Overall introductionThe car industry represents an oligopolistic type of market with differentiated product features, unrestricted but hard to force entry barriers, strong competition and a few dominant firms that hold most of the market share.
External analysis:'Business organisations differ in many ways, but they also have a common feature for example transformation of inputs into outputs. This transformation process takes place against a background of external influences which affect the firm and its activities. They are complex, volatile and interactive, but cannot be ignored in any meaningful analysis.' (Business in its environment page 3)A combination of strategic models and frameworks will be used to critically evaluate the competitive landscape of the car industry in order to identify the prevailing conditions in the wider environment and the dynamics of the industry that can ultimately impact and influence HONDA and BMW car manufacturers.
PESTEL Analysis: Past events and experiences being used as a forecast of the futurePolitical: Car industry represents oligopolistic type of market with differentiated product features, unrestricted but hard to force entry barriers, strong competition and few dominant firms that hold most of market share.
Governments rely on the car sector as well as related suppliers and services in terms of employment, taxation, GDP and balance of payments. Car makers require growing economies with rising levels of disposable income and consumer confidence in order to succeed. Government is often balancing and restricting economic consideration with aspirations of consumers in terms of mobility and materialism. Political issues are a significant underlying factor although collaboration between manufactures, suppliers and national governments are becoming increasingly common.
Economic: Demand is predicted to increase in all world trading zones with production capacity will continue to exceed demand. Demand fluctuations are appearing between country markets. Increase in taxations of production which represents significant government revenue.
Social-cultural: In 1980 there were thirty car manufactures, by 2000 this had fallen to thirteen (Case Study: The Global Car Industry) where smaller manufactures (Saab, Rolls Royce, Jaguar, and Volvo) were bought by larger companies (General Motors, BMW, Ford)Technological: Changing the upstream supply chain as component suppliers split into layers and become total solution providers. Full cell technology will replace safety as the number one technology issueEnvironmental: Concern over the environmental pollution generated by internal combustion engines which burn petrol and diesel fuel, encouraging product innovation to reduce toxic emissions and to develop more efficient engines. Ecological issues is a significant underlining factor and has a great effect on product and processesLegal: The volume of traffic in many cities around the world is forcing governments to consider a range of road pricing, congestion charging, and car and petrol taxation measures to encourage more use of public transport, potentially reducing demand for cars. High competition encourages manufacturers to locate plants in low-wage countries (Hungary, Brazil, Romania) generating job loss and resentment in traditional car manufacturing countries (Britain, America)5-7 Porter forces:The structure of an industry and ability of firms to act strategically depend on strength of five forces (appendix 1), their analysis allow develop the competitive advantage of the organisation.
Year on year incumbents in the car industry grow in size as well as their scale of production which reduce costs of production and final price of output. In order to survive in the market firms have developed strong customer knowledge, branding, special levels of service and access to distribution channels which create high barriers. Analyse shows that threat for new entrants is low mainly due to huge capital and cutting-edge technology.
Car industry is highly depended on their suppliers, because of advancement of technology and materials needed to build car. Additionally, there are many substitutes, but these decrease if the special features of material increase. Overall suppliers are weak because they are spread all over the world and can not easily integrate forward, however more and more companies move into close partnerships with suppliers, even by acquiring them in order to reduce costs and exclusivity.
The buyer concentration ratio and information availability is high as well as ratio of firms producing cars, on the other hand the power of buyers is weak due to low demand for non-consumer goods- automobile, high switching costs and low ability to backward integrate.
The threats of substitutes are moderately strong because there are many different and less expensive transportation facilities.
On the other hand, intense rivalry is strong because the major players are dominant in the market by nearly same technology and manufacturing processes, supplier's relationship and distribution systems. The ease of differentiating cars and price based competition.
Car manufacturers are looking at entering into alliances, joint ventures, partnerships as it is the safest way of securing a market share, product attractiveness and competitive prices.
Strategic group:Even though all firms produce cars, no two firms are totally different and no two firms are exactly the same. Strategic group maps display different competitive positions that rival firms occupyBased on Information contained in perceptual map (appendix 2) it is easy to notice that more and more firms are going into all sort of alliances which help to offer more and more cheap cars. Additionally firms focus on mass production to achieve high economy of scale (appendix 3).
Segmentation:The Company cannot satisfy the needs and wants of all consumers. To do so may result in a massive drain in company resources. A number of segmentation variables that allow an organisation to divide their market into homogenous groups. (Lynch R, (2003), Corporate Strategy, 3rd Edition , Pearson Education Ltd, page 171).
