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Macro Environment Research: PEST

With the increasing of international business, there's been growing curiosity about what sort of successful organization to create a appropriate international strategy. This content provides an widened approach to an organization's strategy and linkages that exist in international business businesses. Geely Holding Group as an illustrative case to be evaluated by suing Infestations evaluation, Porter's Five Power Model, SWOT examination, and Integration-responsiveness Framework. By inspecting all interior and exterior elements and variables factors, this newspaper proposes a list of recommendations and solutions to promote Geely's international process.

Key words: Internal Business Environment, Alternative Business Environment, industry globalization and localization individuals, Critical Success Factors, opponents Integration-responsiveness platform.

1. 0 Introduction

1. 1 Background of Automotive Industry

The motor vehicle industry keeps growing with globalization because the first automobile was built in 1885. To the present day, more than 70 million motor vehicles were produced stretching throughout the world. China, Russia, Brazil and India became the major markets rapidly. In 2008, the Body 1 shows there have been about 73. 2 million new automobiles were sold worldwide (OICA, 2009). The creation has continually increased, whereas sales started out decrease in late 2007. The whole industry was weakened by a considerable increase in the costs of recycleables and fuels cost. Furthermore, the tough economy started out in 2008 acquired a profound impact on the automobile industry. By 2008, a series of damaging blows drove the automobile manufacturers include "American Big Three" to the verge of unpleasant condition.

Dugigg (2008) has referred to such a terms as "The automotive industry crisis happened between 2008 and 2010 is a part of representation of global financial downturn. " The problems primarily affected the American and European automobile creation industry. Drop in efficiency has resulted in less output, on the other hand, due to the economic crisis, essential oil price distress and environment prospects, more and more automobile buyers changed their attention on an increased quality and much more fuel saving automobile vehicles. This sensation of changing product demand provides many automobile manufacturers a greatly surprise. Therefore, many famous automobile manufacturers haven't any choice to sell a few of its famous brands in order to alleviate financial pressure. Undoubtedly, it offers opportunities to other private businesses entry the marketplace. China became both largest automobile producer and market on earth after experiencing massive growth in 2009 2009. For instance Ford, the main one of "THE BEST Three" of American car supplier and the fourth-largest on the planet based on cars sold number each year (OICA, 2008), battled against the weak money market and sold drop. Failing investment funds and an increasing unemployment rate has exacerbated the impact of the crisis.

1. 2 Geely Keeping Group Profile

According to the business brief of Geely (2010), Geely Keeping Group is one of China's top ten private automakers and also among the list of country's top 500 organizations. Geely is founded in 1986 and it is today "a fully integrated independent vehicle firm with a full car eco-system from design and research and development to development, syndication and servicing" (Li Shufu, 2008, p 9). Although Geely has achieved great success in home vehicle industry, it will pay more focus on explore global market. About 40000 vehicles are exported for sales in 2008, rank second devote auto export in China. In March 28, 2010, Geely Group authorized a agreement to make an acquisition of Ford Motor's Volvo automobiles brand for the expense of $1. 8 billion (Nordstrom, 2010). Through acquisition, Geely can quickly speed up its international business in auto industry and become a leader in this area.

2. 0 Geely Business Environment Analyses

2. 1 Conceptual Record on Business Environment

John Kew and John Stredwick(2005) similarly argued that business environment is a situation largely beyond your control and impact of a business, and the factors running a business environment car possibly have both benefit and passive impacts on an organization's present or future activities. It really is useful to divide into two the micro-environment and the macro-environment. Middleton (2003) elaborated that the macro-environment involves factors such as the economy, government plan and interpersonal change, outside of the direct control of the business. These factors like the economy, government plan and cultural change can have a substantial influence on a firm's success however the relationship is fairly a method. The Infestation (or PESTLE) research appears to be by Francis J. Aguilar in 1967 can review the macro-environment effectively. The individuals and organizations participate in micro-environment and have direct activities of your business. The participants of it include suppliers, distributors, rivals, customers and employees. These factors will have an impact on the performance of any corporation. Thus, the micro-environment plays a crucial role in the success and patterns of your business. Use the Five Forces examination to gain insights in to the competitiveness of the micro-environment (Cliff, 1990).

