Fiat Changing Business Environment Marketing Essay

ABSTRACT

This report focus on the FIAT group and analysis of its external business environment. It outlines the company’s background in terms of its history and product services, with major strategic milestones and key competitors. The operations in some of the tools used for the external analysis are the pestel and porters. As a result, strategic directions are proposed that will assist the FIAT group in sustaining and developing a successful performance in order to keep and improve its market positions globally. This report is also concluded of list of recommendation for the FIAT group.

CONTENTS

1 ABSTRACT

2. INTRODUCTION

2.1 INTERNAL ENVIRONMNET

2.2 EXTERNAL ENVIRONMENT

3. MICRO-ENVIRONMENT

KEY COMPETITORS

CUSTOMERS

SUPPLIERS

PUBLIC

PRODUCT AND SERVICES

4. MACRO-ENVIRONMENT

POLITICAL INFLUENCE

ECONOMIC INFLUENCE

SOCIAL INFLUENCE

TECHNOLOGICAL INFLUENCE

ENVIRONMENTAL INFLUENCE

LEGAL INFLUENCE

5. COMPANY BACKGROUND

MISSION AND VISION STATEMENT OF FIAT GROUP

HISTORY

6. SWOT ANALYSIS

7. RECOMENDATION

8. CONCLUSION

9. REFERNCES

2. INTRODUCTION:

Business Strategy is seen as one of the most important areas within Fiat group. It can also be defined as per Johnson Scholes and Whittington (2008, p.3) as “the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder’s expectations. As can be seen, strategy is a complex field and inevitably connected to Fiat companies’ success or failure. Thus it is vital for the organisation to constantly evaluate and adapt its strategy in order to be successful (Grant 2005 p.7)

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External and Internal Strategic Analysis of Fiat Group:

This part focuses on fiat’s performance by analysing both the external and internal environment of the company. External environmental forces refer to the macro-environment, the industry or sector, and the competitors that affect an organisation (Johnson, Scholes and Whittington, 2008). Equally important as the external environmental scanning is the analysis of a company’s internal environment to identify its strength and weaknesses (Hunger and Wheelen, 2009).This is also referred to as strategic capability which is defined as “the resources and competence of an organisation needed for it to survive and prosper” (Johnson. Scholes and Whittington 2008, p.95) for this analysis, the focus is on the car industry in the UK market in general, and the small car sector in particular

Business environment encompasses all those factors that affect a company’s operations, and includes customers, competitors, stakeholders, suppliers, industry trends, regulations, other government activities, social and economic factors and technological developments. (Business dictionary, 2010).

Basically business environment is segregated in between two categories

Internal environment

External environment

2.1 Internal Environment:

There are various components which particularly change the behaviour of employees. Events, Conditions and factors within an organization are few of them. Their activities and choices are under influence. Factors that are frequently considered part of the internal environment include the organization’s mission statement, leadership styles, and its organizational culture. Internal factor which occur inside the company are management, manpower, row material, machine, money.

2.2 External Environment:

EXTERNAL ENVIRONMENT is factor essentially outside the control of organizational members. Conditions, trends, and forces are few enlisted factors. External environmental scans are conducted in operations to identify and analyse important factors in the external environment. This analysis is often a critical aspect in all business or strategic plans.

External environment are classified into two major parts:

1. Micro-environment

2. Macro-environment

MICRO-ENVIRONMENT:

KEY COMPETITIONERS:

Fiats key competitors are the French companies Renault and PSA Peugeot Citroen, and the German Volkswagen AG (Hoovers, 2010).

Volkswagen (VW) is Europe’s number one carmaker with an annual production of more than six million car, trucks, and vans. The company operates in 153 countries and aim at position itself as the global economic and environmental leader among automobile manufacturers (Volkswagen Group, 2010) PSA Peugeot Citroen is present in 160 countries, and is currently focusing on its development in high-potential markets such as China, Latin America and Russia. On 2009 the company produced more than 3 million vehicles (Peugeot Citroen, 2010). Renault is present in 118 countries in sold more than 2 million vehicles in 2009 (Renault, 2010). Main competitors in UK are Ford and Toyota.

CUSTOMERS:

Customers play an important role in business environment. They are the key monitors on whose basis an organisation acts upon. They are the relation in between different business enterprises who purchase the services and products to their satisfaction (Collin English dictionary, HarperCollins Publishers 1991, 1994, 1998, 2000)

SUPPLIERS:

 Affiliations with the companies that supply your business with goods and services,(Grant, Scholes 2007). As a growing company, Fiat group focus on one of their factor of suppliers: price. And price is considered important when you are selecting suppliers to assist you as you grow your business. A cleric service which act as a substitute providing goods and raw materials available to achieve the need of demand proposed by the company.

PUBLIC:

Public are the targeted market components or individual who persuades interest in the business or the products and services. They capitalise shares in market. They may be directly or indirectly active to open market (Collins Thesaurus of the English Language – Complete and Unabridged 2nd Edition. 2002).

