MGMT8041 | Analysis | A Case Study of Holden Motors Strategic Analysis

Answer:

Background of the Study

The Australian automobile industry is one of the prevalent contributors to the Australian financial system with the industry providing high accumulation of revenues. The automobile industry is known to design, develop, and build its own engines, cars and manufacturing several designs for different parts for General Motors. The industry is extremely competitive with big players leveraging their competitive advantage in order to increase market size and complete market shares. The key players in Australian automobile industry include Mazda, Honda, Holden, Nissan and Ford (Ewing, Wagstaff & Powell 2013 p.14). The Industry has largely been affected by various macro environmental and macroeconomic factors, which has been linked with the reason as to why big companies in the industry like Nissan, Ford and now Holden have closed their business and left the industry. For example, environmental factors led to Holden motors’ closing its business after being one of Australia’s leading automobile manufactures founded in 1856 and its headquarters situated at Melbourne. The company for the first time designed the car body in 1918 and has been earning, approximately, revenue of $6 billion annually including $1.2 billion in sales of exports by the time of exposure (Conley & Acker, 2011 p.503). Therefore, it is clear that environmental factors in the automobile industry have played a significant role towards the closure of different companies. Thus, the paper seeks to determine the five forces model and competitors, a situational impact analysis and explanation of the political, economic, social and technological effects of the withdrawal of passenger motor vehicle manufacturing from Australia.

Five Forces Model and Competitors

Porter’s five forces is a framework tool that analyses competition existing in a business and draws it from industrial organizational economics in order to derive five forces that are determinants of competition intensity. The five porter’s forces include the threat of substitutes, entrant of new product in the market, the bargaining power of customers and suppliers, competition between rivalry companies and substitute products threats.

The five forces analysis of the Australian automobile industry reveals that competition is a major concern in the firm’s operating environment. The competitive rivalry is a strong force in the automobile industry contributing to the closure of some firms while others are being successful. Competition rivals usually refer to competing companies, which influences the industry environment. Several aspects including high aggressiveness of firms, high exit barriers and a moderate number of firms are strong forces of competitive rivalry in the industry. For example, Holden motors faced stiff competition from rivalry firms such as Ford and top players like Toyota because of aggressive innovation, and their brand names having more market power and large market size. Furthermore, the automotive industry also has higher exit barriers meaning firms are aiming at competing with each other to close the weakest brands because of high investments and cost. This condition has really exerted a strong rivalry force against industry key players and number of moderate firms like General Motors.

The bargaining power of buyers or customers influences the business significantly. According to Calantone, DiBenedetto & Song (2010 p.832) the bargaining power of customers analyses buyers’ effects on industry and businesses environment. The customers bargaining power also affects the automobile industry. External factors that are affected by customers are moderate force including moderate switching costs, and size of individual purchase and substitutes availability. The customers of the automobile industry face a moderate cost of switching. Furthermore, the automobile industry offers reasonable prices and all purchases are moderated. Therefore, the change in demands of customers has significant consequences in the industry. Furthermore, the substitutes’ availability gives customers an option for them to move away from the industry. Thus, the industry, in general, is failing to satisfy customers and that is why big automobile companies like Nissan and Holden closed their business within the country. The industry needs to strategize on means of improving customer satisfaction.

The bargaining power of suppliers is a moderate force that influences the industry with several factors such as the population of suppliers affecting the industry significantly (Dobbs, 2014 p.32). The moderate supply and population gives suppliers limited bargaining power in the automotive industry.

The threat of substitutes is a moderate force which is affecting the industry significantly with external factors such as substitute availability, switching costs and performance of substitutes posing a great threat. The greatest threats although they are weak forces in the industry included bicycles and some private and public transportation means although the substitutes are not always available in some situations or areas. In addition, the customers cannot shift easily to the substitutes as some of them are still paying for the vehicle loan. Therefore, based on Porter’s Five Forces model, automobile industries need to address their supplies as a priority to external threats.

The threat of new entrants also poses a weak threat in the automobile industry as firms operating in the industry have already gained customer loyalty and good reputation (Han, Porterfield & Li 2012 p.159). However, several factors of a new entrant that have threatened the industry include high capital costs and cost of developing the brand. Furthermore, the automobile industry incurred a high cost to maintain their facilities. This cost is barriers that have been weakening the new entrant threat. Additionally, it is very costly to develop a strong brand that can be compared to brands developed by the industry.

