The automobile industry is facing a number of challenges in addition to fierce competition in the market. Global car manufacturers are looking for more ways to sustain their business in the more regulated automobile business environment. There is an increasing pressure from the environmentalists on car manufacturers, since they are keen to see cars, which contribute more to protection of the environment than cause more pollution. Similarly, consumers are becoming more concerned about their safety. In order to meet these challenges, PESTEL analysis is done in order to predict possible drivers for change that can sustain business in the future, (Yuksel, 2012).
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Looking across various governments across the world, there exist great roles to be played in adoption of various technological advancements. However, many countries have played little roles in encouraging use of modern technologies in production of automobiles that are eco friendly, termed as “green cars”. Government incentives are the widely used form of encouraging automobile companies to adopt more “greener car manufacture” in the US. The federal government has been active, acted as venture capitalist, and encouraged manufacture of automotive battery and electric cars by funding new ventures. These perspectives points the greater emphasis the federal government has towards environment protection and production of efficient pollution free cars.
These trends present great challenge to Volvo Company in marketing and manufacture of its automobiles in the US market. Similarly, regulatory frameworks are not universal and automobile companies will be forced to adopt multipronged approaches in order to maximize returns on their investments. Volvo might be forced to concentrate on the US market as a single entity and directs its production line in line with this market requirement.
PESTEL Analysis of Volvo – A Case of the USA Market
World automobile manufacturers are looking at a variety of ways in which adopt green technologies. However, the diversity of regulations within different markets dictates the type of strategy to adopt in a specific market. Stop-start technologies, for instance, are expected to be widely adopted in Europe and not in North America. This presents a clear perspective in which Volvo can tailor its car production strategies to meet the demands in the North American market. The Chinese have adopted small-car production, which produces new energy vehicles (NEV’s), and this is likely to make them global leader in production of small cars. These vehicles are efficient and eco-friendly. This should ring a bell to Volvo in regard its major US market, which is more sensitive to environmental protection and where most families are single couples or having less than two children, which makes smaller cars ideal for such market.
The energy and independence security act of 2007 regulates the standards of environment in the automotive industry in the North American market. This act has increased the corporate average fuel economy (CAFÉ) on the US market from 27.5 mpg to 35 mpg concerning its model year for 2020 by OEM’s. These are the regulations Volvo Company should be braced for in the North American market.
A good analysis of external environment shows great potential for car manufacturers if they adopt good strategies. Volvo is one of the leading car manufacturers who have adopted key strategies to address its business challenges, (Volvogroup.com, 2014). The company faces a lot of pressure from government regarding environmental protection and this affects the company the most in its two major markets – USA and Europe. The USA government has strict environment policies and regulations that any automobile company must meet in order to continue with its operations in the country. These emissions are currently governed and regulated for most vehicles in the USA. The types of emissions that are determined before a vehicle is given license to operate, includes total hydrocarbon (THC), nitrogen oxides, non-methane hydrocarbons, particulate matter and carbon monoxide. These analyses are carried out and determined by running the vehicles on standardized test cycle. These regulations determines the success of Volvo in USA market, given the fact that these regulations are also ever changing and cover diesel and gas fuel vehicles with varying degrees.
Laws and regulations have affected the manufacture of the cars since its outburst. Moreover, this has always made car manufacturers to take into consideration the environmental issues during their car manufacture. In the USA, new schemes were introduced in the automobile industry and these regulations led to increased production of cars with high mileage. There are extreme foreign policies adopted by the US in order to protect its local automobile company – CMC, which is just recovering from its worst economic recession.
Similarly, other regulations that govern the North American market exist, and these include the provisions of NAFTA trade agreements. NAFTA liberalizes trade operations between USA, Mexico and Canada in addition to making it easier for foreign investments are eliminating certain trade barriers.
The socio-cultural analysis of USA reveals a greater challenge for Volvo in this market. The country is a developed nation and the population growth rate is flat. Most of the cars seen on the roads are for couples who use them to commute to work. The population of the USA is sensitive to environmental impact and the safety and it is for these reasons that such population is keen in their choice of vehicles, (Gordon et al., 2010). The country’s policies regarding pollution are so expansive. It involves lower insurance fees, free parking and tax incentives on vehicle owners who posses environment friendly vehicles.
One other major aspect that determines car ownership in US is the car efficiency. Many of the US citizens are sensitive to cars, which consume a lot of fuel. There is rising global fuel prices and this has attracted more attention on fuel-efficient cars since this will always allow its operators to make more savings. Volvo therefore faces a number of challenges in order to meet the demand of its customers in the US market.
The rapidly changing technology and presence of fierce competition means that in order to satisfy current market needs, there is need to adopt latest technology in the market. In the US, the citizens are conscious of new developments in the technology. Modern car manufacturers especially CMC and Toyota Japan are embracing new technologies in their car manufacture and this means that Volvo has to follow suit in order to satisfy and be able to compete in the technology sensitive US market, (Townsend & Calantone, 2014). USA forms a great technological hub and many studies and research related to automobiles and other electronics means that the citizens are well informed of latest technological advancements.