Based on the research (appendix 4) it is possible to distinguish customers who follow standard patterns; buying affordable but comfortable medium size cars, are those aged between 20 and 40 years old, regardless of the sex but dependant on income and household status. These clients tend to have more urbanised and settled lifestyle. On the other hand those at middle age, male with high income and preferences tend to pay fortunes regardless comfort, fuel usage or environment issues.
Targeting:As well as positioning maps, graph (appendix 4) also shows potential gaps and opportunities in the car industry. There are three targeting options which firms can adapt. With regards to a variety of car models it is impossible to aim at mass market just with standard type of car. More applicable is a differentiated marketing strategy like those developed by GM, Ford and Daimler Chrysler which target clients at high and low income and offers cars with separate marketing and mixed variables. This strategy favours merger and acquisitions to overcome mobility barriers and gain presence also in luxury car segment. The third option is concentrated marketing where a firm concentrates its marketing effort on one particular segment to develop a product that caters for the needs of that particular group. For example Rolls Royce cars aim its vehicles at the premium segment.
Positioning - brandingWithin the last year cars manufacturers have strongly positioned themselves, their brands are highly recognizable and each has specific characteristics. Some developed ' a me too strategy' and position themselves close to their competitors- Vauxhall, Opel, Seat, Renault or develop a strategy which positions themselves 'away from their competitors', by differentiating- Maybach, Ferrari or Rolls Royce. On the other hand Daewoo and Skoda have successfully positioned themselves as the family value model.
Industry Key Factors for Success (KFS)Key Factors for Success are common to all the major organisations in the industry and add value to the company. Resources, skills and attributes that deliver success in the car industry will be analysed. Key Factors for Success concern not only the resources of organisations in the industry but also the competitive environment in which car industry operate. As Kenichi Ohmae states there are three principal areas that need to be analysed known as Ohmae's three Cs.
Customers - what customer really want?Consumers want new products with a varied choice providing high comfort, performance and safety. A clear example is smart cards implanted in engine management systems which are able to measure the quantity of polluting emissions with the results prepare individual tax bills. Differentiation and increase in technology will tie customers with authorised service dealers throughout the life of the vehicle.
Competition, surviving against the competitors:A strong competition in the car industry exits, with emphasis on products attributes, linked to a total financing and ownership package which is closely matched to buyer's needs. Collaboration between Eastern and Western European companies is increasing based on the mutual benefits of technology/skills transfer and market entry.
Corporation, special resources in the car industry:Diversification is still common within the car industry where firms are growing by acquisition. Added value represents finance, servicing and sales of spare parts where companies buy components from each other or share development costs. This mutual collaboration can be used to spread costs or as a market entry strategy. The Key Factors for Success analysed above will be used to analyse the environment outside the organisation and will be further explored.
TELESCOPIC OBSERVATIONS Matrix. The last framework in the series of the planning process.
In order to have a better understanding of the car industry TELESCOPIC OBSERVATIONS (TO) strategic framework has been employed. (Please refer to Appendix 1a)INTERNAL ANALYSIS: HONDAA key aspect of the internal context of business is to remain successful, therefore constant attention needs to be paid to balance the different influences on the organisation and to re the requirement to adapt to new external circumstances.'Honda is Japanese engine manufacturer and Engineering Corporation producing from automobiles and motorcycles to water crafts. Founded in 1948 by Takeo Fukui is recently operating in Japan, North America, South America, Europe, Asia and china. Total sales across the word weighted for 34,7 million pounds with 3,391 cars sold. (http://www.google.co.uk/search?hl=en&q=honda+wikipedia&btnG=Google+Search&meta=)The value chain is a systematic approach to examining the development of competitive advantage. Therefore, Honda 'creates innovative products that enhance mobility and benefit society to meet the particular needs of customers in different regions around the world with its sales networks, research & development centres and manufacturing facilities in each region' (http://world.honda.com/profile/philosophy/)Honda has a flexible manufacturing system, which reduces the time and resources necessary to launch new models into production and improving the efficiency of manufacturing operations. Moreover, their use of cohesive units in the production process improves the working environment and raises product qualityAdditionally, Honda has launched VTEC a variable valve timing system in its production car engines, which improved efficiency and performance across a broader range of engine speeds. ( http://world.honda.com/)To distribute the final product, since 2006, they have been has been improving its value system chain through joining their multiple car-dealership channels into a single sales channel - in order to strengthen their brand, enhance customer satisfaction, and help ensure customer loyalty.' http://world.honda.com/profile/manufacturing/Honda uses unconventional and always surprising methods for their advertising winning most of worldwide awards for its previous advertising campaigns, which have included The Cog' ad, 'The Impossible Dream' and 'Grrrr' - hate something, change something.
