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21005664 John Hathaway Macro and Competitive environment

Business Management Macro and Competitive environment John Hathaway Student I.D:21005664 Word Count:1,586

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21005664 John Hathaway Macro and Competitive environment

Contents Page Introduction

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PESTEL

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Porter’s five forces

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Key Findings

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SMART Business Objectives

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Conclusion

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Appendices

9

Reference list

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21005664 John Hathaway Macro and Competitive environment UK Automotive Components Introduction This report will analyse the UK automotive components market by using the PESTEL and Five Forces models, using these theories the report will identify and analyse the various factors that can impact a business working in the UK Automotive components market. The report will be broken into sub sections for clearer analysis. The report will link to the BCG Matrix and SWOT Analysis model, and will establish 3 SMART objectives for the specific business which is Euro Car Parts (ECP). To differentiate the factors highlighted in each model a weighting system will be used (see appendices). The UK automotive component market is very competitive and consists of several major organisations such as CafCo, Allparts Automotive and Euro Car Parts as well as many other local firms. The organisation this report focuses on is Euro Car Parts, the reasons for this are firstly because they are based very locally and are well established in the area, and secondly because of the vast size of the current business which is very appealing to analyse. According to (About us.2010) Euro Car Parts (ECP) is a UK based supplier of more than 60 thousand European car parts specialising in parts for BMW, Volkswagen, Porsche, Citroen, Peugeot, Renault, Saab, Audi, Volvo and Mercedes. ECP was established in 1978 offers a wide range of accessories and spares. The Slogan for Euro Car Parts is “Any part for any car”. The Euro Car Parts (ECP) network now exceeds 90 branches with an additional 20 planned to open over the next 12 months. Their growth has been underpinned by strengthened logistics, which includes 8 regional hubs. This fully integrated system means that their 24,000 garage customers can access 97% of their product range on a "same-day" basis Euro Car Parts are now twice as big as their nearest competitor with half year figures showing increased turnover of 30%. Profits have almost tripled in 2010 to £17m compared with £6.6m the year before on sales that increased from £145.1m to £186.9m (corporate.eurocarparts.2011). Euro Car Parts serves about 17,000 of the 25,000 current customers across the country (TheTelegraph.2010).Additional Facts and Figures are located in the Appendices under Article 1.

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21005664 John Hathaway Macro and Competitive environment PESTEL PESTEL Analysis is a technique for identifying and listing the political, economical, social, technological, environmental and legal factors in the general environment most relevant to an organisation (Boddy.D,2008). From the PESTEL model various factors that could impact ECP were highlighted, the political factors were new health and safety regulations and tax increases which could end up costing ECP money as they could be asked to pay more tax, in addition to this could be asked to save energy by replacing their vehicles which is also expensive. The economical factors were inflation rate and interest rates both of which are likely to increase year on year which would mean ECP would have to pay more in interest and more for their products. The socio-culture factors impacting ECP are changing lifestyles and demographics both of which influence the number of clients available to them. The technological factors that could affect ECP are that new rivals such as online companies could enter the market making it more competitive, the second factor was the methods used to create the parts being sold by ECP, if the parts could be made cheaper than they could also be sold cheaper leading to more competitiveness in the market. The environmental factor was the level of energy use used by ECP to deliver and distribute their thousands of products, new laws helping cut down energy levels could affect ECP. The legal factors that could impact ECP were the changes of previous laws such as employment law and company law, insurance premium levels would also affect ECP as they have a wide fleet of vehicles, staff and a core business to insure against risks. Porter’s five forces

“Five forces analysis is a technique for identifying and listing those aspects of the five forces most relevant to the profitability of an organisation at that time” (Johnson.G,2002). Using Johnson for the five forces model a number of issues affecting ECP were highlighted. For rivalry, Industry growth and brand identity were the major issues. Industry growth showed that the UK Automotive components industry is growing as more and more cars are being sold. Brand Identity separates the top rivals between themselves, i.e. consumers would rather use an established business such as ECP than EBay for example.

