SWOT and PESTEL analysis of the automobile industry
At the beginning the gas price and economy were stable, this create conducive environment for car manufacturers, Vehicle sale has become stronger in the market, than it was anticipated due to expected economic growth, where by industry marketing expenditure were flat at $ 1,505 million and later increased $39 ml to 1544 ml due to aggressive advertising and promotion increase despite growing sales, oil prices were doubled in the December, and raise concerned about the ne next year, also marketing industry expenditure increased $232 million to $, 705 million, due to heavy and also many firms decided to upgrade their car to meet difference taste and preferences
Strategy is the direction and scope of an organization over the long term, which achieves advantage, in changing environment through its formation, resource and competences with the aim of fulfilling stakeholders expectations, strategic decision are therefore likely to be complex in nature(Johnson et al,2006;61) Strong business strategies are built on good business decision so success depends on whether management has solid understanding of the micro environment, the industry in which its operates
Mission & Vision
The business overall vision is to become the leading manufacturer to economy –oriented vehicle and become best in its class reflect different style and design in order to meet the test of different customers economy segment.
At the beginning all firms were started under same circumstances, the Primary strategy was to develop the vehicles, firm was original introduced (one of each categories, Economy Family and Truck), and the vehicle which were not performing better in a firm were upgraded to reflect the changing style and design to appeal with customers’ expectations
The major target market, and particular attention was given to Economy vehicle, the Echo, Effiz and Egad
In simulation exercise every firm were started in identical situation, the initial strategy was to develop the cars that firm presented with (one in each in the Economy, Family and Truck classes) and measure their success. And where by any vehicles which failed to perfume better in the market would subsequently be discontinue and reinvest in other vehicle class.
Political factors, the firm should be ware with all rules and regulation governing the production of cars, such as fuel efficiency cars which are highly emphasized, vehicle emissions, safety and standard issues should be given priority.
Economic factor, at the beginning of the simulation the economy were in good conditions, GDP growth were projected to raise from 1% to 1.5% in period 1 and inflation to decline from 2,5% to 1.5% these were fluctuation hence economy decline at end of simulation.
Social Factors, cars is one of agent which pollute environments due to emission of Co2 and noise, large cities, has affected with these emission and lead to diseases related to breath and skin. Many traffic jams which are time consuming, and increasing road accidents.
Legal Factors, the firm should comply with all laws and regulation with its operations, such as gas emission laws, safety and standard issues, vehicles regulations, compatibility spares manufactures
Technological factors, Cars manufactures are starting to introduce Alternative Energy Vehicles, which are using electricity only (rechargeable batteries), fuel cell, hydrogen, solar or hybrid. Despite of its expensiveness it will be solution to energy efficiency and lowering pollution, but during simulation we were not accessed to develop purely cars, or hybrid models despite of its existence. Other technologies such as synthetic materials, web procumbent technologies, JIT Management, advanced logistics computer-aided design software, increase efficiency and save money
Environmental factors, Environment pollution, is one of challenging issues threating the world, car manufactures should pay attention in it issues, by transforming their technology into alternative energy vehicles, reduce emissions
Today’s customers are ones of victims of Co2 emissions, hence in a future customer will prefer alternative energy vehicles to preserve the environments.
Opportunities, growing of economy this led to increase on purchasing power customers as well as growing of emerging markets
Threats, New laws might imposed regarding to gas emission and safety issues, increasing competitions from other firms, introduction of new technologies, as well as global economy downturn, development of hybrid technologies might be threat for car manufactures
Strength, At foundation of the simulation, all firms started with one car in each at the Economy, Family and Truck, this give opportunity to fair competition due to the fact, all firms within simulation were started with zero competition, within these unexploited markets, hence the firs firms which is risk taker to possibly gain lions share compare to other firms which are risk averse.
Weakness, all firms were started with same situation simulation, hence another firms can move into our future vehicle class before our firm decide to move
Critical success Factors, are those that differentiate one products or services from another in the eyes of consumes, can be threshold features and differentiators
Threshold features, are those taken for granted to consumers in decision of buying such as, fuel consumption, engine capacity and durability whilst differentiators would be features such as music system, climate system, GPS, Bluetooth technology.
During simulation, were able to upgrade or downgrade threshold features depending how it perform in market despite for that there were few options in case of differentiators this lead to many vehicles ended being similar across all firms hence difficult to distinguish from one to another.
Industry and Sector
Threat of New Entrants
Threat on new entrants during simulation it was limited hence it was impossible for new firms to enter during the course of exercise whilst in a car manufactures threats is low due to capital intensive(amount of capital required to invest is very huge) hence act as barriers for entry in high.
Threats of Substitutes
Car manufactures, also has substitute, due to increased number of cars in roads and lead to congestion, high parking charges, high cost of running a vehicles, lack of infrastructure such as roads hence people prefer motor cycles, public transport, cycling as substitute to cars, decline in economy will force people to consider alternative of buy cars.
Bargaining power of buyers
Bargaining power of buyers is medium in sense that, during simulation exercise, there were few choices to distinguish against competitors this leads many vehicles appeared to be similar, due to the fact all firms were started in same position, this implies buyers will access to choose one cars and another.
