Competitive advantages in European Union industries: Porter's Five Forces analysis

European Union - Business in Europe

European Union

* Competitive advantages of a European area in a chosen

Industry and Porter's Five Forces

* Personal impressions and reflections on what was learned?

The European Union is made up of several countries, and all these countries have one single aim, which is to promote and develop business relationships within Europe and also with the rest of the world, in today's world of globalization. When one wishes to conduct business with the European Union, he would do well to study the various issues that are involved, and then proceed. The rules, the ethics, the values, and the discipline in the country where he wishes to set up operations, and the financial atmosphere, the cultural differences, and the differences in the workforce and in the methods of management must all be analyzed and researched before venturing out into the now free and open world. The Car Industry as well as the Steel industry in the European Union is marked by heavy capital investment. Whereas the car industry caters directly to the consumers at large, the steel industry serves the national economy in the form of steel output for use in different user industries. Michael Porter's concept entails a relationship within an industry, potential competitors, suppliers, buyers and optional solutions to the problem being taken care of.

Introduction:-

The European Union today has become conducive to foreign investors wishing to conduct their various businesses in Europe, and these are the various related issues, like the laws and regulations within the EU, the role played by the European Central Banks, the several and various differences between the workforce in America and in Europe, and the best way in which to manage all these issues and organize and run the business successfully. Porter's Five Forces Analysis assists the marketer to contrast a competitive environment. It bears resemblances with other tools or environmental audit like PEST analysis, but has a tendency to concentrate on the single, independent business or SBU -- Strategic Business Unit instead of a single product or a range of products. Porter's Five Forces analysis touches upon five key areas such as threat of entry, power of buyers, the power of suppliers, threat of substitutes, and competitive rivalry.

Body of the paper

I. European Union

1. Issues related to the European Union and its impact on Trade and Businesses in the EU

Today, everyone recognizes the need for a better international agreement, and this was finally achieved when the Leaders who met at the Canada-European Union at Ottawa, in December 2002, and decided that they would create and develop a new type of 'forward looking and wide-ranging' bilateral trade agreement, which, they felt, would work well for investors in foreign business and in foreign lands. Also known as the TIEA, the agreement has been worked upon both by the government of Canada and the European Union. The TIEA, in fact, builds on the fruitful and fulfilling cooperation that had been established already between the EU and Canada, by building upon the existing framework contributed by various other agreements and statutes that had been entered into in years previously. Some of these are: the Framework Agreement for Commercial and economic Cooperation, of 1976, the Joint Action Plan of 1996, the EU-Canada Trade Initiative of 1998, and the various other bilateral agreements that had been agreed between the Parties, among them the more recent on being the September 2003 Agreement on Trade in Wines and Spirits Drinks. (Regional and Bilateral Initiatives: Canada-European Union - Trade and Investment Enhancement Agreement)

The foundation of the European Union actually took place in the year 1952, when the six countries of France, Germany, Netherlands, Italy, Luxembourg, and Belgium entered into an agreement with the European Coal and Steel Company, wherein all the members agreed to have the control of those industries under one single central authority. The arrangement seemed to wok well for all the countries that were involved, and this led to the formation of another agreement in the year 1958, and this was called the 'European Economic Community'. Several new members began to join in, and among them, were Denmark, Ireland, United Kingdom, Greece, Spain, Portugal, Austria, Sweden, and Finland. The famous 'Treaty on European Union, entered into in Maastricht in 1992, succeeded in ushering in a veritable new era of progress, and the name of the arrangement and the organization changed to the European Union. (European Union: Delegation of the European Commission to the U.S.A.)

The so-called co-decision procedure that this introduced has now, today, become the norm, and now, the European Parliament and the Council of ministers share the legislative power of the Union. Complete monetary and economic union for all the members of the European Union commenced on 1st of the month of January 1999, when the single currency for all the various European Union, called the Euro, was introduced. When the Treaty of Amsterdam was introduced in the year 1999, it brought in more strength for the Union's Foreign Policy, and introduced a better thought out strategy for the European Union so that employment would be boosted, and people would be able to move more freely across various borders. (European Union: Delegation of the European Commission to the U.S.A.)

