The assessment covers the following questions:
- Identify the important forces which helps in shaping the global business environment and generate an understanding of the changing global business environment.
- Implement suitable business models (Porter’s Diamond, Value Network, Five Forces, etc.) in the context of an international environmental analysis (PESTEL)
- Business environment is the sum total of all the things that impact business working. Identify and critically evaluate the reasons why organisations engage in international trade.
- Demonstrate markets in action, Discuss their microeconomic and macroeconomic foundations, different market structures and their impact on firm strategy, long-run and short-run changes, and major features of the current international economy.
Businesses while functioning in an environment are affected by various internal and external factors which affect the way in which they operate and carry out their functions and also affect the sustainability and competitiveness of the business in the marketplace. It helps the company in analysing the way in strategies can be formulated so that the negative effects of the changing environment can be dealt with in an efficient manner so that it can continue to exist in the market and attract customers so that the company profits can increase. In this report Volvo cars is taken is owned by the Chinese multinational automotive company Geely and has its headquarters in Sweden. The company manufactures luxurious cars for its customers so that they can be provided with unique and innovative features (Brunner and Rechberger, 2016). In this report impact of environmental factors on car manufacturers will be studied using the PESTLE model and Porter's five forces. Further reasons of why companies engage in global trade are identified along with the opportunities which are available for electric car manufacturers.
Major forces which impact car manufacturers and associated industry
The automotive sector is one of the fastest growing industries in many parts of the world which helps in increasing the GDP of a country along with providing employment opportunities to the people of that country. In Europe this sector employs about 15 million people which accounts to about 6.1% of the total employment. Volvo cars which is a Swedish multinational company dealing in the manufacture of luxurious vehicles is aiming at producing electric vehicles for its customers which will help in meeting their current and future demands. Electrification of cars is an important step towards protecting the environment from the increasing amount of pollution due to combustion of fuels and also saving them from getting extinct from the earth. The company has announced that all the cars that it will offer after 2019 will be electrified so that the customers demand can be efficiently met which will help in increasing the company sales (Cantrill and Oravec, 2015). However, the company will be influenced by various forces that exist in the business environment which are explained as follows by using the porter's five forces model:
Porter's five forces model was given by Michael porter which helps in identifying the five competitive forces that affects the business and their existence in the industry. This model help in formulation of such strategies so that the competition can be well dealt with which increases the sustainability of the company in the industry. In the context of Volvo cars this model can be used so that the competitive forces which affect the company can be identified which will help it in dealing with the competition and achieving the company goals and objectives on time.
- Rivalry : These are the existing companies in the market which gives tough competition to the company and also affects the strategies that are formulated by it. An example of competitor of Volvo is Tesla which is a electric car manufacturer and gives tough competition to Volvo for its changed strategy in manufacturing electric cars from 2019 onwards. As the preference of customers towards electric automotive are increasing the competition in the electric car manufacturing industry is increasing (Ciambrone, 2018). For dealing with this the company needs to make its processes efficient so that the cost of manufacturing can be reduced which will help it in offering its car at low prices to customers hence attracting them and increasing their sales.
- Purchasing power of customers : It is the bargaining power of customers at which they are ready to accept the products which are offered to them by the companies. If the number of suppliers of a particular product are more then the bargaining power of customers is more else the vice versa. As the electric car manufacturers are less in number it means that the bargaining power of customers is low which helps the company in offering their products at high prices.
- Bargaining power of supplier: It is the bargaining power at which suppliers are ready to supply raw materials to the car manufacturers. If the number of suppliers ion market are more then their bargaining power is less else the vice versa. As the number of electric car suppliers are more it makes it difficult for the car manufacturers to acquire the raw materials at reasonable prices. This makes the cost of manufacturing these cars high making them expensive to be bought by the customers.
- Substitutes: These are the threat which are posed by substitutes present in the market and can be used alternatively by customers. As the concept of electric cars is new and also it is a sustainable source of energy the threat of substitutes present in the market is low which gives Volvo an opportunity to implement its strategy which is to manufacture electric cars (Hanaysha, 2016).
- Threat of new entrants: It is the threat of new companies entering in the industry which can increase the competition in market as they can offer the same products at lower prices which affects the profitability of the company. At present the threat of new entrants in electric automotive is low as it requires huge amount of investment so as to start the manufacture of electric cars. Also the raw materials that are required to manufacture these cars, the technical employees required along with the technology which is to be used are expensive making it difficult for new companies to enter the industry.
From this model it can be analysed that for Volvo cars the threat of existing rivalries and the bargaining power of suppliers can possess threat to the company and can affect its business.
Critical assessment for organisational changes
As there are increasing advancement in the automotive sector which means that increasing number of changes take place in this industry so as to remain competitive in the market and attract customers so that their profits can increase. Various organisational changes take place in these companies so that they can efficiently deal with the impact which is created by the external environment (Kletz, 2018). PESTLE analysis is done for Volvo cars so that the impact of various environmental factors on the automotive industry can be studied by analysing the political, environmental, social, technological, legal and economical factors can be analysed which will help the company in surviving in the market.
- Political: These are the political conditions that exist in the country which are affected by the rules and regulations of the government like trade tariffs, tax policies etc. As the European government favours low carbon emitting vehicles, it creates a positive impact on Volvo as the company is electrifying its vehicles which will help it in lowering the use of fuels and also decreasing pollution. Also the government has reduced tax rates on the manufacture of electric vehicles which is a positive feature for the company and can help it in lowering its manufacturing costs (Li, Meng and Yao, 2017).
