International Markets: The Case of Greek and Philippine Passenger Car Markets - Automobile industry Essay Example

International Markets: The Case of Greek and Philippine Passenger Car Markets

 

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Introduction

Globalisation of markets has led businesses today to conduct in-depth market analysis about the country they wish to have market presence. Generally, market environments are country-specific due to important factors. These factors are what make up the marketing environment of the business which is classified as micro and macro-environment.

For this report, the marketing environments of the passenger car business in two countries, Greece and the Philippines, are investigated, compared and contrasted using appropriate analysis techniques such as PEST and Porter. The findings are used to analyse the future of the car business in these countries. Basically, the report aims to evaluate the importance of the external forces on both micro and macro level.

The Macro and Micro Environment of the Passenger Car Market

The passenger car industry has been globally focused over the past decades as driven by many factors particularly the development in transportation and communication that exposed consumers to other countries’ products and at the same time exposed manufacturers and dealers to the potential markets. Improvement in transportation made possible the exportation of passenger cars while development in communication and advertising media including the Internet and wireless communication enable manufacturers to communicate easily and directly to the suppliers, dealers, and customers. Advancement in production processes such as the mass production of cars is another contributing factor in the globalisation of car markets along with the liberalisation of trade agreements and policies to eliminate barriers to importation and exportation of passenger cars. Development of infrastructures also attracts car manufacturers to establish manufacturing and assembly plants outside their home country enabling them to easily expand their market. Nevertheless, a country can be verified to be a potential market by looking at its micro and macro-environment.

Defining micro-environment, these are the forces close to the company that directly affect its ability to serve customers (Kotler et al, 2004). The micro-environment includes the company itself, the suppliers, the customers, the competitors, marketing intermediaries, and the publics. However, the micro-environment is significantly affected by the macro-environment which is the larger societal forces that affect the company’s microenvironment (Kotler et al, 2004). These larger societal forces are the political, demographic, cultural, economic, and natural forces which differ from country to country, according to Kotler et al (2004). The micro-environment of the passenger car market can be effectively described using the Porter’s analysis while its macro-environment using the PEST (Political, Economic, Social, Technological) analysis.

Competition/Rivalry

The intensity of rivalry in the passenger car market is high primarily because this market includes luxury cars, sports utility vehicles (SUV), economy models, sedan, station wagon, and even used cars. A car manufacturers commonly sells various brands which all signifies that there is a very intensified rivalry among the passenger car manufacturers and that customers can easily switch from one brand to another. The competition in the car market is intensified by diversity in the industry. Toyota was the leading passenger car manufacturer in the global market, followed by General Motors, Volkswagen Group, Ford, Honda, PSA Peugeot and Hyundai-Kia in 2002 (OICA in the European Competitiveness Report, 2004).

Threat of Substitutes

There are many substitutes to passenger cars brought about by the development in transportation. People may opt to ride bicycles, motorcycles, or public transportation services such as trains and buses. This happens when transportation expenses like fuel costs and toll fees are higher than paying for public transportation. The above mentioned substitutes are not considered to be rivals of passenger cars because they belong to different industries but have significant impact on the sales and market share that can be gained by car manufacturers and dealers.

Buyer Bargaining Power

Buyer power pertains to the impact of customers on the market. Generally, the bargaining power of buyer in the passenger car market is fairly moderate. Buyers are not concentrated on few people alone but to almost every people who can afford to buy passenger cars along with different payment scheme and financial assistance available today. Car manufacturers themselves like GM and Ford offer purchase programs and incentives to lessen the bargaining power of buyers and make cars affordable to many buyers. Additionally, passenger cars are not standardised but buyers can easily switch from one product to another or from one brand to another.

Supplier Power

In the international market, supplier bargaining power is relatively low because there are many suppliers available today along with the outsourcing trend that enable manufacturers to acquire supplies from various suppliers from different countries and easily switch from one supplier to another. Technological innovation results to having many available substitutes (e.g. from two-dimensional to 3D head and taillights) that also weaken the supplier bargaining power.

Barriers to Entry/Exit

Barriers to entry refer to the factors that can affect the entry of new firms. Entry of new firms increases competition in the industry. In the passenger car market, barriers to entry include high start up and development costs as reflected by the retail prices of such cars, preventing small firms to compete with larger car manufacturers who have already established identity in the industry. On the other hand, a barrier to exit in the car market is the use of economies of scale in the car manufacturing industry; mass production have been the trend over the past years, driven by development in technology such as Computer Aided Design and Manufacturing (CAD & CAM) which means that it is difficult to exit the industry because of specialised asset that cannot be easily disposed. Generally, there is high level of barriers to entry/exit in this market.