Very recently they have launched an ad with the world's most advanced humanoid robot. Additionally, they advertise heavily during most motor racing telecasts and Major League Soccer.
One of Honda's departments is Purchasing Operations Division which is responsible for purchasing of goods, services and materials to negotiate the lowest product's prices at the highest quality.
Honda innovate strategy reduce costs, protect and sustain competitive advantage Latest initiative ideas lead to the most economical and environmentally responsible gasoline-powered Civic ever available. They have developed a brake system which predicts collisions and an Intelligent Night Vision System, which detects pedestrians approaching the vehicle to prevent accidents. Above all it aims to improve comfort and safety when driving as well as protect the environment.
Honda human resources management differs in each country, certainly employees in US will have different remuneration and awards, however the experience, training and development needed is very similar.
Another effective framework for analyzing the organization and its activities is McKinsey 7Ss theory.
The direction and scope for Honda is to create innovative products to meet customer needs and expectations around the world. Each divisions is based on 8 departments working together to add value in all possible areas, from the management information systems, through to the systems at the point of contact with the customer to increase competitive advantage.
Honda continually focus on initiative, technology and quality; strengthen production and R&D especially in Japan to support the development of overseas divisions, and build innovate manufacturing systems for faster and more efficient production. The shared values which guide employees are the three Joy's principles; joy of buying, joy of selling and joy of creating. Staff resources are to be developed through the company's values, appropriate training, the firm's success and worldwide awards provide the motivation for further hard work. http://world.honda.com/profile/philosophy/BCGIn order to analyse Honda position in the market, it is very useful to look at the BCG Matrix. Based on the graph(appendix 5) we can see that Honda is position as 'question marks' due to relatively low market share of 5,7%(http://220.127.116.11/search?q=cache:RoWYi6kurBIJ:www.cleancarcampaign.org/pdfs/drivingforward4.pdf+honda+global+market+share&hl=enÃ¢ÂÂ·=uk&ct=clnk&cd=63-) to the 30% for the industry leader - General Motors, that gives GM competitive advantage and ability to command distribution. On the other hand the growth rate based on the five years statistics is eight times lower (http://stocks.us.reuters.com/stocks/ratios) than their Japanese competitors. Fast growing market rates offer more opportunities for sales but require a lot of cash to maintain market share.
GEBased just on information from BCG Matrix it is hard to define whether Honda achieved high or low market growth and share, therefore General Electric Matrix is more sophisticated in three aspects: market attractiveness, competitive strength and 3 grid analyses. As a result of a graph (appendix 6) Honda has a strong business position due to price competitiveness, growing reputation, high quality of products plants based all over the world (countrieshttp://en.wikipedia.org/wiki/List_of_Honda_assembly_plants)And massive amount of money spend on R&D (http://world.honda.com/investors/annualreport/2006/14.html ). Moreover their industry attractiveness is also high mainly because of their high market growth, high demand and therefore net income (http://world.honda.com/investors/annualreport/2005/pdf/ar2005-cover-01.pdf), which increase very year.
Honda has objectives for growth as it offers strategic choices to achieve them, Ansoff's Matrix shows that the company is still at the main stage of product development (appendix 7), developing and innovating in new technology used in cars- hybrid fuel cars, brake system predicting collisions or Intelligent Night Vision System, which replace existing ones. Those products are then marketed to existing customers.
SWOTWithin the Strengths 2006 net profits rose by 20 % to 597,033m yen (ÃÂ£259m), as well as vehicles unit sold from 3242 to 3391 thousands (http://world.honda.com/profile/financial/), which could be due to focused segmentation, targeting and positioning in a number of countries- market need for environmental friendly cars. Honda is constantly focusing on economies of scale to reduce the cost of their products. A company uses marketing techniques- joining their multiple car-dealership channels into a single Honda sales channel to identify and satisfy customer needs. A strong investment in research and development resulted in highly innovated products and a good reputation, as well as use of comparative and constant advertisement which strengthens their competitive position.
As for weaknesses, Honda markets its products throughout the world and is exposed on economic fluctuation and political conditions in those markets. Movement in exchange rates could cause already narrow margins in the car market being reduced. In order to retain firm's operational efficiency Honda needs to keep producing cars regardless to economic down or up turn which may lead to either overcapacity or under capacity.