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21005664 John Hathaway Macro and Competitive environment For threats of substitutes EBay was highlighted, EBay which is a well established online auction site that sells car products and accessories can be used by consumers as a source to purchase replacement parts at the comfort of their homes. In addition to this the internet as a whole was also highlighted for having a number of other local competitors and distributors specialising in selling car parts.

For Barriers to entry there were four main factors highlighted, firstly High Entry Cost it would cost a lot of money to set up your own parts distribution company as large level of finance would be required. Secondly Low Market share new entrants would be limited in market growth as the bigger established rivals already would own a large percentage. Thirdly Lack of distribution the new entrants would suffer from lack of distribution which would mean it would take longer to get products to customers compared to established rivals. And lastly Unable to compete with prices set, the new entrants would be unable to compete with established rivals that have agreements with their suppliers and that are able to provide their services and products for as cheap as possible. Buyer power and supplier power also pose a threat to ECP and are analysed thoroughly below in the key findings of this report.

Key Findings To differentiate the findings a weighting system was used in the appendices to show how serious the impact of each factor would be, the most important factors which are classed as(4) in the appendices. The key findings from the PESTEL analysis were; Unemployment rates could help ECP expand by helping the government to save money by opening branches in areas where there are high levels of unemployment. Labour costs tend to increase every year, the more labour costs increase the more money ECP must pay to their employees in wages for services, such as the hourly wage which increases year on year. The technological factors influencing ECP are Advances in new products that could see ECP save and make more money by mass producing cheaper products. Another technological factor is New Competition, such as online rivals with less outflows which would strongly affect ECP as it would see the need for ECP to decrease their prices in order to increase competitiveness. Also According to the BCG Matrix car parts are a “star�

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21005664 John Hathaway Macro and Competitive environment for ECP which shows that car parts are the most popular item they sell so the ability to offer lower prices would enable them to grow . An environmental factor that could affect ECP are new laws that affect a businesses Energy Use, ECP uses a lot of energy (Fuel) to get their products to market and to their customers which is very bad for climate change. Changes in environmental law could heavily affect the operations of the business. The whole of ECP distribution arm is made up of Lorries, Vans, Cars and motorcycles so a new law that decreased the level of energy use a business could make would strongly affect them as they could lose business. The key findings from Porters five forces model were, Buyer power as customers could switch to a cheaper alternative, Supplier Power as a supplier could forward integrate into selling their own products and compete with ECP and Threats of substitutes such as EBay and other online retailers. One of the most important factors was buyer power, which suggested that customers would rather switch to a cheaper retailer than pay extra, for this to have any impact on ECP would suggest that its rivals such as EBay or online rivals are able to purchase stock for far less than ECP or that ECP have too high of a profit margin. To stop customers slipping away ECP will need to lower prices enough to compete with competitors. Another key finding was supplier power, and the threat of forward integration from a supplier, which would heavily affect ECP. By forward integrating a supplier could sell their own products for far cheaper directly to a customer as there is no middleman, by doing this ECP would either find it hard buying stock from another supplier for the same price or would find it hard trying to compete with the supplier who can offer products for less. Threats of substitutes such as EBay and other online retailers are also a massive risk for ECP these online substitutes have the ability of being cheaper as they have far less overheads. With the growing number of online rivals ECP will need to reduce prices to be able to compete. The BCG Matrix states that car parts are the “star� of ECP so if they can be purchased cheaper elsewhere customers will leave, in addition to this according to the SWOT analysis carried out the only weakness established was that the prices offered by ECP were far too similar to that of other competitors.

