EXTERNAL ANALYSIS
The competitive environment of Mercedes Benz can be determined by doing an external analysis of the company. As part of the external analysis Mercedes Benz will be analyzed by the Porter’s Five Forces Model and by looking at the macro environment. The competition and opportunities in industry will also be looked at to determine the external environment of Mercedes Benz.
Mercedes Benz competes in the consumer goods sector and the auto manufactures-major industry.In this industry, the three main competitors of Mercedes Benz are BMW of North America, Porsche Cars North America, and Saab Automobile USA.The exact market share of Mercedes Benz and its competitors is currently unavailable. Firms in the auto manufactures-major industry produce luxury cars. Also, firms in this industry provide sales, marketing, and other services to their dealerships.In order for a firm to do well and succeed in this industry they must continually be innovative by coming out with new products and new ways to market those products. There are several key opportunities that exist in this industry. Companies have the opportunity to expand globally, be continually innovative, and branch into different sectors and industries. An example of companies being able to branch into different sectors and industries is BMW producing not only cars but also motorcycles. BMW’s motorcycles compete in a different industry then their line of cars, which allows them to be successful in two industries.
The macro environment is very important when trying to understand a company’s external environment.The components of the macro environment include: macroeconomic forces, global forces, technological forces, demographic forces, social forces, political forces, and legal forces. Macroeconomic forces are growth rates, interest rates, currency exchange rates, and inflation or deflation rates.
The Global forces that exist in the industry Mercedes Benz competes in are high, because Mercedes Benz competes in several international markets as well as in the United States. The demographic forces come with demographic changes. The demographic changes have influenced the auto manufactures-major industry because of the current economy. The demographic profile for Mercedes Benz customers is Caucasian Males between the ages 18-49. Due to the current state of the economy less people have the money to purchase luxury cars from companies like Mercedes Benz, BMW, Porsche, and Saab. Technological forces and changes have influenced Mercedes Benz and this industry, because there is a constant race between competitors as to who is going to come out with the latest and greatest technology. Some new technologies that have evolved and are currently being utilized by Mercedes Benz in the auto manufactures-major industry are: Pre-Safe, Night View Assist, Distronic Plus, Command, and Rear View Monitor. Using technology to be an environmentally friendly company, and produce environmentally friendly products is also very important in this industry. Mercedes Benz has the first green luxury dealership in the world to be U.S. Green Building Council-certified. Also, the company has future plans to add zero-emission fuel cell vehicles to its line between 2012 and 2015. Mercedes Benz’s competitors are also trying to reduce their carbon footprint by using technology, which makes it even more important that Mercedes Benz continues to be an environmentally friendly company.The social, political, and legal forces in the macro environment all deal with companies in the auto manufactures-major industry being environmentally friendly. There are laws and regulations that are in place that companies must follow to protect the environment. The changes that companies must make to adhere to the changes may be costly, but they are necessary. Also, being environmentally friendly has become a social value in the world today. Looking at the macro environment of a company and also using Porter’s Five Forces Model is an excellent way to analyze a company’s external environment.
Porter’s Five Forces Model consists of risk of entry by potential competitors, industry rivalry, bargaining power of buyers, bargaining power of suppliers, and the threat of substitutes. For Mercedes Benz the risk of entry by potential competitors is relatively low.The risk is low, because a large amount of capital is needed to enter the auto manufactures-major industry and produce luxury cars. Also, economies of scale, brand loyalty, and absolute cost advantage prevent new companies from entering the market. The 3 main competitors of Mercedes Benz as noted before are BMW of North America, Porsche Cars North America, and Saab Automobile USA and they have established economies of scale resulting in cost reductions through mass production. These companies have also established high brand loyalty with their customers by providing excellent customer service and by portraying their cars as a status symbol. The companies have achieved absolute cost advantage by their accumulated experience, control of particular inputs required for production, and lower financial risks.
The second component of Porter’s 5 Forces Model is industry rivalry. The industries competitive rivalry is defined by the text, Strategic Management an Integrated Approach, as “the competitive struggle between companies in the same industry to gain market share from each other.” The intensity of the rivalry is a function of the following: industry competitive structure, demand conditions, cost conditions, and height of exit barriers. For Mercedes Benz the industry rivalry is very high. There are 4 main companies that dominate the market.The industry competitive structure is consolidated, and the demand conditions for the market show that there is a declining demand due to the poor economy. The declining demand encourages rivalry and competition for market share and revenue.The cost conditions for the market are slow demand and growth, which once again causes intense rivalry. The height of exit barriers for companies in this industry is high due to the large amount of capital that is put into the industry.
The next component in Porter’s 5 forces model is bargaining power of buyers. Industry buyers are defined by the text as “consumers or end users who ultimately use the product or intermediaries that distribute or retail products.” Buyers are considered the most powerful when they are able to purchase in large quantities, the industry is dependent on the buyer, switching costs for buyers is low, buyers can purchase from several supplying companies at once, and buyers can threaten to enter the industry themselves. For Mercedes Benz the bargaining power of buyers is low.The bargaining power is low, because in the high-end auto industry buyers do not have much flexibility in bargaining down to a lower price. The industry is not fragmented at all, and buyers do not purchase in large quantities. Switching costs in this industry are high, and buyers do not have the power to enter the industry and produce the product themselves and thus supply their own needs.
The bargaining power of suppliers is the fourth component or Porters 5 Forces Model.Suppliers are defined by the text as “organizations that provide inputs such as material and labor into the industry.” Suppliers are the most powerful when the product supplied is vital to the industry, the industry is not an important customer to the supplier, switching costs for companies in the industry are high, suppliers can threaten to enter the customers industry, and companies in the industry cannot threaten to enter their suppliers industry by making their own outputs. For Mercedes Benz the bargaining power of suppliers is high.The bargaining power of suppliers is high because the product that suppliers sell to Mercedes Benz has few substitutes and is vital to the company’s existence; the industry itself is not important to the suppliers; and the companies in the industry cannot threaten to enter into the suppliers industry and make their own inputs.
The final component of Porter’s 5 forces model is the threat of substitutes. Substitute products are defined as “products from different businesses or industries that can satisfy similar customer needs.”It is a strong competitive threat when there is a close substitute offered, and there is a weak competitive threat if there are few close substitutes.Mercedes has a high threat for substitutes in its industry.Mercedes Benz’s competition offer luxury automobiles that can be considered a direct substitute for Mercedes Benz products.Other types of transportation are also considered to be substitutes for luxury automobiles.