Emerging and outsourcing into developing countries like Poland, Slovakia or Hungary will rise profits and benefit from cheap factors of production costsImprovements in car technology - their efficiency, safeness and design increases their reputation and capacity for market growth.
Manufacturing environmentally friendly fuel vehicles also raise profits as oil prices are on the up.
Any cooperation or merger with suppliers and other car manufacturers can strengthens their market share, economies of scale and assure exclusivity.
In case of threats, economic slow downs may experience in over capacity. New entrants coming in from China, South Korea and Easter Europe increase competition. The company is also exposed to any movement in the price of raw materials such as rubber steel which increase production costs. Improved production process of rivals- Toyota Kaizen and Kanban system (case study) are very efficient.
Ratio analysisHonda does not have very high Gross Profit ratio (appendix 8) due to pricing strategy, but is stable from year to year that give a good indication of financial health. The Company should be able to pay its other expenses and to build for the future.
An operating ratio shows the efficiency of management. Ratio of 8% (appendix 8) is relatively small has high fixed costs, but also shows that Honda has ability to generate profit if revenues decrease.
Honda hasn't got very high ROCE (appendix 8), which means they could use resources more efficiently to generate revenue by better investment decisions.
As for the current ratio, there is a big change from previous year as ratio double (appendix 8) since then, as well as company's ability to pay back its short-term liabilities with its short-term assets. Last year's result indicates that they would be unable to pay off its obligationsThe number of days Honda credits sales is around 50 days (appendix 8), therefore the collection period is quite short. Moreover payables ratio looks just right, the firm is able to pay its bills in 60 days, which indicates either good financial position or good supplier relationships54 days (appendix7) for keeping their stock is very good result especially if selling cars, which are not seasonal and non consumer goods.
A general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by the owner's funds versus the creditor's funds.
A company with 50% gearing ratio (appendix 8) is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are and provides a security as a measure of financial strength.
Sustainable competitive advantages for Honda's big success in their own domestic markets led to experience of economies of scale. This allowed them to achieve a highly competitive cost position used to penetrate into other market -US and Europe. The company puts capital back into production and uses highly automated techniques... built up engineering competencies through the innovation. Another distinguishing characteristic that helped Honda become the leading competitor in its field was the addition of staff members. They employed a large number of designers and engineers compared to their competitors. This shows how strongly they valued innovation. Because their capital is growing Honda's strategy is to locate their plants in around the world. Along with expanding their market, they also put on comparative advertising via aggressive advertising and pricing.
Honda aims to be a leader in car industry by using a encirclement offensive strategy. They attack rivals at all possible sides, and their marketing mix explained below supports that fact. Selling highly advanced cars for competitive prices to all market segments through own distribution channels and aggressive advertising. Their growing position on the market with unnecessary cooperation with rivals could be also due to pre-emptive defence by using advanced technology and developed R&D.
Marketing mixEven though today's market is highly competitive Honda's product life cycle identifies growth stage (appendix 8) (http://world.honda.com/timeline/auto/) they are generating higher revenue by selling more and more units. These good results reflected in market segmentation strategy to find the existing gap. Launching hybrid fuel car and other innovation made to their cars meet client's needs for quality, functionality. Customers are very price sensitive, therefore, Honda produces as much as they can even if the demand is lower just to deliver good product for an affordable price. The company produces cars around the world which are available at the right place, at right time, in the right quantities. Moreover, not relying on distributors to sell their product represents an efficient trading process and helps gain consumer loyalty and confidence. Already motioned above, Honda strongly relies on an advertising strategy that tries to create the best image of all.
HONDA should use their competence sand capabilities gained through all these year for further market growth, as people need cheap but safe and technologically advances cars.
Ã¢ÂÂ¢As for their capabilities they should use opportunities mentioned aboveÃ¢ÂÂ¢Invest in technologyÃ¢ÂÂ¢Develop innovation which is hard to copyÃ¢ÂÂ¢Expand, build new plantsÃ¢ÂÂ¢Increase they capital buy investing in additional sourcesÃ¢ÂÂ¢Invest in people- engineersÃ¢ÂÂ¢Invest in R&DINTERNAL ANALYSIS: BMWBMW, which stands for Bayerische Motoren Werke, is a luxury car manufacturer. The headquarters of the BMW group is in Munich, Germany, but the company is present all over the world (BMW Group). The company built high brand equity over the years through continuous branding efforts and high quality products. With the three brands, BMW, MINI and Rolls-Royce Motor Cars, the BMW Group has targeted the premium sector of the international automobile market.
