MANAGING BUSINESS IN GLOBAL CONTEXT LB 5203 INDUSTRY ANALYSIS AUTOMOBILE INDUSTRY

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: MR. KRISHNA RAJULU

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MOHAMMED SHAMEER

which resulted to the manufacturer‟s ability for mass production. most of the cars produced around the world came from Germany (Benz) and France (Panhard ET Levassor and Peugeot). 1 . A minor economic recession in between the years 1907 and 1908 became the turning point for the industry. being the leading producer and exporter of automobile at the time. took the challenge of revolutionary innovations in order to satisfy the mass markets they found. pg. France dominated the young industry during the first boom. happened a few years later. France and Britain. however. By 1985. The first boom of the industry. its labour force. specifically from 1895 to 1908. The United States. likewise. but in the course of developing cheaper and more efficient ways in manufacturing them. the scope of market extended even to the general populace. Cars originally catered only to the urban upper classes. as Britain and Germany overtook France‟s lead by growing at a faster rate than the latter and breaking away from France‟s shadow. One of the reasons for the French dominance for most of the early car manufacturing days is the hesitation of the other industrial nations to participate in it. But earlier in the 18th century. which later became much more successful than the manufacturing industry over the last 20 years and the most important industry in the world.REPORT ON AUTOMOBILE INDUSTRY INTRODUCTION: The year 1885 marked the birth of the automobile industry. as cars proved to be one of the most convenient means of transportation available the world over. and it is when the technology to produce and operate cars is already possessed by the Europeans and North Americans. It was in the 1890 that the process of uniting the technology. Italy. The Automobile Revolution began at around the same time. there was already a long series of efforts to combine the steam engine and the road wagons in some parts of the United States. a shift in its clientele. What once was a status symbol for the affluent now became a necessity. its strategy and structure is ever apparent. In the course of the revolution of the automobile industry. the manufacturing ability and the potential market in order to sell motorcars occurred in France and in Germany.

POTENTIAL ENTRANTS LOW SUPPLIER POWER LOW INDUSTRY RIVALRY VERY HIGH BUYER POWER LOW THREAT OF SUBSTITUTES HIGH pg.REPORT ON AUTOMOBILE INDUSTRY MICRO-ENVIRONMENT ANALYSIS: Porters Five Model: Michael Porter identified five forces that influence an industry. 2 . (4) buyer power. Like other industries operating under free market. capitalistic systems. (2) threat of substitutes. viewing the automotive industry through the lens of Porter‟s Five Forces can be helpful in understanding the forces at play. and (5) supplier power. These forces are: (1) degree of rivalry. (3) barriers to entry.

but no other forms of transportation offer the convenience or the independence or neither the value offered by automobiles. brand quality as an new entrant cannot gain a brand image as the existing company. France and many more. there are some other alternatives to the automobiles like walking. etc. There are many big players in this industry all around the globe.S. so in urban areas automobiles are not preferred. each company is in a verge to develop their products and provide many new innovations to their products thus improving their innovation and profitability. There are many forms of transportation other than automobiles are available. are there are many barriers to the entry like a huge capital is required for an new entrant as it costs a lot to build an automobile manufacturing unit. The rivalry among the automobile industry can be seen all over the world in almost every nation like japan. Threat of Substitutes: Threat of substitutes to the automobile industry is not so high. which are to be considered for this industry. cycle. Thus threat of substitutes to the automobile industry is low. the U. implement many ad campaigns. The intensity of the competitive rivalry is very high because each customer planning to buy a car has many options with many numbers of players in the industry allowing the companies to lower their profit to survive in the heavy competition. Italy. china. these forms of substitute to the automobile can be very less expensive than automobile and whereas it can offer the independence and convenience which we can obtain in automobiles. the new entrant must be capable of distributing the product to all markets. etc. etc. Germany. there will be many legal and government issues like the emission policy. 3 . Many alternatives to the automobiles like train are less expensive than the operation and maintenance cost of an automobile but it the convenience and the independence offered by an automobile cannot be obtained in other forms. Barriers to Entry: This threat is a very low threat to an automobile industry. In urban areas where the total area and the density of population is very less. India. Due to heavy competition each company has to slash their prices. Korea. Some of the factors. Thus the intensity of the competitive rivalry is very high.REPORT ON AUTOMOBILE INDUSTRY Degree of Rivalry: The competition in the automobile industry is very high. among almost all the automobile manufacturers. Thus the threat of new entrants to the automobile industry is very low. pg.

