Business Environment Analysis: Rolls-Royce Expansion in Hungary

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MARKETING BUSINESS ORGANISATIONS AND
ENVIRONMENTS IN A GLOBAL CONTEXT
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Executive summary
The analysis of business environment is essential for decision making regarding the expansion of
any business organization to new location. This report highlights the background of Rolls-Royce
which is a British automotive company which intends to business expansion in Hungary. Thus,
the complete analysis of business environment of Hungary is done across the report to specify
the possible chances of business expansion. With the help of Ansoff’s matrix, the suitable
strategy for the purpose of business expansion is discussed. Finally analyzing all the major
factors that impact over the organizational operations, the decision is made that Rolls-Royce may
proceed to expand its business in Hungary.
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Table of Contents
Introduction......................................................................................................................................4
Background Information on Rolls-Royce........................................................................................5
Background Information on the Business Environment in Hungary...............................................8
Analysis of the Business Scenario.................................................................................................13
Conclusion.....................................................................................................................................18
References......................................................................................................................................19
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Introduction
Business expansion is a business strategy for organizational growth by increasing the number of
stores in different physical locations and countries. Expansion helps a business organization in
gaining a new group of customers. Foreign Direct investment (FDI) is an investment that is made
by any individual, agency or organization of any country into business expansion of a company
that belongs to another country. It is a form of controlling ownership. FDI has tremendous
contribution in expansion of any business in a new country as it reduces the effects of bribery,
politics and cronyism, speeds up the movement of goods and products into the market, offers
legal guidance to recipient organization. Rolls-Royce is planning to expand their business to
Hungary for enhancing their brand recognition and earn new customers. This report highlights
analysis of the macro environmental factors that may affect the operations of Rolls-Royce that is
intended to expand its business in Hungary.
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Background Information on Rolls-Royce
Rolls-Royce is a British luxury automobile company that was founded by Charles Stuart Rolls
and Henry Royce in 1904 with the intention of manufacturing the best cars in the world. Rolls
Royce has expanded its business in numerous markets and has succeeded in expanding their
business in 50 different countries. It has employed a total of 54,500 people (Rolls-royce.com.,
2019).
Fig.1- Number of employees and number of countries where Rolls-Royce operate
(Source- Rolls-royce.com., 2019)
It has become one of the largest power engine manufacturing companies in the world. Rolls
Royce was owned by Vickers. In 1998, Vickers took the decision to sell the company to
Volkswagen but BMW was supplying the engines and other components for Rolls-Royce. In
2003, Rolls-Royce became a wholly owned subsidiary of BMW.
Rolls-Royce offers a range of luxury cars including Ghost, Wraith, Dawn, Phantom, Cullinan
and Concept vehicles that include Rolls-Royce 100EX, Rolls-Royce 101EX, Rolls-Royce
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102EX, Rolls-Royce Mini, Rolls-Royce Hyperion and several other cars. Rolls Royce achieved
high sales record in 2018 by selling 4107 cars. The company faced strong growth in sale in past
years in Britain, Asia Pacific regions and Middle East. The annual underlying revenue of the
company is £15,067m and the reported revenue is £15,7297m. (Rolls-royce.com., 2019).
Fig.2- The annual revenue of Rolls-Royce
(Source- Rolls-royce.com., 2019)
The annual underlying profit of the company is £616m and the reported operating loss is
£1161m. The gross R&D expenditure is £1.4bn.
Fig. 3 - Gross R&D expenditure of Rolls-Royce in 2018
(Source- Rolls-royce.com., 2019)
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Rolls Royce have customers in over 150 countries in the world and the organization operate in
more than 50 countries including brazil, united States, Algeria, Tunisia, Sweden, Spain,
Germany, UAE and Turkey. Although Rolls-Royce, the British luxury automobile company, has
a well-mined customer base, there is an opportunity to add new customers, getting discounts
from suppliers and vendors through expansion in Hungary.
