Mercedes Benz is a German manufacturer of luxury automobiles, buses, coaches and trucks. It is part of the parent company, Daimler AG which was previously known as DaimlerChrysler AG (Martelin, 2009, p. 33). The company is the world's oldest manufacturer of luxury cars. In addition, it is the top most recognized global automobile brand. The success of the brand is due to its strategy to position itself as the leading manufacturer of premium automobiles.
PESTEL analysis tool will be used to comprehensively examine internal and external factors affecting the company. PESTEL stands for Political, Social, Economic, Technological, Environmental and Legal factors that affect the environment where a company operates (Dyson & O'Brien, 1998, p. 5).
The impact of local governments in global business cannot be understated. They set policies and regulations for organizations within their jurisdiction. Mercedes Benz, for example, has continuously benefitted from lower taxation policies throughout the western hemisphere. This has resulted in increased profits and more money set aside for research and development of the company (Ketschau, 2013, p. 3). The company has expanded its sales worldwide which means that it has to deal with having a foreign policy of VAT rates, manufactured goods, and labor rights. These policies vary in every country in all three aspects. A country that imposes high taxation on imported goods would result in high prices for the automobiles. The company would have low sales as more people would prefer to buy locally manufactured cars which are fairly priced. Such discrepancies from country to country is what Mercedes Benz team have to plan and prepare for before to look at the viability of doing business.
The economic factors directly affect the selling of the product. The economy grows due to increased government expenditure, increased disposable income and increased investment into the sector. As the economy expands and the purchasing power of people rises, so will the performance of the markets that the firm is present. It is hard for Mercedes Benz to sell cars if the GDP growth rate is low.
Besides that, the inflation rate also affects the performance of the Mercedes Benz. Inflation has led to the reduced purchasing power of customers as it makes people have less money to spend because the prices of goods are going up("Performance Management And Control - A Case Study in Mercedes Benz Cyprus," 2010, p. 115). The prices of raw materials have also increased leading to high production cost for a car. These two factors lead to decreased profits for the company.
The exchange rate of the market that Mercedes Benz is present can impact the pricing of the company products. The exchange rate has been volatile, changing rapidly and by significant margins. The fluctuating rates not only affects the short term investment plan but also the long term ones. Another economic factor that Mercedes Benz has to cope with is the level of the workforce of the present market. The company needs highly trained engineers and other specially trained employees to improve services in the Global business and produce high-quality products. The highly skilled workforce of Mercedes also plays a major role in ensuring that the company remains ahead in terms of innovation and technological advancement.
The social norms and preferences are critical to the performance of Mercedes Benz. The society trends vary from the home market of the company. Mercedes should build a local team that is aware of the society needs and can accurately predict the trends that will affect the buyers' preferences. There is also a worldwide trend towards health and safety. People have become more liberal towards choices that are healthier and safer (Porter Lynch, 1990, p. 46). Mercedes Benz should, therefore, take health as a critical element in their products to ensure that customer preference doesn't shift.
The leisure activities of consumers determine the type of cars they would favor. Mercedes Benz customers have a high preference to experiential products and services which the company should aim to fulfill.
Technology is fast disrupting the supply chain as the supply chain partners are now empowered. The product life cycle of an automobile is shorter due to fast-changing technology leaving Mercedes Benz with no option but to innovate and expand their range of products. This eventually adds to the cost of operations of the Mercedes Benz. Channel partners also have greater access to information than the company. This data is critical in helping the company make decisions on what the consumers need and hence their additional products. Channel partners are therefore getting a higher profit sharing (Wilson, 2010, p. 6).
Mercedes Benz is not very keen on technology transfer and licensing issues. The fear of creating competitors out of collaborators has made the company shy away from technology collaboration. Hence the company misses out on faster developments that could be achieved out of companies working together. The company faces technological competition as competitors develop and implement the latest technology. These advancements offer a good insight into what the competitors are thinking and the future of the industry. The company can, therefore, direct its efforts in staying competitive among the players in the market.
Technology advancement results to not only a faster production cycle but also reduced labor force and in turn reduced labor costs. Automobile production facilities are increasingly using advanced machine and robotics because of the new technology, cars are produced faster and efficiently with minimal material wastage.