4. International Finance issues, e.g. financing international trade, foreign currency fluctuation risks

Since it is an acknowledged fact that conducting business overseas can be tough and complicate and fraught with risks, it would be wise to take on the advice of experts in the field when venturing out for the first time. For example, Scotiabank, a leader in International Trade Finance, states that it would be able in a position to provide the requisite guidance and training. (International Trade Finance) When a company operates in an export market, for example, the basic nature of the currency market all over the world naturally means that an accurate prediction of the future would be impossible, and therefore, the factors that affect and impact the currency rates across the globe must be noted and one must be well prepared for it. There are some tried and tested methods with which to protect he business against fluctuations, and one of them is when one needs to exchange currency, one can do it when it is advantageous for him. This is called hedging, and another method is called a forward contract. This is when one agrees to a certain exchange rate today and then he can buy or sell currency at the agreed rate at some later date. (The Exchange Business: Foreign currency exchange fluctuation)

5. Differences in organized labor & managing with different types of labor unions in Europe

The labor unions in different countries may be infinitely different, and most unions indulge in collective bargaining methods. (Unions begin to struggle in Europe) The associations of workers that hopes to improve the conditions of their workers is known as a labor union, and while in the beginning all contract between employers and employees used to be done individually, today it is managed by the trade unions. (Labor Union: MSN Encarta) In Europe however, the diversity often makes it an insurmountable problem for many, and there are large confederations on both sides of the union. (Labor Lessons, Notes from Europe)

6. 'Comparative' Marketing, e.g. comparing the 4 Ps for a product

All marketing decisions generally come under the category of product, price, place, promotion, and the veritable mixture of ingredients is what the manager would be able to exert control on. The main goal of the manager would be to center or concentrate the four P's on the customer in such a way that a positive response would be the result. Product decisions may include style, quality, safety, packaging, while pricing may refer to the strategy of pricing used by the company, whether in America or in Europe, the price flexibility, and the various discounts that are offered. The place means the various places where the product would be distributed, and these may be the various traditional distribution channels available, the warehousing, the transportation, and the reverse logistics. The fourth P, the promotion, would include the promotional strategies used for the product, the advertising, public relations and the direct marketing tactics. Today, despite the well-known limitations of the strategy of the Four P's, it is still used by companies across the globe, and perhaps this is because of its very simplicity. (The Marketing Mix)

7. Ethics

Ever since the time after the Second World War period, many different ideologies have developed across the globe, like for example, consumerism, feminism, and democracy. With the recent development of the 'Neo-con Weltanschauung', there are quite a few implications for the relationship between the European Union and America. The mood within Europe has today changed, and with the writing of the Constitution between the EU states, which the French and the Dutch rejected, was because of the fact that voters wanted to keep up their own identity and were not willing to sacrifice their independence and autonomy. Therefore, the more conservative the policies are in Europe, the better opportunities are it is for European democracy. (Has the Neo-Conservative wave from Texas reached Europe?) Environmental legislation and other related issues and various other European Union policies have paved the way to a cleaner and a greener world, and one of the more significant developments is that today, the very climate is changing, to a small extent, due to the efforts and activities being made by the environmentalists of the EU. However, there is a long way to go, still, and it is to be hoped that the EU would succeed where others have failed. (Environment)

The European Foundation stresses on the fact that 'work-life' balance is of utmost importance in enhancing and facilitating the efficiency levels of the employees, and some of the more important parts of the balance are time management, a basic reconciliation between work life and non-working life, and part time work of an employee. (Quality in work and employment) Since today, there are fewer barriers between European countries, it means that today there is a European Bank, a European Parliament, and the Euro. The number of people involved in businesses across Europe have also increased, and this means that the management styles would also have had to change. The fact is that the management is still tied to cultural differences, and studies revealed that there were not many similarities between managers of different European organizations. (Global or Local: The Impact of Country Culture on Leadership style in Europe)

