External Environment Analysis

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Running Head: EXTERNAL ENVIRONMENT ANALYSIS

Automotive Industry External Environment Analysis

Industry related with Target Business
The industry in which my target business can be classified is automotive industry. Over the past decade, the automotive industry has become one of the best growing industries all over the world. The auto manufacturing industry is highly capital and labor intensive. The main areas served by auto parts in manufacturing are:
• Original Equipment Manufacturing
• Replacement Parts Production and Distribution
• Rubber Fabrication
Industry Environment - Porter's Five Forces Model
The Porter's 5 Forces Model assumes that in an industry there are five important forces that determine its competitive power in a situation. This model can also be used to analyze the US automotive industry in the following manner:
• Threat of New Entrants: In automotive industry the threat of new entrants is low and this is because of mature market. Economies of scale have been reached and in addition to this for entering the market massive amounts of money are required. Personal consumption in the industry is declined from 4.5% to 2.9% (Kim, n.d.). Access to distribution channels is another high barricade to enter the industry. Due to all this reasons the threat of new entrants in the industry is low (Highfill, Baki, Copus, Greem, Smith & Whineland, 2004).
• Suppliers Power: Bargaining power of suppliers in automotive industry is low and this is because of the fragmentation of the automobile supply business. Most of the industry suppliers depend upon one or two automakers to purchase a majority of their products (The Industry Handbook: Automobiles, 2010). In the industry if an automaker determines to switch suppliers, it could be distressing to the former supplier's business. Consequently it can be said that suppliers are exceedingly susceptible to the demands and necessities of the automobile manufacturer and they have very little power (Industry Analysis: The Five Forces, n.d.).
• Buyer Power: The bargaining power of automakers was neutral previously but with the increase in the number of automakers to select from, the power of buyers has gained potency (Gillette, 2003). Also, buyers groups purchase industries products in large amount and there is no switching cost between manufacturers (Everett, 1997).
• Threat of Substitute Products: In automotive industry there not too much substitute products for automobiles. Some of the substitutes are walking, riding bike or taking a bus or train. Substitutes products all rely upon the geographic location of the consumer (Automotive Industry Analysis, 2005). In some cities like New York or Chicago, a car is not as essential and in some cities the subway is the most effective means of transportation. The availability of substitutes also depends upon the time, money, personal preference and expediency in the auto travel industry (Highfill, Baki, Copus, Greem, Smith & Whineland, 2004).
• Competative Rivalry: The intensity of competitive rivalry is very high in automotive industry. Although the industry is usually an oligopoly, with a couple of large suppliers but the overcapacity of the market had induced the competition to heighten as the automakers fight over fewer customers (Jain & Garg, n.d.). In the industry there are several and evenly balanced competitors. Throughout the industry there are high fixed costs and switching costs are low (Fiat & GM: The Troubles Alliance case Study, 2009).
PEST Analysis
• Political: Since 1960 a number of laws and regulations have affected the industry. Most of the regulations are due to the consumers increasing pertains for the environment and for safer automobiles. The first safety act that increased regulations was the National Traffic and Motor Vehicle Safety Act (General Motor's Strategic Analysis, 2008). Safety concerns are not the only concerns as there is also a growing concern for the environment. In this concern the Vehicle Air Pollution and Control Act was passed in 1965. This act regulated standards for automobile pollution and subsequently the Clean Air Act was passed that demands 90% decrease in automobile emission (Fiat & GM: The Troubles ...