Understanding the macro-environment and its impacts upon business operations is imperative for all organisations to retain competitiveness in the industry they operate (Capon, 2011). The external environment is frequently changing, thus analysing the environment using a PEST analysis can outline the factors that may affect or influence their future strategies. The external environment cannot be controlled by organisations, but careful analysis on current and future opportunities and threats enables them to plan a long-term strategy (Morrison, 2011).
Jaguar Land Rover: Background
Two uniquely British and distinct brands were brought together in 2008 when Tata Motors purchased Jaguar and Land Rover from the Ford Motor Company. Jaguar and Land Rover officially merged as one company in 2013 (Jaguar Land Rover, 2016). At present, Jaguar Land Rover has eleven vehicle lines that are produced in three assembly plants located across the United Kingdom, as well as two design and engineering plants.
As a leading prestigious manufacturer in Britain, the brand is also recognised globally. JLR is one of the UK’s largest exporters and currently sells in 154 countries. Despite the ferociously competitive automotive industry, on a national and international scale, JLR does not consider competitors a threat. In fact, Elizabeth Hill Chief Product Engineer at JLR has said ‘competition creates interest, innovation and a fast-paced market’ (Webinar at UoG, 2016).
For the road ahead, JLR plan to expand into and define new product segments through driving innovative technologies. Elizabeth Hill stated ‘technology is fun… consumers want more but want to do less’ (Webinar at UoG, 2016).
A PEST Analysis of the Automotive Industry in the UK
A Summary of PEST Factors Affecting Jaguar Land Rover and the Automotive Industry in the UK
Political / Economic / Sociocultural / Technological
Changes in Governmental decisions resulting in:
- Introduction of import and export trade barriers
- Introduction of strict emission regulations Britain’s decision to leave the single market resulting in:
- Potential market decline
- Economic uncertainty
A reduction in gross value added to the economy Change in consumer’s attitudes resulting in:
- An increase in cars on UK roads
- Increased demand for new vehicles
‘Green’ consumers: a shift from ‘style to eco-conscious’ Progression in research and development and consumer demand resulting in:
- Connected cars
- Autonomous vehicles
- Electric vehicles including AFVs
Political Factors: For many businesses operating in the UK, 2016 was a very turbulent year in politics. The EU referendum saw 52% of voters opting to leave the EU, with the consequences of doing so are still currently unknown (BBC, 2016). With many automotive brands residing in the UK, the outcome of Brexit could potentially be damaging.
Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), has stated that British manufacturers need to be part of the EU single market to thrive, otherwise their success could be jeopardised. Thorough research has proved evident that Europe is the biggest market for British manufacturers; over 70% of cars made in Britain are exported to the continent (Financial Times, 2016).
Furthermore, the introduction of new tariffs at the World Trade Organisation rate of 10% could make business uncompetitive, impact manufacturers supply chains and will make vehicles less affordable for Europeans (The Guardian, 2016).
Mike Hawes said ‘the government must do all it can to maintain the competitiveness of the UK automotive sector which has been hugely successful in boosting exports, creating jobs and generating economic growth in recent years’ (The Guardian, 2016).
Economic Factors: After the historic event of Brexit, economists predicted Britain would suffer major financial consequences, but it has yet to have an adverse effect on the economy. Predictions of economic instability and market decline are expected to take effect as we embark into 2017 (SMMT, 2016).
The automotive industry has been described as a ‘star performer’ of the UK economy in recent years. The SMMT have declared the UK’s automotive industry is a crucial sector of the domestic economy, accounting for more than £71.6 billion turnover and £18.9 billion gross value added in 2015. In the same year, the industry exported £34.3 billion (77.3% of UK built cars) to more than 100 countries, which accounts for 12% of total UK export of goods. The automotive industry accounted for 4% of GDP (£60.5 billion) in 2014 (SMMT, 2016).
However, leaving the EU inevitably means that the introduction of tariffs, custom charges and other trade barriers will affect exports. In theory, the weak pound should help UK exports by making them cheaper in overseas markets but a loss of access to EU trade deals will hinder this opportunity, particularly as Britain does not have the bargaining power to negotiate deals as effectively as the EU. This is notably concerning as the EU made up 57.5% of all UK exports in 2016 (The Guardian, 2017).
Sociocultural Factors: Morrison (2011, pp. 212) states economic development often brings prosperity, thus attitudes towards large financial commitments are changing. There has been a noticeable shift from purchasing used cars to new registered vehicles and this consumer trend is continually growing (SMMT, 2016).