2. 2 Macro-environment Evaluation by use Infestation Analysis

PEST means for Politics, Economic, Public and Technological. Group can use this tool to lessen hazards associated with operation. The Oxford University or college Press was firmly shaped and influenced by PEST analysis. As the relevant article released in 2007 shows "A Infestation analysis is helpful understanding the positioning, potential and way for a business. "

PEST Research on Automotive Industry

Political

Political factors relate to government policy that firms have to operate, such as trade regulation, political stableness and trading policies. Politics decisions can effect on many essential aspects for organizations. Motor vehicle industry has propelled by administration incentives. For example, China federal used stimulus measures to support vehicle sales, such as reductions in sales duty for engines smaller than 1. 6 liters. Indeed, Geely as a famous impartial privately owned firm in China, it has a solid support from the federal government. Moreover, America preserved the "American Big Three" of the automobile manufacturers in 2009 2009. Furthermore, government authorities make no difficultly with auto merger of mix boundary or oversea purchase home brands. Significant amounts of mergers and acquisitions activity from vehicle manufacturers to parts suppliers (Gaughan, 2008). For example, Geely's international acquisition is evident to that.

Economic

Economic factors include interest rates, taxation changes, economical expansion, inflation and exchange rates. Above of these impact the income of company and customers' purchasing electric power. Exchange rate fluctuation influences on vehicle international trade, a weak currency could make export easier. An economic slowdown in many parts of the world through the financial crisis. In this particular term, interest and inflation are unstable. In fact, tough economy let automotive industry has a huge problem. However, China has continued to be the only person of the world's major economies that persisted to show expansion through the global downturn of 2008-2009. China's strong economic boom of recent years continues to lift earnings and bring more of the population within financial reach of car ownership, vehicle sales attained 13. 6million units in '09 2009 CAAM reported (Just-auto).

Social

Social factors include lifestyle movements, culture, buying gain access to and developments. These factors have an effect on consumers demand and the size of potential markets. Focus on social movements can improve on the firm's a reaction to customers need. Consider of petrol cost and environment pollution, increasing consumers need small cars. Quite simply, customers want to high quality, good deal, complete service, and added value for an auto vehicle.

Technological

Technological factors require new technology create, rate of scientific diffusion and change, replacing technology and so on. Individuals and government authorities are setup to promote new technology in green energy and create electric vehicles.

Conclusion

Above of these factors could make a difference macro-environment elements in an automobile manufacturer. It really is vital to get an insight into the macro-environment of the industry to guide tactical decision-making. In politics aspects, although most government authorities propel development of automobile industry, a few of them take a system of tariffs or other way of measuring protecting domestic producers, especially compare with China's new stimulus options. It doubtless impacted vehicle international trade. If the firm choose a place with unusual inflation rate, high taxation and could lead to creation cost and procedure payment, taxation and unpredictable exchange rate, the company will have high dangers associated with procedure. Consider social and scientific factors, companies in should focus on research and development to environmentally-friendly products like electric vehicles.

2. 3 The Porter's Five Forces Research on Micro-environment

Porter's Five Makes examination is a simply tool to analyze the determinants of any organization's profit; it can be summarized through his Five Forces Model in physique 3. (Chris, Stewart and martin, 2008). This model attempts to explain marriage between competitors, new entrants, suppliers, customers and substitutes. Understand of critical issues is essential to establish what the best competitive position and difference is (Michael E. Porter, 1980).

2. 3 The Porter's Five Causes Evaluation on Micro-environment

Porter's Five Forces research is a simply tool to investigate the determinants of organization's profit; it can be summarized through his Five Forces Model in shape 3. (Chris, Stewart and martin, 2008). This model attempts to explain romance between competition, new entrants, suppliers, customers and substitutes. Understand of critical issues is essential to establish the actual best competitive position and difference is (Michael E. Porter, 1980).

Rivalry Among Existing competitors

Rivalry competitors always have similar products in the same industry. Strong rivalry is likely to generate profits damage. The degree of rivalry is high when competitors have become more identical in market talk about and capability, lured use price battle or other competitive measures to boost sales, low obstacles to admittance, demand for the merchandise is growing slowly and gradually, the expenses of leaving the market is high and a little brand commitment because of so similar that customers are easily switch products. According to motor vehicle industry, rivalry can be extreme and cut-throat scheduled to increasingly more competitors undertook the automobile manufacture.

