Harley Davidson Pest and Five Forces
Harley Davidson is America’s most successful manufacturing company. It has established itself as market leader for the heavyweight motorcycles and is the world’s most profitable motorcycle company. Harley Davidson has been around for over 100 year and although it sitting on a healthy position in term of profitable, heavy competition and negative trends raises the question on the length that Harley Davidson will continue to be a profitable company.
This Strategic analysis will summarise the Macro-environment of the Motorcycle industry as well as summaries the effect of the five forces have on the profitability of motorcycle industry. Also an internal analysis will be conducted which will outline Harley Davidson resources and capabilities and then determine if any strategic capabilities are present as well as a gap analysis to determine if there exist any gaps between the elements of business strategy and then explore future strategies such as Diversification, vertical integration and international strategies. Summary of Macro-environment PESTE
Harley Davidson Pest and Five Forces Essay Example
This is a PESTE analysis is about the impact of environmental influences on motorcycle industry which can be used to guide strategic decision making. The PESTE analysis involving analysing 5 keys factors of the Macro-environmental which includes Political/legal, Economic, Socio-cultural, Technological and Environmental. There seem to be economic growth in the Asian countries particular China and India and therefore there is increasing disposable income in these countries. However in the US market and Europe market there seem to be sluggish growth and such factors in the US have resulted in decreased in disposable income (see appendix 1).
Disposable incomes will affect the demand for motorcycles. There is a need to determine whether a motorcycle is considered to be a luxurious good or a cheaper alternative to transport. If a motorcycle is considered as a luxurious good therefore increase in disposable income will result in increase demand for motorcycle and vice versa. On the other hand if motorcycle is consider as a cheaper alternative for transport then decrease in disposable income will result in increase in demand for motorcycle and vice versa.
Trade Barriers such as tariffs are affecting number of importation of motorcycle within a country. However there are many countries, who are engaged in free trade agreement as well as a reduction trade barrier in many counties, which will increase opportunity of trade of motorcycle internationally. Laws and legislation for noise and emission are required to meet the standards within countries therefore motorcycles needs to be developed to comply with these standard within those countries.
There is trend toward certain type of motorcycle which is performance sport-bike and scooters. Therefore there a positive outlook for motorcycle companies who specialise in these types of motorcycles. There has been an increase in demographics for the user of motorcycle as well as increasing number of women riders. However, because of ageing population baby-boomer who was the main users of heavyweight motorcycle are leaving the market and as a result the motorcycle industry has open up to all types motorcycle for the upcoming generations.
Increase technology changes to production method will improve production efficiency and quality. Trends for more performance based model has lead to increase trends in technology these models of bike require high level of technology therefore are opportunity for companies engaged in high performance bikes. Summary of Industry Analysis Five Forces The threat of new entrance in the motorcycle market is low because the barriers of entry make it difficult for new entrant, such as high capital requirement and economies of scale which therefore makes the industry more rofitable. However the motorcycle industry is growing and if there is potential profit in this industry, high capital requirement and economies of scale can be overcome and therefore is potential for new entrants. The power of suppliers are relative low in this industry and therefore don’t have much effect on industry profits. The reason for this is because suppliers for the motorcycle industry supply raw material and components to the motorcycle industry where it is then used to manufacturer motorcycles.
The suppliers are usually, many small to large organisations and therefore tend not to have high bargaining power. Also, motorcycle industries usually have high volume production which requires high volume of raw material and components, so therefore motorcycle manufacturers tend to have higher bargain power thereby reducing the price of the suppliers which increase the profits for them. Motorcycles would be a high capital expenditure for a customer, and therefore price sensitivity would affect bargaining power of customer in this industry thereby reducing the profit for the companies in this industry.
Factors such as rising fuel prices and slow economic growth will impact two ways on the motorcycle industry in term of substitutes. Regarding motorcycle as a form of transport, fuel prices had lead to increase demand for motorcycle, therefore threat from cars will be low, and also switching cost from motorcycle to cars is relatively high, thus making threat from cars low. On the other hand public transport poses a higher threat as the switching cost to them relatively low.
