Essay Title - Automobile Consumers Strategy
1.0 Introduction
I have been assigned as to be part of a management team for a major automobile manufacture, to design and implement a strategy long-term. There are six competitors with whom we will be competing with in the industry. The name for my firm is Efficient Motors. Through a business strategy we would have made decisions that developed our firm to compete in the most effective and efficient way.
2.0 Mission & Vision
The mission for our business was:
- Produce the best cars in the UK - this was to target the overall market and through our strategy and decisions would encourage us to meet our mission long term.
- Understand customers better than our competitors - in order to be competitive a business must be able to understand their customers in order to meet their needs and go beyond satisfaction so they will return to us again.
- Establish a competitive cost base - to do this it will make us very competitive in the market and also consumers will recognise us and this help us gain more customers and continue to remain competitive within our market.
- Have the largest market shares - to gain the largest market share will enable our business to be well known within the industry as well as with consumers. This will give us above all the competitive advantage in many ways.
The vision for our business was ‘to be the best car producers in the UK’ as a group we felt that by meeting all our missions for the long term we would be able to achieve our vision. Through our mission statement this should most definitely make us well know in the industry and make business effective and efficient.
3.0 Strategy Thinking
Strategy is likely is concerned with the long term decision of our firm. For our firm we were thinking about how to attract consumers at first and then tie them in to keep them with our firm long term.
Strategic decisions are to be concerned with the scope of an organisation’s activities. With managing different activities, the best way to make decisions was to concentrate on various different factors such as marketing, technology etc.
Strategy decisions will normally be about trying to achieve some advantage for the organisation over competition. Competition was fierce in this industry however working as team and making the more efficient decisions helped us to gain a competitive advantage.
(Source: Exploring Corporate Strategy)
We felt that by applying the diagram in appendix three, figure one, was effective for our firm. The flow of this diagram made our decisions more easier and flowing this it also helped us manage our team more efficiently.
3. 1 External and Internal Analysis
The External Environment
The external environment is an essential element of business strategy analysis because of the dependencies organisations have upon their markets and because of the way in which unexpected changes can result in businesses struggling to cope.
(Source: Lynch, 2006)
3.2 Pestle Analysis
The Political Environment - the government has a democracy approach with the motor industry. Appendix two, figure one indicates environmental taxes as a percentage of total taxes and social contributions increased. Therefore is taxes increase, means that consumer are paying more and could have a down fall as they may not spend as much as they would have on a car as this can be seen a luxury for some people rather than a necessity and even though a necessity they will still spend less.
The Economic Environment - Gas prices are increasing which is weakening the economy for the auto sales. Also the oil prices will increase coming to coming to December this year it will mean that for the company to produce cars at a cheaper cost they may need to purchase oil in advance to avoid paying double the cost. The economic growth is great which currently is boosting the sales.
The Social Environment - the population is growing, however looking at appendix two, figure four, it shows that the average age is 40 years therefore this would indicate on which people we should be targeting and what cars would be best suited.
The Technological Environment - the introduction of satellite navigation this is one of the changes in the industry making it more effective as everything can be in car which you would find in your homes. This is such as built in television, this means that the more technology built in the more spending. This could be a good and bad for our business as it depends on the spending power.
The Legal Environment - The laws on exhaust fumes get tightened around the world to diminish the emission of carbon dioxide because of the increasing pollution. The legislative situation includes a lot of treaties and regulations by which manufactures have to abide by.
3.3 Porter’s five forces
Power of Suppliers | medium
The supplier industry of car manufacturers has experienced a concentration process during the last decades. High standards in quality have led to a situation where only the most profitable, high quality providers could survive. The result of this concentration process is that the surviving suppliers have large ordering volumes and therefore notable bargaining power. Switching costs can be considerable and have an effect on the product quality.