and with history as a guide.S is very high and is favorable to the customers so getting a car in the U. Thus the threat of suppliers to the automobile industry is very low. The automobile manufacturers can change their suppliers if they would like to.S alone. evolve. the automobile manufacturers have many different options to choose their suppliers based on their quality. the electronic parts manufacturers. For example the bargaining power of the customers in the U. Bargaining power of suppliers: Suppliers to an automobile industry include tire manufacturers. The automotive industry is a dynamic place.S market is very easy and so there will be a lot of customers for an automobile industry. 4 . etc. pg. and adapt. it is safe to say that the automotive industry will continue to change. Thus the bargaining power of the customers depends on the market. With the forces above at play.REPORT ON AUTOMOBILE INDUSTRY Bargaining power of buyer: The bargaining power of the customers depends on the market in which the firm operates. for example Toyota has 10 suppliers in the U. The bargaining power of the suppliers is very low because each supplier rely on particular automobile manufacturers to buy their products but whereas. whereas the bargaining power of the customers in Singapore is very low and is favorable to the industry thus getting a car in Singapore is not so easy and so the number of customers in Singapore will be less.

Little wonder then that so many emerging countries are keen to develop an auto sector or that there is such a political pressure to protect it in the developed countries. emotional and political power.REPORT ON AUTOMOBILE INDUSTRY MACRO-ENVIRONMENT ANALYSIS: PEST Analysis: POLITICAL FACTORS ECONOMIC FACTORS SOCIAL FACTORS TECHNOLOGICAL FACTORS Political: Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The world's vehicle industry is currently dominated by little more than a handful of firms. It tends to be good on technical issues. The industry's approach to dealing with political institutions has not always been brilliant. The industry is likewise linked closely to the policies of governments. although it has not always fully presented the longer-term options. there is a problem. each wielding colossal financial. the earnings of banks. Whether this is related to flat demand or to the industry's creation of an ever-wider range of vehicles that many buyers seem to care little about. pg. 5 . in order to make the choices and their implications clear.

changing the ways people live and work. a plastic industry or a glass sector . a unique economic phenomenon. the automotive industry is a pillar industry. For most of its existence the motor industry has been a model of social discipline and control and it is not just that the auto sector offers a „pillar' of something else. Social: The world's automotive industry affects the society as a whole. 6 . It employs millions of people directly. For the capital markets and the finance sector. it is impossible to develop an efficient steel business. particular social issues to address in many developing countries. which has dominated the twentieth century. the industry is not in the end despondent. on the other hand. it has lost a lot of its significance. While all these and more sound like a very gloomy assessment of such a vast economic phenomenon. The proliferation of products means that it has become hopelessly wasteful of economic resources. and increasingly fro the developing world. There are. A different future is possible for the industry. Its products have transformed society. Without an automotive industry. and to make the necessary investments.other central foundations of economic progress.REPORT ON AUTOMOBILE INDUSTRY Economic: For much of the developed world. However. the industry now suffers from a series of structural schisms and has become riddled with contradictions and economic discontinuities. bringing undreamed-of levels of mobility. pg. a highly desirable one. The automotive industry has the role to play in helping develop the mobility of such countries and it can be achieved at an acceptable social cost of the country is prepared to learn the necessary lessons from those who have travelled this route before it. tens of millions indirectly. among many others. as a result of ever declining profits and stagnant sales. often those that are the result of an undertone of religious faith. The social value of the additional mobility that this industry brings involves the value of the people being able to commute over longer distances easily. a flag of economic progress. The automotive industry has been a core industry.

which imposes both new investment burdens and new uncertainties and risks. intellectual capabilities and emotional sensitivities through electronic technologies remain far from fully exploited.REPORT ON AUTOMOBILE INDUSTRY Technological: The automotive industry works on a scale so awesome and has an influence so vast that it is often difficult to see. The possibilities suggest that automotive technology is unexpectedly robust and provides a powerful defence against energy starvation even if the real price of oil climbs steadily during the next couple of decades. The level and diversity of technologies that it must deploy are increasing. The industry uses manufacturing technology that is the cutting edge of science. There are numerous additional nearterm technological opportunities to adapt the automobile to changing energy availability. But still. 7 . pg. Roughly a million new cars and trucks are built around the world each week . the potential for developing coordination skills.they are easily the most complex products of their kind to be mass-produced in such volumes.

