Australian Holden Motor Limited Diversification Strategy - Research Paper Example

Holden Motor Ltd Diversification Proposal Table of Contents 1.0 Executive summary 1 3.0 Research methodology 4 4.0 International and Domestic Marketing environment Analysis 5 Workers profile 5 Economic contribution 6 Social Factor 7 Customer services 7 Political factor 8 Technology/innovations 9 5.0 Estimated Market Size and Gap Analysis/ Market Share 10 6.0 Market entry mode analysis and strategies 11 7.0 Estimated budget 12 8.0 Time frame (2014—2017) 13 9.0 References 14 1.0 Executive summary This paper seeks to provide information about Australian Holden Motor Limited diversification strategy. The diversification strategy is in terms of brands it produces, the quality and other aspects of diversification. The paper is divided into section to provide relevant information under every heading and subheading. The information about Holden is collected from other research conducted on the company as well as information from secondary sources such as internet. The paper will therefore be presented inform of a report to reflect will on the issue of diversification. Finally, this paper is aimed at marketing Holden Ltd Australia to China and comes as a proposal. 2.0 Background General Motor Holden Limited is a secondary branch of Australian General Motor located in Victoria-Melbourne (General Motors-Holden’s Limited, 1953). It was founded by James Alexander Holden back in 1885 and in 1908 it started dealing in automotive. The dream of building a car that was exclusively Australian was conceived towards the end of 1930s but it was put on waiting after the emergence of Second World War (AG, 2011). During the war period the company produced over 30,000 bodies for not only Australian but also United States forces. It was also involved in building other equipment like gun, boats, aircraft, trucks, airplane as well as marine engines and parts. Currently Holden has produced a wide variety of local vehicles with the help of imported General Motor models. Holden has contributed in building other models like Nissan, Vauxhall, Toyota, Suzuki and Chevrolet. In addition, most if not all of the Australian built vehicles are assembled at South Australia-Elizabeth; with engines made at Fishermans in Melbourne. Despite Holden’s contribution in export has varied since 1950, the strategy of minimizing sales large cars in Australia has made the company to look for greener pastures in the international market with the aim of increasing profitability (General Motors-Holden’s Limited, 1953). Holden Barina is one of the automotive models manufactured by Holden Limited and it has been on the market since 1985. Furthermore, the company manufactures vehicles such as Epica, Sportsman, Ute, Cruze, Commodore, Combo, Colorado, Captiva, Caprice and Calais (HBR, 2010). The “state of the art” facilities give the company a competitive edge over other automobile manufacturing companies not only in Australia but also abroad. The company’s values include “being a workplace of choice, driving a culture of accountability to deliver outstanding business results.” In addition, the company strives to make its products and vehicles relevant, sustainable as well as accessible to all people and at the same time provide outstanding customer service. The goal of the company is to be recognized as the frontrunner in services and operations, environmentally sustainable products (AG, 2011). As at 31st December 2010, the company had 4,661 employees and it markets its products to Australia and other parts of the globe such as USA, South Africa, New Zealand, Middle East and Brazil. Finally, the company has about 270 dealers throughout Australia. From the available history of Holden Company, it is clear and justifiable that the company has diversified. Manufacture of engines, bodies as well as variety of both large and small vehicles. For example, the company is known to manufacture vehicles such as Epica, Sportsman, Ute, Cruze, Commodore, Combo to name just but a few (Ecoline, 2010). Diversification has come with some benefits to the company. As mentioned earlier, the company has introduced new models in the market since 1950 to increase profitability. Moreover, the company has benefited from diversification since it has gradually increased its sales hence controlling market in the country and out-side country. Finally, the company has increased its resources and knowledge as a result of diversification. These benefits are more reflected by the company’s percentage in the market share locally and internationally. 3.0 Research methodology The data collected in this research is used to establish the diversification of Holden Limited Australia. The data is gathered from previously conducted research in the same company and though the objectives of the research may defer, the information provided is relevant in the two researches. The information is in quantative data in form of charts and tables. The data compares the company’s performance with the performance of other automobile manufacturing companies in Australia and in some cases across other countries with manufacturing companies that have a competitive hand over the company. The information also compares between different models and different manufacturers. The qualitative data provides information about the company’s internal culture i.e. the relationship of company’s management and other stake holders. The tables and the charts are provided in the appendices 4.0 International and Domestic Marketing environment Analysis Holden Limited success is solely determined by the capacity of its employees and the relationship developed by the managers and the entire employees’ fraternity. To establish such a relationship, the company has implemented mutual respects and safety of the employees. In addition, the company has programmes that develop people as well as reward