Power of buyers - medium
Consumers within the car industry have a medium bargaining power, there are substitute products as trains, buses and motorcycles, but the car itself is an integer part of UK culture and a status symbol. There are relatively small transfer-costs imposed on the consumer and the development of leasing as a means of financing for the private market lead to consumers being more flexible in their decision to switch cars. Buying a car is often not a huge investment anymore, but the financing costs are part of a monthly budget. The over-supply of cars on the market leads to customers demanding good after-sales service, reliability and quality.
Threat of substitutes - low
As a means of transportation, the car is not subject to substitute threats, but the technology used is in permanent question. Therefore the industry is put under permanent pressure on innovation and research and development expenses are high.
Threat of new entrants - low
There are substantial commercial (distribution network and brand reputation) as well as
competence barriers (advanced technology and experience) to enter the car market. The industry is capital intensive and economies of scale are important. Japanese companies faced large barriers when entering the European and American markets and only by applying a low price strategy was it possible for them. The development of a new brand is very difficult. The luxury sector has even greater entry barriers and except for some exceptions (e.g. Toyota with the introduction of Lexus) the attempt of entering the luxury sector often ends in failure (e.g. Renault-Peugeot’s failure to launch premium models under their existing brands). This will not be such a big issue as most businesses look to buy out existing brands. Therefore as this is low it is something that the firm does not need to worry about.
Competitive rivalry - very high
The car industry is very concentrated, fix costs are high, transfer costs are low and the market is considered to be mature. These factors attribute to a very high competitive rivalry among international carmakers.
3.4 SWOT Analysis
Strength (External) - With a strong industry position due to a number of factors including the diversified product range, with the highly targeted marketing and a commitment to for our manufacturing and quality. Over the past 6 periods we have a large range of vehicles for both private customers and commercial organizations, our firm uses marketing techniques to identify and satisfy customer needs. Its brand is a household name. The company also maximizes profit through efficient manufacturing approaches (e.g. Total Quality Management).
Weaknesses (External) - With the market being so competitive and new entrants this means that we will need to make sure that the models that we make are those that consumers want. Our firm will nee to keep producing cars in order to retain its operational efficiency. Car plants have huge investment in expensive costs. So if the car market experiences an upturn, then our firm could miss out on potential sales due to under capacity.
Opportunities (Internal) - Our firm has a reputation for manufacturing environmentally friendly vehicles such as Escape, Echo and Excellence. They acre based upon advanced technologies developed. The oil prices have seen sales of the new hybrid vehicles increase. For the coming year our target is to the 'urban youth' market. The firm will launch the streetwise youth market and captures (or attempts to) the nature of dance and DJ culture in a very competitive segment. The vehicle itself is a unique convertible, with models extending at their rear.
Threats (Internal) - there are tremendous competitive rivalry in the car market. Competition is increasing almost daily, with new entrants coming in the market from China, South Korea and Eastern Europe. The firm is also exposed to any movement in price of raw materials such as rubber, steel and fuel.
3.5 Internal environment -VRIO
VRIO is a model which allows insight into whether the organisation’s resources and capabilities translate to the potential for sustained competitive advantage.
The question of value - From our firm’s analysis we fee that capacity is something that we thrive to increase over the coming years. Therefore as we are developing our business at the moment in time some values may not be delivered the reason for this would be closely related to resources and not having enough capital.
The question of rareness - The firms that we were competing with have an advantage but have different values to achieve. In terms of resources I feel that other firms that we are competing against have the capital to invest in resources.
The group as a whole owns the competence and there for its will be for all of us to make any decision. However we have investors in the business such as shareholders, however this is only a small amount therefore overall decision our left for the main board to decide.
The question of imitability - Thorough the analysis of the market I feel that there would be a cost disadvantage as firms who already have the resource and capability will gain that competitive advantage. This would be because of the resources they are able to be more cost effective as there products and service and be quicker more efficient and the extent of effective as well.