PRODUCTS AND SERVICES:

The Fiat Group is subdivided in different business units (automobiles representing the biggest business unit according to worldwide revenues (Fiat Group, 2010).

The Automobile business unit produces and sells cars globally under the Fiat, Alfa Romeo, Lancia, Fiat professional (light commercial vehicles) and Abarth brands. Additionally, Mascerati and Ferrari are also part of the Fiat Group (Fiat Group, 2010).

MACRO-ENVIRONMENT:

PESTEL Analysis

The macro-environment can be determined by using the PESTEL analysis. The PESTEL framework is an analysis tool that outlines factors affecting the company’s strategy, and allows the identification of key drivers of change (Johnson, Schnson, and Whittington, 2008).

Political influences:

Government regulation: the UK and the EU have the strictest regulation concerning emissions.

Issues with emissions are highly volatile; as if the manufacturer does not abide by the standards it will translate into higher running cost for the customers and likely to discourage them from buying.

Economic Influences:

Recession resulted in increased unemployment and lower purchasing power of customers.

Increased interest rates in bank loans for consumers.

Rising prices of raw material, especially for steel (Star, 2010).

Rising fuel prices.

Social influences:

Change in consumer’s buying pattern due to the recession: customers of more aware of the struggling car market and strive for better deals (e.g. Fiat 500 is priced with a high premium above the industry average for such a car).

Small car image and partly bad reputation of brand name.

Technological Influences:

Innovative technology deriving from the Japanese and German car market.

Rapid, high-quality inventions and developments from competitors, especially from key players like BMW , Volkswagen , Mercedes, etc

Eclectic-car (e.g. from Renault- Nissan) are not produced by Fiat yet.

Environmental Influences:

Environmental awareness of customers coupled with tough government regulations construct a tough market for Fiat, as all main competitors aim at producing eco-friendly cars with low of CO2.

The ‘peak oil’ scenario will affect the whole automotive industry, as oil is a finite resource.

Legal Influences:

EU competition laws.

Although Fiat is known as a producer of eco-friendly cars ( Automobiles Review 2010) tougher car emission laws could lead to increased production costs of cars.

5. COMPANY BACKGROUND:

FIAT is a word wide operating Italian automobile manufacturer, engine manufacturer, financial and industrial group based in Turin in the Piedmont region.

All though the FIAT group is present in many countries around the globe, its market position is especially strong in Europe and Latin America.

EUROPE:

Leading automaker in EU.

Faced sales decrease in 2008 due to economic environment.

Current market shares in UK is 4.02%

USA:

Moderate market shares in US (until) recent alliance with Chrysler last year and Canada market.

These two markets are currently considered as the biggest auto market in the whole world.

ASIA:

No significant market establishment of Fiat in this market. Some key players in this market are Suzuki and Tata motors.

The Asian market is also an emerging market and is untapped market for Fiat.

LATIN AMERICA:

Exceptional high sales in Latin America specially Brazil. Fiat market share in Brazil is 25.5% as of may 2010.

(Auto trends, 2010; fiat 2010; European motors news, 2010)

5.1 MISSION AND VISION STATEMENT OF FIAT GROUP:

FIAT’s mission statement says: “FIAT| is an automotive-focused industrial group and design and manufactures automobiles, trucks, wheel loaders, excavators, telehandlers, tractors and combine harvesters. In terms of its vision, the FIAT group, states “Innovation has an important place among the FIAT group’s core values and beliefs. Because the only way to meet the challenges of the future is to be innovative; innovative in everywhere and in every way. FIAT’s aim is to strike the balance in experience, creative and technology (FIAT group 2010).

5.2. HISTORY

The FIAT group (Fabbrica Italiana Automobili Torino), establishment in the year 1899 was one of the founders of the European Automobile Industry. It was developed under leadership of Giovanni Agnelli and made a successful presence in the Italian market as well as the international market. The FIAT group is now managed by Serigo Marchionne, who is the CEO presently. The Agnelli Family still controls FIAT by owning 30% of the shares for the FIAT group.

Right from the start, the company had a strong propensity for the international expansion and innovation. The company expanded outside Italy in 1908 when FIAT Automobile Co. was founded in the United States. In the meantime, Fiat also expanded to new sectors. In 1958 production started growing enormously and Fiat set up new manufacturing plants aboard. In the 1990’s the company escalated its expansion into international markets to cope with crisis, and achieved over 60% of its turnover outside Italy. Because of aggression competition, Fiat concentrated on developing markets and was prompted as an innovation brand at affordable prices. Today Fiats products are sold in more than 190 countries around the world (Fiat, 2010). Although the Fait Group engaged in many sectors, it redefined its core business area in 2003 by again focusing on the traditional automotive sector. As a consequence, certain business no longer considered strategic – such as the Aviation and Insurance Sectors – were sold (CSR Globe, 2010). The company returned to their first mission: to produce attractive, stylish cars with improved quality and exciting engines, accessible, focusing on a continuous overhaul of its products, on technological research and constructive relationship with the customer (Fiat, 2010).