Accelerated modification and diversification of the product portfolio. now and in the future. have not fully materialized. nearly all the auto makers moved to outsource the production of key components. Size is no longer a guarantee of success. the auto makers themselves produce only 30% of an automobile‟s value. In the past. so as to reduce their own depth of production. Ford. The auto makers must take decisive steps to differentiate themselves from their competitors. Only those companies that find new ways to create value will prosper in the future. The re-integration of specific components makes sense if that promises competitive and cost advantages. pg. Pervasion of automobiles with digital technology. In addition. Globalization. In this regard there are five key areas for action: Depth of production: Depth of production is a key issue for auto makers. Today. while the profit margins of auto makers on the assembly and sales of new vehicles are often less than 1%.REPORT ON AUTOMOBILE INDUSTRY COMPETITOR ANALYSIS: The automotive industry is facing new and pressing challenges. automotive suppliers are generating gross profits of 5% to 7% on their production activities. including GM. on average. consequently. The majority of these factors interacts with one another and has strong interdependencies. Increased pressure for innovation and flexibility in development and manufacturing. However. individualizations. some of these factors are market-induced and. The hoped-for synergies of the big mergers of recent years. regionalization and market convergence. cannot be influenced directly by the automobile manufacturers. Increasingly diversified consumer aggregate patterns of behaviour. Fiat and DaimlerChrysler. The global automotive industry is subjected to a range of factors that are increasing complexity and influencing the economic options available to automobile manufacturers. On average. increasing safety requirements and voluntary environmental commitments by the automotive industry have also contributed to the changes ahead. These factors include:      Globalization. 8 . While the Europeans have largely chosen to rely on outsourcing. the Asian manufacturers have done quite well with their global joint ventures. digitalization and increasing competition are pressing the face of the industry.

Control over the point of sale: Because technologies are becoming increasingly interchangeable. Until now.” Therefore.REPORT ON AUTOMOBILE INDUSTRY Innovation management: It is increasingly difficult for the auto makers to develop groundbreaking. These days. which work for all auto makers equally. manage discounts in an optimal manner and implement the measures stipulated by the manufacturers and the wholesalers. Despite the growing trend of direct sales. in order to counter these dependencies. the car dealership will continue to be the most important interface with customers for the foreseeable future. 9 . The traditional relationship between auto makers and automotive suppliers is no longer adequate. The auto makers will either have to establish closer. “Most of the technologically leading companies that are working to develop hybrid drives belong to Toyota or are controlled by Toyota. Thus. one of the great challenges facing auto makers today is to realign their business models to achieve a greater emphasis on downstream activities. auto makers generate a full 80% of their profits on so-called downstream business. brand-specific innovations. auto makers are able to exert direct influence on sales only in their own sales outlets. but not in most car dealerships.” which does not generate specific advantages for individual brands. financial and mobility services. They have already handed over much authoritative expertise in research and development to the automotive suppliers. the European auto makers should take steps now to make sure they are not left out of the next technology revolution. Thus. The auto makers need to act quickly if they wish to protect their dominant positions in these areas. Auto makers are under attack from smaller. they should come out with general offers tailored to specific target groups. Consequently. non-affiliated competitors in the most lucrative business segments like financing and replacement parts. automobile brands need to be differentiated in other ways. For example “Toyota‟s current lead on the hybrid engine may prove to be decisive”. the fuel-cell vehicle. auto makers need to provide more targeted support to dealers in their efforts to reinforce brand loyalty. more exclusive relationships with their suppliers or make the necessary investments to re-establish their own innovation capacities. auto service and replacement parts and used vehicle sales. Downstream business: The overall profits generated by the auto makers are derived from a combination of sources: new vehicle sales. The result is a “socialization of innovation. they have lost strategic control over their customers. To this end. pg.

10 .” The European auto makers may want to consider a higher degree of delegation and decentralized responsibility.REPORT ON AUTOMOBILE INDUSTRY Organization management: Every company in the automobile industry is struggling with the effects of rising complexity. The big auto brands are represented in all the markets of the world. Every company needs to refine its management culture in order to be more competitive and responsive. unwieldy and inflexible. For example “The Toyota model only works at Toyota. coupled with flatter hierarchies. That requires complex corporate structures which are. The management challenges facing the big auto makers call for a specialized management culture tailored to the company‟s particular situation. COMPETITIVE ADVANTAGE: pg. they need to produce a wider variety of models. by their nature. To accommodate the increasing diversity of customer segments.