Rivalry in this industry is very high with very large companies dominating the market, there also growth in this market which further adds to the level of competition as firms compete fiercely to gain more market share in times of growth. However, since this industry is segmented this reduce the level of competition as it allows company to specialise in a certain segment. Overall this is industry has become highly competitive and therefore reducing the overall profits companies in this industry. The effects of greenhouse gases and decreasing oil reserve are major problem to affect the sustainability of the motorcycle industry.
Summary of Internal Analysis An internal Analysis was conduct for Harley Davidson in appendix 3 which indentifies Harley Davidson resources and capabilities. After indentifying Harley Davidson’s resources and capabilities a VRIO/VRINE test was conducted to determine Harley Davidson Strategic capabilities which are seen in the table 3. 1 in appendix 3. Strategic capabilities are capabilities that create value for customer, are better than capabilities of most competitors, and are difficult to imitate and replicate (Hubbard et. l, 2007, p112). From the VRINE test we are able to determine Harley Davidson has strategic high quality pre and after sales services these includes the Harley experience that the customer receives from purchasing a Harley motorcycles as well as it high reputational status ensure Harley’s customers that they are buying into a reliable motorcycle. Harley Davidson has a unique personalised design of motorcycle, which is where Harley Davidson has wide range of accessories so that Harley’s customer can customise their motorcycle to suit them.
Harley Davidson has Dynamic capabilities which is the ability to combine and recombine existing resources and capabilities and strategic capabilities to create now strategic capabilities (Hubbard et. al, 2007, p116). As Harley Davidson organisation structure foster motivation and innovation and learning and therefore allowing organisation the philosophy of continuous improvement (Grant, 2008), therefore allowing dynamic capabilities. Gap Analysis Table 4. 1 in Appendix 4 identifies macro-environmental–business strategy gaps.
To indentify these gaps we need to determine the business strategy by answering the five key question of a business strategy for Harley Davidson (see appendix 4). From the table we are able to see that quite a few mismatches between the business strategies and the macro-environment such as decline in economic growth in Europe and large part of Harley Davidson Strategy is aimed at European market. However Economic growths are volatile therefore shouldn’t be too much of concern for Harley Davidson. A Major gap is the increase trends for performance bikes and scooters.
Harley Davidson still produces cruiser motorcycles and therefore these trends have major implication for them. The Matches for Harley Davidson includes international expansion is high demand area such as China and Indian. Part of Harley Davidson business strategy is that it can create the Harley Experience overseas and this has been aided with the reduction of trade barriers and trade agreements. Table 4. 2 shows the gaps between industry environment and Harley Davidson’s business strategy. Firstly suppliers there are no opportunities or threat that Harley Davidson can take advantage interns of their business strategy.
Suppliers have low effect on profitable as their bargaining power are usually low and therefore there are limited consistency with business strategy. Secondly, for buyers there are a number of brands to choose from in this industry and the customers have a wide variety of choices, which means that customer should have more bargaining power. But, Harley does not compete on the basis of its products, rather than on its reputation and image therefore the opportunity that buyer present is consistent with the business strategy.
Thirdly, substitute can be either an opportunity or a threat the decline demand for cars can be seen as an opportunity for the motorcycle industry, conversely the increase in demand for public transport can also be seen as a threat to the motorcycle industry. Profits are affected differently from geographical area as the demand and structures vary. Finally, the threat of new entrance and rivalry are threat to Harley Davidson and the potential for new entrance and fierce competition have high impact on profitability for the industry. However Harley Davidson competes only through reputation and brand and delivering a service to customer i. . “the Harley experience”. Diversification Diversification is the entry of a firm or business unit into new lines of activities, either by process of international business development or acquisition, which entails change in its administrative structure, system and other management process (Hubbard et. al, 2007, p 256). For Harley Davidson diversification would mean they explore other activities other than manufacturing motorcycles to the US market. Harley Davidson has already diversified by exporting there motorcycle international as well as through general merchandising which include clothing, collectable and cologne.
Harley Davidson has also established a financial service to supply credit, insurance, and extended warranties to Harley dealer and customers (Grant, 2008). There are many reasons why organisation diversifies, for Harley Davidson one reason could be the general unattractiveness of environment which includes economic growth rates and unfavourable trends (Hubbard et. al, 2007, p 256). For example economic growth in US has slowed therefore Harley Davidson and since US market Harley Davidson main market, Harley Davidson will need to consider diversification as a way of dealing with this situation.