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Background Information on the Business Environment in Hungary
Main factors, issues and considerations relating to the business environment
Political factors:
Hungary is located between Balkans and Western Europe. The ideal location and growth
potential of Hungary offers an appealing destination to business organization for growth
opportunities. The main focus of the current government of Hungary is maintaining strong
relation with the neighboring countries, introducing reforms and strengthening the integration of
the country with European Union. Structural reform will increase the economy of the country
and the international trade. The politically stable environment of Hungary can facilitate the
expansion of foreign organization. A high unemployment rate is prominent in Hungary (Nikulin,
2015). Though government is taking some initiative to lower the rate, the unemployment rate
may lead to loss of revenue of the country.
Fig.4- Unemployment rate of Hungary
(Source- Nikulin, 2015)
Economical factors:
For last few years the economy of Hungary is improving drastically. The Economy is
characterized by freedom of investments, trade, business and property rights (Shatskaya et al.,
2017). The economic policies the Hungarian government promotes expansion of businesses and
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support international business growth. The inflation rate of Hungary has increased to 3.1% in
February, 2019 from 2.7% in January, 2019. The interest rate of Hungary has averaged 11.49%
from 1987 until 2019.Disposable Income of the people of Hungary was reported to be
20,586.800 HUF bn in 2017. The GDP of the country is reported at 13,913.5 Crores USD in
2017 (Nojković and Petrović, 2015).
Fig.5 -Inflation rate of Hungary
(Source- Nojković and Petrović, 2015)
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Fig.6 -Interest rate of Hungary
(Source- Nojković and Petrović, 2015)
Cultural factors:
The rate of literacy is one of the highest literacy rates in the world that has been achieved
through several educational initiatives of the government; this vouches for the awareness among
the customers regarding the kind of products present in the market (Bartha and Tóth, 2015). As
the wages are increasing, people are more likely to buy luxury cars. The birth rate of Hungary is
very less and aging population is higher which results in reduced workforce and it is expected
that the government may face drop in revenue. The tax model of Hungary is a flat rate tax model
where the taxpayers have to pay 16% personal income tax regardless of their income level.
Fig.7 – Literacy rate of Hungary
(Source- Bartha and Tóth, 2015)
Legal factors:
Hungary has some labour laws like the employees cannot work more than 8 hours a day (Civelek
et al., 2016). There is rules and regulation regarding the minimum wages of individuals and
holidays to be provided to the employees by the organizations. The trade laws of Hungary have
impact over the automotive industry regarding import of raw materials and supply of products to
foreign countries.
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Financial systems:
The financial system of Hungary has changed significantly since 1987, the year of foundation of
two tier banking system. In the initial years of economic reform, the Hungarian banks were
involved in mainly lending to the corporate sector. The lack of an operating capital market has
strengthened the corporate demand for loans among the banks (Naczyk and Domonkos, 2016).
The financial crisis has struck Hungary as the country is highly dependent upon international
funding (Rugraff and Sass, 2016). The exchange rate of the Hungarian currency, Froint has
dropped. Financial system of a market help in directing the flow of investments, savings in the
economy to promote in the collection of capital as well as in production of products and services
(Pavlínek, 2015).
All these macro environmental factors can affect an organization that is aiming for expansion of
the business in Hungary. The ongoing issues of the country may have direct impact on the
business operation of the company.
Impact of technological factors on the operations of the business in the region
Over the past years, the technological sector of Hungary has experienced tremendous
improvements. Technology industries are expanding in the country. The government has taken
up initiatives to for development of Information Technology. The government has policies
regarding the tools for the Research and development and innovation. The country is also
benefiting from European Union initiatives. A strong focus on transportation projects certain
about the technological improvement of the country. Many cities have taken up the Smart city
strategy. The improving technology offers the business organizations to run a smooth business in
the country. Companies can utilize the improved transportation system for fast supply of goods
into the market. Improvement in Information technology helps organizational functioning. The
more improved technology an organization would have the more it can enhance the number of its
customers. Better technology would help organizations serving their customers in better way
thus it will offer the organization in gaining competitive advantage. As Rolls-Royce is a
automobile company, the improvement in development of technology directly helps in the
operation of the company. The better R&D policies of government can help the company in
manufacturing goods that will be suitable with the needs of the customers.
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Fig. 8- Gross domestic spending of Hungary on R&D
(Source- Nikulin, 2015)
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