PEST Analysis

Political – The passenger car market is significantly affected by the legislation, policies and government regulations. These include environmental legislation (e.g. compliance to reduced emission of carbon dioxide that resulted to manufacturing of hybrid cars); tax regulation, trade agreement and employment laws (e.g. the North American Free Trade Agreement, NAFTA, reduced Mexican tariff and eliminated the requirements to build vehicles in Mexico from Mexican-made parts, allowing Ford Motors to use US-made auto parts while enjoying low labour cost in Mexico (Anonymous, 2006)). Government tax on the purchase of vehicles also affects the sales and market share of a car manufacturer in particular countries. In South Korea, media and political attitudes suggest that purchase of foreign products are detrimental to the balance of trade and the well-being of their country, thus the market share of imported cars in South Korea was only 0.3 % in the year 2000 (VDA, 2006).

Economic – Economic environment of a country determines how passenger cars can be afforded by the people in that country. This is also called as the purchasing power which is determined by the prevailing rate of income in a country. The interest, inflation, and exchange rates also determine the prices of the cars in the market that significantly vary from country to country. Relatively, imported cars are more expensive than locally made ones. Oil and fuel price in the global market also has impact on the market of passenger cars. Many price-conscious consumers go for diesel engine cars than those who are powered by gas engine. The economic condition of a country is also determined by looking at infrastructure development. More developed infrastructures such as roads, transportation and communications consequently increased demands on passenger cars.

Social – Social factors encompass the cultural and demographic aspects of the macro-environment, affecting the consumer behaviour and the size of potential market (QuickMBA, 2006). In the passenger car industry, the age, sex, occupation and education of the population must be well understood because these will be the basis of marketing strategies. Commonly, people with higher education look for high-performance cars with important features such as safety and durability; married men with many children want bigger cars like 4×4 cars; businessmen usually go for pick up cars or utility van; single, younger people look for sports cars; and women wanted small cars with power steering.

Technological – Basically, the passenger car industry is dependent on its technological environment, including its research and development activities, production processes, and sales and marketing of cars. Development of new models are conducted using CAD while production is dependent on CAM; additional car features such as power steering, automatic brakes, automatic lock, sensors, RFID, airbags, 3D headlights and others are influenced by technological advancements. Communication with suppliers and customers are conducted today via the Internet along with the advertisements that can be seen on the World Wide Web.

It is noticeable that the macro-environment of passenger car industry in the global market has significant effect over its micro-environment. Technological and political environments directly impact the level of barriers to entry as well as the threat to substitutes and the power of suppliers. The level of barriers to entry determines the level of competition in the industry and economic environment affects the bargaining power of suppliers. Nevertheless, both the micro and macro-environment analysis are important bases of the marketing and competitive strategies of the car manufacturers in the international market of passenger cars.

The Greek and the Philippine Passenger Car Market Environment

Greece is a small country in Southern Europe with over 10 million in population. The country has small roads but has good railway infrastructures. Compared to other EU countries, Greece is less developed and has been a beneficiary of EU aid (CIA, 2007). On the other hand, he Philippines is a South East Asian country with a population of about 84 million. With the rapid development in infrastructures such as road improvements and development in communication along with the growth of foreign investments and industrial plants in both the urban and rural areas, the need to travel for leisure, business, and work has increased over the last two decades for both countries.

Porter Analysis

Degree of Rivalry

Toyota has been the leading car manufacturer in both the Philippines and Greece but the intensity in rivalry is more intense in Greece than in the Philippines. Toyota has been the leading car brand in Greece in 2002; it was its sixth time as the number one since 1990 (WER, 2003). Peugeot ranked 2nd and Suzuki ranked number 3 for over a decade now (WER, 2003) and has been the leader in the 4WD segment. Other players are the European brands like BMW, Volvo, Volkswagen and Peugeot while American brands are not very popular in the country. However, European brands from the American manufacturers like Mazda, DaimlerChrysler and Ford also have market share in Greece. The degree of rivalry therefore is high due to the presence of various car brands.

Philippine passenger car market has a moderate competition. The market is dominated by Japanese brands with about 80 percent market share while the Korean car makers hold 15 percent market share. The remaining 5 percent is shared by the American and European car manufacturers. In 2003, Toyota was the best selling passenger cars in the country with 46 percent market share followed Honda with 19 percent market share (Auto Buzz, 2007). Nissan was on third place with slightly less than 11% market share. Most Filipinos demand for SUVs and bigger cars such as Honda CRV, Toyota Revo, Mitsubishi Adventure, and Pajero. Smaller cars are also in demand such as the Vios, Altis, Civic and Sentra.

