Global business environment consists of various factors which must be tackled effectively by an organisation if wants to sustain into market for longer period of time. You are asked to produce a report that communicates how global business environment affects the operations of an organisation. For this, following Learning Outcomes should be addressed:
- Identify the major forces that drives global business environment and acquire information regarding fluctuations in global business environment.
- Apply suitable business models including Porter five forces in the context of global business environmental analysis using PESTEL.
- Identify and critically analyse the causes why organisations involved in global trade.
Global business environment refers to surroundings in various sovereign countries with the factors exogenous to home environment of company which impact decision making on capabilities as well as use of resources (Aithal, 2017). At the time of conducting business at international level, it is essential for firm to understand social environment of that country. International market reflects manufacture and also selling capacities of industries in all over the world. Under this mention essay discuss about the environment of global automobile sector by using the PESTLE analysis. To determine the situational analysis, Porter’s Five Forces of automobile industry will be discussed.
A) Environment of the Global Automobile industry using PESTEL analysis
Global automobile sector is multi billion sector with many big brands competing for increase their market share. This sector plays a necessary role in order to increasing economy of world in terms of profit. Because of the large size, productivity as well as revenue of this sector affected through many forces. In United Kingdom country, automobile sector is one of the largest sector. In context to international trade, this industry involving the engined and generate about £45 billion. In context to this, financial crisis has hit automotive industry really hard. After passed the global recession, sales of this industry are back on the track. At the time of recent years, for automobile brand, Asian markets proved the highly lucrative (Arinze, Igwe and Una, 2015). In context to vehicles, China has the largest market. To analyse the market as well as environment of country, organisations conduct the PESTLE analysis. It is related with influence of environment on business. In addition to this, determining the influence of PESTLE is an effective way to ingeminate an external environment under which firm operate its business. It is helpful in growth or reduction of particular market involving the potentially of business has. Different elements of PESTLE analysis are Political, Economical, Social, Technological, Environmental and Legal. It helps in collecting various advantages along with the opportunities to business. PESTLE analysis of Automobile Industry given below:
Political factor- It refers to main legislations, security measures, regulations and also restrictions which can be applied to whole sector. The regulations as well as legislations have impact on automobile sector. The legislations and rules of every country is different from the each other. So, it is a duty of firm to understand about the political conditions before conducting business in that country. Otherwise, it will develop the negative affect on business. This factors plays necessary roles and also have the direct affect on profit level of an automobile sector. The tax on fuel guzzlers as well as luxury vehicles is more high. Under this, markets such as United Kingdom and European Union both are giving the government subsidiary for minimum emission vehicles. The demand of environment friendly is increasing. Regulations and rules of government more impact on revenue of brand of vehicle (Bharwani and Mathews, 2012). The rules related to import are varied from one country to another. Apart from them, there are some other political factors which affect an automotive sector.
Rapidly change in political regulations and government regimes of market can cause the unfavourable or favourable fluctuations. Because of various political decisions, care produced has to take some specific precautions as well as care about the issues related to an environment at the time of producing automobiles. In the developing countries, automobile produces are under the pressure through government continuously. In order to make the automotive affordable through common income level people despite enhancing costs. For government, this sector is a main source of generate revenue.
Economical factor- It is varied and concerned with the exchange rates, global economic development and also some business settings which are predominating in sector. The automotive sector is more impacted through economic assignments. There are many crisis in past and they affected adversely sales of the automotive in the developed countries. High rate of the cars manufactures at some time period which help to increase revenue of company in marketing and also design the new product. Demand for the luxury cost vehicles is impacted badly at the time of bad economic situations (Dobbs, 2014). In many markets, tax rate on high cost vehicles are more. If in case economic situations will be good then in this case sales will also be remain high. In developed countries, sales is high of automotive.
With advent enhancing an inflation in all over the world. It is predicted that buy of automotive shall enhance in future and globalisation will be helpful in open door for the foreign investors in United Kingdom country. It is more profitable sector and also provide more employment related opportunities. In context to this, there are different angles to measure significance of economic factors for sector. It dips at the time of economic downturns. Under this, sector is based on high buying assignment power of consumers. If the main focus of large number of brand on bring minimum cost cards at market place then it will helps in target the large consumer segment.
Social factor- These factors are complex to find in automobile sector. It includes change in demographics and culture globally apart from changes in purchasing capacity as well as pattern of consumer. They look towards better those products which satisfy their demands and needs in an effective manner (Grandori, 2012). Automotive sector revolutionized whole society. This industry plays an important role in development as well as progress of economies at global level. In this factor, automobile industry is impacted through alterations in socio- cultural tends and also preferences of people. Each year, new models of cars are released to keep the preference of people in mind. The tastes and preferences of consumers are changing day by day. So, organisations manufactures cars by keeping the demands and preferences of customers in their mind. The social trends keep modifying impacting popularity of models and brands on continuous basis. Automotive industry make change sin features of cars which like consumers most. It is essential that cars should not pollute the environment. The more vehicle manufactures are developing vehicles which alternate on various fuel systems. Age distribution in different population us necessary factor which automotive industry have keep in mind at the time of target customers.
Technological factor- Innovation and technology both are necessary determinant of the market share in automobile sector. If innovation will be higher then in this case market share of an organisation will also be enhanced. Main players make more investment in the research and development. In manufacturing process, automotive industry uses the advanced and new technology. It maturing with several new methods of minimising the CO2 imitations and also finds new ways to minimising battery loss speed (Gülcan, 2017). In this present time period, organisations of care producing have various rules which need to be followed at the time of manufacturing automobile. In addition to this, main players of technology are try to enter under this industry. In past years, technological innovations remained main differentiation basis for producers of automotive because the focus on consumers sift towards high mileage as well as fuel efficient vehicles. So, technology impact on the sales along with profit level of an automotive sector.