2. Hazards of New entry

For other Chinese firm enter into the automotive industry it is expensive to create a countrywide network in marketing and equipment. Geely proven in 5 strategy marketplaces, such as CIS, Middle East, Africa, Southeast Asia and Central and SOUTH USA. The existing vehicle manufacturers have gained high reputation in market and established excellent brand image. However, the existing firms haven't any control of the resources; new entries have opportunities to development. Lately, Chinese domestic automobile companies that contain experience in coordinator country like Chery, Chana, Saic and Baw, have dynamic performance in international market. Therefore industry's success was influenced. Like Porter's view, "In market with low barriers to entry, the risk of newly competing competitors is high only once the amount of success in this industry is high as well. " To illustrate, in March 2nd, 2006, Chery experienced exported its own products to American. Chery has gained a certain market share in European countries, Africa, SOUTH USA and THE UNITED STATES last season 2009.

3. Dangers of substitutes

A substitute is something has similar function as existing product on the market. Relating to Porter, "the risk of substitutes also influences the bargaining vitality of companies. " (Chris, Stewart and martin, 2008, p. 37)If substitutes have lower price, good performance or both, then some customers will be lured to move new products. Substitutes are not in direct competition but have nonetheless a massive impact on existing companies, for example decrease goods price and raising investment to improve products. However, there was no obvious evidence of substitutes in automotive industry. Even though some countries have complete open public transfer, but most of these

4. Bargaining Ability of buyers

Powerful buyers will be able to pressure down prices thus can bargain away gains of businesses that sales goods or services. Porter argues that "the success of an organization depends on the bargaining electricity it exercises in negotiating prices with suppliers and customers. " Buyer electricity will be higher if they're scale important in this business deal. For example they purchase in large volumes or purchases symbolize a sizeable percentage of the industry's total sales. However, this type of powerful buyer are difficult appear in global car industry, maybe it's happen in a little area. Especially, there are many buyer of the organization, big buyer is essential to them. In addition, when the industry emerge large numbers of small sellers or customers may easily change to other provides, consumers have powerful negotiation to remove a superior quality service at a good price. Actually, international car market has a great number of vehicle brands not only in low-end car market but also in high-end automobile market. Buyers have a very wide selection.

5. Bargaining electric power of suppliers

The strong bargaining power of company is resulting in a press on profits through higher type costs. If there are relatively few suppliers within the industry or organizations are difficult or costly change from one distributor to another, the suppliers of raw materials, vitality, skilled labors and components will have ability of high prices negotiation. Corresponding to China Association of Auto Manufacture's research (Plunkett, 2007) shows cost, design, security and further capacity are decisive factors in a car's value. It needs suppliers to improve the quality of their products and service.

Global competition in car industry:

Along with the constant impact of financial meltdown, the international market is shrinking. In the mean time, the revenue of international automobile market decrease along with the shrinking revenue. Subsequently, your competition in international auto market is becoming fiercer and fiercer. The auto market reaches the maturity level of the life span circuit, locally and globally, due to an elevated number of competition from local and foreign market segments. The automobile market is characterized by a low prospect of market growth, but high sales and limited income. Competitive makes are saturated in each segment of the entire market, Geely presently face brutal competition against Lifan, who's marketing strategy is price focused, its model series LIFAN520 has gain a significant proportion of the market because of its low price strategy. Following the buy out of Volvo, it is expected that Geely will alter its current technique to differentiation. Hunt (1972) suggested a strategic group analysis to recognize and group proper characteristics, following similar strategies or rivaling on common bases. Criticism offers that the analysis of strategic teams is only from cognitive point of view, notwithstanding the framework have obtained prominence over time (Hodgkinson 1997:623).

Profit Margin

High

Low

Sales Volume

Low

High

High sales with average margin

Toyota, Chrysler, Honda

Low Sales Amount with high margin

BMW, Mercedes, Jaguar

High Sales Volume level with low margin

Lifan, Geely

Low Sales and low margin

Chery, Chana, Saic Baw

Figure: Strategic Group Analysis

To summarize, along with the restoration of international overall economy environment, and Chinese language government's insurance policy on private enterprise's usage of internationalization, it offers convenience and chance of Geely's international strategy. Nevertheless, anticipated to deficient consumer confident on private organization and the limitation of use environment, Geely encounters mighty competition pressure. Thus, what is needed is the improvement of Geely's capability to respond to external factors after acquisition.

When we make an international strategic arrange for a multinational organization, we must take the equivalent romantic relationship between local factors and global factors into consideration. The IR framework provides a visible diagram for us to show the diverse and conflicting pressures that businesses confront. Both major principles that will influence MNE are integration and responsiveness.