- Economic: These are the economic conditions that exist in the country like the rate of unemployment, GDP rate etc. which determines the purchasing power of the customers in that country. At present the economic conditions of UK are stable which means that the people of UK can afford expensive electric cars. However as the electricity bills will increase to charge these cars and also the increasing recessions and economic crisis might affect the growth of the company in future.
- Social: these factors are associated with the people of the country their age, sex, caste, religion etc. which impacts on their buying behaviour. The living standard of people of UK is high which means they can afford expensive cars which will help in increasing the sales of the company. Also as the people of UK are well educated and aware about the changing environmental conditions they will prefer buying electric vehicles which is also a positive factor for Volvo cars and can help in increasing its sales.
- Technological: These are the technological advancement of the country and the rate at which R&D is done in the country so that new technology can be invented. UK is a technologically advanced country which will help the company in acquiring highly advanced technology at cheaper rates so that the efficiency with which cars are manufactured can be increased (Lieder and Rashid, 2016). This will help Volvo to manufacture its cars with great efficiency which will help it in increasing it sales.
- Legal: These are the laws that exist in the country which governs companies and their functioning in the environment. In UK strict laws are to be followed by the company so that they can function in the legal framework and manufacture safe and secure products for customers. Volvo abides by all the rules which has helped it in becoming a global manufacturer.
- Environmental: These are the environmental factors which affect the companies working in an environment. As the problem of global warming is increasing there is an increasing need for electric motor vehicles which can help in reducing this problem. This is a positive feature for Volvo cars which helps it in manufacturing electric automotive and attract customers thereby increasing its sales.
On the other side, there are various task will be completed to perform their work as per managing work that leads individual to manage the task as per car manufactures. Cost change will be monitored at workplace. It refers that electric cars is a new segment in the market so it is essential for Volvo cars to perform the work in effective manner that leads management to gain high share in market. The main motive to introduce electric car is to save environment from harmful gases.
Reason to drive towards manufacturing of electric cars and it relation with changes that take place in industry
In present scenario, Europe is one of the major manufactures in auto-mobile industry. Further, all vehicles specifically electric cars impact and influence on economy of country in effective manner. Moreover, this sector also undertakes repair, transport, ICT and mobility of services. 7% of overall GDP in the Europe relates with the automotive sector of organisation. The automobile industry is growing with rapid speed as they are producing large number of buses, vans and trucks for each year. On the other side, some reasons related with car manufacturing possess negative impact on the market and its environment. So most of the organisation are more focused to manufacture electric cars rather than existing fuel cars (Ulubeyli and Kazanci, 2018). Like, one of the major reason to shift industry towards electricity because it is totally depend on non-renewable resources. So it is mandatory to save the renewable sources because most of machines are operated with petrol and diesel.
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Another reason to replace traditional cars towards electric cars because it is cost effective as renewable sources is costly. It is also explained it is easy to develop the electricity with the help of water, wind and sunlight. Moreover, the major benefit is that all this resources are renewable and easily available at all places. But in case of fuel such as petrol it is prepared from minerals and oils that are expensive and difficulty available at all place. Further, due to their excessive use the quantity of diesel and petrol is decreasing with rapid speed that directly impact on the cost of products. So with electric cars it is easy for individuals to save their income as electricity rate is low. Along with this individuals also experience new and modern technology in their products.
Identification of new business opportunities available for entrepreneurs of electric cars
There are various opportunities for the entrepreneurs and stakeholders of electric cars are present in market. This opportunity offers new methods and ideas for attracting more interest in electric cars such as innovative technology and good performance cars at low budgets. EV chargers enhances mobility of electric cars and the vehicles that influences customers to purchase the electric vehicles (Victor, 2017). On the other side, with the installation of the electric chargers and the stations, individuals are motivated to purchase electric vehicles because of easy availability of electronic chargers at all places. Along with this, another business opportunity is too operates cafe and restaurant near the Electronic vehicles charging stations. It is because minimum time to charge the vehicle is thirty to forty minutes so this time will be utilised by owner or drivers to relax and enjoy some food. This is also one of the major reason for the Volvo cars to increase the sale of their electric cars. Further, battery and wires business are also profitable business for entrepreneurs that provide business opportunity to entrepreneurs.
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Evaluation of business that relates with automotive industry and not profitable for long run investment
Several businesses are related with global automotive industry such as to deal with their products, paints jobs, tyre business and service sector for organisation. But due to the changes and shifting of industry towards electric cars many business will face the downfall of their shares and income in market. Moreover, the major impact will be monitored on the petroleum business or petrol products. It governs that due to more utilisation of electric cars individuals stop to purchase diesel and petrol for their vehicles due to there is high loose in market of products will be monitored as the sale of products is too low (Villard, Lelah and Brissaud, 2015). Similarly mining business will also be reduced in the upcoming period it is because the demand of fossil fuel will be reduced and they are not demand in high quantity. It impacts on extraction, mining and refining of business in negative manner. Further, to make investment in this business individuals faces too many challenges such as low demand, so with in upcoming years petroleum and mining business are not profitable for organisation.
From the above report, it is concluded that with the proper understanding of business environment of an organisation and industry provides various benefits such as to understand internal and external aspect of business. Auto-mobile industry is shifting towards as a new phase that is change of cars engine from petroleum to electricity consumption. So with PESTLE and Porter’s five forces it is easy to understand the essential aspect of organisation that is impacting on their business. Like cost environment concern and cost effectives are the major benefits that is achieved by industry, organisation and its stakeholders that leads them to earn better livelihood as well as to earn better livelihood for entrepreneurs.