Porter’s Five Forces
Holden is an automaker in Australia with its headquarters based in Port Melbourne, Victoria, and is a General Motor’s subsidiary company, a widely known automaking company, based in the United States (Singh, Smith & Sohal 2005 p.3380). Initially, Holden started its business in 1856 and is currently placed among the seven international General Motors fully integrated operations performing the selling, building, and designing of vehicles across the world, and mainly in Australia. Holden has operations for vehicle manufacturing and an on-site engineering manufacturing plant based in Adelaide. The company’s strong dealership which consists of more than two hundred and fifty dealers enables it to easily distribute its vehicles. Holden has a production of more than forty-two car models for both its international and domestic customers. The company possesses the core expertise of the engineering and designing performance for General Motors globally. Therefore, the distribution and manufacture of the motor vehicles, engine, parts, and components are the company’s main business which is mainly performed through Holden’s dealer network comprising of more than two hundred and fifty authorized dealers (Simpson, Power & Samson 2007 p.32).
Michael Porter’s five forces model provides analysis which is detailed of how the Australian car industry is competitive and helps in the assessment of the company’s strength and competitive position in the market (Bracks 2008 p.47). A competitive strategy which is successful showcases the attractiveness of the industry which the company does business, and its relative position in the industry. Porter’s five forces are the rivalry between the existing competitors in the market, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the threat of new entrants into the market.
The threat of new entrants affects the automotive industry in Australia since increased profits being made by existing companies usually attract potential new companies to enter the industry with an aim of making profits as well. Additionally, brand identity, government policy, access to distribution, switching costs, capital requirement, and economies of scale are characteristics which are leading to new organizations entering the automotive industry. New entrants increase capacity hence may result in wars over price and the increase of costs so as to sustain the company’s position in the market. The potential for making more profits is reduced when market entrance is easy for potential new organizations. However, since Holden has financial resources which are adequate, there is the low threat of new entrants towards the company. The industry has successfully attained economies of scale since it is a General Motors’ subsidiary company hence it has attained maturity. To compete in the automotive industry, potential competitor organizations must have achieved economies of scale (Geroski & Jacquemin 2013 p.12).
PESTLE Analysis
The bargaining power of suppliers in the automotive industry in Australia includes all other industries manufacturing original equipment, seat and tire manufacturers who strategically bargain on the price of their auto parts. Compared to suppliers, automakers are in a better bargaining position. According to Rahim, Shanks, Johnston & Sarker (2007 p.7) many suppliers in the automotive industry depend on a single or two suppliers hence do not possess a strong bargaining edge. The supplier bargaining power is dependent on their reputation, as the supplier is able to shift from one organization to the other if they can provide products of high quality.
In the automobile industry, being powerful as a buyer is essential since the industry is based on consumer tastes and preferences, and the producers of automobile products are many resulting to consumers having a variety to choose on where to purchase their products. For example, considering the car’s market, many world-class manufacturers produce different cars ranging from luxurious, big, small, and mid-size, hence consumers are free and have an alternative of purchasing a car from any manufacturer.
Availability of substitutes like bikes, train, or bus usually affects the automotive industry. Increased costs of vehicle maintenance and other factors like fuel price, income, personal preferences and time may result in consumers shifting to alternatives. In the car industry, consumers may purchase cars not for their requirement but for the achievement of a particular social echelon, to fulfill a dream, and for convenience. Therefore, inability to afford the car will result to the consumers shifting to a substitute (Lansbury, Wright & Baird 2006 p.83).
The cost of competition in the automobile industry is highly elevated resulting in rivalry among the industry and low returns. To survive in the competition, companies in the automobile industry have to ensure that they invest large amounts of finances. Additionally, willing companies usually form acquisitions and mergers. For example, Volkswagen has in the past acquired Skoda, Bentley, and Audi with the intentions of increasing its market share. The acquisitions have enabled the company to attain the third position in the automotive industry.
Pestle analysis is a concept in marketing principle that is used as an analytical tool by different companies to track changes in the environment they are operating in or planning to launch a product, project or service they are operating. Pestle includes political, economic, social, technological, legal and environmental or ecological factors in the macro environment. Furthermore, the information gathered from pestle is used to determine the current position of the company within the market.
Political Factors
Political factors are determined to extending at which government influences the economy of an organization. The withdraw for the passenger of motor vehicle manufacturing was associated with a political dilemma as many people opposed the government for the heavy taxations that provided a tough environment for the company to survive (Conlon & Perkins 2018 p.13). Furthermore, the decision of the government to reduce the salaries of carmakers was a major blow for the organization considering that there were changes in trade tariffs, fiscal policies, and tax policies. However, the withdrawal of this company significantly affected the economy of the country as a nationally lost million of revenue. New government rules promoting local sales were also were passed with imports being limited and government encouraging local company’s development (Clibborn, Lansbury & Wright 2016 p.8).
