Porsche has enhanced engineering capabilities which has enabled it to introduce dynamic products that cater to diverse customer segments. Another key strength is the fact that Porsche has a loyal customer base. Porsche’s key competitive advantages continue to be with its research and development. The research conducted by the organization has often been used by other organizations. Its engineering capabilities have helped it to target niche markets in an efficient and effective manner. Porsche has also been able to maintain high levels of quality. The future for Porsche is bright but it needs to diversify its product line and penetrate new markets. This is because of the competitive nature of the global automobile industry. It needs to have clear and precise goals which can help it to attain a strategic edge over its competitors. .
Porsche’s future strategy is to penetrate the newly emerging economies like Brazil, India, China, and Russia. These markets have the highest levels of demand with respect to vehicles. Non-sports cars will be the main products that will be delivered by the organization in these markets. High performance cars with fuel efficiency are being developed as a means of ensuring efficiency and effectiveness. Porsche will continue to focus on its key competitive advantages as a means of ensuring that its key targets can be achieved within a short period of time. The development of a comprehensive strategy is critical for success in the long term.
The global automobile industry has rapidly changed with new strategic priorities and business challenges. Automobile manufacturers have to respond to the challenge in an efficient and effective manner. They have to apply sound strategies that can be used for achieving success within a short period of time. Porsche SE is a famous manufacturer of luxury cars and sports cars in the world. The organization is based in Germany. It has a presence in major automobile markets of the world like the United States, Europe, and Asia. The success of the organization has been its ability to deliver quality and efficient products for the luxury customer. The organization has made significant investments in technology and innovation in order to achieve efficiency and effectiveness. Porsche’s key competitive advantage is with its small size and niche markets. However, external and internal environmental variables have transformed the business approach of the organization. This is because of the fact that globalization has deregulated foreign markets and enabled customers to have greater choices with respect to selecting automobiles. Rising fuel prices, environmental protection concerns, government regulation, and economic recession are major threats that need to be tackled by Porsche. This report will seek to develop a comprehensive analysis of the external and internal environments in which Porsche operates. It identifies the key strategic issues that plague the organization. Finally, the report will make a number of recommendations which can be used for achieving strategic edge and competitive advantage for the organization.
One of the key strengths of Porsche is that it is an outstanding brand because of its aggressive marketing strategies. Its products are known for being robust, elegant, and powerful. Porsche has enhanced engineering capabilities which has enabled it to introduce dynamic products that cater to diverse customer segments. Another key strength is the fact that Porsche has a loyal customer base (Bennett, 2003: p. 34).
Its product line is for premium customers who want high end luxury vehicles that are in accordance with their lifestyle. Porsche is agile when compared with its competitors as it has known to form partnerships with key industry players in order to improve its operational capabilities.
Porsche is highly dependent upon the US market for its sales and revenues. This makes it vulnerable to the fluctuations in the American economy. Additionally, Porsche offers specific products that target niche markets. It does not have a diversified product portfolio that would help it to maintain a competitive advantage over its competitors. The size and revenues of the organization are significantly smaller when compared with its key competitors (Chris, 2005: p. 65).
Porsche faces significant competition from high-power brands like Ferrari. This has the potential of reducing its brand value. The demand for Porsche vehicles is declining in the core American market. Finally, the economic downturn has the potential to threaten the sales of the organization (Chris, 2005: p. 65).
Porsche can use its existing brand to create diversified product lines that can target new customer segments like singles, families, and students. Additionally, Porsche can target new markets like the Middle East and China. Porsche can also use its relationship with Audi and VW in order to achieve efficiency and effectiveness (Chris, 2005: p. 65).
The global automobile industry has been affected by the rise in oil prices in recent years in the Persian Gulf region. The Middle East which remains the largest producer of oil in the world is an unstable area. Recent political turmoil in the region with demands for greater freedoms by the local population has raised concerns about the stability of oil producing states. Additionally, the potential conflict with Iran could also jeopardize world oil supplies (Graham, 2005: p. 72). All of these factors have a negative impact upon the automobile industry. Fuel efficiency is thus a major concern for key automobile producers like Toyota, Honda, and others. Porsche continues to produce high-end luxury vehicles which do not focus on fuel efficiency. Another major concern is that governments have sought to impose environmental protection laws so that automobiles reduce their carbon footprint on the environment.