By integration, Prahalad and Doz (1987) make reference to the coordination of activities across countries targeted at building efficient functions systems and taking maximum benefit of similarities across locations. By responsiveness, they refer to the make an effort of giving an answer to specific needs of number countries, and remember that businesses can make to focus on one dimension over another, or to stress both proportions. Thus, businesses have basically three strategic options at their removal: the global integration strategy, the locally reactive strategy, and since type of an in-between option, the multi-focal strategy. The choice between the three strategic options is governed by the identified level of two causes in the companies' operating environment: the pressure for global integration and the pressure for local responsiveness (Prahalad & Doz, 1987, pp. 18-21).

The global integration and local responsiveness pressure of Geely is detailed in Physique 8

Integration Pressure(Globalization individuals)

Responsiveness Pressure(Localization individuals)

Economies of Size. Geely needs to set a make of subsidiaries to attain economies of mass development.

Consumer tendencies and common needs. The word "Individuals are God" should be a basic basic principle of Geely's ethnical.

Uniform service to global customers. Services are essential to gain global consumers' excitement.

Global sourcing of raw materials, components, energy, and labor.

Source from large-scale, centralized suppliers provides advantages from economies of scale and steady performance.

Global challengers. Global co-operation and coordination is essential to resolve competitive risks in foreign and domestic marketplaces.

Availability of press that gets to customers in multiple markets. Geely should take benefit of the Internet and cross-national television to advertise their products in various countries concurrently.

Unique resources and capacities open to the organization. Each country has its own considerable resources.

Diversity of local customer needs.

Different people in several region have different hunger and requirements on vehicles.

Local competition. When competing against numerous local competitors, centrally-controlled MNEs will have difficulty gaining market tell global products that aren't adapted to local needs. Geely should diversify its products.

Cultural dissimilarities.

MNES have to adapt to local history, language, custom, means of dealing with people and culture.

Local government requirements and laws. Local government authorities usually impose trade obstacles or sophisticated business regulations to safeguard local trade.

Apparently, Geely has great ambitions to become a top automobile producer giants in a couple of years. However, because of the reason that Chinese language vehicle industry has started later than many developed countries, Geely has a huge space between other large manufacturers. Although Geely has recently acquired Volvo, they have numerous obstructions such as international humanresource integration and management, autonomous technology R&D, and cross-cultural issues. Based on the analysis of Figure8 and IR framwork, we can conclude that Geely must seek to accomplish both global success and local responsiveness. Geely must achieve together requirements for strong central control and coordination of subsidary companies and decentralization and empowement to local responsiveness.

3. 3 Key Factors for Success in Automotive Industry

The Critical success factors (CSF) is a concept which is put on understand the elements essential for a business to archive its goals, it is at first applied in the data evaluation and business research (Rockart, 1979), later it prolonged its utilization in IT projects to improve an individual involvements (Boynlon, 1984).

In the automotives industry, there are always a group of critical success factors for organizations to achieve to be able to obtain unique competitive gain. First, executive and invention in car designing, a company can gain impressive advantage via superior quality of executive in automotive production, skilled labour make, fashionable design and luxury tastes. Second, Brand image is of substance in today's auto mobile competition. E. g. BMW cases its brand as "ultimate Driving Machine" (BMW, 2004), excellent brand image can result in fanatic loyalty for the brand thus create edge. Third, safeness is assured by the grade of vehicles, premium quality mobile, sophisticated assessment methods and strong safeness record will all donate to competitiveness of a company. Fourth, cost reduction, sophisticated techniques e. g. JIT system or number country edge can have direct impact on the price tag reduction of a company. Fourth, if a firm can firmly control its syndication network, it can manage its brand more proficiently and make more effective communication using its distributors. Fifth, a company has an outstanding grasp on supply chain management enables the firm to maintain a good relationship with suppliers over time, to ensure that the client needs are satisfied.

The strategic setting model is generally applied to show how a company shifts its strategy in many ways (Boston, 2000). Chesbrough and Rosenbloom (2002) argued that the application of tactical position model allow the user to get a specific picture of the competitive advantages of the chosen firm. In Geely's circumstance, due to the host country benefits now Geely own the cost advantage in the reduced end market from global range. However the acquisition of Volvo may help Geely to gain the engineering knowledge and an optimistic brand images, subsequently create more competitive advantages for the organization.

4. 0 International Strategy of Geely

4. 1 Internal and Alternative Factors Analysis by Using SWOT Analysis

SWOT evaluation is a simple and useful tool for strategic alternatives from a company environment examination. SWOT made from the original letters of Advantages, Weaknesses, Opportunities and Threats. It through review the internal and external environment to help organizations understand current situation and make decision easily. The SWOT examination was provided by Albert S. Humphrey in the 1960's, however now it development into a truly necessary part of the strategic planning process (An Soff, 1965). Indeed, it is considered the first step of forming a tactical picture. SWOT examination separate into two aspects, the first is external factors as opportunities and threats, the other aspect is internal factors include advantages and weaknesses.