Economic factors are determinants for the performance of the economy influencing a company directly and results in long-term effects. The inflation rates in the economy also affected the prices and services of the Holden’s company hence changing the consumer purchasing power and supply or demand models in the country. Furthermore, the country was going through a recession and raw material suppliers curtailed the expenses significantly leading to low sales turnovers. This recession and high inflation rates was a blow to the cost of services and products of Holden’s as the more tax were implied on customers implied the diminishing income hence resulting in lower expenditures. The withdrawal of passenger’s motor vehicle manufacturing left a wide gap on macro-environment resulting in huge unemployment rates in the country. The currency circulation of the nation decreased as potential customers minimized their purchasing habits as the majority of them finds it difficult to purchase motor vehicles from competitors (Wright, Clibborn & Lansbury 2011 p.178). The other countries also took advantage of the withdrawal and increased the prices of their vehicles as now countries depended so much on importing vehicles rather than manufacturing in their own country.
Social factors examine the social environment of the market by gauging determinants like demographics, cultural trends, and analytics of population. Social factors was a boom for the organization after it served in the industry for a long time and emerge to be a leader in sales and services in Australia (Valadkhani & Smyth 2016 p.690). Furthermore, the company had a branded name and status with the company being associated with endurance and reliability. However, the company faced social setbacks because of the attitudes and values of the consumers and negative strategies imposed by the management of Holden’s company. The replacement of bulky and consuming engines with engines that were believed to have high technology fuel efficient like hybrid was a huge blow to the company as the sales diminished rapidly. This led to a number of populations developing a culture of considering vehicles manufactured by other developed countries like the United States instead of local companies like Holden. Furthermore, the closure of Holden Company led changed the lifestyles of many people in the country as many people opted to start owning their private cars that have led to congestion in some Australians cities.
Economic Factors
Technology determines the progress of a firm as the companies should be flexible to change rapidly with customers’ demands that might change because of advancement in technology. Holden Company faced a stiff competition from external manufactures that were far ahead in terms of competition (Gollan et al. 2013 p.3). This was one blow to the company as many local customers turned their attention to other external manufactures leading the company to have stagnant sales. Furthermore, the competition of technology advancement has changed the world today as many passengers’ busses in Australia have implemented technologies like wireless fidelity that enables passengers to access the internet on their journey.
Conclusion
The macro environment that surrounded Holden Company was quite tough for the company to survive in the competitive environment with government policies and diverse cultures leading to its closure. Despite the company having a variety of opportunities to improve its management and products, it faced threats with some new and existing companies posing a great competition to the company.
References
Bracks, S., 2008. Review of Australia’s automotive industry. Washington: TRB Publications
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.
Conlon, R. and Perkins, J., 2018. Wheels and deals: The automotive industry in twentieth-century Australia. UK: Routledge.
Geroski, P.G. and Jacquemin, A., 2013. Barriers to entry and strategic competition. UK: Routledge.
Gollan, P., Bendemra, H., Ergas, H., Van Acker, E., Economou, N. and Toner, P., 2013. Holden to cease making cars in Australia by 2017: experts react. University of Wollongong: New South Wales, Australia
Lansbury, R., Wright, C. and Baird, M., 2006. Decentralized bargaining in a globalizing industry: The automotive assembly industry in Australia. Relations Industrielles/Industrial Relations, 61(1), pp.70-92. Washington: Spring publications
Rahim, M.M., Shanks, G., Johnston, R. and Sarker, P., 2007. Organizational motivation and interorganizational systems adoption process: Empirical evaluation in the Australian automotive industry. Journal of Electronic Commerce in Organizations (JECO), 5(3), pp.1-16.
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
Singh, P.J., Smith, A. and Sohal*, A.S., 2005. Strategic supply chain management issues in the automotive industry: an Australian perspective. International Journal of Production Research, 43(16), pp.3375-3399. UK: Taylor & Francis
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
Valadkhani, A. and Smyth, R., 2016. The effects of the motor vehicle industry on employment and research innovation in Australia. International Journal of Manpower, 37(4), pp.684-708.
Wright, C.F., Clibborn, S. and Lansbury, R.D., 2011. Becoming an endangered species? The future viability of Australian automotive manufacturing. International Journal of Automotive Technology and Management, 11(2), pp.172-188. UK: Inderscience Publishers
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