$pagename = “Free Essays”;
= “Essay on Identification of Opportunity | Business”;
$description =”Business Essay – In every country of the world today, the automotive sector plays a great role in contributing to the economy because automobiles offer unparallel mobility to citizens of all lifestyles”;
$subject = “Business”;
Automotive Sector
In every country of the world today, the automotive sector plays a great role in contributing to the economy because automobiles offer unparallel mobility to citizens of all lifestyles. Vehicles of all types assist in minimizing distances, supporting urbanization; creating mobility for trade and commerce; and socializing apart from contributing to the GDP (gross domestic product) in the form of employment, investment, efficient resource utilization, profitability and international trade. In the United Kingdom, the automotive sector is one of the most attractive industries for investment. It is the source of 190,000 jobs with an annual turnover of £15 billion according to a report by the SMMT’s Automotive Components Section report ("Strengthening the Supply Chain" 2002). The industry comprises of tiers of suppliers responsible for producing various automotive components and its assemblage. Tier 1 suppliers are those who have the opportunity to develop business in the UK. These companies are still conservative in their approach to growth as they concentrate only on local consumption. Tier 2 suppliers are those who provide marketing and concentrate on developing core competencies of Tier 1 suppliers to add value. Data from SMMT ("Survey on Growth Perspectives" 2002) suggest that UK has been growing in manufacturing and assembling of vehicles while the sector that produces components has been stagnant for the past four years. The UK exports sixty percent of its produced vehicles to Europe. Not only this, but the automotive supply chain is a major contributor to the UK economy. Seventeen of Europe’s top 20 supply companies operate in the UK to produce vehicles for Europe and the rest of the world’s automotive companies ("Survey on Growth Perspectives" 2002).
Trends and growth
Despite UK’s major contribution to the European car industry, it lags behind as compared to producers like Spain and Germany in the past four years. The UK suppliers have been struggling with cost and quality but recent surveys indicate that the automotive sector is also striving with other factors such as labour productivity; labour cost, productivity improvement measures, investment and technological development ("The Productivity and Competitiveness Indicator 2005). In fact, UK has the second lowest cost base automotive sector compared to North America and Japan, yet it is continually losing competitiveness to European suppliers. One of the reasons is the value added components European companies provide to its motor industry as well to international trade through exports. This has greatly displaced UK as the preferred production base, threatened to be replaced by Italy and Spain where the industries have been concentrating on value added accessories and components ("Survey on Growth Perspectives" 2002). Overall the automotive industries across Europe have been focussing on catering to international OEMs whereas the UK based companies have been busy in manufacturing and assembling for its local market with few companies inclined towards global OEMs.
Even locally, the majority of the consumers are keen on buying European cars instead of UK based brand names, which goes to show that the automotive industry has more linkage with consumers outside the UK than limited to the local market. Brands names such as Ford, Peugeot, Renault and Volkswagen are highly popular among UK consumers as well as across Europe. These brands have dominated the top ten registered models in 2004 (Motor Industry Facts 2005). Today, most of the brands names offer consumers vehicles that are fuel efficient, low on maintenance cost and highly flexible lifestyle (Motor Industry Facts 2005). In the past decade, UK vehicle consumption has shown a downward trend, decreasing from 51.4 percent to 31 percent as compared to exports, which have increased from 48.6 percent to 71.6 percent. These trends indicate that there are great opportunities for suppliers to concentrate on exports to Europe and other international markets (Motor Industry Facts 2005).
Opportunities and threats
In the past few years, the UK economy has been unstable due to the government’s plan of adopting the Euro. The risks associated with investments in the UK have discouraged investors from spending on new capital investments, such as in equipment, training and research and development. Set back by technological development and R&D, the automotive sector suppliers have to struggle to attract qualified staff to help improve skills of those who are within the industry. Even though the government is making efforts to introduce continuous learning and skill acquisition programs, the initiatives does not seem to be enough to attract skilled workers. These initiatives have also affected the share of funds for R&D for quality improvement, global standardization and devising new products and components to cater to the international market (Strengthening the Supply Chain 2002). These challenges have greatly affected the Tier 1 and Tier 2 suppliers.
Two thousand companies, which provide 140,000 jobs, having a combined turnover of £12 billion in 2000, belong to the ‘small and medium size enterprise’ category (SMEs). SMEs are most affected by change and challenges in the automotive sector as they are the ones that provide value added products, accessories and services such as rubber, plastics, tyres, electronic and electrical components, value added services, after sales as well as sub-assemblies for the Tier 1 OEMs.
Despite these set backs, UK remains one of the most advantageous location for OEMs catering to continental Europe, North America and Asia. Large-scale investments are easily available to Tier 1 firms, which channel down to the local SMEs. The customer base is situated nearby which creates a ready market for the vehicles produced (Strengthening the Supply Chain 2002).
Not only this but also these firms rely significantly on a strong pool of knowledge, expertise and skills, easily available in the UK or in nearby Europe. This has helped the production capacity to increase throughout the 1980s and 1990s.