"Advantages and weaknesses are essentially internal to an organization and relate to matters involving resources, programs, and business in key areas. Opportunities and risks have a tendency to be external- from fighting organizations, global movements, and other environmental factors. " (Charney, p 170, 2005)

The SWOT examination reduces the relevant information from interior and external environment to a workable quantity of key issues. Logically, it is helpful optimize the firm's resources and features, therefore "a company can better leverage its talents, correct its weaknesses, capitalize on golden opportunities, and deter possibly devastating threats. " (Menon, 1999, p 30) Thus, a comprehensive SWOT examination of Geely plays a part in a better understanding of Geely's international business environment at inside and exterior.

The figure below is the SWOT evaluation on Geely's acquisition of Volvo.

SWOT research on Geely

Internal factors

External factors

Strengths

Opportunities

Owns many patents.

The maturity of domestic market.

Ranking 2nd put in place auto export in China.

Supports from administration policy.

A mass of genuine customers in the low-end car market.

Geely got further research and developed new energy vehicles.

Effective cost control of production and deal while has powerful price ratio.

Increasing needs at in foreign countries. Vehicles have gained high reputation in abroad market and founded excellent brand image.

Advanced production facilities and technology in low-end car.

Local competition have poor products. Geely can establish 4-5 completely new car models and engine unit models each year.

R&D is greatly advanced to provide effective assurance for the overseas business development.

Geely successfully received the world's second major automatic transmission company called DSI.

Capital growing by entrust loans from reliance group.

Product innovations ongoing.

An increasing development on global market shares.

A billion's credit limit from China Everbright Loan provider and the support from Goldman Sachs Investment Bank.

Weaknesses

Threats

The scale distance with other large automobile manufacturer on earth.

Brand charm is low, oversea consumers have little self-assurance on new private brands.

Marketing network is incomplete, oversea personnel need training.

Consume situation of vehicle market is stressed out since financial crisis.

No takeover experience at auto company overseas could be called up. It includes hazards in culture and procedure.

More and more home private brands emerge in vehicle industry likely access of new competition.

Management cover insufficient, Insufficient management depth

A high safe practices standard of international import and export electric motor vehicles

Inadequate financing functions. Capital situation is unpredictable.

Culture difference impact management style and sales product, oversea customers maybe refuse to adapt new products.

It will make investments large numbers of money to use in the further years.

The market system is incomplete.

Manufacturing strategy is deficient, low quality vehicles and less value.

New regulations exposed to politics problems in the countries that operate in, besides, taxation maybe launched on product or service.

6. 0 Current Situation and Recommendations

Independent Research and Development

There is no doubt that core technology is the essential of each company atlanta divorce attorneys industry. In addition, when Geely grasp the unique key technology in vehicle industry, it has the pricing ability and cost control, which is the main element factor of its globalization strategy. Therefore, Geely must put more energy on research on its own patents. It is highly recommended for Geely to create its own lab. Geely can get researchers and technicians by offering well-paid position and reputation.

2. Focus on domestic market

Chinese market is an enormous cake which includes abundant people and raw material resources. More and more international have rushed into China to be able to seize the new profitable market. Like a domestic enterprise, Geely has many unique advantages such as human network, government aids, and public patriotism. Domestic market is the stable back helps for Geely's international development.

3. Cross-cultural management

After acquisition, Geely has to take over some overseas factories, this means Geely has recruited hundreds and a large number of foreign employees. How to deal with them effectively will be the first problem for Geely. Cultural great shock, language obstacles, miscommunications, and staff turnover will be the main hurdles in Geely's management. It is suggested that Geely should pay attention to leadership theories. Empowerment, determination and teamwork are the key factors involved with Geely's management.

4. Authorities supports

In order to broaden international market, Geely has to face with different laws and regulations. Building a harmonious and cooperative romance with governments is essential. Geely's investment and development can boost local employment rate and increase local duty revenue. Simultaneously, authorities provides unique holds for Geely. Co-operation with government authorities is a win-win strategy.

5. Building a abilities training system

Experts and technology will be the core efficiency for a MNE. Geely can setup its own ability bottom part through establishing independent labs and donation to famous universities. Through collaboration with universities and labs, Geely can gain a reputation for hundreds and hundreds of students, who have potential to contribute for Geely in the foreseeable future.

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