Harley Davidson External Analysis Harley Davison\'s External

Harley Davidson External Analysis

Harley Davison's External Analysis

PEST analysis

Political

Economic

Socio-Cultural

Technological

Porter's five forces

Harley Davidson is an American motorcycle manufacturing company that sells motorcycles above 700 cc engine capacity. The company was founded in 1903 at Milwaukee, Wisconsin. With approximately $5.3 billion in Fiscal Year (FY) 2011 as revenues, the company is now facing tough challenges in the international motorcycle market as new companies have entered to share the market fortunes (Harley Davidson, 2011). The Italian Ducati is one of the leading competitors that HD has come across during last couple of decades.

The paper is aimed at analyzing external environment of Harley Davidson (HD) by using two external analysis tools i.e. PEST (Political, Economic, Social, and Technical) and Porter's five forces (Threat of new entrants, Threat of substitutes, Threat of Supplier power, Threat of buyer power, and Threat of Rivalry with the industry). PEST helps analyze the strength of bigger forces of change present in a company's external environment. It is these macro-forces in a society that shape the overall business environment. After broad external environment of a company, next most important aspect that businesses need to know about the details and dynamics of specific industry they are operating in. For this purpose, Porter's five forces model provides an effective tool for the firm's and analysts to assess the appropriate industry context in which business is operational. These tools will help generate an appropriate picture of HD's external environment and help assess company's likely opportunities and threats in the future.

PEST analysis

Political

Political environment that prevails around the business of HD can be termed as

"every president (and most presidential wannabes) except Obama has made a conscious effort to link himself to the American manufacturer (HD) since Reagan made an appearance at an assembly plant in 1987-especially the Republicans" (McBee, 2011). The political governments, specifically those of Republicans have openly supported protecting HD's market share, most striking instance was when Reagan administration increased import tariffs on heavy duty motorcycles from 4% to 49.4% in 1980s (McBee, 2011).

Economic

Economic environment in which HD operates has been worsening ever since competition has increased in the U.S. heavy motorcycle market. Another important impediment in HD's continuous growth has been 'recessionary' economic phases, last one being post 2008 global financial crisis (GFC). Due to decreased sales of its motorcycles and competition from Honda, HD had to cut 50% of its jobs at one of its manufacturing plant in York, PA (Looney, 2011).

Socio-Cultural

The socio-cultural environment has also been changing since late 1980s. Prior to this, American's were heavily engaged in purchasing fast motorcycle machines and HD was a 'symbol of freedom' and American ingenuity. Of late, entertainment avenues such as vacations, travelling abroad and purchasing technology oriented gadgets has increased. This has exerted a negative influence on sales of expensive and heavy duty motorcycles.

Technological

There remain significant technological challenges for Harley Davidson to counter in the motorcycle industry. Part of these challenges have stemmed from the presence of competitors such as Honda that have effectively challenged H-D's position in the U.S. market. New innovations in motorcycles such as turbo-chargers exhaust system, aerodynamics to help increase the acceleration of motorcycles, and other technological changes have exerted significant pressure on H-D's product development division to come up with innovative and competitive technological changes in their motorcycles.

Porter's five forces

Threat of New Entrants: Medium: It is observed that barriers to entry in the heavy motorcycle industry are not high. Many companies having an exposure in motor manufacturing have entered the industry with Honda, Ducati, and Suzuki being the companies having effectively reduced H-D's market share in U.S. market. Government policy has also been favorable until 2008 as both Republicans and Democrats have favored protecting H-D's market share by imposing import duties on imported heavy motorcycles. Capital requirements are high as each company needs significant capital to establish manufacturing, marketing, sales, and distribution facilities all over the U.S. Switching costs are somewhat high that makes the industry' entry barriers higher than other industries.

Threat of substitutes: High: Threat of substitute motorcycles or complementary goods is also high. The customers can easily switch to another brand within the industry such as Honda, Suzuki, and Ducati. Buyer inclination to substitutes is also high as each buyer seeks optimal benefit for money being spent on this luxury item. Price vs. performance trade-off of substitute products is also high as Honda and Suzuki have effectively provided both, reasonable price vs. price.

Threat of Supplier power: Medium: Supplier power is in this industry is moderately high as the suppliers have established business relationships with other companies as well. This provides a challenge for this company to perform well with its suppliers in context of management and profits. Impact of inputs on cost or differentiation is high as it is more effective and cheap to manufacture motorcycles abroad as compared to the U.S. market. Although threat of forward integration is on a medium level, due to moderately high switching costs of firms, the suppliers have a moderate level of influence over buying firms.

Threat of buyers: High: Since buyer volume and buyer information is generally high in the U.S. market, firms feel threatened that customers may not switch over to another brand. Price sensitivity and product differentiation has also increased in recent years that have made the threat of buyer's bargaining power higher as compared to 1870 and 1980s.