Legal factors- It is other essential factor that impact profit as well as performance of brand of vehicle. Legislations are concerned to eco friendly as well as carbon emissions are developing in all around the world. Vehicles those are minimum emissions as well as fuel consumption receive the tax subsidies and favoured through law and government. There has been international trend of imposing the various regulations, quality standards and rules for automobiles. The manufactures of automotive are in pressure in order to comply with the set law and rules on regular basis (Han, Porterfield and Li, 2012). It is a responsibility of automobile organisations to follow set regulation as well as legal systems which are developed through government.
Environment factors- The automotive industry is regarded as large culprit which damage environment. With enhance knowledge about the environmental problem, consumers are related with the affects of automotive of environment. So, car producers began to manufacture the environmental friemdly cars but the market share of this industry is minimum. In future demand of eco- friendly cars will be enhanced and environment will not be harmed in bad manner. Through this,productivity and also sales of automotive will be enhanced ta large share and by this market share of this industry will be enhanced.
B) Environment of Global Automobile industry using Porter’s Five Forces analysis
Porter’s Five Forces analysis refers to model for judge sustainability as well as vulnerability of specific sector in competitive scenario. Porter’s Five forces refers to framework for an industry analysis as well as business strategy which is created through Michael E. Porter. In this, great recession badly affect automotive sector where the most known brands were on extinction verge. This model let manager in order to judge the different factors to enhancing the competitive environment. It is helpful in analysing competitive intensity along with profit level in any sector. Under this, there are five main forces which are more impact on automobile sector given below as above:
Threat of new entrants- In automotive sector, it has low threat. Under this minimum players are capable of venture in automobile sector because it needs more capital investment in order to enter in this industry. It is complex for the new brands to enter in automotive sectors because there is a need of high investment (Losonci and Demeter, 2013). Generally, more investment will b needed in context to set production facilities, hire skill employees and distribution network. Under this, main barrier is competition level from current brands. Unless the new brand bring innovation and also make differentiation in product at market place, chance to increase the market share that is low. In addition to this, brand image is one of the main competitive benefit for present brands. If any new brand will be enter then it will need to be focus on more engineering as well as quality of product. Under this, get raw material can easy but then attaining scale economies various for small size organisation. The market penetration is not easier. In order to discourage the foreign brands, some government applied the more import taxes. There are many factors which reduce threat from new firms. It takes several years for new entrant to develop the strong reputation or image to more competitive. So, these all factors make threat of the new entrants under market very low (Penna and Geels, 2012).
Bargaining power of suppliers- In an automotive sector, bargaining power of suppliers is weak. There are only some suppliers which have significant size. Under this, threat related to the forward integration is low from suppliers. It is essential that supplier should follow the set rules and regulations in an effective manner. Suppliers plays a necessary role in automotive industry and provide the better quality of raw materials to firms. The suppliers power is mitigated through number of current suppliers in this sector but the switching cost is more high due to establishing part prepare as well as specifications needs the initial fair investment. There is a need to auto producers to parts, services, inputs labour and raw materials. Cost of all inputs can develop the significant affect on profit level. In addition to this, it is a main responsibility of industry to select the right supplier which can provide the better quality of raw material on minimum cost and at particular place. Mainly the automotive sector followed Japanese lead through divesting themselves of producers of organic parts by use of outsourcing needs as well as spinning off divisions of parts in order to separate the entities which are supply in return.
Bargaining power of buyers- Under this, bargaining powers of consumers is high but their switching cost is low. Consumers refers to ability of people for negotiate costs which are extract profit from seller (Rothaermel, 2015). Primary purchasers of vehicles are commercial firms, governments and also private individuals. In context to this, purchasers are little which purchase the single vehicle. There are some government agencies and also corporations which purchase vehicle fleets. In order to switch brand from one to another, there is no attritional cost involved. Consumers are cost sensitive and also switch brand to other which provides the minimum cost. Those organisation provide the products on minimum cost, customers attracts towards them more. None of consumers whether large size corporations or small purchasers poses threat of the backward integration. The main focus of brand on develop the better loyalty of consumers by design, quality and also provide the competitive costs. So, organisation should focus on reducing cost of its products and also provide the better quality of vehicles at market place. On the other hand, company should focus on quality of manufacturing of cars so that large number of consumers can be attracted towards them.
Threat of substitutes- At market place, there are many substitutes as well as transportation of alternative modes involving trains, taxis, planes and buses. Enhancing cost of fuels has been push in some of the urban drivers in order to use the public transportation in a significant manner (Wedeniwski, 2015). The consumers want high quality of products at reasonable cost, so at market place there are large number of substitutes available in competitive market.
Competitive Rivalry in industry- In the automotive market, there are large number of organisation available and they are main competitors of each other. Under this industry, rivals are more intense as the organisations compete on the non- cost and cost dimensions. At market place, there are various firms provide the different incentives in context to attract the large number of consumers towards buying own vehicle. In context to this, number of influential as well as recognized brand is minimum but the barrier related to exit is high. If any organisation in automobile sector trying to be exit they have to bear the more loss because under this the consumer loyalty is high (Yunna and Yisheng, 2014). On the other hand, various brand targets the varied market segmentation but they overlap. In market, brands are compete according to the cost, quality, design, safety of consumers, technology and some of the other necessary points. So, under automotive sector, competition level is strong as comparison to be vert strong.
It has been concluded from above given report that PESTLE and Porter’s Five Forces analysis Both plays a necessary role for making business organisation successful. These both helps in provide the competitive advantage to automobile industry. Under this mention report studied about the environment of Global Automotive sector by using the PESTLE and Porter’s Five Forces analysis.