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21005664 John Hathaway Macro and Competitive environment SMART Business Objectives The following are SMART objectives for ECP; -To purchase new fleet of 545 energy efficient vehicles/ change current 545 vehicles over to energy efficient types to distribute products to branches and customers nationwide by 2013 to help save energy and help climate control. This comes from the PESTEL analysis as it states Climate/Energy have a huge impact on environmental factors within ECP. By replacing the use of standard vehicles with energy efficient equivalents this saves energy and money. -Help fund advances in new technology to create and mass produce car spares and parts by funding ÂŁ500,000 towards projects every year from 2012 to help save money by mass producing products. This takes into account a technological factor impacting ECP which states technological advances could hugely impact the organisation. ECP would benefit from this as they would be able to use new methods of developing cars straight away, by saving money on their products. -To match prices with those of the cheapest local rival, in order to retain and attract consumers by January 2012 to take affect immediately. This considers the five forces analysis which states buyer power impacts ECP, by finding cheaper solutions of producing products and offering it to new and existing customers at competitive prices. Conclusion Euro Car Parts was the chosen business for this report, ECP is a UK based distributor of car parts and accessories established in 1978. Porters five forces model and a PESTEL analysis were carried out on ECP with various possible influencing factors highlighted, in addition to this a BCG Matrix and a SWOT analysis were also carried out to help measure both the strengths and weaknesses of ECP. 3 SMART objectives (2 macro and 1 competitive macro objective) were established to help the business (ECP) deal with any of the factors highlighted above that may influence them in the future. The key factors established though the PESTEL model were new competition, New Products and Unemployment/Labour costs, using a weighting system these 3 forces selected as those that could

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21005664 John Hathaway Macro and Competitive environment heavily impact and affect ECP. The key factors established in the five forces model were, threats of substitutes such as EBay and other online retailers, Buyer power such as customers shopping elsewhere and thirdly a threat of forward integration from suppliers which could see ECP become less dominant in the UK Automotive components industry.

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21005664 John Hathaway Macro and Competitive environment Appendices Article 1 • •

Our branch delivery service covers over 90% of the UK population

ECP is the UK’s largest car and van parts distributor

In 2009 we made in excess of 5 million deliveries

We have enough parts in stock to fill every seat in Wembley Stadium (with plenty to spare!)

Our new National Distribution Centre has more than 400,000 sq.ft of warehousing space and 12,000

Over 85 branches across the UK

sq.ft of office space

We have over 114,000 different parts always in stock

Our branch network is growing by more than 25% per year

We now have in excess of 3,500,000 sq ft of warehouse storage in the UK

We now employ more than 3,500 people in towns and cities right across the UK

Over 400 ECP staff are studying for an NVQ Qualification

Weighting System 1. No affect 2. Little affect 3. Will be affected 4. Will be affected heavily Article 2

PESTEL Analysis - The following is the PESTEL Analysis. Political

Increase in Tax – this could either increase or decrease helping the business to save more or pay out more. Tax levels are dependant on the UK government and change annually. Euro Car Parts import most of their parts from abroad so import tax changes would heavily affect them, in addition to this the higher the UK Tax rise to the more the consumer must pay, this could lead them to lose customers to other cheaper rivals. 3 Environmental Legislation – is constantly changing with new laws being bought in to save the planet energy. Euro Car Parts rely on their distribution arm very heavily with consist of hundreds of vehicles, a change in environmental law could

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21005664 John Hathaway Macro and Competitive environment

heavily affect this area of their business. 3 Health and safety regulations – is considered very seriously in the UK, and employers must follow all rules and regulations on a daily basis. New health and safety regulations are introduced as and when they are needed. Each law is also reviewed to check if it is needed/required. Euro Car Parts is a business with several hundred members of staff that can be at risk so they must follow are health and safety laws. 3 Economical

Interest Rates – will affect the businesses profits as the more the rate increases the less profit there is. Interest rates also change annually and are set by the bank of England. Rising interest rates would affect Euro Cr Parts as it may mean that they would have to pay more interest back to debtors.3 Inflation Rate – if inflation rates were to increase the cost of products that Euro Car Parts sell would also increase as the price they would pay for it would also increase. This could lead to customers turning to other cheaper rivals.3 Unemployment Rate / Labour costs – The unemployment rate is the rate of those in the UK that are currently unemployed. Euro Car Parts could help the economy/government to save money by opening branches in areas where there are high levels of unemployment thus providing jobs. Labour costs tend to increase every year for the example the hourly wage. The more labour costs increase the more money Euro Car parts must pay to their employees in wages for their services. 4

