PESTEL analysis of the automotive industry in United Kingdom - Essay Example

?PESTEL ANALYSIS Introduction The essay elaborates PESTEL analysis of the automotive industry in United Kingdom (UK). Ford Motor Company is a Multinational automotive company which is headquartered in United States. It decides to expand its market by setting up a manufacturing base in UK. The essay thus elaborates the macro economic factors which will affect the business of Ford in UK. 1. PESTEL ANALYSIS PESTEL Analysis is a “strategic planning technique that provides a useful framework for analysing the environmental pressures on a team or an organisation” (Leontiades, 2005). It elaborates the macroeconomic factors that are used to scan the environment before taking any strategic decision in an organisation (Mercer, 2008). PESTEL stands for: P- Political; E- Economic; S- Social; T- Technological; E-Environmental; L- Legal. The few constituents of PESTEL of the automotive industry are as follows: The firms should be aware of the political factors like the trading policies, governmental changes in rules and regulations of the production of cars which includes safety standards and fuel emissions. Economic factors influencing business includes taxation policies, economies and trends, trade cycles and exchange rate and interest rate changes (Thompson, 2001). Cars are the polluting agents which pollute the environment to such an extent that it can be dangerous to the society and large emission of harmful gases can even lead to diseases. Cars manufactures are introducing Alternative Energy Vehicles that use only electricity and has rechargeable battery (Booz, 2008). The challenges that are faced by the automotive industry are that it is very expensive and this will be the solution for lowering pollutants. Environmental pollutants have been the basic challenge for this industry which is threatening the automotive industry worldwide and thus they should pay attention to the alternative energy vehicle (Ferrel, 2012). The firm should always comply with all rules and regulations that are levied on car manufacturing , such as safety and standard issues, gas emission laws, vehicles regulations, etc (Mercer, 2008). 2. Trend forecast for 2016 Fords Motor Company, an automobile giant has it’s headquarter in United States. It has expanded its market in many countries like Japan, India etc. Ford has been suffering from many hurdles which are affecting the business. The challenges are coming from the macroeconomic environment and it has threatened their existence. PESTEL analysis has been done to identify the factors that are affecting the existence of the automotive company (Craik, 2013). The following are the challenges that are faced by Ford and their future planning till 2016 so that they can overcome the challenges: 1) The rising price of oil has made customers less automotive friendly (Ferrel, 2012). Ford has been doing technological adjustment which is helping them build a modern standard in the present outline. By 2016 it will reach its destination by creating such technologies which can even give the solution for using expensive oils. In many countries, the financer of the organisation has been playing a crucial role in the development and the progress of the organisation (Ferrel, 2012). 2) Accelerating growth in the developing countries is very difficult and thus attaining customers is near to impossible. But Ford has targeted a potential market to penetrate with its motors and thus give them a changed phase by the year 2016. 3) The sale of Ford was also affected by the types of motors that are being used by the people. But when the income of the mass is elevated to that position that they can pay attention to own a luxury car the sale of Ford has increased (Burrow, 2011). For the future development Ford concentrate on developing low priced cars so that it can be afforded by the mass (Sturgeon and Biesebroeck, 2010). 4) Consumer preferences changes from time to time (Miller, 2012). Their taste and likings are not stagnant for all time. They try to experience new brands and that affects the sales of the existing brand. Ford has also faced this challenge. 3. Problems that will be faced by Ford Motors Company on making manufacturing base in UK UK has a number of automobile companies which has been successfully doing business worldwide. From premium, commercial vehicles to sports cars UK have flourished at every division. But the automotive industry has faced a lot of problems due to certain macroeconomic factors (Craik, 2013). If Ford Motor Company wants to open the manufacturing base in UK it has to go through the same problems which are as follows: Risk The European Environmental Minister has given the order to the European Automobile Manufacturer’s Association to cut down the CO2 emission for the coming 10 years. This indicated to the fact that the vehicles should be reduced until and unless the automobile manufacturers come up with a solution that can reduce the emission of CO2. Thus Ford Motor Company can face problem in the UK market. Government protection is being up lifted from many of the UK based automobile firms that indicates a bad signal for the automotive industry and to Ford also if it opens its base in UK. The UK market has the expertise in the sector but what is needed is the proper training and development. This needs time and changes. For that changes government support is must but in UK government does not support these automobile companies and have even decided to impose different restrictions so that the emission of CO2 reduces (Sturgeon and Biesebroeck, 2010). In UK market supply of the motors exceeds the demand of the motors and thus 80% of the automobiles are being exported to different parts of the world. The reason for lesser demand of motors in UK is that the residents have to pay huge taxes on the emission of CO2. Thus affects the automotive industry in UK. UK market is the oligopoly market for the automobiles (Booz, 2008). There are many tough players in the market which will be a challenge for any new manufacturing automobile base. Thus if Ford opens up its base in UK it may face loss because of this competition (Miller, 2012). Cost The UK market has seen a lot of technological up-gradation from 2011 but many automobile companies are yet to adopt them because of the huge expense. The banks in the UK market have been reluctant to give loans to the automobile companies because of their poor performances. The automobile companies in UK rely on international exports and thus their sales in local market do not fetch them enough confidence. Thus manufacturing base in UK of Ford Motor Company will not be a wise decision (Johnson, 2009). The technological advancement has been noticed in UK but are adopted by few companies because it brings with it huge cost. There is also the risk of losing huge money if those technologies fail to draw sales to its adequate amount. The economic recession that has hit the UK market has led to the closure of many automobile companies (Johnson, 2009). The companies could not cut on their cost and thus they raised the price of the motors which did not encourage the mass to buy. Globalization has also created problem for the automobile industry in UK as the mass of UK preferred lower priced cars and thus they are more interested in buying imported cars. Product development in UK is not at all cheap (Burrow, 2011). Thus many automobile companies have lost their market because they are not able to concentrate on the product development (Craik, 2013). Another problem that is faced by UK automobile manufacturers is the problem of suppliers. There are few suppliers who can be relied upon to give timely delivery of raw materials. They often delay their delivery and as result the production comes to halt which affects the sales of the company (Booz, 2008). Since there are few reliable suppliers in the market, the power of the suppliers rises and thus they do not concentrate on delivering the materials to the companies at the right time (Craik, 2013). The challenges that are faced by the UK market are forcing them to do market research. The automobile industry is not able to able to understand the taste of the mass so they are losing sales. They cannot distinguish the parts on which the consumers are indifferent and those which are preventing them to make their brand a unique one in the market. They had to differentiate their products in such a way that they can tap the UK market in such a way that the customers become brand loyal. It can only be done by providing them with affordable price and good product quality (Booz, 2008). Reference List Booz, A., 2008. Challenges facing the global automobile industry. Insight, 1(1), pp. 4-7. Burrow, L., 2011. Principles of business. Connecticut: Cengage Learning Inc. Craik, D., 2013. Car industry gearing up for a ? 2 billion injection. Express, 24 June. Ferrel, H., 2012. Marketing strategy. Connecticut: Cengage Learning Inc. Johnson, G., 2009. Exploring corporate strategy. New Jersey: Pearsons education Limited. Leontiades, J., 2005.Multinational corporate strategy: Planning for world market. New York: Lexington Books. Mercer, D., 2008. Marketing strategy: The challenge of the external environment. London: Sage Publication. Miller, R., 2012. Modern principles of business law. Connecticut: Cengage Learning Inc. Sturgeon, T. and Biesebroeck, J., 2010. Effects of the crisis on the automotive industry in developing countries. The World Bank, pp. 16- 29. Thompson, J., 2001. Understanding corporate strategy. London: Thompson Learning. Read More