Also unfavourable trends such as increase demand for performance bikes and scooters could see Harley Davidson fall out of the market as customer switch to these segment of motorcycles. Another reason could be business has surplus capabilities (Hubbard et. al, 2007, p 257), since Harley Davidson reputation and brand image lead to their dominance in there market perhaps transferring these capabilities into other industry. Vertical Integrations Vertical integration is the diversification of forwards or backwards in the business activity system (Hubbard et. al, 2007, p 266).
Harley Davidson has relative low volumes of production relative to Honda and other Japanese manufactures. Therefore they have significant cost disadvantage such as purchasing of component are more expensive for Harley Davidson relative to its rivals. A possible strategy could be backward integrations which would involve with Harley Davidson gaining control of supplier i. e. purchasing the supplier. The benefits included with this strategy is decreeing cost involved from purchasing raw material and components, improved quality, efficient scheduling of material for there Just In Time activities.
As Harley Davidson is in the business of selling lifestyle and experience forward integration is a method used so that Harley Davidson can form a closer relationship with their customer. As a motorcycle industry forward integration would involves them creating more dealership in their market. Although Harley dealership programs have support dealer to provided quality and service to the customer and many dealership are exclusive to Harley Davidson. International strategy There are many reasons why Harley Davidson needs to consider going international.
One reason is transferring a capability to a new market. This would mean that going international for Harley Davidson would allow them to transfer there competence into new markets thus gaining economies of scale (Hubbard et. al, 2007, p 322). As Harley sales growth has been accounted for by domestic’s sales (Grant, 2008), therefore since Harley Davidson market share are result of domestics sales this would means it has limited growth opportunities therefore it needs to consider international to increase its market share and growth.
For example there are opportunities in Europe for expansion of Harley sales because it is the Second largest heavyweight motorcycle markets in the world. However, there are a few barriers to intentional expansion Harley Davidson needs to consider (Hubbard et. al, 2007, p 323). The most important barriers Harley needs to consider are cultural differences and since Harley image is heavily aimed at the American Cultures there likely to be issue Harley Davidson will face when expanding overseas such as would Harley’s image of its motorcycle representing “the American dream” will appeal to nations such as Europe and Asia?
The strategy for Harley Davidson would be multi-domestic strategy which is a strategy of settling up full and independent operations in more than one country to satisfy demand in the country of operation (Hubbard et. al, 2007, p 325). This means that it will have develop a complete set of activities for a particular market regardless of other markets, which will target the taste of consumer in the particular market, marketing, promotion and distribution suited to culture of market. Harley Davidson has adopted several entry modes into an international market and where based on feasibility.
Harley Davidson main market entry strategies are through dealership where they have dealers across North America, Europe, Asia, Australia and New Zealand (Anita, 2008). In 1935, Harley Davidson enters into Japan with a license agreement with Sankyo, in which the company went bankrupt therefore Harley directly invested into the company now is a subsidiary of Harley Davidson (Anita, 2008). In Brazil Harley Davidson also invested directly into an assembly plant where the motorcycles are developed to cater for the needs of the Brazil market (Anita, 2008).
Harley Davidson are also involved in joint venture with German sport car manufactures, Porsche, where Harley Davidson motorcycles are distributed across Germany, opening new potential customer in this market (Grant, 2008). Joint ventures are common as a form of market entry as some countries does not allow 100 percent direct investment (Hubbard et. al, 2007, p 326), where advantages lies for Harley Davidson with access to local knowledge and political influence. On the other hand the success or failure of the joint venture depends on the understanding between the companies involved.
Harley Davidson option invest in production faculties overseas as advantages are production costs can be lowered because the cost of shipping would not apply and perhaps some raw materials that they need are cheaper overseas than in the US. However for Harley they do not consider producing overseas because it contradict their main strategy of promoting the “American Dream” overseas (Anita, 2008), therefore if the motorcycles were not produce in the US this would mean that it will not represent the American dream therefore Harley motorcycle would need to be made in US.