Buyer power

“The buying power of the Greek people is much less than the buying power of the average European consumer”, according to Nick Drollas, the CEO of Toyota Hellas (WER, 2003), but is greater compared to the Philippines. This is because their cars are imported and have higher price thus they cannot switch from one brand to another easily. Banks in both countries offer car loans so that even the middle and lower middle class individuals and families can afford cars. However, customers in the Philippines can also easily trade their cars to be able to buy for new ones since used car trading has been a trend in the country.

Supplier Power

Suppliers of car parts have little power in the Greek market because there is no presence of assembly plants. Suppliers have little power over the dealers who offer customers car parts only when customers’ car needed repair or when they want to customise their cars. On the other hand, suppliers of car assemblers in the Philippines such as Ford, Toyota, Honda, Mitsubishi and Nissan has also set up facilities near the car assembly plants which are mostly located at industrial parks. Bargaining power of suppliers is moderately high because of high tariff rate of 10% in imposed on imported complete knock down (CKD) kit while raw materials and component subassemblies that are imported outside the CKD kit have tariff ranging from 5 to 40%. Car manufacturers/assemblers then have to import components for Philippine suppliers and consign the materials to them for assembly and finish work to avoid excessive duty penalties (Auto Portal, 2006).

Threats of Substitutes

The primary substitutes to passenger cars in Greece and in the Philippines are generally the same. In Greece, there are the taxi cabs and mini trucks that are assembled in the country. The availability of trains brought about by the improvement in railway infrastructure is also a threat to the market of passenger cars along with the city buses. There are even more substitutes to passenger cars in the Philippines mostly public transportation; there are too many passenger jeeps, a public utility vehicle that can carry more than 12 persons both in rural and urban areas; the Metro Railways Transit (MRT) is also a popular public vehicle in Metro Manila because of it is faster and less expensive; and public utility buses are commonly used to in going to provinces and at work. Imported used cars sold in the country also posed threats in the passenger car market

Barrier to Entry

There is a very low level of barrier to entry in Greece. As a European country and a member of EFTA, car manufacturers can easily put up dealership and distributorships in Greece. Most car manufacturers does not see the need to put up assembly plants in Greece because importation of cars in the country is not costly since there are already assembly plants located in neighbouring countries which are also EFTA members. In the Philippines, it is the ASEAN Free Trade Agreement, (AFTA) that has been the barrier to entry for the European car makers. Japan and Korea, as members of AFTA enjoy lower tariff rate than other car manufacturers. Car dealers can import completely built up (CBU) cars outside the Philippines because importation of passenger cars is fully liberalised. However, car importers would have to handle about 30 to 40% tariff rate thus car manufacturers opted to put up assembly plants in the country rather than importing CBU cars to the country. The country is actually open to foreign investors and has various industrial and technological parks where foreign investors can enjoy incentives.

PEST Analysis

Political – In Greece, the lowering of governmental taxes on new vehicle purchases resulted to increase in car sales by 24% every month in 2004 making the country the second fastest growing market in Europe (Spencer, 2007). The government has also deregulated the energy sector in 2003 which positively affect the car market. In the Philippines, the importation of passenger car market is governed by AFTA and environmental regulations. Passenger cars are also subject to excise tax depending on the type of engine used and the Bio-Fuel Act has been recently implemented. Unlike in Greece, the Philippine excise tax on cars has been constant over the last years.

Economic – The economic environment of both countries can be considered to have the most impact and the strongest correlation with the success of the passenger car market in each country. Greece experienced economic growth in 2003 due to stable macroeconomic environment, adoption of euro, implementation of IT development programs, strengthening of competitiveness and infrastructure and development of trans-European networks (WER, 2003). However, the country experienced a negative change in the passenger car registration of -1.4% from 2005 to 2006, accounting to 12.83% market share of the total EU market (ACEA, 2006). The negative change in the number of passenger car sold is primarily due to the slow down in the economy as reflected with its GDP: GDP growth in 2005 was 3.7% while in 2006 the growth increased by 3.5% and is expected to increase by 3.4% in 2007, showing consecutive decreases with its GDP growth (CBI, 2006).

Consequently, the purchasing power of the consumers also decreased that they have become more practical and less interested in brand loyalty and more interested in price, reliability and value-added benefits (WER, 2003) which explains why Peugeot ranks only number 2 in the passenger car market of Greece. Consequently, it can be predicted that the sales in the passenger car market in the country will continue to experience slight decrease in sales especially that there were more used cars imported in 2006 accounting to 12% of the total car market (CBI, 2006).

