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Through this final assignment I will explain how the French company Peugeot, can introduce it hybrid car the 5008 hybrid HDI. I choose an hybrid car for different reasons. The first one is that I think that hybrid cars are going to know a better future than electric cars. In effect, this is a huge change for people in general and they are not used to that way of driving and consuming. Offering an electric car is too radical and making hybrid cars, combining fuel and electricity is a good way to make a transition. This is why I choose to makes it on hybrid car. Secondly, I choose the 5008 hybrid HDI because is one of the biggest car that Peugeot is offering, and as we know American people are more likely to use biggest vehicles than in France. Finally I choose Peugeot for the reasons explained bellow.
The company is also known as the Group PSA. Actually PSA is the biggest car company if France and have for main competitor Renault the second biggest group in France. The company has extended and sells their products to different region in the world like in Asia and Latin America. With all the ecological issues within the car industry the car industry, companies have the obligation to find alternatives to the CO2 problems, but also because
innovation is always recommended no matter the industry.
This is why Peugeot presented in 2009, its new car the Peugeot 5008 HDI Hybrid. Nowadays, Peugeot is not very present in United States, and this new product could be an opportunity for them to enter this market. Through this assignment, I will answer the question of the case by explaining the reasons to export, but also by studying the competition present in the US market and all the potential risks that the company has to avoid. Finally I will end the final by making the marketing plan that Peugeot could adopt in order to enter the market.
Why Peugeot should export the 5008 HDI hybrid?
Many reasons make that Peugeot want to invest in the US market. But even if they already have an international experience due their presence in Latin America and Asia, they have to be careful because the US market has its own specificity. Their new hybrid cars could be a huge opportunity to enter this market. In effect, hybrid cars are becoming more and more appreciated in the US market and people like this kind of car. The American market is such important that it gives more or less the trend of sales for the coming years. Since 2001, the market never stops growing and the forecast for the next year seems to be good as it is show on the graph below:
As we can see, the increase has been constant through the years and will don’t stop until 2015. Those forecasts seem to be excessive but in fact they are quite true. In August 2012, a study has been made by an American website “hybridcars” and it shows that the number of sales has increased looking at the previous year. In august 2012, 249,311 of cars have been sold which represent an increase of 63.2% looking at the number of sale at the same period. As we can see the increase is extremely important, and when we look at the total number of sales of all cars, it makes more important the increase. In effect, the increase of all the vehicles at the same period is “only” about 14.0%. I say only because there are 50% of gap between all the type of cars and hybrid cars. This enormous increase is also due to the fact that the US government is helping people who want to buy an hybrid car by creating incentives. This incentive is made by giving a tax credit.
The credit is not fixed and it is calculated in function of the State where the car is bought and also about the brand of the car. Those tax credits are quite important because it goes from $900 to $3500. Each state have its own program, like in New York, they have the “Clean Pass”. All those points show that Peugeot should enter in the US market. The forecast that we have seen are very encouraging, and other factors should help hybrid cars in general, like the environmental issues. Something that also shows that hybrid cars are “trendy” is that in many movies or tv shows we can see hybrid cars, and the most used one is the Toyota Prius which is like the muse of hybrid cars and that we have seen in the tv show “Desperate Housewife” or “South Park”. Peugeot should try to surf on that new wave, but everything is not going to be so easy and Peugeot is going to face several barriers.
Economic and political barriers that impact the export.
The car industry is an industry that is facing a lot of legal issues. In France for example, car that are polluting and that have an important CO2 emission are going to be taxed, but security law and regulations are also numerous. When you want to enter in the US market you have many things you have to be careful about. Concerning the product in itself for example the company has to obtain a certificate which is called the CBP clearance. If car companies want to obtain that CBP certificate that says that you are not bringing weapons or drugs, you have to be conformed to the Environmental Protection Agency and the Department of transportation. If you want to bring cars in the US, your cars have to answer to those norms as described by the official American website www.cbp.gov , “Imported motor vehicles are subject to safety standards under the Motor Vehicle Safety Act of 1966, revised under the Imported Vehicle Safety Compliance Act of 1988; to bumper standards under the Motor Vehicle Information and Cost Savings Act of 1972, which became effective in 1978; and to air pollution control standards under the Clean Air Act of 1968, as amended in 1977, and 1990.”
In general, cars that are manufactures outside the US have to be in good standing with the US safety regulation, bumper and emission standards. Still with the CBP website, taxes are also established for the importation of goods. For autos, the importation tax is about 2.5%, and duty rates are based on price paid. All those elements, Peugeot have to take them into account and adjust their production and prices following those rules. But those laws specific to the US market are not the only problems that Peugeot can face. In effect, the international competition can be also a huge issue.
Peugeot, a strong international competitiveness.
