Diener, 2016)
The first force is Barriers to entry. It is difficult for the new entrants to enter the automobile
industry and set up their business success as a massive amount of investment is required in this
sector (Armentano, 2017). The new companies have to invest to set up the manufacturing
operations, distributions channels, hire best employees and provide them proper development
opportunities for the growth of the business. The main problem is the competitive nature of the
recent market where all companies work on their unique strategies to expand their business and
increase revenue. Hence, the new companies have to implant product differentiation and low-
cost strategy in their operation in order to gain a small amount of customers form the existing
brands. Apart from this, sometimes the government applies higher taxation on the import of
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foreign brands. Hence, several issues reduce the threats of the new entrants for the existing
brands such as Toyota, Ford, Suzuki, and others form the new entrants.
Second is the Threat of substitutes. There are various modes of transportation in the market such
as taxis, buses, trains, and planes apart from the luxury brands such as Audi, BMW, Porsche and
many others. In this context, the substitutes cannot provide convenience and accessibility in the
journey as the automobile provides. In addition to this, the automobile introduces different
attractive models and the vehicles require less maintenance. Hence, the substitutes are the weak
threat for the automobile industry (Frishammar et al., 2015).
Third, Completive rivalry is significantly strong in the market of the automobile industry as all
the existing brands want to gain a huge amount of profit and expand their own business in the
global market. All the companies operate according to their own strategies and introduce several
new models of cars such as Volkswagen have introduced its new model Touareg SUV and Audi
of its Q7. Hence, the companies are investing a huge amount of money in their operations and
trying rule over the entire automobile industry in the global market. The companies also gain
customers’ loyalty towards its products as the company have set a brand image in the automobile
industry. Most of the auto companies compete based on their products’ quality, design, price,
customer safety, technologies, and much other strength. Hence, the companies have to
incorporate several new innovative concepts and produce new models of vehicle to gain a
competitive advantage over their rivalries in the global market (Albers, 2017).
Fourth force is the bargaining power of buyers. The bargaining power of buyers is moderately
strong as the buyers can switch to any new brand that creates new attractive models and provides
a low-cost facility to the buyers. As a result, the big brands have to introduce the most affordable
and attractive model of cars in the market to gain customers’ loyalty. The companies have to
focus on the factors such as price, quality, design and competitive prices so that the number of
sales of the vehicles increases and the companies get a higher number of customers to purchase
their models (Schleper et al., 2017).
Fifth and final force is the bargaining power of the suppliers. The bargaining power of the
suppliers is weak as the automobile industry consists of a large area of functions. A huge number
of automobile companies perform in the global market. Hence, the suppliers have to play
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according to the rules set by the companies as plenty of raw materials can be found in the market
and the companies can switch to any other supply chain where they get benefits in terms of best
quality of raw materials, lower price of the materials. Hence, the suppliers have to focus on their
style of bargaining in order to supply the raw materials to the best automobile company (Niu et
al., 2017).
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Conclusion
The study concludes that the automobile industry is the most essential field that a country can
have to develop its economic condition and environmental conditions. In order to develop and
expand the business, the automobile companies have to face various problems such political,
economic, competitions, new entrants and many other factors that have a great impact on their
operation in the global market. The factors can be overcome successfully by implementing
several strategies in the functions such as low-price and product differentiation. That helps to
gain customer number and increase the productivity of the business. The companies have to
focus on changing the model frequently to attract customers. The government bodies have a key
role in the operation of the automobile industry as they proposed several laws, taxes on the
functions.
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