The risk of substitution would mean that if other firms are able to enter making the industry more competitive. This would put a strain on firms such as ours as it would mean that we are constantly having to match prices with others and also having to keep up with new models.
The question of organisation - Firms are able to exploit the full competitive potential of their resources and capabilities. The reason for this would be as the car industry grows and new firms enter this means that existing firms such our own will need to develop what they have and use it to gain a competitive advantage in order to attract customers and keep there existing customers.
4.0 Financial Analysis
The final result of the simulation has shown that the firm is improving in its sales has a positive effect upon the decision that we had made. Furthermore looking at appendix one figure one it shows us that the firm had decreases in sales but is gradually increasing.
Also the firm had found it difficult in paying back debts once the sales started to decrease as we were not getting enough capital into the business. The final result for this is that the firm has fallen into negative figures as shown in appendix one, figure two.
The net income has also decreased and the there is a big difference from period one to period seven as shown in appendix one, figure three.
The cash flow has indicted the ending cash increased over the periods; therefore this is a good indication that the decisions made have had a good impacted on the figures in cash being returned to the firm. Appendix 1, figure 4 shows how the firms ending cash has increased from period three to period seven.
5.0 What I learnt from the simulation exercise
From the exercise I learnt that the choices that are made are heavily dependable on the environment a people around the business as well as the people who run the business. Most off all the impact of the theories that they have such as the ‘PESTLE’ this analysis was very effective in the way the business is run. Also Porters five forces had a great impact in the decision.
6.0 Conclusion
Over I feel that in comparison to other firms that our firm did well. However as from the analysis above each decision we made it shows how it impacted our firm and the figures vary. I feel that through this exercise it help me to explore the various theories by applying them. Also I feel that if we were to continue to progress our firm will do well.
7.0 References
Websites:
www.nationalstatisticsonline.co.uk
www.google.co.uk
Books:
R. Grant, Strategic Planning in a Turbulent Environment, Strategic Management Journal, vol. 24, p. 499, 2003
Gerry Johnson. Kevan Scholes, Richard Whittington, Exploring Corporate Strategy, 7th edition, p.7, 2007
Extra Materials:
Business strategy Handouts
Stimulation program
8.0 Appendix One
In period 6 we only made $12,755.6 sales whereas in period 1 we had made $15,278.3 with the difference of $2,522.7. As soon in figure 1 below will indicated how we were steadily growing and then after period 4 the sales decreased incredibly with the difference of $2,846.7, however the final decision as had a huge impact on the number of sales where below it indicates in the graph. The firm has therefore steadily started to increase in sales again. The difference from period 1 to 7 is $106.9. This shows us an indication that coming future the business can do well and improve upon its decision. From the graph it clearly shows that the peak of our sales was at period 4. With sales increasing this shows that there is more need for our cars and we have been recognized and are gradually becoming known compared to the firms.
Below it indicates how the amount if debt that we owe has increased and over the periods it has elevated extremely as the difference from period 1 to period 7 is $19,125.0. This means even though our sales have increased there are other factors which are affected the business and therefore could affect the business internally. Looking at the graph it clearly shows that from period 4 the firm has found it difficult to decrease the costs of its debt.
Below figure 3 shows how the net income has declined over the periods. Period 5 below shows that the firm starts to go in to minus figures which was a very bad period for the firm. The ending results shows in every graph that the firm has declined. The difference from the first period to the last is very disappointed as the figure that we have ended in is $-3,807.9 as the being the difference. Once again although the sales have increased the firm is suffering in other areas as with the net income going in to very bad figures.
below indicates how the ending cash has increased from period one to period seven. This is a positive view for the firm as it shows below that the figures have increases. The ending figure for the firm is $306 million.