Europe has a complex combination of cultures and styles, and one must be careful, when conducting business there, to be aware of these differences, and as the joke goes, Heaven is where the police are English, the cooks, French, the lovers, Italian, and so on. Today, attempts are being made to create a geopolitical form that would go beyond the European Union. (The Global Etiquette Guide to Europe: Everything You Need to Know for Business and Travel Success) Family types too are not too different from what they are in America, and in Europe, it is the nuclear system that works. This is not the same as the rest of the world, where extended families are the norm. The traditional roles played by individuals in Europe are the man as breadwinner, and the woman, the housewife. Today, this has all changed significantly. (Family Variations and Change across Cultures)

Work Related Stress is more often than not associated with bullying and harassment at work, especially in the European workforce, and the costs of such harassment are high for the management as well as for the employees. The prevention of such crimes is taking precedence today. (Stress and Psychosocial risks, Bullying at work) An organization's base generally rests on the values and these affect the philosophies that are followed within the organization and the behavior of the employees as well. While employees see values as a part of their work life and ethic, the management determines the type of leadership and the qualities of their strategies upon the values. (Big Dog's Leadership Page-Organizational Behavior)

II. Competitive advantages of a European area in a chosen industry and Porter's five Forces

Car Industry: (Daimler Chrysler, Porche, Volkswagen) & Steel industry (Acelor):

The shape of competition within an industry is dependent on five basic competitive forces which are entry, threat of substitution, bargaining power of buyers as well as suppliers, and rivalry within the current competitors. The strategy of Daimler stands on four pillars, which are worldwide presence, strong brands, wide product range and leadership in the realm of technology. The power of competitive forces within an industry determines the extent to which the inflow of investment happens and propels returning to the level of free market and this serves the capability of the enterprises to sustain more than average returns. The five competitive forces according to Porter are entry, threat of substitution, bargaining power of buyers & suppliers and the rivalry among the present competitors show the fact that competition within an industry transcends well beyond the major companies. All the five competitive forces together determine the power of competition and profitability in an industry and the strongest forces rule and come to be important from the point-of-view of formulation of strategy. (Mercedes Benz: Competitive Forces, Competitive Strategy)

Car Industry: The rivalry of bargaining power keeps Mercedes-Benz to race ahead and therefore it leads rival BMW and others who are present in the market and causes a threat to Mercedes Benz. Buyers compete with the industry by way of bringing down prices, bargaining for improved quality and more services and pitting the competitors against each other by hammering down prices against the background of industry profitability. Differentiation of product has facilitated Mercedes Benz to beat down the power of its customers through offering them fundamentally the same product under different prices for different models and class. The versatility of Mercedes Benz allows it to not just to manufacture a wide range of vehicles ranging from cars to trucks however it has also applied a Superior Engineering Technology with regard to other automobile manufacturers and made available a broad variety of preferences and has been an influencing factor in the choices made by the customers who decided to purchase a Merc product thereby making them a domestic name.

Power of Suppliers (i) Alliances: The abundance of suppliers together with the super network established guarantees the flow of and exchanges of information between Merc and its strategic suppliers across the world. (ii) Growth: Merc is not conceding in its endeavor at the proliferation of its suppliers as it is ensured of a regular and low cost supply of components. (iii) Rivalry of Competitors: Rivalry among the present competitors assumes the familiar shape of jockeying for position-using strategies such as price competition, and wars, product introduction, and increased customer service or warranties. (iv) Threat of new entrants: New entrants arriving in an industry bring new capacities and the desire to corner market share and often substantial resources. Prices can be bid down or the cost of the incumbents can be bid down and costs increased due to decreasing profitability. The threat of entry within an industry is dependent on the barrier levels of entry which are present together with the reaction from the present competitors that the entrant can expect differentiation. Product differentiation indicates that established companies command brand identification and customer loyalties, which come from previous ads, customer service, product differences or just having the first mover advantage. (v) Threat of substitutes: (a) Differentiation: Mercedes Benz applies a superior Engineering Technology compared to other auto manufacturers and diversity of product program allows consumers to make wide variety of preferences. The flexibility of Mercedes Benz facilitates it to manufacture a broad range of vehicles starting from cars to trucks has made them a domestic name. (Mercedes Benz: Competitive Forces, Competitive Strategy)