The Philippines, on the other hand, is a third world country and having one or more cars is already a status symbol for Filipinos. Economy is also quite stable in 2006 but is expected to be unstable as the senatorial election this year is approaching.  In 2005, the passenger car market accounted to about 36.7% of the total vehivle market of the country. With about 34,500 units sold in 2005 from 35,631 units in 2004, the passenger car market decreased by 1.04% primarily due to interest of the Filipinos to commercial vehicles with a market share of about 69%. GDP growth rate of the country also decreased from 6.1% in 2004 to 5% in 2005 and an expected GDP growth rate of 5% in 2007 (ADB, 2005). Households with a monthly income of less than 20,000 pesos cannot actually afford a monthly payment for instalment payment of a car. Unemployment rate in the country averaged at 11.8% in 2004 and the population below poverty line is high at 40% (CIA, 2007), reflecting the low purchasing power of many Filipinos. Consequently, it can be predicted that the sales in the country for the new car passenger will be stagnant since there is a very minimal progress in the purchasing power of the Filipinos.  The luxury brands of passenger cars such as the Jaguar and Peugeot can also be expected to disappear in the market of the car passenger in the Philippines.

Social – The Greek population is aging with about 19% of the population over 65 years old and the median age is over 40 years. This signifies that the need to car passengers will increase due to the inability of the people to commute and take public transportation. The total number of cars in the country is 4.2 million which implies that there are more cars than household (3.8 million) in Greece. This means that there are many households with more than 1 car. Unlike in the Philippines where bigger cars are in demands, the Greeks like smaller models and compacts. Literacy rate in the country is also high thus they have become more aware of their needs and the benefits cars can provide them. Greeks are also known to be passionate thus customisation of cars has been a trend in the country (Spencer, 2007).

In the Philippines, the basis of buying cars is the socio-economic status of households or individuals. The potential markets of passenger cars in the Philippines are the lower middle class, the middle class, and the upper class families and individuals, mostly educated and have their own job. The buying activity of the consumers is not affected by the high oil prices but is more stimulated by new products (Just-auto, 2006) thus Toyota has been the number one car in the country for its various new models like the Vios and the Corolla models . The Filipinos are also environmentalists but the government has been slow in passing and implementing environmental regulations. Filipinos also go for more features and for bigger cars like the Revo and Adventure which they can both use for personal and business purposes.

Moreover, car manufacturers like Ford and Toyota found Philippines to be a good place to put up assembly plants due to lower labour costs and availability of human resources needed such as engineers and technicians, enabling them to easily export products to nearby Asian countries like Malaysia, Indonesia, Singapore and Thailand.

Technological – The effect of technological environment of Greece in the passenger car market is the development of specialty products and techniques that resulted to interests in car performance upgrade like engine upgrades and installation of car accessories (Spencer, 2007).

In the Philippines, customisation of cars is more on the looks of the car and not on engine upgrade. The country is also not a technological trendsetter and the rate of technological change in the country is quite slow due to lack of government financial support. The country usually adopts technology from other countries especially those of Japan and the USA.

4. Analysis and Conclusions

Greece and Philippines’ passenger car market environments have similarities as well as differences. At the macro level, both markets are governed by trade agreements. However, Greece as a European country offers no significant barrier to entry for the car manufacturers in Europe unlike in the Philippines where European brands has a very little market share. The economic environment of Greece is also different from that of the Philippines. Greece emerges as a potential market with the growth it experienced over the last years while the Philippines has a less attractive market especially for the luxury brand of cars due to the poverty in the country. The economic situation in the Philippines can be the primary reason why luxury brands such as the Peugeot which is the number 2 brand in Greece, has almost diminishing presence in the Philippine car market. Most Greeks consider car performance while most Filipinos want multi-purpose cars with more features. Both countries are not highly technological and rely more on the technologies offered to them.

At the micro level, the Philippines has the advantage of having a little more affordable cars well as lower maintenance cost due to the assembly plants. However, the people of Greece have more buying power than the Filipinos because they have higher income, enabling them to be more capable of buying cars. In both countries, the presence of public transportation is the primary substitute that can threaten the market although more intense in the Philippines because it seems to have more public transportation than Greece. Competition in the market of Greece is more intense and diverse than that of the Philippines where competition is concentrated on the Japanese brands.

Based on the report and information gathered, Greece has a better marketing environment for passenger cars than the Philippines as reflected by the more intense competition in Greece. The economic condition of the Philippines makes it lesser attractive for luxury brands of passenger cars but more attractive to economic models mostly offered by Toyota and Korean brands like Hyundai and Kia. It can also be concluded that passenger cars has more potential for growth in Greece than in the Philippines due to more product differentiation prevalent in the Greek market which is the trend in the global market. Economic environment which dictates the purchasing power of the people and which is also affected by political environment seems to have the strongest relation with the passenger car market and therefore the most important environmental force. Consumer behaviour and the socio-economic status of the consumers as well as the type of cars that will be mostly demanded by the market are all affected by the health of the national economy.

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