In the modern age, environmental norms and regulations highly influence product innovation. Paris Climate Agreement sets out real targets for the national governments which in turn set strict regulations for manufacturing companies to adhere to. Product design has shifted from traditional value propositions to design based on environmental standards and expectations. Due to the more strict waste management measures, the company has resulted in proper wasting handling especially for units close to the urban cities. They have resulted in the recycling of waste materials so as to adhere to the standards and reduce their carbon footprint. Also, customers have greater awareness hence the company needs to uphold and exceed the regulations. Which if not adhered to may lead to customer activism and negative publicity for the company (Wilson, 2010, p. 8).
The extreme weather experienced in different parts of the world is an additional burden to the company since they have to make the supply chain more flexible to ensure smooth production of their cars.
Data protection laws have emerged as a critical part of privacy issues. Mercedes Benz has to consider the data protection laws in the country and ensure that the company does not breach those laws against their customers. Before setting up a production facility in an international market, the company has to consider whether the company has robust protection for intellectual property, patents, copyrights, and other IPR rights. If the legal protection is not enough, Mercedes Benz should consider the consequences beforehand and how it can protect itself.
Porter Five Forces
Porter Five Forces is a strategic management tool to analyze and map the various competitive forces that are prevalent in the market. Application of this tool can help managers to understand the bargaining power of their suppliers, threat of new entrants in the industry, the threat posed by substitute products and services and bargaining power of their customers.
The five forces that determine the industry structure of Mercedes Benz in a case name case study are
Rivalry among existing players. Mercedes Benz faces competition from other players in the automobile industry. Competitors have invested in new technologies hence Mercedes has to keep up with the competition.
The threat of substitute products and services. New products that serve as substitutes for Mercedes products pose a threat to the company as they take a share of the company's customers("Solved PESTEL: Mercedes-Benz PEST Analysis & Solution," 2019).
The bargaining power of suppliers of Mercedes Benz. Suppliers have increased their bargaining power because of the companies that are offering them better prices and terms of payment. Hence the company is paying higher price for the raw materials.
Due to many players in the industry, the buyers now have a higher bargaining power which has driven the price of the products down. In return, it has limited the potential of the Mercedes Benz to earn sustainable profits.
The threat of new entrants. Due to new entrants in the industry in the past few years, Mercedes Benz has resolved to be competitive by investing heavily in research and development.
TOWS analysis is a strategy generation and selection tool. It is the complementary tool of SWOT which is a tool for audit and analysis (Daimler AG SWOT Analysis, n.d., p. 1). TOWS matrix recommends a set of strategies by analyzing the internal capacity of the company and the external factors of the industry. There is a trade-off between internal and external factors to derive the four potential strategies. The strategies are SO, WO, ST, and WT. These strategies can only be determined after doing a SWOT analysis for the company.
1. Mercedes Benz has great expertise at entering new markets and becoming successful.
2. Mercedes Benz has built a strong brand portfolio over the years it has been operational.
3. The company has a history of successful product innovation and has been consistently developing new products for their customers.
4. Mercedes Benz has a dedicated customer relationship management who are keen on providing world-class customer service leading to a very high level of customer satisfaction among their customers.
5. Mercedes Benz has built a powerful distribution network with their cars being sold in 200 countries. Mercedes Benz has built a strong dealer community.
6. The company has heavily invested in the training and development of its employees ("Solved PESTEL: Mercedes-Benz PEST Analysis & Solution," 2019).
1. There is a need for more investment in new technologies.
2. New entrants into the market have taken a small market share from the company.
3. Mercedes Benz investment in Research and development is below the fastest growing players in the industry.
4. According to the current asset ratio and liquid asset ratios of the company, financial planning is not done efficiently.
5. Mercedes Benz has not clearly defined its unique selling proposition, and hence its marketing strategy needs to be improved.
6. The company is not competitive in terms of product demand forecasting leading them to maintain a relatively high inventory for both in-house and in-channel compared to its competitors (Weihrich, 1982, p. 18).
7. The company products leave a gap in terms of the range of products offered to its customers thus offering an opportunity for a new competitor to establish itself.
1. Consumer behavior is rapidly changing.
2. Mercedes Benz core competency in building world-class automobiles and their accessories could be a success in similar other products field (Weihrich, 1982, p. 20).
3. Delving into new markets would lead to dilution of competitors' advantage and enable the company to increase its competitiveness against their competitors.
4. Government free trade agreement has opened up new markets for the company.
5. There are new environmental policies which will create a level pla...
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