The world economy has just recovered from recession. However, there is general rise in exchange rates in addition to unstable interest rates in the major markets of developed economies. The US citizens have high disposable income compared to other economies, especially those of developing countries. In addition, there is increasing amount of disposable income and majority of the workforce in the country is very skilled. The availability of skilled workforce provides a mechanism in which the company can get workers for its product and the amount of disposable income makes US a major market for Volvo, (Volvogroup.com, 2014). However, there remain major challenges regarding globalization and international economic uncertainties that makes US most vulnerable to economic recession.
The Strategies that Volvo Can Adopt in Order to Cope With These Challenges
PESTEL analysis provides a framework upon which a company can lay its strategic focus in order to ensure company sustainability in the end. It is evident from above analysis that although US market offers a great opportunity for growth and more sales, it is quite clear that the company has to meet some of the challenges the market offers, in order to ensure it success in addition to beating off the competition from US local automobile manufacturer, CMC Motors.
In order to overcome environmental related regulations, Volvo needs to study the regulations of the US federal government regarding vehicle emissions and incorporate them in their car manufacture in order to ensure that the company produces cars with acceptable quantities of emissions. The fact that the US population is sensitive to environment means the company needs to produce vehicles that are eco-friendly in order to give such population opportunity to enjoy such benefits as parking incentives, lower insurance fee and other incentives, (Harrington, 1997). In addition, the company must look into use of lightweight material. Volvo should involve its research and development team into determining how best to use such material. For instance, the use of carbon fibers and semi-finished textile products has been shown to reduce the amount of emissions and this can be used in vehicle production. All these strategic adoptions will go a long way in enabling the company to overcome the challenges associated with environmental pollution and related regulations in the United States of America.
In addition, there are a number of incentives that Volvo can benefit from its investments in the American market and these includes the federal government funding of Advanced Battery Loan Guarantee Program that is available for development of manufacturing plants for vehicles using battery and battery systems. In addition other incentives includes Advanced Technology Vehicles Manufacturing (ATVM) Incentive Program that provides loans for manufacture of vehicles in the US, with larger mileage and that can lessen the dependence of the country on foreign oil. This provides a clear mechanism in which Volvo can exploit in order to meet the market regulations in the US.
Volvo has three steps its follows in the manufacture of its automobiles, and these makes the company more suited, ready and adapted to ever changing and strict environmental regulations in the USA. The company manufactures vehicles that are fuel efficient, use bio-fuels and these helps it to reduce the impact of environmental pollutions by its automobiles. The company has also employed electrification in its manufacture of electric vehicles, plug-in hybrids and serial hybrids creating key strategies for its medium term product terms.
It is worth noting that Volvo needs to assess the market requirements in terms of minimum emissions under the federal regulations and in addition tailor such requirements in order to ensure that customer needs are met. In addition, the company should not focus only on current regulations in the market but make anticipation of what the future trends regarding population awareness on effects of vehicle emission on their health as this could be a major determinant in their willingness to buy the company products.
The company can overcome political factors by ensuring that the company operations are in conformity with the federal requirements for the operation in the country. The company has to outline its policies in order to ensure that they take into consideration the policies of the government that seek to protect its local automobile manufacturers. The presence of trade ties between USA, Canada and Mexico can provide better avenues in which Volvo can overcome political barriers towards investments in the region.
In order to overcome technological related factors, the company can do this by investing in continuous innovative strategies that ensures the company remains abreast with other major car manufacturers to ensure its long-term survival. In this regard, the company should invest in shared technology in order to ensure that it introduces technology at an increasing rate. Modern strategic plans that involve collaboration are more common, (Azibi & Sardas, 2002). Volvo can adopt collaborative strategies with the automobile manufacturers like Ford in order to share technological advancements and ensure they provide modern fuel-efficient cars in adopting latest technological innovations. Ford has become the first automobile manufacturer in the US to produce the most fuel-efficient car in the country and this makes it a worthy company in which Volvo can collaborate in order to share the new technological idea.
The company can overcome social factors by building smaller cars that are designed to accommodate the smaller families since the country has flat growth rates and most of the people buy cars to commute from home to work, mostly couples and their children. It would be pointless for the company to manufacture big cars for such an economy. In addition, most of the consumers in the US have a belief that smaller cars cause less pollution to the environment.
Volvo can adopt collaborative strategies with Chinese based firms in order to manufacture small fuel-efficient vehicles that are most suited, market specific, in order to cover well the USA market segment. The Chinese automobile manufacturers are set to become global leaders in the manufacture of fuel-efficient cars and this provides good criteria for collaboration in order to beat off likely effects of competition in the huge North American market, (Townsend & Calantone, 2014). This also acts a strategic focus to remain in the competitive market, which could soon be overtaken by the mass production of automobile products from the Chine economic powerhouse.
Finally, the company can overcome the economic challenges in the country by manufacturing its products in the US market since the country provides skilled workforce and latest technology. This provides another important element of proximity to its customers and this has an added advantage of reducing the cost of manufacture and ensuring that the costs of the vehicles is cheaper than when manufactured in its parent country.
Volvo can exploit the potential in the North American market, which has relatively stable market with huge disposable income by setting its manufacturing base in the US. This has an added advantage of the company benefiting from the investment incentives that the federal government provides for the automobile manufacturers whose production are directed towards production of “green vehicles”.
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