low threat of substitute. technologies and comfort differs. protect him. the power to negotiate if few alternatives alternatives features. pg. Substitutes The more customized Low cost products will Specialized your product the more avoid substitutes. can defend products the substitutes. 11 . Supplier power Ability to pass on If the supplier is cost Concentrate then on the supplier price increase effective to customers should particular supplier as they are powerful. against focus differentiation need of customers.REPORT ON AUTOMOBILE INDUSTRY Industry forces Rivalry Differentiator Cost leadership Focus High brand image and Low price and better Rivals cannot compete value can be tough efficiency can be a rival. Buyer power Buyers have the power Price cannot be lowered Large buyer have less to choose but from based on the buyer. Entry barriers New entrants will not New entrants are highly Build be successful as the impossible because of competitive on the advantage brand value or image high capital investment to make it efficient than will not satisfy the and their products cannot the competitors and new be low. customer. entrants. rivals.

and enhanced safety features are seen as driving a competitive edge for manufacturers. At the same time. while emerging-market players. the big three US manufacturers. this has meant moving manufacturing from Detroit to Mexico. have been able to grow sales not just in Asia but in mature markets as well. alliances between manufacturers and major component providers are seen as the solution to the changing business model being forced on OEMs by low margins and intense competition. such as the South Korean companies Hyundai and Kia. have done much better in selling into mature markets. In 2011.REPORT ON AUTOMOBILE INDUSTRY ECONOMIC TREDNS AND CHANGES: After the horrors of 2008. In the Americas. it has meant moving from established markets to factories in the new accession countries in central and Eastern Europe. This development marked the beginning of the upturn for the Western car industry. which do not have the same cost-heavy. Mature-market manufacturers have had to rethink their approach to compete for market share in emerging markets. The biggest driver for increased automotive transactions in 2011 is the strategic value that Mergers & Acquisitions can bring to address key issues facing automotive companies. with an emphasis on reuse and recycling of materials continues to strengthen. One positive in the downturn was the way many Western countries adopted schemes to encourage consumers to dump old. These include: • Broadening geographic footprint. In Europe. from composite body materials to dual-drive power systems (electric plus gasoline). say. 12 . The industry has come a long way from the depths of the global crash. the trend of shifting the entire automotive sector towards more environmentally friendly vehicles and sustainable lifecycle manufacturing. unionized structures as. though sales of hybrid. the nadir of which saw the three giant US car makers having to go cap in hand to the government for bailout funding. One of the major strategies of mature-market car manufacturers has been to move manufacturing and assembly to lower-cost locations. • Increasing market share. dual power train vehicles are still in their infancy. fuelinefficient vehicles for new models which produce much less pollution. pg. Asian manufacturers. with a number of radical new trends driving both sales and vehicle development. The incorporation of new technologies. by mid-2011 the global auto industry was looking in much better shape.

Moving forward. afford the R&D necessary for innovation and differentiation. achieve a scale and cost advantage. and 2) achieve concentration of scale and expertise in the specific product or sectors in which they compete. and • Increasing exposure to growth-oriented market trends like vehicle electrification. and create sustainable returns. and will also have to consider how competitors‟ Mergers & Acquisitions actions may impact their competitive position. These actions which are dependent on Mergers & Acquisitions to achieve can convey competitive advantage to automotive companies facing a brutal competitive environment. and CO2 reduction.REPORT ON AUTOMOBILE INDUSTRY • Diversifying the customer base. afford globalization. winning automotive companies will be those who 1) capture profitable growth. Companies which successfully achieve strategic consolidation may be able to: profitably grow faster than the market. • Bolstering technology capabilities. pg. Companies will again have to consider Mergers & Acquisitions as an option in their toolbox of strategic options. reduce competitive intensity to a sustainable level. infotainment. 13 .

• Quality management – Quality management (QM) will. Adaptively to an ever changing environment has become the core business demand. responsive. A car manufacturer has seven major strategies to be followed to remain competitive in the market. which. which can be accomplished by converting to an on demand company. Focused. help ensure that companies grow their maturity in resilience. selected and implemented quickly. • Software management – Software management is a key to making a company focused on software standardization and strategic partnerships. 14 . help the company to become variable and resilient. • Core competency management – Core competency management allows a company to focus on its internal strengths and become more variable and resilience by entering into strategic partnerships with suppliers with competencies in new technologies or niche operations. in turn. pg.REPORT ON AUTOMOBILE INDUSTRY KEY STRATEGIES: The most important question is how a company can remain competitive in the face of the turbulent transformations taking place in the automotive industry. The key to success lies in being focused. • Customer relationship management – Customer relationship management (CRM) helps a company become focused on customer requirements and wishes and responsive to changes in aggregate patterns of customer behaviour. responsive. by becoming a cross functional and cross-company concept over the whole value-add chain. They are as follows: • Brand management – Brand management strategies help make companies more focused and able to differentiate its products from the competition. requiring problem-solving tools and methods to be identified. variable and resilient are different behaviours required to become more adaptable behaviours whose features correspond with the exigencies of the business objective. variable and resilient.

