Abstract
The automotive industry contributes significantly to the growth of the economy. In the UK, governments like the industry consider the industry important from some of the benefits it generates, like creating jobs for the economy. The macro-environment analysis significantly helps identify the external factors affecting the automotive industry performance. The paper is on a report that ascertains the PESTEL Analysis and Porter’s Five Forces Analysis. PESTEL stands for P-political, E-economic, S-social-cultural, T-technological, E-environmental, and L-legal factors. Porter’s Five Forces include the bargaining power of suppliers, bargaining power of buyers, the threat of new entrants, threat of substitutes, and competitive rivalry.
Introduction
The automotive industry in the UK entails a wide range of organizations and companies producing motor vehicles both domestically and globally. Most governments in the world consider the automotive industry as important in the revenue generated. According to SMMT, in 2019, the automotive industry in the UK generated 78.9billion Euros revenue. The industry contributes both directly and indirectly to economic growth. Many individuals depend on the industry in terms of employment that cuts across different professionals engaged in manufacturing, designing, engineering, and supplying products. Most of the automotive industry have considered producing electric cars as an alternative after pressure from the government on environmental sustainability. The UK government has a goal of ensuring zero-emission by 2050. Since the transport sector contributes significantly towards carbon emission, efforts through the government have been implemented. The demand for cars will increase immeasurably because of the increase in the purchasing power, increased population, increasing standard of living across the world, and stringent government regulations like reduction of carbon emission.
PESTEL Analysis
Political Factors
The UK government has implemented emission policies to mitigate climate change. The automotive industry significantly increases the carbon footprint considering that some populations use either petrol or diesel fuels, which produce several environmental pollutants after burning. In 2020, the UK government publicized the ambitions to limit the sale of cars powered by diesel or petrol by 2030 and by 2050, there is an anticipation that all cars should emit zero carbon. Such a plan by the government forces manufacturers in the UK to produce sustainable cars, including hybrid and electric.
Driving cars is considered, and as a result, most governments worldwide implement safety measures to protect the passengers. The government requires vehicles to have seatbelts for passengers’ safety in the UK. According to a report released by Robert Gifford of the Parliamentary Advisory Council for Transport Safety Charity in 2009, the seatbelts had saved 35,000lives over the past 25years (“BBC NEWS | UK | Hundreds ‘die without seatbelts’,” 2009). As a result, travellers are convinced enough on using seatbelts either when using public or private means of transport.
Economic Factors
The manufacturers have their market both domestically and outside the world. Most of the manufacturers’ economies have already established themselves have growing disposable incomes, including the developing countries. When consumers have more income in their pockets, they become willing to spend on electronics and automobiles, especially the luxuries. As a result, manufacturers in the UK have benefited significantly, generating revenue through a tax on exports.
Socio-Cultural Factors
The popularity of driving has been growing immensely over the years worldwide. In developed countries like Europe, Canada, and America, owning one or more vehicles is a norm in most homesteads. It is also turning into a norm in developing countries because most economies are growing.
Technological Factors
Technological advancement in the automotive industry improved safety in various ways. For example, the rolling out airbags across many models usually safeguards many lives in case of an accident. The adaptive cruise control technology controls the braking and acceleration by monitoring the objects on the road (Mahdinia et al., 2020, p. 254). The adaptive cruise control, as a result, improves the driving experience by making it comfortable and safe. The blind-spot monitoring technology with sensors mounted on the bumper or the side mirrors helps detect vehicles on the adjacent lanes enabling the driver to switch between lanes safely. If the sensors detect something, the driver becomes alerted through either an audible or visual warning.
Environmental Factors
As stated earlier, climate change mitigation gained global attention to make the environment sustainable over the past years. Most of the population in the UK possess fossil fuel vehicles because of their affordability compared to electric cars. Fossil fuel vehicles contribute significantly to the global warming effect of severe droughts and hotter temperatures. The research conducted in 2021 showed that the UK’s transport sector contributed 27percent of the total emissions in 2019 (“Transport and Environment Statistics: Autumn 2021,” 2021). By 2030, the UK government aims at banning new petrol and diesel vehicles. The plan forces all the manufacturing companies in the automotive industry in the UK to consider an alternative of producing electric vehicles, which depends on power batteries.
