The Global Car Industry-An Analysis of Macro Environment, from the Case study by Nick Potter

Topics: Automotive industry, Renault, BMW Pages: 13 (3191 words) Published: March 10, 2005
The car industry environment is very complex due to the large number of product markets, buyers, suppliers and customers, which spread across the globe. As such, it has often been described as "the industry of all industries".

There are various forces that influence this environment. Hence, this report analyzes some of the political, economic, socio-cultural and technological trends, key to understanding their impact on the industry, with particular reference to the Western European market.

First, the macro environment is analysed to point out some of the major impacts in the entire industry, revealing political and technological forces to be the driving forces of the industry.

This is then followed by a competitive analysis of segments in the industry divided on the basis of various strategic groups. Such segmentation helps in grouping some of the companies and assessing the impact of key variables common in that segment. It is revealed that brand perception is a key mobility barrier that helps companies maintain their competitive advantage in each of the segments, by reducing threat of new entrants.

Following is the detailed analysis based on the above dimensions.

Macro Environmental Forces on the Car Industry

Particularly three trends can be identified to have major impact on strategy formulation for the 21st century in the industry. First, there has been greater importance by governments of various countries to balance their ecological and economic objectives as compared to the past. Secondly, the economic downturn coupled with unemployment has lead to a reduced consumer confidence. Lastly, the technological innovation has been quite rapid and extensive in the last decade.

The following paragraphs give a more detailed analysis of these trends.

Political Forces:

The changes in government policies and legislation in certain western European countries will have significant impact on the level of demand in the industry. Some of these include the following:

* Taxation

* Abolition of replacement schemes.

* Environmental regulations

An important determinant of the attractiveness of any industry is the tax regulation under which it is operating. As evident from the case some countries have differentiated tax structures for the car industry based on variables such as luxury, type of fuel etc. Tax is a major source of revenue for any government, and its effects on the industry have to be accurately assessed.

In addition, the abolition of replacement schemes by certain countries has also affected the industry. For example, the move by countries like Spain and France who have terminated the car replacement scheme has upset the replacement cycle putting a downward pressure on the demand for new cars.

Also, there has been an increasing tendency by governments to focus on 'greener cars' i.e. environmental friendly cars. There have been tighter regulations to control emissions as evidenced by euro 96 norms. Hence, the companies that invest in technologies that reduce such emissions will gain significant competitive advantage.

The above policies are essential factors to consider while formulating strategies in such markets, because they have a huge impact on consumer demand. Not only is the level of demand affected, but also consumer preferences are altered.

Technological Forces:

The rapid development of technology in the past decade has had a major impact on the industry. There are two fold drivers in this development. On one hand, it is driven by government regulations and policies and on the other through specialisation in the various component manufacturing. The technology is becoming quite sophisticated, altering the entire value chain in the industry. This specialisation is forcing car manufacturers to create strategic partnerships with suppliers for efficient and cost effective competitive advantage.

For example, companies like Ford, are focusing on technologies that are...
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