In terms of its revenues and trading profit, the Fiat group is currently facing some severe decline as shown in figure 3. Revenues declined from almost 60 million down to 50 million Euros in 2009, and trading profit even declined to less than one third compared to 2008 (Fiat Group, 2010).

SWOT ANALYSIS:

“A SWOT analysis explores the relationship between the between the environmental influences and the strategic capabilities of an organisation when compared with its competitors.” (Johnson, Scholes and Whittington, 2008, p.118). With the help of the SWOT Analysis tool, it is possible to identify the strategic fit between the organisation’s internal and external capabilities and accordingly determining alternative strategies. By doing a SWOT analysis for the FIAT group, the company’s strengths, opportunities, weakness and threats can be outlined.

SWOT Analysis for Fiat

Strength:

With a brand name established over a decade, Fiat is known for its strong hold in the small cars segments and excellence engine technology. It also enjoys a huge brand portfolio including Ferrari, Mascerati, Alfa Romeo and Lancia (Fiat UK, 2010).

According to the SMMT data survey, the UK market has shifted towards the small cars recently (SMMT UK, 2010).

Fiat has the potential of producing innovative products, which has been the company’s driving force since the very beginning.

Fiat is the only automaker offering highly fuel-efficient cars and has the lowest CO2 emissions in Europe at 127.8g/km (Automobile Review, 2010) compared to the key players. Thus, Fiat is an organisation highly committed to environment sustainability and making a difference.

Fiat stands 8th in the ethical ranking in the automotive industry, which pushes the brand image and reputation (CSR International 2010).

WEAKNESS:

Fiat’s main focus on small cars segment only has been the reason for its low market share in UK/Europe.

As an approach to increase their sales, Toyota is focusing on building consumer confidence. Whereas Fiat focuses on new innovations and introduction of technology, but to an extent it fails to consider what their customers expect.

Opportunities:

The Asian economy still has a lot of untapped potential, which FIAT can look into.

Recent alliance with Chrysler who has appointed 130 dealers in US to represent FIAT is a good opportunity for the Fiat brand to market itself (Just Auto, 2010).

Due to Fiat’s innovative technologies, there is an opportunity for it to tap other markets as well as develop new market segments.

Threats:

Toyota and Ford remain two of the strong competitors for Fiat. With Toyota launching at least 18 new models in the European market 2009, it poses a major threat to Fiat’s market share. Toyota currently has a market share of approximately 5.01% in the Uk( Mad UK, 2010).

The recession has reduced the purchasing power of the customers in the last couple of years, which has resulted in a drop in demand for new cars.

Recommendation:

After conducting the different environmental analysis for fiat group, it is now possible to recommend strategic options available to the company.

In general, it is recommended for the Fiat group to follow which adapt differentiation and low price relative to competitors. This combination will help the company the gaining a strong competitive advantage. Fiat could move towards a low cost focus strategy in the emerging Asian markets. At the same time it can further tap the US market. This will also increase Fiat’s market share globally. By applying the hybrid strategy, the Fiat group is also able to capture the untapped Asian market with its cost and fuel efficient cars like Punto, 500C, Grande Punto, Linea etc. By focusing on improving its market share, Fiat will be able to gain economies of sale by cost savings. This is turn will provide resources to finance its R&D sector, which will give way for new highly efficient products for the markets, thus generating higher margins which will again increase Fiat’s market share.

Fiat could also move towards offering low cost cars to its customers by expanding in the emerging Asian markets.

It may also be recommended to tap the US market (untapped).

It should expand its activities in R&D (Research and Development).

The above strategies will help the Fiat group increase its market share not only in the UK but globally. It will also increase its economics of scale. Recommendation can also be given for the strategic development of particular products in the UK market. The GE-McKinsey Matrix for the Fiat Automobile Group in the UK, and its application to the strategy guidelines based on the directional policy matrix, also allow for the recommendation of future strategies. As a result of this analysis, the following strategies can be recommended:

For the Fiat 500, product investment and growth are required because the market is growing and if the business unit continues to invest in the market, it should see itself sustaining its growth.

For the Fit Bravo, selective growth would be useful, as this would allow Fiat to be more focused on the needs of the market.

For the Fiat multipla, the harvest /divest path can be recommended, as this would allow Fiat to keep their existing market share and diversify in due course.

CONCLUSION:

This report focused on the Fiat Group and its current performance. An external and internal environmental analysis was conducted critically, which allowed for the recommendation to Fiat. Based on the various strategic analyses done in this report, it can be suggested that the Fiat Group needs to adopt new strategies for the future. If the above mentioned recommendation combined and implemented successfully, they will not only help to sustain and improve the company’s business performance, but also improve its market position compared to key competitors in the automotive industry. With the rapid changes in technology and innovations, it is important for the Fiat group to be customer focused.