their efforts (AG, 2011). The company has also recognized that talented, engaged and motivated employees are the corner-stone towards the success of its business (HBR, 2010). With this, Holden’s human resource strategy has always been; involvement with the workers, increase profitability, focuses on cultural priorities, and present new products and innovations. Workers profile Prior to 4,661 employees recruited in 2010, the company had the following workforce composition: 97% and 3% full-time and part-time employees, 12.5% and 87.5% female and male employees, and 62% and 38% award and salaried employees (Ecoline, 2010). About 53% of the workforce is located at Holden’s head-quarters at Victoria while the remaining percentage is located at different locations of company’s operations. Most of the workers are fully engaged but the company is working to improve the engagement by 5%. The company has also realized that training and developing its workforces is as important as strategy toward achieving its goals. For example, the company in 2010 set aside a sum of AU$ 718,000 and 345, 000 hours for development of staff. Moreover, the company has an online learning module which is more cost effective since it can be accessed from any geographical point and at any time. Economic contribution In Australia, Holden is a core employer, tax-payer and producer. It is also a customer of services and products produced by other local medium and small businesses. Australian Holden Ltd reported producing about AU$ 450,000 worth products (HBR, 2010). In general, the local car manufacturing industry is worth AU$ 7.7 Billion dollars. This is an equivalent of 6% of total Australian value added and 1% of its gross domestic product. In terms of marketplace, Holden is one of the three automotive manufacturers the others being Ford and Toyota. The companies operate in one of the most competitive car markets since the reduction of tariffs. The tariffs have been noted to drop from 57% in 1980 to 5% in 2010. This competitive market calls for quality production, efficient manufacturing and strong supplier relationships (Ecoline, 2010). It also calls for infrastructure and technology advancement. With this competition, the company has set-up dealerships all over Australia and abroad. The dealers in Australia alone are over 270 as stated previously. It would also be noted that Holden’s local as well as international suppliers are critical business partners. Through this partnership, the company is able to produce quality as well as world class vehicles. To gain the much needed competitive edge in a competitive market, the company has global purchasing and supply chain team which is responsible for (among other things); procurement of services and parts locally as well as internationally (Bedwell, 2011). Furthermore, the company contributes widely to the economy. For example, the company provides business opportunities either directly or indirectly to other local businesses. More specifically, the company spent more than AU$ 2.3 Billion on goods and services locally. Social Factor The company has put safety as the first priority in all their operations. This has contributed to the success of the company through building relationships with staff and unions. Say, during the economic crisis of 2010, the relationships enabled the company to restructure internally and they were able to produce the Cruze early the following year (Ecoline, 2010). Holden also has established relationships with community organizations such as Leukemia Foundation, Landcare Australia, and Smith Family. Over and beyond, the company has been in the forefront in supporting families affected by calamities. The most notable support is continues program of providing 300 loan cars to families affected by Victorian bushfire. In general, the community contribution is worth AU$ 3.715 million (Bedwell, 2011). Since 77% of the total employees come from Australia suburbs, the company has a strong logic of “loyalty” and responsibility. On the same point, Holden administration is aware that unemployment is one of the biggest “enemies” of not only the Australian economy but also development (HBR, 2010). To cater to unemployment therefore, the company initiated a program of recruiting workers through Australian state agencies like department of further education, and science and technology. This program enable the company to recruit about 20 of the successful participates. The program has also enabled Holden to diversify its workforce as well as establish an opportunity to include local people. Customer services In the aim of achieving its goals and dreams, Holden Ltd has reviewed its customer satisfaction (Bedwell, 2011). To hit the nail on the head, through customer relationship management (CRM) the company has identified styles that affect customer satisfaction. In that respect, Holden’s ‘customer assistance centre’ caters for customers complains and concerns. It also provides customers with support from 8a.m to 7p.m on working days and 9a.m to 1pm on weekends that is enhanced via fax, phone, email and media channels. Support of customers is not given to potential customers but it is given to all; even those who have bought vehicles regardless of the age of the Holden vehicle (Nuguid, 2012). The company has also developed connections with customers through marketing and advertisement. To achieve these, the company has complied with all the legal regulations of adverting and connecting with its customers. This includes competition and consumers’ act 2010 and federal chamber of automobile industries ‘voluntary code of practice for motor vehicle advertisement. This and other provisions cater and protect customers as well as looking how products are marketed and advertised in Australia (Ecoline, 2010). In addition, the company has implemented the advertisement code of ethics that states that vehicles should not be