Strategy Management in Car Industry Research Coursework (Coursework Sample)

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Strategy Management in Car Industry
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Introduction
Strategic management is important for all businesses because it is through it that businesses can grow (Freeman, 2010). Through strategic management, businesses can set priorities, strengthen organizational operations and plan how to use resources without waste. In addition, strategic management can help businesses increase communication efficiency. It is only through efficient communication that employees and employers can work towards a common goal (Sadler & Craig, 2003). Strategic management helps businesses to forecast trends, which is an integral part in making business decisions. External and internal environments of a business are subject to change (Schmid, 2008). It is important for a business to be flexible enough not to be negatively affected by any change. This means that through strategic management, businesses can make sound business decisions. It helps businesses understand the market. Furthermore, strategic management can help a business know if the business decisions are successful or not.
The only way that businesses can survive and make profits in the market is by having a competitive advantage over other similar businesses (Jobber, 2010). It is fundamental for businesses to achieve a competitive advantage by improving organizational performance through strategic management (Thompson & Martin, 2005). Businesses that have a competitive advantage over other businesses are those that have a high brand loyalty. It is important for businesses to not only have superior products but also have effective management procedures that help the businesses achieve their core objectives (Parasuraman, Grewal, & Krishnan, 2007). It is impossible for businesses to have a competitive advantage without having a strong management technique.
Businesses can achieve a competitive advantage by applying a series of strategic management tools. These include SWOT analysis, value chain analysis, Porter’s Five Forces analysis, BSC (balanced scorecard), BCG growth matrix (Boston Consulting Group) and Porter’s Generic Strategies (Rothaermel, 2013). Application of the different tools of strategic management depends on company objectives and mission. This paper will focus on two strategic management tools i.e. Porter’s Five Forces and Porter’s Generic Strategies. Furthermore, this paper will focus on Volkswagen as an example of how a business can use the two strategic management tools to achieve competitive advantage i.e. Porter’s Five Forces and Porter’s Generic Strategies.
Porter’s Five Forces
The Porter’s Five Forces strategic management tool can enable a company to have a competitive advantage in the market (Hill & Jones, 2010). Factors that bring about competitive advantage include acquisitions of competitor businesses, operational efficiency, excellent management structure, mergers, expansion of business and maintaining a good organizational structure (Johnson, Whittington, Scholes and Angwin, 2013). Furthermore, it is important for companies to use political and social factors that influence the market to their advantage. Michael E. Porter created the Porter’s Five Forces. He was a professor and graduate of Havard. He outlined the five forces in his book “Competitive Advantage: Techniques for Analyzing Industries and Competitors” in the year 1980. In his five forces model, Porter argues that in order for a business to manage its operations in a strategic manner, it is fundamental that the business analyses its competition. A careful and deep analysis of the competition will enable a company to study the threat of new entry of other companies offering the same product or service (Roy, 2009). In addition, the company can also gauge the bargaining power of suppliers and buyers. There is also a threat of substitution. This occurs when customers prefer to buy products from one company and not another. Investigating rivalry among competitors is important because it will give a company an idea of how to beat the competition and gain a competitive advantage over the other companies in the market. Porter’s Five Forces Model helps companies identify company weaknesses and strengths in regards to how they deal with competition (Hill & Jones, 2008). It is important for a company to be strategically organized so as to achieve operational efficiency.
Volkswagen
Volkswagen is an automobile company that makes the top of the list as one of the largest car manufacturers in the world. As one of the largest car manufacturers, Volkswagen has over 590,000 employees. In addition, the company operates in more than 31 countries worldwide (Volkswagen, 2015). As one of the largest car manufacturers, the company also generates large amounts of revenue every fiscal year. In the year 2014, the company made sales revenue of €9.6 billion. This translates to a 12.5% profit increase compared to the previous year in the year 2013. The company sold 396,000 automobiles in 2014 (Volkswagen 2015). The company’s mission is to provide safe, eye-catching and affordable cars to the population. In addition, the company ensures that all the cars manufactured in the plants are environmental friendly.
Competitive Rivalry
Competitive rivalry is one of Porter’s Five Forces. The competitive rivalry describes the degree to which rivalry exists in the market. In a market where companies offer the same product or service, stiff competition will thrive (Ferrell & Hartline, 2014). A marked that is flooded with similar companies will often experience price wars. Many companies engage in price wars, often lowering their prices and improving their product performance in order to attract customers (Ryan & Jones, 2012). In a situation where companies are offering superior products at competitive prices, one company may experience a shift in the balance of power. It is important for companies to maintain their product quality at competitive prices because it is easy for customers to shift their loyalty to another company. There are situations where companies have little or no rivalry. In such a situation, the company becomes a monopoly. This means that it can change prices at will without the fear of losing customers because there are no other companies that offer the same product or service (Ranchhod, Gauzente, & Tinson, 2004). Competitive rivalry is high when companies that offer the same product and are akin in size function in the same market. The companies may apply the same type of market strategies and their products may have similar characteristics. In addition, competitive rivalry is high when companies experience slow growth and there are high barriers that prevent the company from exiting the market.
In the automobile industry, competition rivalry is very high. What makes competition strong and stiff in the automobile industry is the fact that big companies that manufacture cars have similar market industry share. In addition, the companies have similar performances and strategies. The sales volume of cars is also similar. In order for Volkswagen to have a competitive advantage over other industry players, the company must gain a larger market share by ensuring that they produce cars that will appeal to prospective buyers. This will enable the company to achieve customer loyalty. The fact that there is a limit in differentiation by industry players means that the products are similar and hence competition is high. According to Porter (1980), when there is a lack of differentiation in an industry, competition is stiff because prospective customers will make decisions based on price and after sales services. Some of the products that companies in the automobile industry manufacture are sports utility vehicles, urban model cars and low consumption energy vehicles. This means that the products are similar.
Threat of new entrants
The fact that new companies can enter the market and start production is a threat to existing businesses. It is important for existing businesses in an industry to evaluate and ascertain this threat because it may impede sales revenues. In the automobile industry, the threat of new entrants is low (Henry, 2011). This is because the industry has been operating for a very long time. this means that companies that were established when the industry was small have higher economies of scale. For a company to successfully enter the market, it has to achieve an economy is scale in a short period (Porter, 1980). An effective strategy to achieve higher economies of scale that are used by Volkswagen is producing vehicles in a large scale. Volkswagen produces vehicles through mass production, which ensures that the prices are affordable to the customer. It takes high amounts of capital to start an automobile company (Volkswagen, 2015). This means that not many companies can invest in the market. Research and development costs are high. This means that it is costly to operate an automobile company.
Bargaining power of suppliers
Suppliers’ bargaining power means the capacity of suppliers to increase prices of products without obstructions (Viardot, 2004). In addition, it also means the capacity of suppliers to diminish product quality at will. When suppliers aim to reduce product quality or increase the price of supplies, this can cause a substantial threat to existing companies. In the automobile industry, suppliers have a low bargaining power. The reason for this is that the automobile industry has a large number of suppliers. According to Bidgoli (2010), when there many suppliers in an industry, their bargaining power is low. The automobile industry has many suppliers because there are many products that are used to make automobiles. It is easy for car manufacturers to switch to ...