New car registration volumes have soared in the UK in the last decade; 2014 saw the highest number of new vehicle registrations since 2004. A record 2,633,503 cars were registered in the UK in 2015, up two million from 2014. Despite the growing popularity of entering a contract on a new vehicle, there were 7.1 million used car transactions in 2014. The number of cars on UK roads is also increasing, reaching 33.5 million cars in 2015 (SMMT, 2016).
There has also been a shift towards purchasing eco-friendly cars in the UK with consumer attitudes changing from ‘style to eco-conscious’ vehicles, hence the increase in new vehicle registration. A new car purchased in 2015 is typically 18.4% more fuel-efficient than a car purchased in 2010. CO₂ emissions on new vehicles have also reduced significantly in the last decade by 26.4% due to the growing popularity of alternatively fuelled vehicles (AFVs). The SMMT have announced ‘a collaborative government approach will help to move the UK towards a more sustainable and low carbon future’.
Technological Factors: With several ‘disruptive’ technologies penetrating the automotive industry, manufacturers are seeking ways to adapt their models to remain competitive in the market. The emergence of connected cars which are defined as ‘those that have access to the internet, thus they can send and receive signals, sense the physical environment around them and interact with other vehicles’ is the next technological marvel to influence the automotive industry (Strategy& PwC, 2016).
Combining connected car technology with autonomy is a likely development of the future, creating connected and autonomous vehicles (CAVs). At present, many new vehicles encompass Advanced Driver-Assistance Systems (ADAS) which is just the beginning of autonomous technology; it is expected that CAVs will account for up to 15% of passenger vehicles worldwide by 2030 (McKinsey, 2016).
Electric vehicles (EVs) are also becoming a dominant market trend. Philip Hammond, Chancellor of the Exchequer, believes EVs are at the heart of industrial strategy plans to ‘build the UK’s competitive advantage’ (Financial Times, 2016). By 2030, the share of EVs is expected to rise to 40% of new vehicle sales, with consumers being influenced by strict emission regulations in dense cities (McKinsey, 2016).
Opportunities for Jaguar Land Rover: Since connected cars will be revolutionising the industry, JLR has invested US$15 million into the world-leading developer of connected driver experiences, CloudCar. Hanno Kirner, Executive Director of Corporate Strategy for JLR has said ‘this is an important step in developing connected car technology. It offers the most exciting opportunities and challenges in the fields of machine learning and infotainment. This investment is integral to our vehicle technology programme’ (CloudCar, 2016).
The leading premium British manufacturer is also investing heavily into electric vehicles, with its first fully electric model, the Jaguar I-Pace- which integrates the CloudCar technology- will be introduced to the market in early 2018. JLR’s I-Pace made its debut appearance at the Los Angeles Auto Show where it was described as ‘unquestionably the star attraction’ (Forbes, 2016). By 2020, JLR have stated that they will offer customers with the choice of electrification on all models as progression in this area of technology advance (Jaguar Land Rover, 2016).
Producing electric vehicles means a cleaner future for JLR, with their attempt to use ‘ultra-clean diesel and petrol engines’ also. In attempt to show consumers their commitment to a greener future, they are a member of the European Green Vehicles Initiative (EGVI) who work to combat environmental challenges that lie ahead. Investing in research and development of emerging technologies that can improve emissions of road transport, JLR endeavour to work towards these targets amongst other automotive manufacturers (EGVI, 2016).
Threats for Jaguar Land Rover: In attempt to minimise the damage of Brexit on the British automotive industry, senior executives from British car manufacturers, including JLR, united in Paris before the international motor show in September 2016 to demonstrate the diversity and quality of cars produced in the UK (Business Quarter, 2016). Despite the UK automotive industry being respected globally for its rich heritage, iconic brands and engineering excellence, since the referendum JLR have announced that Europeans have been boycotting their cars (The Guardian, 2016).
Following the exit of the EU, JLR also face potential turmoil in relation to importing goods from other countries. Over 60% of JLR’s components used in production are imported from the EU, thus the value of these goods is set to increase due to the introduction of import tariffs (Financial Times, 2016).
Exporting vehicles to EU countries is also going to determine JLR’s strength in the industry. As many as 78% of cars built in UK factories in the first two quarters of 2016 were destined for other countries, with the EU being their biggest market. With few trade deals on the horizon, Britain’s power to negotiate with other countries will have a obdurate worrying impact on JLR, amongst other British manufacturers, and will determine the success of the decision to leave the single market.
The PEST analysis identifies trends in the external environment that may help or hinder business activities. As changes are not imminent, JLR and other automotive manufacturers can process the changes and implement, or adapt, a relevant and effective strategy for the road ahead. Analysing the macro-environment minimises the risk to an organisation and contributes to remaining competitive and active in the automotive industry in the UK.
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