REPORT ON AUTOMOBILE INDUSTRY • Product development management – Managing product development together with a focus on broadening competencies in new technologies will help enable organization to become more variable by the optimization of collaborative engineering. pg. Decentralized and regionalized development activities will help to increase responsiveness to customers‟ desires. 15 . Increased resilience can be achieved by standardized processes and the extended use of virtual testing. • Expansion management – Management of expansion into new geographies and cultures require that are focused on the requirements in these new markets and responsive to changing market conditions and requirements.

They also come up with new promotions during the New Year. technology in the new models they launch. and so on. the product is not altered and we do not seek any new customers. you‟re trying to sell more of the same things to the same people. promoting the product. However. When it comes to Automobile Industry it is very important because all the manufacturers come up with new feature. pg. This means increasing our revenue by. With this approach. repositioning the brand. 16 .REPORT ON AUTOMOBILE INDUSTRY ANSOFF MATRIX: Market Penetration: Here we market our existing products to our existing customers. Christmas seasons. for example.

17 .S market and became one of the world's biggest carmaker. concept. pg. This improvement helps TOYOTA to be more competitive than others.REPORT ON AUTOMOBILE INDUSTRY Product Development: This is a new product to be marketed to our existing customers. Such products are then marketed to our existing customers. With higher percentage of penetration into the global market there are only few major car companies who succeed in monopolizing the entire industry with their aim. For example. and strategies. As the result. TOYOTA Company always seeks for new technology to increase its vehicle fuel efficiency. the timely introduction of a successful new product may yield gains in market share. Now Toyota is a benchmark example of a company with excellent strategic alignment. For example Toyota was very successful in Japan. Here we develop and innovate new product offerings to replace existing ones or extend our product by producing different variants or packaging existing products in new ways. In Automobile industry products are differentiated and scale and learning effects are important to production. This means that the product remains the same. profit margins. Major players are Toyota and Volkswagen. TOYOTA Company gain more sales by selling hybrid vehicle as it helps to reduce pollution to environment as well. Exporting the product or marketing it in a new region is examples of market development. but it is marketed to a new audience. Market Development: Here we market our existing product range in a new market. Then they entered the U. and productivity and the stakes are not trivial. The automotive industry today clearly shows that major car manufacturers around the world are trying to stand out big and strong in the global market today. Diversification: This is where we market completely new products to new customers.

pdf 4. 18 .com/us-en/Pages/insight-ungc-automotive-industryreport-summary. Geneva. 2011. Oliver Wymen.oracle. October. Towards a New Era of Sustainability in the Automotive Industry http://www. 2009.P. KPMG International. Presented at ILO Research Roundtable. Frost & Sullivan. United Nations Global Impact. The Rise of Toyota http://www.REPORT ON AUTOMOBILE INDUSTRY REFERENCES: 1.advancebusinessconsulting. Tay.aspx 2. J.html 8. Sasha Bank.aspx pg. Current and Future Trends in the Automotive Industry http://www. PowerPoint presentation: “The global auto industry crisis: Looking back and ahead”. Achieving competitive differentiation: the challenge for automakers http://proautoconsultores. Towards a New Era of Sustainability in the Automotive Industry http://www.com/advance!/strategicalignment/strategic-alignment-business-cases/the-rise-of-toyota.accenture.com/us/corporate/profit/opinion/102910-banks-190918. Accenture. „Thinking outside the car‟. 2010 9. MacDuffie. 2010. Herbert K. November 2010. The Economist. KPMG’s Global Automotive Executive Survey 2011 5.oliverwyman.com/pdf_files/9_en_PR_Future_automotive_industry _structure_-_FAST_study. Advance Business Consulting.pdf 7.z 6.net/pt/acheiving_competitive_s. Key Trends in Global Auto-component Industry and its implications on Regional Player 3.

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