marketed in a matter to promote dangerous, illegal and reckless driving. Again, the company makes sure that all the employees are aware of this customer regulation. Moreover, the customers are given a chance of raising their concerns about Holden’s marketing and advertisement. Political factor Policies concerning trade, economy, safety, environment and industry are considered to impact on the running of Holden Ltd. For that matter, Holden Ltd has constantly engaged with policy-maker at any levels be-it federal, local government or state. The company also debate and brief the parliamentarians on issues affecting and of interest to its development (AG, 2011). To illustrate this, the company through its chairman has always discussed the following with the policy-makers; the commonwealth alternative fuel strategy as well as fuel standards, Korean trade treaty, vehicle standard emissions, law of customers among others. More importantly, through negotiations Holden has seen the tariffs drop from 10% to 5% in 2010 which adds a competitive advantage to the automobile market. Moreover, through accords with USA and Thailand and other nations the company further reduces the tariffs to 3.5%. (Nuguid, 2012) Because of the increased advantages that come with engineering, design and overall manufacturing of cars, the company has continuously encourage the government to invest in the industry through subsidiaries and grants. In the aim of increasing Australia’s automobile competitive advantage in the global market, the Australian government through ‘Automotive Competitive and Investment Scheme’ Holden received a tune of AU$ 99.6 million (HBR, 2010). The scheme is aimed at among other things; provide support to automotive and engineering production plants. In addition, through the federal government program called ‘Green Car Innovation Fund’ the company received AU$ 149 million for developing local small cars that meet international standards such as Cruze Series II. On the same program, the company was given a sum of AU$ 39.8 million to further develop fuel economic and environment friendly cars such as Holden Commodores (Murray, 2008). Technology/innovations Technology and innovation are the pillars in success of Holden Ltd (Nuguid, 2012). With Holden being one of the seven GM operation point with capacity to build, design and sell vehicles, the company has incorporated technology as well as innovation. Incorporation of innovation and technology is designed to enable the company to produce affordable, meet the customers demand and reduce negative environmental effects due to carbon emissions (Ecoline, 2010). Through the Ecoline strategy, the company has customers with “sustainable” vehicles that use fuel economic technology and alternative fuel choices. In addition, the company through this program has provided solutions to challenges associated with energy diversity and energy efficiency. To that reason the following two technologies are been used by the company engineers to enhance fuel efficiency. These are; active fuel management (AFM) and spark ignition direct injection (SIDI). For example spark ignition direct injection is used to build VE series II commodore. The AFM is used to build all vehicles that were launched after 2008 like Holden V8 automatic model (HBR, 2010). 5.0 Estimated Market Size and Gap Analysis/ Market Share According to Holden’s associate directors for supplier strategy, “there are more than 10, 000 suppliers throughout GM global operations. So it is a tremendous achievement to be selected as one of 82 suppliers who meet the judging standard” (Bedwell, 2011). The stakeholders are given a responsibility of assessing the suppliers once a year. The assessment check for innovate technology, competitive strategy, better quality among other assessment criteria. Holden therefore uses Mett as the supplier of engines since it meets its quality and qualifications. Also, there are more than 62 distinct products looking for 1million yearly sales. Comparatively, in USA there are 32 products chasing for 11.6 million sales. The three dominate vehicle manufacturing companies in Australia are GM Holden, Toyota, and Ford. It will well be noted that all of the companies are subsidiaries of foreign companies (Ecoline, 2010). Moreover, the market share has fallen due to withdrawal of Mitsubishi from manufacturing in Australia back in 2008. Domestically manufactured vehicles market has been dwindling due to imported vehicles increasing hence increasing competition. Therefore the three competitors left in the market are struggling to make profit due to these imported brands and “mismatch” with customers’ demands. The profit margin has also dropped due to increase in price of production (Nuguid, 2012). To shed more light, the price of steel is taken to increase and it is estimated that the cost of purchase of manufacturers in this industry is about three-quarters the cost of revenue. Nevertheless, this is anticipated to fall over the next 5 or so years. Generally, the overall market share of automobile manufacturing industries in Australia is as follows; GM Holden Ltd is the second leading in terms of market size with a percentage of 23 (Ecoline, 2010). The leading company is Toyota Motor Corporation Australia Ltd with 45.6 %. Ford Motor Company of Australia Ltd has a percentage of 18.7. The other 12.0 % is taken by other automobile manufacturing companies but they are not as dominant as the three. These non-dominant companies are like Volvo, Iveco, and PACCAR. For example, the company manufactured 66, 061 vehicles locally and of these; 7,817 vehicles were exported in the year 2010. In the same year in addition, Holden manufactured 98, 146 V6 engines (Ecoline, 2010). In terms of competitors, Holden fights a challenging “battle” to have a competitive edge over its competitors (HBR, 2010). As noted above, the biggest threat in terms of competitors is Toyota. Ford comes in as the second challenging threat. These two competitors have almost the same variety of brands and suppliers not forgetting the customers. For example, Ford Motor Company of Australia is responsible to manufacture, imports, export, and distributes medium and small vehicle-just like Holden. 