Business Simulation

Keyword

Business simulation, reflection report, automotive industry, Team Organisation, Environmental and internal strategic analysis, strategic brief, strategy review, internal control system, financial analysis, conclusion, leadership, teamwork, storming, norming, forming, performing, PESTEL, Porter diamond, Porters five forces, start up, market penetration, profitability, new products, relaunch, R&D, KPI, Product portfolio and target markets, SOWT, marketing mix, 4 P, Product, Price, Promotion, Place, Plan, Results, Lessons learned, miscommunication, communication process, COSO, Internal control framework, 5 year trend, profitability analysis, efficiency analysis, investment analysis,

illustration not visible in this excerpt

Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. In order to reach this conclusion, PESTEL analysis is done to identify the key drivers of change that can be used to predict the scenarios for the future.

All this information has been taken into consideration in the development of "elights" strategy.

Political: increased taxes can reduce consumer purchasing power, on the other hand, subsidies to manufacturers can reduce the unit cost, making it more affordable.

Economic: for the company financing a future expansion could prove expensive or difficult, for consumers, continued economic uncertainty effects buying decisions.

Sociocultural: the present situation offers the opportunity to acquire a highly skilled work force at a lower cost. The present affinity for all things "Green" fits in well with the company's proposed designs. Financial pressures amongst buyers, and market sentiment, are likely to result in a further shift in purchasing pattern, with people moving from large cars to the medium, or city sector.

Technological: since all models will be built to a totally new design, state of the art innovations can be incorporated from the beginning, avoiding the cost of adapting new technology to legacy designs. The use of robots in manufacturing industry has continued to grow steadily, driven more by the quality benefits than the original idea of manpower replacement for dirty and repetitive work.

Ecological: increasing consumer awareness of environmental protection can be exploited through targeted marketing.

Legal: future emission, safety and consumption regulations are being considered in the early design stage to minimize production cost increases. An emphasis on quality will be maintained in order to reduce or eliminate product liability issues.

illustration not visible in this excerpt

The idea of the Diamond Model for the competitive advantage of nations was developed by the American scientist Michael Porter. According to Porter, in maintaining competitive advantage, it is most important for companies to innovate constantly. The so called "Porters Diamond Model" are five intertwined factors: Factor Conditions, Demand Conditions, Related and Supporting Industries, Firm Strategy, Structure, and Rivalry, Government and Opportunities. Government and Opportunities are also important factors in his model.

1. Factor Conditions: the European market offers a highly skilled, well trained automotive industry work force which at present are either working short work weeks or are unemployed. The economic downturn has put negative pressure on wages which is to "elights" advantage. An extremely highly developed transport system, energy distribution network and a relatively well developed, if not somewhat stressed, financial system exist in European market. A trend toward regulatory harmonization across Europe eliminates or reduces certain regulatory costs.
2. Demand Conditions: present economic situation has reduced demand, at least temporarily. Economic improvement will be accompanied by increases in demand. A challenge will be to match output with demand while remaining capable of reacting quickly to upturns in demand. This will be accomplished through investment in automation.
3. Related and Supporting Industries: a well developed auto supply industry exists in the market. Excellent opportunities for research and development cooperation exist with well regarded universities and institutions.
4. Firm Strategy, Structure, and Rivalry: concentrated in the middle sized market in Europe with three different models (fun, classic, prestige) with middle range to luxury prices. The firm aims to produce cars that offer enhanced value for the money. State of the art, innovative mass production processes will be incorporated. The company is organized as a limited liability company with an integrated management hierarchy which encourages exchange of ideas between all stakeholders. Typical competitors are considered to be Peugeot, VW and Skoda, Opel (Vauxhall) and Ford.
5. Government and Opportunities: Government taxation and regulation can affect sales and costs as well as of course profit. With the uncertainty of the financial situation forecasting for the future is made more difficult. Natural disasters such as severe weather events, geological events or other unforeseen environmental occurrences also add to the difficulty of making predictions.

illustration not visible in this excerpt

To understand the automotive industry and which strategic solutions are required for elight cars, it is necessary to understand the industry's options. The following analysis is based on Porter's five forces and helps us understand the automotive industry's opportunities. According to Porter, the threat of new entrants, bargaining power of buyers, threat of substitute products and bargaining power of suppliers and the rivalry in the industry are the five forces that determine the intensity of industry competition and the profitability level ofthe industry. Attractiveness refers to the overall industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition".