Situational Impact Analysis

According to Simpson, Power and Samson (2007 p.20) the withdrawal of the manufacturing of the passenger motor vehicle from Australia affected the technological, social, economic and political aspects in Australia. Before the exit of the car manufacturing in Australia, there was a belief that allocating labor and capital to other countries would enhance productivity in Australia.

Political factors are the ways in which a government intervenes in the country’s economy. The factors affected the degree to which the Australian government intervened in the economy, which led to the demise of Holden. The withdrawal of support by the government affected Holden’s activities since the company depended on subsidies from the government. The federal government’s tax policy led to the increase in prices of auto parts which resulted in the manufacture of cars becoming too costly (Penrose 2017 p.12). Additionally, political instability and trade tariffs and restrictions affected the automobile industry leading to the frustration of Holden’s operations in Australia.

Economic factors determine how the economy of a particular country performs. The economic factors which affected the company included inflation rates, exchange rates, and economic growth. The factors impact the ways through which organizations make decisions and their operation in the automotive industry (Sturgeon & VanBiesebroeck 2009 p.26). As the Australian economy shifted to a service economy, only the low productivity industries were recording a growth in employment, which led to a major implication on the growth of taxation and real wages, and to the distribution of income. The development lacked the attention it deserved, which led to Holden’s closure, leading to the cutting down of each worker’s productivity across the economy (Ewing, Wagstaff & Powell 2013 p.5).

Social factors also affected the productivity of the organization. The social factors include the health consciousness and cultural aspects emphasis on safety, career attitude and the age distribution of the population. Australia’s overall population is aging due to increased life expectancy and reduced fertility, with the manufacturing worker’s average age increasing future pressures and resulting to a shortage of skills. In addition, the consumer preferences varied with an increase in the expectations of customers. Holden struggled with meeting and exceeding the expectations of the consumers.

According to Srdjevic, Bajcetic and Srdjevic (2012 p.3382) technological factors include the technological change rate, incentives for automation technology, and R&D activity. The spread of entertainment applications and IT applications affected the organization. The technological factors affected outsourcing decisions for auto parts and the efficiency in the production level. Holden lacked innovation which is a vital tool for an organization’s survival in the automobile industry so as to deal with the increasing competition in the global market.

Conclusion

Holden’s exit from the Australian market came as a big blow to General Motors since companies in the automobile industry succeed due to economies of scale whereby the manufacture of many vehicles leads to a reduction in price hence increasing sales and generating revenue. The external environment for the company was threatened by potential new companies trying to make debut in the automobile industry, government policies and taxes, and trade restrictions (Clibborn, Lansbury & Wright 2016 p.15). Moreover, changes in consumer behavior, tastes, and preferences also resulted in the demise of the company, hence making it hard for Holden’s sustained presence in Australia’s automobile industry.

References

Calantone, R.J., Di Benedetto, C.A. and Song, M., 2010. The impact of industry environment on early market entry decisions by B2B managers in the US and Japan. Industrial Marketing Management, 39(5), pp.832-843. U.S.A: Elsevier

Clibborn, S., Lansbury, R.D. and Wright, C.F., 2016. Who killed the Australian automotive industry: the employers, government or trade unions?. Economic Papers: A journal of applied economics and policy, 35(1), pp.2-15. UK: Routledge.

Conley, T. and van Acker, E., 2011. Whatever happened to industry policy in Australia?.Australian Journal of Political Science, 46(3), pp.503-517.U.S.A: Taylor & Francis

Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.United Kingdom: emerald insight

Ewing, M.T., Wagstaff, P.E. and Powell, I.H., 2013. Brand rivalry and community conflict. Journal of Business Research, 66(1), pp.4-12.U.S.A: Elsevier

Han, C., Porterfield, T. and Li, X., 2012. Impact of industry competition on contract manufacturing: An empirical study of US manufacturers. International Journal of Production Economics, 138(1), pp.159-169. U.S.A: Elsevier

Penrose, E.T., 2017. Foreign Investment and the Growth of the Firm 1. In International Business (pp. 33-48). UK: Routledge.

Simpson, D., Power, D. and Samson, D., 2007. Greening the automotive supply chain: a relationship perspective. International Journal of Operations & Production Management, 27(1), pp.28-48. UK: Emeraldinsight

Srdjevic, Z., Bajcetic, R. and Srdjevic, B., 2012. Identifying the criteria set for multicriteriadecision making based on SWOT/PESTLE analysis: a case study of reconstructing a water intake structure. Water resources management, 26(12), pp.3379-3393.Germany: Springer

Sturgeon, T.J. and Van Biesebroeck, J., 2009. Crisis and protection in the automotive industry: a global value chain perspective. Unites States: The World Bank.