The industry external environment compounds an array of comprehensive forces that relate to the organization. External environment analysis of an industry facilitates an understanding of an organization position comparative to other organizations in the same industry (Worthington & Britton, 2006). An awareness of the external forces working across the industry players plays a handy role in organizations strategic planning. It also facilitates an organization's awareness on their relative opportunities and threats allowing them to plan considering their capabilities focusing on the available resources (Worthington & Britton, 2006).
The understanding of the external environment works to improve an organization's competitive advantage and potential sustainable growth with the industry dynamics at play (Peng, Wang, & Jiang, 2008). The external environmental forces can influence management decisions in running an organization. The results of such influence produce ripple effects on the culture, business performance, leadership style and general organization's response to circumstances in the market (Worthington & Britton, 2006).
Major Driving Forces for Change in External Environment of the Motorcycle Industry
Industry external environment forces are formally defined to describe the important factors that prompt reorientation of an organization's operations towards objective attainment (Peng et al., 2008). The U.S. motorcycle industry has seen major transformations over the years in its evolutionary growth. Among the external environmental factors that impact significantly on the motorcycle industry includes political trends, sociocultural changes and the economic dynamics at play. A discussion on these forces follows.
The motorcycle industry faces a likely change effecting force with there being a likely hood of lower trade tariff that allow and encourage competitors for the European and Asian industries to venture in the U.S. market. The global motorcycle industry has grown to incorporate countries with advanced technology and cheaper automobile production means. The observed growth combining with lowering of trade tariffs will threaten existing motorcycle firm's continued existence in the U.S. market (Peng et al., 2008).
Over the years, people's lifestyle has been changing with the increasing exposure to global trends. The diversity in people's lifestyle creates potential for alteration of consumer preferences for the brands and products produced in the U.S. motorcycle industry. Loyalty to the industry's products is slowly declining with only a few diehard customers keeping their preferences constant. The lifestyle change has seen consumers shifting their preferences to new automobiles, technologically and environmentally-friendly choices (Peng et al., 2008).
Changes and advancements in productions technology are forcing major players in the motorcycle industry to consider shifting their production locations. These changes work hand in hand with preference for fair priced products by consumers and thus lower production costs for the firms in the industry. The awareness that cheaper and highly advanced production technology is available in other regions - such in East Asian countries - is prompting the relocation of production sites. The U.S. motorcycle industry is facing an increasing volume of firms relocating to regions where they will pay lower production costs. These companies will in-turn sell their final products to the U.S. market making their products more competitive price wise (Peng et al., 2008).
Dynamics of competition using Porter's Five Forces Model of Competition
Porter's five forces model avail a framework for use in analyzing the influence external and internal forces has on the industry's competitiveness and profitability. The model gives a better understanding to organization managers of the industry context and the firm's position and potential in the industry. The forces discussed in Porter's model are; rivalry among existing firms; potential entrants; substitute products; suppliers bargaining power and buyers bargaining power (Michael E. Porter, 2008). These five forces Porter gives assess the forces of competition influencing potential profitability win the industry. Either of these forces has capability to reduce profitability or increase earnings in the industry (Michael E. Porter, 2008).
Rivalry among Existing Firms
Over the last few decades, the motorcycle industry has had a few major players with Harley Davidson being the dominant player with a market share exceeding 55%. In the recent years, this share in the market has been slowly declining to below 50%. The decline is attributed changes competitors have taken to increase their product line and seemingly producing motorcycles similar to Harley Davidson motorcycles. The unique design that identifies a Harley Davidson motorcycle is reflected in Japanese motorcycle making their products equally competitive in the U.S. market. Additional to design similarity, motorcycle consumers have little concern for the quality of the Japanese and the Harley Davidson motorcycles as was the case in the past (Michael E. Porter, 2008).
The internal rivalry and poaching of Harley Davidson customers by Japanese manufactures serves as a threat to Harley Davidson dominance in the market. Despite these changes, Harley Davidson relies on customer loyalty and their continued preference to Harley Davidson's brand name motorcycles. Despite the ongoing presence of the loyalty to Harley Davidson's motorcycles there is an observed decline trend in the demand for Harley Davidson's products.
In the motorcycle industry, there are only four major players (Harley Davidson Honda, Suzuki, and Yamaha). The capital intensive requirement and the production efficiencies required to come up with a product line similar to that of the four major players serves as a barrier to entry. Despite the decreasing costs of production brought about by technology advancements and line production, the level of economic efficiency required to rival existing players in significantly high. Although there are small existing and upcoming motorcycle production coming up, their level of operation is insignificant to threaten the four major players. These little upcoming and existing producers concentrate in the production of custom made motorcycles. As a significant aspect in the motorcycle industry, this serves to keep alive the general public's interest in motorcycles.
Substitute and Complement Products
The market for motorcycles has few substitutes that can seriously distort their demand. Considering that heavyweight motorcycles such as those Harley Davidson produces are luxury items, their easy substitution is impossible. The closest substitutes to Harley Davidson's products are the quicker and smaller brands produced by Yamaha, Honda, and Suzuki then follows the scooters and the passenger vehicles. Consumers for heavyweight motorcycles overlook these substitutes preferring the image that comes with owning a Harley Davidson's motorcycle. The riding comfort afforded by Harley Davidsons' motorcycles also plays a significant role in influencing demand for the heavyweight motorcycles.
Since heavyweight motorcycle consumers do not seek to satisfy transportation needs, they are less likely to substitute them with passenger cars. Consumers preferring to purchase a motorcycle for transportation, efficiency and maneuverability reasons will be inclined to get a lighter and smaller motorcycle. This is opposed to the heavyweight motorcycles that Harley Davidson produces.
The thought of motorcycle's complement brings to mind gasoline. It is expected that the demand for Harley Davidson's motorcycles will drop when the price of gasoline is high. This is a possible case since the use for heavyweight motorcycle is a pleasure and heavily discretionary rather than transport convenience. It is however notable that, the customer willing to pay between $8,000 and $25,000 for a luxury item will not be deterred from paying a steeper price for fuel. This implies that the demand for heavyweight motorcycles is likely to fall with increases in the cost of fuel.
Bargaining Power of Suppliers
The raw materials used in the assembly of Harley Davidson's motorcycles are sourced from different suppliers. The assembly of the motorcycles is by the company - Harley Davidson itself and upon completion the final products are distributed through a network of independent and extensive dealers. Since there are many sources for the raw materials, no single supplier can charge extortive prices for the supplies. Any attempt to charge Harley Davidson high prices will just prompt the company to switch to another supplier with little or no effect upon the company's production operations.
Bargaining Power of Buyers
The customer-based for Harley Davidson's motorbike comprises of individual end users. This makes it difficult for their joint action to be uncooperative with Harley Davidson. In effect, the company's financial status is likely to be compromised by individual customers' uncooperative actions. The company is likely to be compromised however, by their worldwide dealership agencies. In the event that the dealer demand for higher commissions on motorcycles sold they may paralyses the company's operations in reaching out to the markets. The latter is however, less likely since the dealers are engaged on individual contract basis.
The Analysis of H-D's Current Strategy
Since the year 1996, Harley Davidson motorcycle company statistics shows an active corporation with sustainable 22% growth rate. The company's earnings per share between the years 2004 and 2005 grew from $3 to 3.41 per share giving a 13.7% percent increase. The company's earnings per share started the upward trend in the year 2002 at 33%, and this was maintained in the subsequent years with 2003 and 2004 giving 32% and 20% growths respectively.
The company's finances in the five years ending 2007…