PSA Peugeot Citroen and world automobile branch Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Opportunities and Threats related to each tendency of PSA Peugeot Citroen

I think the company’s tendency towards the reduction of its operating expenses with a purpose to improve the quality of its vehicles was an opportunity for the improvement of its brand image and expanding its customer base. It had been observed that the company was suffering from certain financial crises in 2009 and after the approval of 3 billion Euro loan from the French Government; it had declared a reduction of 11,000 employees in addition to the 18,000 already dismissed employees. Hence, the development of new models and getting entry into the new market territories and segments could be proved as a potential threat to the company’s survival. However, the improvement of relationships with the existing and certain prospective alliances would provide the company an opportunity to get an easy access to the new market segments and territories without spending high expenses on advertisements. The company’s tendency towards focusing upon the Chinese and Brazilian market would provide an opportunity for market expansion, but on the other hand, it could pose a threat of high competition from other established local industry giants, i.e. Suzuki, Hyundai, etc…

In order to understand the degree of competition faced by the company and the potential threats of new entrants along with the community of markets and similarity of resources between the main competitors in automobile branch, Porter five forces analysis has been conducted, which is given below.

Threats of New Entrants

Threats of new entrants were very low because the new companies would not only need to meet financial requirements, but also require a competitive structural capital (contacts with distributors, suppliers, researchers, buyers and innovators, etc….) which would be important to compete effectively against the existing players. It would also be difficult for the new companies to achieve economies of scale because in order to compete in such a high capital intensive industry, it was very necessary to have a high revenue stream with high profit margins, which would be only possible after achieving economies of large scale production. Apart from these issues, the new entrant would have to deal with price pressure and the influence of high brand recognition of the existing players. It would also require to deal with different types of government regulations because in most of the countries automotive industries were considered as a strategic advantage and they would go far to protect their local industry, i.e. USA and Germany, etc…

Threats of Substitutes

Threats of substitutes were moderate because in present world public transport, train, cycling, planes, and walking, etc… could be considered as substitutes to the automobiles. In this industry threat of substitutes also depends upon the cost of vehicles, which means that the higher the cost of buying and maintaining an automobile, the higher the chances that people would go for substitutes.

Power of Suppliers

The power of Suppliers was comparatively low in the automotive industry because a large number of suppliers were present in the market against a relatively low number of manufacturers. Suppliers in the automobile industry were supposed to provide only raw materials, labor, parts and services, therefore, they hadvery low power and the manufacturers had a very high price sensitivity.

Intensity of Industry rivalry

There was very high competition in the automotive industry, therefore, industry rivalry was also very high because the automotive industry was almost reached to its maturity, which means that the market share of one player could be increased by compromising over the market share of someone else. The company faced a strong rivalry from Volkswagen in the European market, whereas in the Chinese market, it was facing a tough competition from Suzuki, Hyundai, Fiat and Renault. There was a lack of differentiation opportunity in the automotive industry because except very few companies, all the other manufacturers were producing more or less the same types of products, which had shifted the competition towards increasing brand recognition and price pressure. The company was also facing a high competition from certain local industries of China and Brazil. Almost all the big manufacturers in this industry like, FORD, BMW, Mercedes, Renault, etc… had a multi-market access, which means that all these companies are operating internationally. This had also increased the competition in the branch.

Power of buyers

Buyers in this industry enjoyed moderate to low powers because on one side if they were high in numbers and had a high collective power over designing the market trends and manufacturers' decisions, then on the other side they were enjoying a very low switching power. So, the overall power of buyers was reported from moderate to low. Buyers had an easy access to the design and other features of a car through the internet and they would make their decision for the best one, which had increased their power over the manufacturers..............................

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