This has increased the costs for organizations like Porsche that are working in a competitive environment. Finally, there is an increasing focus on green and clean energy sources. There is a move towards the development of hybrid vehicles that use electric power as well as conventional fuel systems.
The economic recession has created a significant impact upon the automobile sector. The average growth of the global economy was 3.8% in the year 2011 as compared to the estimated projection that the economy would grow at 5%. Growth in the US and Europe was significantly slower as compared with previous years. The downturn has curtailed customer spending while it has led to high levels of inflation and unemployment. The global automobile industry has witnessed a decline in sales with respect to high-end luxury vehicles. Customers are purchasing vehicles that are cost effective and fuel efficient. However, the global automobile industry did register significant growth in emerging economies like Russia, Brazil, India, and China.
The demand for luxury sports cars continues to increase with the rise in incomes of many customer segments. This is because upper class customers want powerful vehicles that are in accordance with their lifestyle and status. They want to have products that have fancy gadgets and applications. Porsche continues to target this niche market but this has impacted its profitability. The majority of automobile owners want vehicles that are cheap and fuel efficient. This is because of the rise in oil prices along with the economic downturn that has led to negative outcomes (Jobber, 2001: p. 82).
Technology remains a critical element of productivity and output in the automobile industry. This is because technology helps to streamline and automate key processes. It eliminates wastage and increases quality of products. Finally, it helps in the development of agile, reliable, and scalable business structures.
Porter’s Five Forces
Threat of New Entrants
The threat of new entrants is small in the global automobile industry because they need to achieve economies of scale which can help new organizations to control the prices of products (McDonald, 2001: p. 102). Porsche does not have the economies of scale to design new technologies. Porsche’s has significant shares in Volkswagen AG which helps it to have access to resources that can increase its competitive edge and profitability.
Threat of Substitutes
The major substitute is used cars which compete with the luxury cars produced by Porsche. The recent economic downturn has forced customers to purchase used cars which are cheaper when compared with luxury cars. Porsche continues to focus on niche markets which help to have access to customer loyalty because of its commitment towards innovation and creativity (McDonald, 2001: p. 101).
Power of Buyers
The power of buyers is medium as Porsche offers innovative products along with after-sale service, reliability, and quality. This makes it a loyal brand for the various customer segments.
Power of Suppliers
Suppliers provide a number of components and spare parts for automobile manufacturers. They also help to transport the products to different customer segments. Porsche has strong relationships with its suppliers because of its strong brand image and robust relationships (McDonald, 2001: p. 92).
The competitive rivalry is very strong for Porsche as it has to face competition from American and Japanese automobile manufacturers.
Industry Structural Analysis
The global automobile industry has been affected by the ongoing economic recession but it has displayed a remarkable resilience as evident in the fact that over 70 million motor vehicles were produced in the year 2011 (Hines, 2011: p. 67). Asian countries like Japan, India, and China have witnessed a 9% increase in production. The United States remains the major market for automobiles as evident in the fact that 16 million vehicles were sold in the country in the year 2011 (Hines, 2011: p. 67). European automobile companies have started to make forays into the global automobile industry with Germany and Italy becoming major players in the industry. The structure of the global automobile industry has changed since the 1990s with Japanese manufacturers focusing on fuel efficient and cost effective vehicles (Hines, 2011: p. 67). On the other hand, organizations like Porsche, BMW, Lamborghini, Ferrari, and others have concentrated on luxury vehicles. Globalization has rapidly transformed the global automobile industry as deregulation has helped organizations to penetrate foreign markets. Customers now have access to wide variety of models based upon competitive prices due to the phenomenon of globalization. Another major concern among global automobile manufacturers is the desire to experiment on alternative energy sources. Hybrid vehicles which run on electricity as well as conventional fuels are being designed and developed. These vehicles offer comfort, convenience, and fuel efficiency. They are in accordance with the demands of customers to have fuel efficient vehicles that do not have an impact upon the environment. Porsche has been successful in the year 2011 because it delivered an estimated 118,868 vehicles to its target markets (Williams, 2012: p. 49).