8.1 Appendix Two
Environmental Taxes Environmental taxes 2.7% of GDP in 2006
Total revenue received by the government in 2006 from environmental taxation was £35.4 billion. Environmental tax receipts, as a percentage of Gross Domestic Product (GDP), showed a trend of small increases between 1993 and 1999. Since 1999, however, this trend has reversed. In 2006, the proportion fell to 2.7 per cent of GDP compared with a maximum of 3.6 per cent in 1999. Similarly, environmental taxes as a percentage of total taxes and social contributions increased to a maximum of 9.7 per cent in both 1998 and 1999, but in recent years have decreased. Latest data show that in 2006, they fell to 7.3 per cent from 7.7 per cent a year earlier. These falls were a result of growth in the economy and in total taxes and social contributions exceeding that of environmental taxes. Duty on hydrocarbon oils such as petrol and diesel accounted for 66.3 per cent of total environmental taxation in 2006. This is a share that has remained broadly unchanged since 2000. Between 2005 and 2006 hydrocarbon revenues increased from 82.8 per cent to 83.0 per cent of total energy taxes. This share was up from 76.8 per cent in 1993.
Inflation October: CPI up to 2.1%, RPI up to 4.2%CPI annual inflation – the Government’s target measure – was 2.1 per cent in October, up from 1.8 per cent in September. The main upward pressure came from changes in the price of road fuel. Petrol pump prices rose by 2.7 pence per litre in October, in large part reflecting the increase in fuel duty that came into effect on the first of the month. Last year, by contrast, petrol prices fell by 5.2 pence per litre. There was also a large upward contribution from air travel. Air fares to European destinations bucked the usual seasonal pattern by rising this October, whereas they fell a year ago. The largest downward contribution to the change in the CPI annual rate came from gas and electricity bills which both fell slightly this year as a result of the continued phasing in of tariff reductions. Over the same period last year, average gas and electricity bills rose. RPI inflation rose to 4.2 per cent in October, up from 3.9 per cent in September. The main factors influencing the RPI were similar to those affecting the CPI. RPIX inflation – the all items RPI excluding mortgage interest payments – was 3.1 per cent in October, up from 2.8 per cent in September.
GDP Growth Economy grew by 0.7% in Q3 2007
GDP rose by 0.7 per cent in the third quarter of 2007, down from 0.8 per cent in the second quarter and revised down by 0.1 per cent compared with the preliminary estimate. The level of GDP is now 3.2 per cent higher than the third quarter of 2006.
Population Estimates UK population grows to 60.6 million
In mid-2006 the resident population of the UK was 60,587,000, of which 50,763,000 lived in England. The average age was 39.0 years, an increase on 1971 when it was 34.1 years. In mid-2006 approximately one in five people in the UK were aged under 16 and one in six people were aged 65 or over. The UK has a growing population. It grew by 349,000 people in the year to mid-2006 (0.6 per cent). The UK population has increased by 8 per cent since 1971, from 55,928,000. Growth has been faster in more recent years. Between mid-1991 and mid-2006 the population grew by an average annual rate of 0.4 per cent and the average growth per year since mid-2001 has been 0.5 per cent.
Employment Unchanged at 74.4% in 3 months to Sept
The trends in the employment and inactivity rates are broadly flat but the trend in the unemployment rate is falling. There has been a further fall in the number of people claiming Jobseeker's Allowance benefit. The number of job vacancies has increased. Growth in average earnings excluding bonuses is unchanged, but earnings growth including bonuses has increased. The employment rate for people of working age was 74.4 per cent for the three months to September 2007, unchanged from the previous quarter but down 0.1 over the year. The number of people in employment for the three months to September 2007 was 29.22 million. This is the highest figure since comparable records began in 1971; it is up 69,000 over the quarter and up 178,000 over the year. Total hours worked per week were 937.8 million, up 0.3 million over the quarter and up 10.4 million over the year. The annual rate of growth in average earnings (the AEI) excluding bonuses was 3.7 per cent in September 2007, unchanged from the previous month. Including bonuses it was 4.1 per cent, up 0.4 from the previous month.
(Source: National Statistics Online)