Aside from skills and capital investments, the UK has one of the lowest national costs of production, which is perhaps the reason why car manufacturers like GM, Ford, Toyota, Honda, BMW, Nissan and MG Rover have bases or operations located in the UK (Strengthening the Supply Chain 2002).
Positioning
The above overview of the automotive sector indicates that it has potential of expansion in the future. Although it has been able to sustain itself in the past two decades, the sector now faces new challenges, especially in the area of skill acquisition and training. Competitive advantages are inherent in productivity, resource allocation, technological development and R&D. At the core of these factors is the requirement for qualified labour to develop technology and to improve productivity. Opportunity therefore exists in the field of skill development and training of labour working in the sector. Entry is comparatively easy in the SMEs category as these organizations have low investment pool to dedicate to skill development but at the same time, they are also realizing the pressure of the need for qualified staffing. They would be willing to invest in session training and skill development programs provided by low priced organizations especially in ancillary functions such as management, customer service, niche production quality according to international standards, diversification and sophistication in technology for improving plant capacity (Braidford and Stone 2002). Business opportunities exist for firms that desire to position themselves in any or all of these specialization areas, and help SMEs acquire them through training and skill development programs.
Organization for implementation
To begin with, firms that aim to specialize in any one of these areas need to have a strong connection with the sector. Training and skill development programs require highly qualified specialists who have industrial exposure from previous experience, as well as knowledge of current and future industry trend. Furthermore, for technical skill development, technicians and engineers should also be present in the panel for training to help develop programs for bridging skill gaps. Skills such as information technology, soft skills, and generic manufacturing and engineering skills are some that are required for starting a training company. The firm shall also need administrative staff to set up the infrastructure and the panel of experts for marketing of the services. These individuals should have contacts within the industry. They need to devise a strategic marketing plan that targets SMEs that lack the standard qualified skill pool and knowledge for gaining competitive advantage (Braidford and Stone 2002). Since the majority of the organizations in this category prefer to have their own training programs, the programs offered should focus on training key people of the firm and integrating the programs into the organization’s infrastructure for long lasting effect of their investment into these programs.
Aside from these, the organization would also need tangible resources like computers, building, capital for start-up and vehicles for commuting. These can be acquired through a bank loan, while partially funded by the entrepreneur’s start-up capital.
Methodology used and reflection
The aim of this report has been to identify a market, and find the opportunities available for exploitation. One of the opportunities that the researcher has identified in the automotive sector has been the need for firms to develop a competitive workforce through skill and training development. This is critical not only in the automotive industry but also in other sectors. According to Herrmann (2005), strategic management is the fundamental advances to develop management practice transformation. The paradigm of strategic management in turn creates concepts of knowledge, learning and innovation. These characteristics are important for organizations to define and sustain strategic competitiveness. Training and skill development falls under the bracket of technological progress which SMEs cannot afford to relinquish for the sake of cost efficiency. For this reason, the researcher feels that there is great opportunity for exploiting this area of production within the automotive sector, which will expand in the future.
Discussion and research on the industry dynamics has helped the researcher to brainstorm the opportunities that exist for starting and setting up a business. By studying the industry’s opportunity and threats, the researcher has been able to identify the point of entry into the market – through training programs. This business though has great potential for progress nevertheless it also faces great competition from the SMEs themselves, who prefer to have their own training program, partly to reduce cost, and partly to ensure tailor-made trainings are carried out for their staffs. However, this threat can easily be eliminated through careful positioning of the training programs at a lower cost, and focussed on middle management training so that they, in turn, can train their people without involving the researcher’s organization.
The researcher realizes that for a start-up company, entering into the industry and introducing such programs would meet with resistance, which is why the researcher has identified the need for strategic marketing from the initial stage to target SMEs, which do not have training and development programs of their own but are conscious of the pressure of competition. The researcher has also emphasized on the need for highly skilled staff, which has contacts within the industry, to help initiate the business as well as establish credibility. This is critical for the new organization to gain entry to the market.
In the course of the investigation, the researcher feels that there is a great need to investigate specialization areas so that the company can create a niche for itself – for example, training of customer response centres for adding value to the major OEMs, or training of technical staff for organizations in the automotive sector. The lack of space has limited the researcher’s scope to explore these specialization areas.
References
- Author not available 2002, Strengthening the Supply Chain, A report produced by SMMT’s Automotive Components Section.
- Author not available 2002, Survey on Growth Perspectives of the European Automotive Supplier Industry, Automotive Advisors and Associates, Society of Motor Manufactureres and Traders.
- Author not available 2005, Motor Industry Facts 2005, SMMT.
- Braidford, P. and Stone, I. 2002, The UK Automotive Sector: Regional Skills and Training Needs, Report commissioned by the Automotive Directorate, DTI, ASSA Research.
- Herrmann, P. 2005, Evolution of strategic management: The need for new dominant designs. International Journal of Management Reviews, Volume 7 Issue 2 pp. 111-130.