This was a record for the organization as it had traditionally delivered 100,000 vehicles annually due to its small size (Williams, 2012: p. 23). The success was attributed to the new Cayenne model which is the next generation luxury car for its customer segments. This model offers sleekness, elegance, comfort, and power which is according to the demands of the customer segments. The American market continues to be targeted by the organization as over 15% of its deliveries were for this market. Europe is the next largest market where Porsche enjoys a competitive advantage. Porsche’s key competitive advantages continue to be with its research and development (Hoffman & Kaplinsky, 2010: p. 81). The research conducted by the organization has often been used by other organizations. Its engineering capabilities have helped it to target niche markets in an efficient and effective manner. Porsche has also been able to maintain high levels of quality. The future for Porsche is bright but it needs to diversify its product line and penetrate new markets. This is because of the competitive nature of the global automobile industry. It needs to have clear and precise goals which can help it to attain a strategic edge over its competitors. Moreover, the organization needs to have a comprehensive framework for success which is based upon efficiency and effectiveness.
Strategic Group Analysis
Porsche’s strategic advantage is with its engine assembly line that is based upon the organization’s expertise and talented engineers. The engine assembly line has been responsible for key innovations like engine design, safety, driving performance, styling, comfort, and luxury. The new engine assembly line has the capacity to adjust the height of work trolleys. This helps in the development of ergonomic working methods that enable the worker to have greater levels of precision and freedom when performing work activities. Porsche’s new engine assembly is based upon careful planning and coordination so that it achieves the critical objectives in an efficient manner. A key competitive advantage of Porsche is the fact that it has always focused on exporting its models to different markets (Humphrey, 2011: p. 91). For instance, Porsche continues to directly export its models to China which is a very large market. This strategy is based upon achieving economies of scale. Porsche does not want to make significant investments in any new market. Unlike other competitors, Porsche does not manufacture its products in China as a means of reducing its risks and costs. It offers direct dealerships to a large number of Chinese organizations as a means of ensuring efficiency and effectiveness. Porsche which was once known for its unique design and corporate structure is now transforming itself into a mass producing automobile manufacturer. This is evident with its 911 and Cayenne model. It has also developed the Panamera which is a four seater vehicle while it has offered Boxter and Cayman which are small sports cars that are relatively cheaper. Product diversification is one of the future goals of the organization as it seeks to compete in an industry that is characterized by significant fluctuations (Humphrey, 2011: p. 91).
Porsche has also sought to move towards diesel and hybrid models as a means of responding to new trends in the automobile industry. This has been a result of the investments made in innovative technologies that enhance car performance and engine efficiency. Porsche’s success has been because of its different marketing and sales strategies in different markets. For instance, the organization enhances customer driving experiences through race tracks within the United Kingdom. This helps to give the customer an idea about the benefits of the organization’s new products. Porsche’s future strategy is to penetrate the newly emerging economies like Brazil, India, China, and Russia (Schmitt, 2011: p. 34). These markets have the highest levels of demand with respect to vehicles. Non-sports cars will be the main products that will be delivered by the organization in these markets. High performance cars with fuel efficiency are being developed as a means of ensuring efficiency and effectiveness. Porsche will continue to focus on its key competitive advantages as a means of ensuring that its key targets can be achieved within a short period of time. The development of a comprehensive strategy is critical for success in the long term.