Product Substitute: Porter states that substitute products 'limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge' (Porter, 1998, p. 23). With regard to the automotive industry, threats of substitutes can arise from within the industry as consequence of competition and from outside through the prevalence of other forms of transport (e.g. public transportation, bicycles, planes, etc.).

Threat of New Entrants: The largest entry threat is represented by low cost East and South Asian automakers. In spite of this the weakened Euro offers unusual protection in the form of unfavourable exchange rates which work against importers. “elight cars” designed to offer better value for the money compared to established competitors. Attractive and innovative design differentiate “elight” from the others. As an additional measure, “elight” will invest in Market Research the sum of 5 million Pounds and for Data on the Competition 10 million Pounds.

Power of Buyers: The automotive industry is supported by the demand of the consumer. Cars are standardized and switching costs for consumers from one to another company are low; therefore the powerful fragmented consumer structure accounts for a significant portion of the automotive industry's total output. This and other changing behaviours such as getting more price-sensitive enquiries for small and environmentally friendly cars puts the industry under pressure. Marketing efforts can be directed to those consumers who still possess strong buying power. Incentives will be used to attract those consumers whose buying power has been negatively impacted by recession.

Power of Suppliers: The number ofsuppliers operating in an industry affects their individual bargaining power. In the car manufacturing industry, the number is staggeringly high. Firms are able to source their parts from a range of different suppliers - often just concentrating on the automotive industry - operating in a fiercely competitive environment. Changing suppliers is convenient and inexpensive, which further increases rivalry. Elight cars will take advantage of the present glut of Suppliers capacity. Pricing pressure can be brought to bare on Suppliers to ensure the lowest possible cost of goods.

Intensity of Rivalry: The automotive industry is split among a few closely balanced players, which indicates an oligopoly market structure. The competition is high as all players are well established and grounded in particular characteristics. To develop elight cars business and raise market share, they need to attack the competition. Marketing will be utilized to build brand image and to increase market share.

illustration not visible in this excerpt

The overall strategy of elight cars is to become market leader in the medium size car segment with focus on innovation and sustainability. The medium size market is the largest market of the automotive industry. To be competitive especially in the case of a market entry the prices of cars shouldn't be to high to attract the market. The strategy of elight cars is therefore to beat the competition with high volumes instead of high margin on each single product.

This slide shows the development of the overall strategy in a5 year focus plan in terms of: 1. column: year and overall focus of the year (FOCUS).

2. column: most important actions of the year (OBJECTIVES).
3. column: number of cars (product portfolio) planned to be offerable (PRODUCTS).
4. column: plan of plants available (PRODUCTION CAPACITY).
5. column: plan of developing the market in terms of increasing or decreasing market share (MARKET). Please be aware that graphics simplistically show the increase and decrease and are not precise values.
6. column: focus on companies margin: € = the margin should be low or negative as result of the market entry and therewith connecting investments. €€€ = the company should achieve break-even as a result of developing brand recognition after 2 years and therefore should earn further positive results (sustainable) to be able to invest and develop new innovations which are both part of the strategy (MARGIN).
7. column: plan of investments in research and development: € = low investment, €€ = medium investments, €€€ = high investments (R&D).
8. column: plan of investments in marketing: € = low investment (1-30 mio), €€ = medium investments (31-60 mio), €€€ = high investments (over 60 mio) (MARKETING).

illustration not visible in this excerpt

Elights most important key performance indicators are market share and sales volume in terms of achieving the strategy of becoming market leader in the medium size car segment and EBIT margin and share price to be able to be innovative (for investments) and sustainability (for investors).

[...]