Legal Factors
Copyright issue sounds uncommon in the automotive industry, but related challenges often emerge. The automotive brands usually protect their market image through patent laws and trademarks to limit rivalries from imitation. Rolls Royce brand once claimed imitation from a Chinese brand Geely that, resulted in conflict. As a result, most manufacturers aim at protecting their brand through employing advanced technologies in the production unit.
Porter’s Five Forces Analysis
Bargaining Power of Buyers
Among the factors determining the bargaining power of buyers in the automotive industry includes the frequency of purchase, number of buyers, and the purchase size. In the UK, numerous automotive manufacturers exist, meaning buyers can switch from one brand to another. Some of the automotive brands in the UK include Land Rover, Rolls Royce, Jaguar, Bentley, and Aston Martin, among others. Besides, the UK imports foreign brands in the market. The buyer’s decision depends on the market prices, quality, appearance, and environmental effect. Based on the stated factors, customers can switch from one brand to another if the brand meets the requirements and preferences. Because of the numerous alternatives based on the requirements and preferences, the bargaining power of buyers in the automotive industry is strong.
Bargaining Power of Suppliers
The bargaining power of supplies depends on replaceability and the number of suppliers in the market (Guida et al., 2021, p. 100701). The immense advancement of technology in the automotive industry enables suppliers to gain larger economies of scale, hence gaining power. Notably, the bargaining power of suppliers might become moderately strong as the number of suppliers increases. For example, countries like Singapore and China had joined the market, unlike before where Germany, England, and Japan were the common vehicle manufacturers.
Threat of Substitutes
The threat of substitutes depends on customer acceptance, affordability, and technology advancement in an industry (Reitz et al., 2020, p. 3). In the automotive industry, the threat of substitution results from the economic considerations and environmental factors that make customers prioritize greener and cheaper alternatives. As stated earlier, the automotive industry in 2019 contributed 27percent of the total carbon emissions in the UK. Notably, most percentage of the population in the UK understands the concept of sustainability, and therefore, they are ready to take more environmentally friendly alternatives. However, the same automotive companies provide alternatives. In this case, the intensity of the threat of substitutes is weak, making the industry more profitable.
The threat of New Entrants
Entrants in the market are influenced by the strength of the existing firms and financial entry. The automotive industry requires massive investment attributed to various factors. For example, the manufacturing plant is expensive, and the technology is required. However, the UK government remains supportive through providing investment aid and grants to the investors. The support by the government makes the intensity of the threat of new entrants weak. As a result, the automotive industry in the UK is likely to become even more competitive and profitable with time.
The intensity of Competitive Rivalry
Factors affecting the competitive rivalry include the number of competitors, the frequency of the new products introduced by the competitors, and brand recognition of the competitors (Galvin et al., 2020, p. 120253). Mergers and acquisitions remain the key factors suppressing fair competition in the automotive industry. The alliances formed between the automotive industries usually reduce the number of market firms. Few firms in the market mean they have power over prices. In the UK, alliances have been formed, for example, between Fiat Chrysler and Peugeot. The alliances formed usually focus on sharing the production cost, strengthening the brand’s image in the market, or introducing a new product. Fiat Chrysler and Peugeot allied to endure an industry engrossed by technological change. By suppressing competition, the automotive firms manage to profit, but the industry itself is unattractive.
Corporate Social Responsibility
Environmental Sustainability
Carbon emissions from vehicles result in air pollution associated with adverse effects on human health and other living things. As stated earlier, in 2019, the automotive industry represented the 27percent of the carbon emission released. The UK government implemented measures to ensure environmental sustainability in the economy. For example, the government has accelerated the uptake of zero-emission vehicles in the economy. Different brands in the UK like the Jaguar Land Rover have adopted producing electric cars, and demand by buyers is on the increase. Besides, the UK government has set goals to shift individuals from private cars to public vehicles or walk and cycle as a natural first choice in travel. The UK government offer support in the automotive industry in various ways. For example, the government over the years funds research and development in the automotive industry mainly for brands to produce high-performance products that reduce environmental impact.