Business Strategy and Competitive Advantage
Porsche’s business strategy is based upon deciding the suitability of its existing or prospective ventures. This is because the strategy is aligned with the mission and organizational capabilities. Another objective is to evaluate the economic viability of new approaches. Specific evaluation tools are employed in order to determine the key strengths and weaknesses of the organization. Feasibility is another objective where the goal is to ensure that adequate resources can be allocated for achieving competitive advantage. Cash flow analysis and forecasting is used as a tool so that the financial viability of new ventures can be determined by the organization. Acceptability is another objective for the management because they need to devise corporate strategies which meet the stakeholders’ expectations (Williams, 2012: p. 53). The future financial and non-financial outcomes are elucidated in an efficient manner in order to ensure success in the long term. Porsche’s competitive advantage is with its ability to provide high levels of safety, quality, performance, experience, and luxury to its customer segments. Its products are designed on innovation in technological applications which help to ensure efficiency and effectiveness. The profitability of the organization is based upon slow and gradual expansion. The current competitive advantage of the organization is the fact that Porsche targets niche markets. Its small size helps it to reduce its overheads and ensures that efficiency can be attained within a short period of time (Williams, 2012: p. 53).
Major Strategic Issues
The following are the major strategic issues which Porsche faces:
- Porsche remains dependent upon the American market for its sales and revenues. This is a major problem as fluctuations in the American market seem to inhibit the ability of the organization to increase its sales and profits. Porsche’s market penetration in key markets like China, India, Russia, Brazil, and Middle East remain small. Hence the new strategy should focus on penetrating these markets in an aggressive manner
- Product diversification is another major problem that is faced by Porsche. The image of the organization remains that of a luxury vehicle manufacturer. It needs to make investments so that it can become a mass producer of normal vehicles. This can help it to target new markets and respond to external variables like economic recession, rising fuel prices, and changing customers’ preferences
- Porsche’s small size and market niche makes it highly vulnerable to political, social, and economic variables. The organization must have the ability to restructure its core strategies as a means of overcoming weaknesses
- Porsche also faces significant costs in the development of new technologies with respect to engine safety, engine design, vehicle comfort and luxury. Porsche has to outsource these activities in order to maintain its profitability
- Porsche continues to face competition from Japanese and American manufacturers. Japanese manufacturers are known for their innovation, cost effectiveness, and fuel efficiency. Porsche has to focus on reducing its process and emphasize on fuel efficiency so that it can target the mainstream markets.
The following are the recommendations for the organization:
- Global economic recession is a major threat for luxury car manufacturers like Porsche. The organization needs to counteract this threat by forming collaborations with other organizations. It should leverage its key strengths as a means of overcoming weaknesses through strategic partnerships, mergers, and acquisitions with other organizations. This can help the organization to achieve efficiency and effectiveness.
- A diversified product portfolio can help Porsche in the long term. It should not focus on mass producing cars but focus on specific niche markets where its products can deliver the desired financial and non-financial outcomes.
- Porsche needs to penetrate Asian and Middle Eastern markets in an aggressive manner. This means that it should reduce its dependency upon the American market. Specific products should be tailored with the customers’ expectations and industry trends in diverse markets like India, China, Russia, and Middle East.
- A comprehensive strategy should exist so that Porsche’s products can be fuel efficient without compromising on quality and innovation.
- Investments in hybrid and diesel models can pay dividends as it will help to increase the reputation of the organization
- Loyal customers should be rewarded with discounts on maintenance and after-sales support. This helps to ensure that the highest profitable segments can derive benefits from the organization
Porsche has been successful because of its emphasis on efficiency and effectiveness. The organization has sought to focus on quality and excellence. The competitive advantage of Porsche is because of its R&D along with its engineering capabilities. Its small size makes it able to target niche markets. The success of the organization has been because of its aggressive branding and marketing strategies. It has a visible brand image along with a loyal customer base. Porsche needs to make strategic changes in the future in order to achieve efficiency and effectiveness. firstly, it needs to expand into international markets that offer considerable growth. Secondly, it needs to offer product diversification so that it can target specific niche markets. Thirdly, it needs to reduce its dependency upon the US market as a means of ensuring efficiency. Finally, investments in hybrid and diesel models can pay dividends as it will help to increase the reputation of the organization. Loyal customers should be rewarded with discounts on maintenance and after-sales support. This helps to ensure that the highest profitable segments can derive benefits from the organization
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