Socio-Culture

Demographics – The demographic of Euro Car Parts would be those that drive, the majority of the UK over the age of 17 now hold a drivers license. The more drivers and cars being sold in the UK are an advantage for Euro Car Parts as it gives them more customers to supply with parts and accessories.3 Changing Lifestyles – Lifestyles change depending on the individual and what they do. This is neither and advantage of disadvantage to Euro Car Parts as Majority of individuals that would rather drive than use public transport or cycle increases each year which would benefit them however their is also a minority that would go green and want to save money and energy so may begin to use public transport or cycle the more this happens the less Euro Car parts increase their client base.3

Technological

New Products – Advances in new products or methods in which products can be made could see Euro Car Parts save and make money as the cheaper the product costs to make, the cheaper it would cost to buy. 4 New Competition – such as online rivals with fewer outflows would see the need for Euro Car Parts to decrease their prices and to increase competitiveness, as most customers would rather save money on a product than pay for a brand name to deliver their product. 4

Enviromental

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Energy Use/ Climate Change/ Transport/Distribution – Euro Car parts use a lot of


21005664 John Hathaway Macro and Competitive environment energy (Fuel) to get their products to market and to their customers which does not help climate change, changes in environmental law could heavily affect the operations of their business. The Whole of Euro Car Parts distribution arm is made up of Lorries, Vans, Cars and motorcycles. 4 Legal

Employment Law – this is set by the government, this would affect Euro Car Parts hire/fire policy. No discrimination or unlawful firing is allowed. 3 Company Law – changes in company law could affect the currant way Euro Car Parts is operated on a daily basis. New Laws may restrict the things they can do as a business such as expanding. 3 Insurance – is needed by a business like Euro Car Parts to protect itself and its employees from any liability. The risk is very high as they have a lot of vehicles. The more collisions/ claims the more they pay as a business each year to the insurance company. 3

Article 3

growthHigh Market

The Following is the BCG Matrix for Euro Car Parts. Star

?

Car Parts – the most successful product

Performance and styling parts – This product line

line sold by Euro Car Parts has high market

has a low market growth but a high market share

share and high market growth. Parts are

which isn’t going to increase any further. This line

the core foundations of the business.

of products is similar to accessories as it is sold as extras to increase the amount a customer

GrowthLow Market

spends in add on products. Cow

Dog

Accessories- this product line has a low

Tools – this product line has a low market share

market growth but a high market share.

and a low market growth, it has always been like

Accessories are sold as extras to increase

this most customers do not need to buy tools as

the sum of money spend by a customer.

they can only be used by specialist mechanics who know how to use them properly, however these are available cheaper at places that simply just specialise in selling tools.

High Market Share

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Low Market Share


21005664 John Hathaway Macro and Competitive environment

Article 4

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture(Mullins.1999). The following is my SWOT Analysis for Euro Car Parts. Strengths

Weaknesses Prices are too similar to competitors that they are

Well established

bigger than. Wide customer base Wide supplier base Big fleet size Large number of branches Next day delivery service Opportunities

Threats

New branches

Online Suppliers 4

New fleet

EBay 4

New customers in new areas

Small local rivals 4

Article 5

Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths (White.2004)

The following is my Porters five forces model for Euro Car Parts. Barriers to entry

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21005664 John Hathaway Macro and Competitive environment

High Entry Cost – would cost a lot of money to set up your own parts distribution company, large level of finance required. Low Market share – new entrants would be limited in market growth as bigger more established rivals already own a large percentage. Lack of distribution- would suffer from lack of distribution, would take longer to get products to customers compared to established rivals. Unable to compete with prices set – would be unable to compete with established rivals that have agreements with their suppliers.