Germany manufacturers close to 5.5 million cars annually, however the year 2004 will go down in the history of German car industry due to poor sales and industrial strikes. General Motors -- GM declared a $500 million cost slashing measure which will witness 10,000 jobs cut at its German Opel plants. Besides, Volkswagen -- VW witnessing its seventh decline of quarterly profits in a row, declared its 1, 00,000 strong employees that cost will be decreased by $2.6 billion or by 30% by 2011. Against this backdrop of trimming down of jobs and a short-term workplace arrangements, the long-term sustainability of the car industry of Germany in a global economy is been observed closely. According to the analysts of the auto industry, car makers should have visualized the warning signals of an excess supply in vehicle production looming. (What Next for German Auto Industry)

The economic growth of Germany is slow, consumer spending is depressed and new car registrations are low once again for the fifth year. According to Opel, it admits that it was unable to judge the market properly and didn't put a check on production earlier. At Volkswagen, a fall in their U.S. And Chinese market witnessed management aiming to boost profits by slashing production costs at its German plants. However, the question remains as to whether there is still a competitive edge of making use of the skills of superiorly trained German car workers. According to Christoph Sturmer who done an in-depth analysis of the German auto industry, labor costs should slash. But he quickly pointed out that compared to other nations; the German car worker is more self-dependent on the shop floor. He thinks that a change is on the anvil.

Increasing uncertainties abound that the simple model of remunerating people less and employing increased number of machines will be quite helpful for the auto industry survive with all the companies which are at present. Together with more automation in the factory level, low cost labor in the new EU countries is also coming to be more appealing in case of German car manufacturers. According to Bob Hancke, of London School of Economics mentions that western European unions have started to impact the workers in eastern European car factories to pressurize for more wages, but in vain. Considering this sequence of over-production, disputes in wages and strikes, it is questionable whether the German car industry has maneuvered itself into a state in which cost effectiveness is the sole way out according to Hancke. According to him, the German car industry is going to face a great many problems as there is imminent of a big opportunity, considering the amount of skills the car manufacturers have removed out of the production procedures. Volkswagen might require manufacturing fewer cars on the whole, but producing more models which are able to attract a higher sales value. (What Next for German Auto Industry)

Cluster influence competition in three broad manners. First of all by growing the productivity of the area; second, by driving the direction and speed of innovation, that underpins future productivity and growth; and third, by inspiring the creation of new businesses that enhances and strengthens the cluster. To take the benefit of these advantages, the Volkswagen -- VW and the city of Wolfsburg in which the VW is situated in Germany started a project known as Autovision by starting the Wolfsburg. The primary aim was to create 10,000 new jobs in the forthcoming years through increasing the foundations of the company, the agreement of new companies, enhancing the provision of entertainment and leisure facilities and promoting an integral personnel service. (Aspects of Competitive Advantages and Regional Clusters)

Arcelor Steel: The commitment of Arecelor is total with the aim of creating value and to support sustainable development. The objectives are: (i) Actively play a part to the renewal of the Group's steel product and solutions offering (ii) Provide assistance in improving the production process, by way of continuity or total modification (iii) Developing know-how across the group through enhancement of product through collaboration with customers, transfer of superior practices and improvement plans and leveraging of synergies to better research and development efficiencies. (Innovation and Quality)