Social Sustainability
The social sustainability pillar assesses the firms’ engagement with the stakeholders like customers, employees, and the local community. Besides, the pillar is concerned with human rights, diversity and inclusion, community impact, and health and safety. In the UK, automotive firms remain focused on social sustainability to maintain the brand’s reputation in the market. In the UK, the automotive industry has a strong presence in the labour unions in ensuring that employees perform in good working conditions. Besides, representation in the labour union ensures employees’ compensation and benefits are required hence limiting workers from exploitation.
Economic Sustainability
Economic sustainability implies safeguarding resources to create long term sustainable values through recycling, recovery, or optimal use. The automotive industry in the UK ensures supply chain sustainability by adopting environmentally conscious operations in warehousing, distribution, logistics, and inventory management. Besides, the majority of the automotive firms in the UK usually encourage consumers to return parts and vehicles for appropriate disposal. Besides, the industry supports a circular economy mainly to maximize resources by being regenerative and restorative by intention and design. The system favours material reuse instead of traditional manufacturing, which involves taking, making, using, and disposing of.
Conclusion
The macro-environment analysis refers to the external factors affecting industry operations either negatively or positively. Under the PESTEL analysis, one of the political factors identified involved the government policy on imposing seatbelts for safety purposes. Besides, the government ensures no new diesel or petrol vehicles will gain access to the market by 2020. As a result, most automotive companies in the UK in the 21st century are focusing on producing electric vehicles. The economic factor on the increase in the disposable income of the consumers poses a positive impact on the automotive industry. When consumers have more money in their pockets, they become more willing to spend on luxurious items. The social factor identified with a positive impact involves most of the population, especially in the developed countries owning one or more vehicles is treated as a culture. Besides, it has been adopted as a culture in the high developing countries. Technologies like adaptive cruise control, electronic blind-spot assistance, and parking assistance significantly improve buyers’ safety. The environmental factors usually result in pressure to the automotive firms from the imposed stiff regulations by the government like a zero-emission target by 2050.
The government requires the automotive firms to improve the manufacturing plants for efficiency in producing electric cars. For some companies, the project might be expensive. Imitation between brands creates conflict, like the Chinese brand Geely imitating Rolls Royce Phantom. Strict measures like penalties act effectively on limiting imitation, and as a result, a firm remains capable of maintaining a good reputation. Mergers and acquisitions remain a threat to limiting fair competition in the automotive industry. When sellers become few in the market, they usually acquire the power to set prices because buyers’ alternatives are minimal. The UK government offer support to the automotive industry for research and development. The funding reduction costs makes an entrance into the market easier, and as a result, the threat of entrants in the automotive industry is weak. Corporate social responsibility in the automotive industry is highly valued for maintaining a positive reputation. The automotive firms have collaborated on ensuring zero-emission by 2050 in the UK.
References
BBC NEWS | UK | Hundreds ‘die without seatbelts’. (2009). BBC News. https://news.bbc.co.uk/2/hi/uk_news/8197875.stm
Galvin, P., Burton, N., Singh, P. J., Sarpong, D., Bach, N., & Teo, S. (2020). Network rivalry, competition and innovation. Technological Forecasting and Social Change, 161, 120253.
Guida, M., Moretto, A. M., & Caniato, F. F. A. (2021). How to select a Supply Chain Finance solution?. Journal of Purchasing and Supply Management, 27(4), 100701.
Mahdinia, I., Arvin, R., Khattak, A. J., & Ghiasi, A. (2020). Safety, energy, and emissions impacts of adaptive cruise control and cooperative adaptive cruise control. Transportation Research Record, 2674(6), 253-267.
Reitz, R. D., Ogawa, H., Payri, R., Fansler, T., Kokjohn, S., Moriyoshi, Y., … & Zhao, H. (2020). IJER editorial: the future of the internal combustion engine. International Journal of Engine Research, 21(1), 3-10.
Transport and Environment Statistics: Autumn 2021. (2021). statista.com. https://www.gov.uk/government/statistics/transport-and-environment- statistics-autumn-2021/transport-and-environment-statistics-autumn- 2021#:~:text=Data%20sources&text=Transport%20produced%2027%25%20of%20the,tr ansport%20vehicles%20(111%20MtCO2e)
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