Supplier Power

Rivalry

Buyer Power

Importance of volume to supplier

Industry Growth – industry is

Switch to local rival/ price

– by selling to a established

growing as more and more cars

sensitivity – the buyer has the

brand, the supplier knows that

are being sold, with

power to switch to a rival either

they will be paid and get repeat

replacements parts for older cars

online or established branch, this

orders for business, the bigger

still needed. 3

could be to save cost as most

the business i.e. Euro Car parts

consumers want to pay as less

the more volume to be

Brand Identity – separates the

as they possibly can for a

purchased from the supplier. 3

top rivals between themselves,

replacement part rather than pay

i.e. consumers would rather use

more for a part and a brand

Threat of forward integration –

a established business such as

name. 4

the supplier could decide to set

Euro Car Parts than EBay for

up their own distribution arm and

example. 3

sell their own products direct to customers, which means cutting out the middleman for example Euro Car Parts, this would also enable the supplier to increase

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21005664 John Hathaway Macro and Competitive environment

its revenue.4

Threats of substitutes EBay – well established online auction site that sells a lot of car products and accessories, can be used by consumers as a source to purchase replacement parts. 4 Internet – contains wide number of online distributors specialising in selling car parts. 4

Article 6 Objectives

Specific

Measurable

Achievable

Realistic

To purchase more green efficient vehicles

Specific as in “Euro Car Parts” needs to invest in more energy efficient vehicles for its distribution arm.

This can be achieved as Euro Car Parts are aiming to purchase a new fleet of vehicles.

Help fund advances in technology

Specific as in “Euro Car Parts” has to help fund projects that will find a

Can be measured by having a deadline date by which all vehicles operated by Euro Car Parts must be fuel and energy efficient. Can be measured by recording the sum of money invested each year keeping

This is a realistic objective as it needs to be done otherwise they may end up using more energy which would cost them more. This is realistic because they want to be able to but the cheapest parts they can to

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This can be achieved by ensuring the money is given by a certain date

Time Constrained This can be done by 2013, as this gives some quite some time to change and swap over vehicles.

The first payment can be given by the beginning of 2012, which is a fair date


21005664 John Hathaway Macro and Competitive environment

Match prices with competitors to compete and not lose customers

method of making more products for cheaper which will be distributed by them.

bank transfer details etc.

each year.

Specific as in “Euro Car Parts� need to lower and match their prices to local rivals and competitors so that more come to them instead.

Can be measured by comparing prices by a deadline date of 2012 to see if they have lowered prices to match rivals.

This can be achieved by decreasing the profit margin on each item or by finding cheaper suppliers.

sell on to their customers by funding projects they will establish a cheaper solution that maybe one day could affect all the parts they sell. This is very realistic as the longer they offer higher prices to their customers the more customers they are going to lose.

for a business the size of Euro Car Parts. Especially as they make an increase in profits each year.

This can also be done by 2012 as it gives Euro Car Parts quite a number of months to steadily lower their prices to match, this also gives them time to find new cheaper suppliers if they need to.

Reference list Aboutus,2010.EuroCarParts.[online]Available at:<http://www.aboutus.org/EuroCarParts.com > Accessed 21 August 2011] Corporate,2010.EuroCarParts. [online] Available at: <http://corporate.eurocarparts.com/about/heritage> [Accessed 20 August 2011] Johnson.G.(2002) Exploring Corporate Strategy. Sixth Edition. England:Pearson Education Limited. Boddy,D.(2008) MANAGEMENT An Introduction. Fourth Edition. England:Pearson Education Limited. White,C.(2004)STRATEGIC MANAGEMENT. Third Edition. New York: Palgrave Macmillan. Mullins,L.(1999)Management and 5 Organisational Behaviour. Fifth Edition. England:Pearson Education Limited.

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