Arcelor is a successful company. Following an initial consolidation phase, the enterprise is now in place and the company has fulfilled the promises made before the European Commission as regards sale of assets. The strategies for every business of Arcelor has been defined during the first quarter of 2003 and after talks with the stakeholders, Arcelor started to implement them to a position where the company will begin to see the first results. The customers and shareholders repose faith in the company as the company keeps its promises. However, the company feels it has to transcend that and in keeping with that it has thoroughly reorganized their research and development organization placing the focus in every of their market segments on innovation. The company also started a review of the supply chain so as to enhance the quality of the service and differentiate itself from its competitors. The company has deployed the Sustainable Development Policy. In that context, the Arcelor Principles of Responsibility has been defined which is put to practice on a regular basis. The two fundamental aspects are safety first and foremost as also social dialogue. The European Works Council formed at the very beginning of the merger is crucial for an intensive approach to the Group's major strategic challenges. (Arcelor Annual Report 2003)

The company is planning to enter a new phase of growth. It has been made possible due to its ability to reduce the level of debt beyond the initial goal and more quickly compared to what was anticipated, thus freeing up the resources which are required for growth. The company is even divesting non-strategic activities as per the commitments undertaken. Finally, Arcelor carried out a lot of important projects in 2003. In Flat Carbon Steel with the operational startup of the automotive galvanizing lines in Brazil and Turkey in alliance with Borusan that augment the company's global offer of quality products in case of the automotive sector. Arcelor is also in alliance with Nippon Steel Corp in the context of Global Strategic Alliance adopts it full import here with the formulation of a joint product list meant for the important industrial customers in the automotive industry and the participation in the Acelor-Baosteel-Nippon Steel Joint venture for building of a plant close to Shanghai which will fulfill the mounting requirements of Chine automotive industry. (Arcelor Annual Report 2003)

III. Personal impressions and reflections on what was learned:

It is obvious that with the proper research and the right amount of effort, it would be possible for a foreign investor to deal with an overseas operation in Europe, and in the EU. It can be said that if one were to pursue and research all the avenues where there is risk, and then go about trying to find methods to overcome these risks, then setting up a business in Europe would not be a difficult proposition at all, because, business in Europe, apart form the vast cultural differences in the people, is the same as it is everywhere in the rest of the developed world. The American economist Paul Krugmann commented in his study -- "The Age of Diminished Expectations": Productivity is not everything, however in the final analysis, it is everything.

The causes in the opinion of Krugmann are that a nation's potential to enhance the standard of living is dependent nearly totally on its capability to raise its output per worker. The basic problem of the German economy in the past years is a low level of productivity gains. In Germany, the productivity went up from 1995 to 2002 only by compound annual growth levels of 1.0%. In the U.S., productivity went up during the same period by 2%, in Great Britain by 1.9% and whereas in the European Union the annual growth rate was 1.1%. The sluggish increase in productivity is the cause why the income levels and the purchasing capacity of private households are not increasing. Thus augmenting productivity is the answer for the future development of the German economy. (Materials given by the Client)

Conclusion:

It can be said that if one were to pursue and research all the avenues where there is risk, and then go about trying to find methods to overcome these risks, then setting up a business in Europe would not be a difficult proposition at all, because, business in Europe, apart from the vast cultural differences in the people, is the same as it is everywhere in the rest of the developed world. Porter's study of the industry groups showed five determinants of the long-term industry profitability. The initial part is the character of the competition among the competitors within an industry that can range from inhuman and warlike to gentlemanly and slient. Clearly, more deep the rivalry, the more difficult it is to compete in an industry. Secondly is the threat of new entrants. Where there are considerable barriers to entry, the companies within an industry will fare better compared to the situation when the barriers are weak. One more factor is the threat of substitute product and services. When the customers have a lot of alternatives from where to choose, the profitability of the industry goes down.