Bargaining power of Supplier
Suppliers of cars components are disjointed hence and their few, this led to car manufactures to have limited choices in terms of buying components for their cars, hence leads to high bargaining power of suppliers, which suppress profitability of car manufactures.
Rivalry among existing firms is very high, due to the fact that all firms were started in similar situation. Firm E compete with 6 firms on which all implementing different strategies in order to perfume better in the market.
Value, the firms possess all resources and capabilities and transforms to meets customers’ expectations, and firms has capabilities to respond threats and opportunities, due to heavily marketing during period one demand is overshadowed with production capacity in all followed periods.
Rareness, this explain how many competing firms already possess particular valuable resources and capabilities, in a simulation all firms were started in a same situation, the solution to introduce rareness is by launching a new vehicles, which is was yet introduced by other competing firms
Imitability in a simulation exercise product imitability was high in sense that all firms statistic were published so as other firms can access to see, this implies one could be easy can imitate the strategy for another firms.
This ask question such as do a firms organized to exploit the full competitive, potential of its resource and capabilities, in simulation exercise firms are very disorganized, this resulted to it incurring substantial penalty fee in every decision period
The initial strategic direction chosen by the firm C in Economy Class to be cost leadership by producing more economy vehicles Cameo which will be sold at low prices with less powerful engine and large units,safety was chosen this in order to target to customer who are value seekers, price sensitive, other strategy is promoting and advertising more in ordered to sale more.
Other Strategic direction decided by the firm C, was to develop its family vehicle class Cafav with the theme of safety, quality and comfort which will be sold at medium priced car firm decide to was chosen in order to target customers who have medium income earner are those who have families and who prefer more space of cargo as well family fun built in. to target customer who want reliable safe and transportation for their families at a reasonable cost
Strategic direction also was taken by the Firm C in its car Crash, in a Truck class, which has styling and performance, four-wheel drive, as well quality and safety this was chosen in order to target the customers which appeal with young and have more disposable income.
Decisions during Simulation
During the course of simulation firm C decided to undertake the strategy of producing more economy cars order to increase production the Cameo its economy class vehicles by incorporating a bit of style but more on safety in order to diversify this brand not only targeting value seeker but also singles
The firm’s Truck Crash was decided to produce more units of in order to sell more truck cars by incorporating more on styling in interior to reflect the changes in customer demands but not compromise safety and quality of its.
The firm’s Family vehicle Cafav also decided was also upgraded in order increase productions to reflect the changing customer changing demand upgrades was mainly in interior styling and safety.
Advertising and Promotion
The firm’s invested heavily in promotion and marketing during simulation exercise in order to attain its objective to have larger market share,
But still Cameo in a economy class did note performing good it has 10% of market share compare to its competitors Buzzy with market share of 19%
The firm c decided acquire more dealers in north, south, east and west in order to have wide coverage and reaching more customers who can buy our product
The firm c decide to upgrade its technological capabilities in order to have capacity to produce more cars in order to compete with other firms
Despite of taking strategy of producing more cars in the Economy class Cameo and continue in promoting and market expenditure where heavy invested at period 5 but their sale were not good as it was anticipated in the market, this caused by concentrate more on safety strategy only, rather than incorporating with style later strategy taken was to undergo major upgrade this led to Cameo’s inventory to be sold out at lowest price.
Despite increased dealership in west and south but we failing to take full coverage due to head to head completion experienced from other firms
Despite of increased advertising and promotion budget to economy class but it did not respond and sales were decline from time to time whereby firm market share 15.1% per2 to 13% per5 final strategy was to undergo major upgrade to this model and incorporate safety with style
The firm net income has tremendously decline $ 577.7 ml in per 2 to $-6,387.2 this was due firm c delay to float bond to cover operation cost.
The final results of Simulation Exercise
The firms C has been performing
The firm of sale has increased $16,438.2 period 2 to $ 20,442.2 but decline $19,030. period5 was due to upgrading made by the firms, this caused the vehicle to have high price, and also competition from other firms in the market
Market share also was decreasing, from 15% to 13.9% was due to head to head competition from other firms and wrong reposition to our products in the market.
The firm’s debt was increasing from $ 3,562.0ml in period 2 to $41,571ml was due firms strategy of upgrading vehicle was well as plants but it did not pay back. As well firm delay to float bonds
The firm capacity utilization increased from 97.8% to 207.0% this was due to firm C decided to produce more cars hence utilization increased.
Firms objectives was to become the market leader for their Economy vehicles, the firms CEO try to implement the best strategies for their firms, but the results was not good as it was anticipated, but it hard to declare weather the firms failure was due to firms strategic choices, this led firms financial performance to deteriorate from week to week.
It’s clear that the firms overall action was matched their objectives of good performance in the economy vehicle was marketed well and perform somehow good.
What did we learn?
Throughout simulation was overlooked and given little attention in each decision period, causing massive losses each week, no budget had been set each week, and despite the huge losses depicted on the financial statements, there were no efforts taken to discover the cause, drastic financial problems should be addresses quickly and operations should not continue until the cause has been discovered, if not resolved
From these results, it shows that the firms had right ideas, but its execution was not intelligent.
Johnson, G. Scholes, K and Whittington, R, (2006), Exploring Corporate Strategy, 7th edition, FT Prentice Hall, Harlow, England
James, S., Deighan, M., (2007), Strategic management simulation, Interpretive Software Inc
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