The value chain links the value of activities of BMW with its main functional parts. The company states that it knows how to use its strengths with an efficiency that is unmatched in the automotive industry (source: http://www.bmwgroup.com) Employees use the most modern technology to create customized automobiles and motorcycles from thousands of parts. According to Prof Michael Porter looking at the primary activities of the company such as research and development, technology development, sales, marketing and service BMW ensures a very high quality for all its products and services. The company's phenomenal success is proof of this strategy's precision (source: http://www.bmwgroup.com).
Considering BMW value chain it is important to look at BMW's value system. Porter stated that the organisation is part of wider system of adding value. Due to the limited size of this paper and the complexity of value chain and value system, Key Factors for Success analysis can support this section.
Core competencies and capabilities are a group of production skills and technologies that enable BMW to provide a particular benefit to customers. Consumes perceive BMW as a high quality and reliable car producer. BMW guarantee this by employing 70,000 workers in the production process ensuring that every customer receives his tailor-made vehicle on time and with a high quality. Looking at competitors differentiation BMW deliver sporting and dynamic performance combine with great design and exclusive quality, resulting in the unique appeal of BMW automobiles. The company also provides extendable services going beyond those currently available. Along with its automotive concerns, the BMW Group's activities comprise the development, production and marketing of motorcycles, as well as comprehensive financial services for both private and business customers:Brand Anatomy and Brand Architecture.
Product Functions BMW creates high quality automobiles with both sporting and dynamic performance combine with superior design and exclusive quality. The brand offers design specification, product features of good quality level creating a strong brand. BMW embodies the core benefit of "fast and mean status symbol" (Frances Brassington & Stephen Pettitt 2003) providing larger engine, sexy design, leather upholstery, electric gadgets such as digital navigation system, built in CD player all of this available in attractive colours such as black or red metallic paint.
BMW Core brand values are represented as joy, dynamic, cultured and challenging.
In today's world, individualism wrestles with insidious conformity. BMW brand provide an identity, along with a set of surrounding emotional values, which slowly infuse themselves throughout the collective unconscious of consumers. (The Chartered Institute of Marketing 2003)Customer Feelings BMW is perceived as Quality Company and therefore seen as producing quality products. As a result, it is accepted among customers that BMW might charge higher prices. (Appendix 10 Brand Quality Ratings)Boston Consulting Group MatrixIn order to analyse BMW position in the market it is worth analyse it position employing BCG Matrix. (Appendix 5) With a market capitalisation of almost euro 25 billion, the BMW Group stays in fifth place amongst the world's car manufacturers (source: BMW financial reports www.bmw.com)Based on the external challenges, opportunities and potential future trends in the industry BMW should consider technological innovations (R&D) looking at government policies concerning environmental issues. BMW should consider product innovation to reduce toxic emissions and to develop more efficient engines such as full cell technology which will replace standard car engines.
BMW should consider all opportunities outlined under the Telescopic observations framework and take advantage of its strengths.
Looking at the macro environment BMW should carefully examine world sales of cars, customer's behaviour and shift in economy such as interest rates.
For BMW to stay ahead in terms of competition and remain gaining market share, the company should understand the increasing weight in the global automotive market in developing countries and emerging markets. Collaboration between companies should be maximised in order for BMW to remain competitive and create strong links with suppliers due to soaring prices for steel, aluminium, precious metals and plastic. Cross boarder alliances and mergers should be considered by BMW in order to draw near to the Asian car manufacturers.
References:The University of BimighamCase Study: The Global Car IndustryHONDA Websitehttp://www.honda.com/sBMW Websitehttp://www.bmw.com/The EcomistEconomist, The World in 2007 21st Editon 2007BBC Newshttp://news.bbc.co.uk/1/hi/businessBibliographyLynch, Richard (2006) Corporate Strategy 4th Editon FT Prentice HallBrassington, F Pettit, S (2003) Principals of Marketing 3rd Edition FT Prentice HallLipczynski, J. Wilson, J. and Goddard, J. (2005) Industrial Organization, Competition, Strategy, Policy 2nd Edition, Harlow, FT Prentice HallWorthington, I. and Britton, C. (2003). The Business Environment - 4th Edition Prentice HallHuczynski A & Buchanan D (2004). Organizational Behaviour - 4th Edition. Prentice Hall.