6.0 Market entry mode analysis and strategies Holden Ltd market mode and strategies are driven by the focus of sustainability brought about by the global marketing environment (Murray, 2008). For the recent past years, the company is geared to wither past the 2010 economic downturn affecting businesses not only in Australia but also in other countries all over the globe. To maintain sustainable locally, the company employ the “bank” of support from employees, stakeholders, dealers, unions, communities as well as government. These organizational supports has helped Holden Ltd move past the crisis and more importantly made the first remarkable profit from 2010. With this, the company has realized that sustainable motoring is the only way forward (Cantwell, Gambardella & Granstrand, 2012). Through Ecoline strategy that provide customers with fuel efficient as well as reduced emissions, the company has made a considerable move towards sustainability. In addition, by producing cars that can use alternative fuel like bio-ethanol. Within the company, sustainability comes in by maintaining the balance between economic and efficient production of cars (Nuguid, 2012). Therefore, the vehicles are produced to meet the customers’ demands as well as environment “friendly” not forgetting community’s needs. This is brought home by implementation of fuel saving technologies. The most effective strategy in Holden Ltd is the GM’s plan of deployment. The deployment strategy is based on overseeing responsibility as well as accountability to all the stakeholders. It is important to point out that the mode of entry and strategy of marketing has been changing depending with business environment at a specific period of time (Ecoline, 2010). However, all the strategies and market mode of entry are designed to increase profitability, maintain sustainability as well as reduce to risk associated with production. These risks include the competitors, political, social and environmental factors (HBR, 2010). 7.0 Estimated budget Holden Ltd contributed about AU$ 3.715million to local communities through different programs in 2010 (Nuguid, 2012). Moreover, the community budget was 0.08% of the total budget. The current Holden budget has a variety of state to the art model cars, minibuses, commercial vehicles, four wheel drive as well as commercial cars. The variety provides customers with flexible rates and quality service. The budget also considers the aspect of affordability of the Holden brands. The affordability has resulted from mixed competitive and regulatory factors such as intense market competition and new low cost cars (HBR, 2010). Value equation of a new car has also contributed to the affordability in the sense that cars incorporate higher levels of feature content than before. Though there has been improvement in affordability, there is still a room for improvement if only the producers can ensure diverse needs of demand in the market place. Finally, the budget has catered for the product innovation in what is called-product life cycle. 8.0 Time frame (2014—2017) The budget and the marketing strategies with Holden are geared to improve the quality of brands of vehicles, engines and other parties manufactured by the company (Cantwell, Gambardella & Granstrand, 2012). More importantly the company is aimed at incorporating with ever advancing technology in order to be on the front line in conserving environment (Nuguid, 2012). In addition, the company prospects that by 2017 they will have implemented all the necessary requirements for them to provide the customers with fantastic brands. The brands are prospected to be fuel-efficient, environment friendly, as well as to have all the basic facilities that the customers are demanding for. The facilities to be used are of the latest technology, of quality and cheap. Holden is also working with respective authorities to see to it that the company meets the global standards of manufacturing automobiles (Ecoline, 2010). 9.0 References Australian Government 2011 .GM Holden Case Study, available online at: http://www.eowa.gov.au/Case_Studies/2006/GM%20Holden.p Retrieved on September 2nd, 2012 Bedwell, S 2011 Holden V Ford (2 Volume Set): The Cars, the Culture, and the Competition. USA: ReadHowYouWant.com Ltd Cantwell, J., Gambardella, A & Granstrand, O 2012 .The Economics and Management of Technological Diversification (Routledge Studies in the Modern World Economy). New Jersey: Routledge Ecoline 2010 .General Motors Holden Australian Packaging Covenant Action Plan 2011-16, available online at: http://www.holden.com.au/resources/documents/2011_2016_Australian_Packaging_Covenant_5_Year_Plan.pdf Retrieved on September 1st 2012 Holden Business Report 2010 .Writing Our Own Future, available online at: http://www.holden.com.au/resources/documents/2010_Holden_Business_Report.pdf Retrieved on 31st August 2012 Murray, B 2008 .Holden's Performance. Australia: Penguin Books Australia Ltd Muszynski, M 2011 .Multi-business from Diversification to Corporate Holding. Amazon: Createspace Independent Publishing Platform Nuguid, A 2012 .Motor Vehicle Manufacturing in Australia: IBIS World Industry Report C2811. Available online at: http://www.autocrc.com/files/File/2009/AutoCRC-Annual-Report-09.pdf Retrieved on 31st August 2012 Wheelen, T & Hunger, J 2011.Concepts in Strategic Management and Business Policy: Toward Global Sustainability. New Yolk: Prentice Hall (Wheelen & Hunger, 2011) General Motors-Holden’s Limited 1953 .About ourselves /​by General Motors-Holden's Limited. Australia: Public Relations Dept. 10.0 Appendices Read More