To make a good study of the international position of Peugeot in comparison to its competitors I will first make a study of the macro environment, following by the study of the meso environment. To make the study of the macro environment it is advocated to use the Porter’s Diamond. * The factors conditions:
Actually, this is one of the most important things for the company because they are not present in the United States and they don’t have any infrastructures and if they want to produce their car, they will have to invest a lot in that. Concerning the human resources, United States is a huge country with many people that are already trained to this kind of industry and they are very competent in that industry, so this would be a strong advantage for Peugeot.
* Demand conditions:
I think that the demand in the American market is quite important. As we have seen in the first part of the final the demand for hybrid cars is increasing, and we are talking about a huge increase of 63%.
* Related and supporting industries:
All companies are focused on what the consumer is expecting, it means making economies. A lot of companies were developing and making research on electric engines in aim to reduce the consumption of gas. The car industry has done the same and developed new cars with both engines with gas and electricity. Those industries working in the new raw materials and fuel are in the center of a lot of other industries because they want to reduce their cost.
* Firm strategy, structure and rivalry:
I will develop this part in the following parts and in the Porter’s 5 forces.
In a general aspect the US government is making efforts to promote the Hybrid cars, by allowing the different states to make incentives and making a tax credit to people who are buying hybrid cars. But Peugeot is a foreign company, and as we have seen they are a lot of laws and standards that foreign companies have to respect if they want to integrate the US market.
Looking at a general aspect Peugeot have good chances, because of the global warming and the fact that people don’t want to spend so much money in gas and that they want to reduce their cost. This is a chance because if they can produce a good car it is going to be the future and people will buy it. They have to make huge efforts in Research and development in aim to be competitive, because they are not the first one that want to be present in USA. In effect, Toyota and its famous Prius are present in the US market for many years, so Peugeot have some delay looking at them.
Now I will use the Porter’s 5 forces for Peugeot to make the study of the meso environment.
* Threat of New Entrants:
I clearly think that the industry won’t see another competitors coming. The market is actually saturated and it count really big companies that can develop their product development and can invest in research and development which cost a lot and that new entrants could not support. So for the moment Peugeot will have to face actual competitors. So we can say that the threat of seeing new entrants coming is very low.
* Bargaining power of suppliers:
Peugeot is one of the biggest companies in France and in Europe, and to be at the top of such region they need to have a very good relationship with their suppliers. But what makes the quality of the car is the quality of the raw materials, this is why it gives a huge power to their suppliers.
* Bargaining power of customers:
I think that the power of customer is very high. This is mainly due to the substitutes that are offered to those customers. Train, bus, plane all those alternatives are offered to the customer, this is why they have a lot of power, because if Peugeot want to keep them they have to listen to them and do what they want. More of that they have a lot of competitors, and the customer is looking for the best product at the lowest price and he is helped by the development of internet where he can have access to different companies staying at home, but also where they can post their comment on a product. This is why the power of customers is high.
* The threats of substitute products:
They are a lot of different substitutes, on a local way and on a more national and international way. When I say local I think about bicycles for example and when talked about national or international I talked about buses train and plane. But even if they are numerous that doesn’t mean that they are powerful, because even if environmental problems are present nowadays, people prefer use hybrid cars rather than carpooling for example. So we can say that the power of substitutes is quite low.
* Rivalry among existing competitors:
The car industry is a very hard industry with a lot of different competitors. Following the International crisis and the environmental issues all the companies have adopted the same strategy by developing hybrid cars to answer to the new demand. Some of the big competitors have disappeared like General Motors, but in Europe, Volkswagen is leading everything and they have a huge potential of growth because they can invest in research and development. So we can clearly say that the existing competition is very high.
If we look at the whole 5 forces, the car industry is a very strong industry with strong actors which are closing the entry for new competitors and where actual ones have to be more and more innovative and invest a lot in R & D.
The influence of culture in the marketing strategy.
To have a quick view of the culture of the USA, we can use the study of Hofsted. You can see below the difference between the USA and France:
* Power distance:
Comparing to France, the US score is low (40), and this is mainly due to the premise “liberty and justice for all”. This also involved the fact that superiors in a company are more attainable for employees than in France, the information easily shared and employees are more frequently consulted to take decisions.
When we look at that score we can see that the American has one of the highest score possible (91). It means that everything is based on the personal performance but also that employees are self-reliant and promotion for example is made looking at your previous result. But this also means that we expect from American people to be very autonomous very young.
The American score of 62 is quite elevated regarding to the French score. Again it means that American people tend to display and talk freely about their “successes”. American people “live to work” in aim to earn money and rewards. This is an important point for Peugeot, because as we have seen in the diamond description they don’t have any building or employees, and this could be a very good opportunity.
* Uncertainty avoidance:
The score of 46 is also a very good news for Peugeot. This means that American people have a good acceptance for innovations and a strong willingness of testing new things and new products. American people tend to be more tolerant of ideas or opinions from anyone and allow the freedom of expression.
* Long-term orientation:
Both of the countries have a short term oriented culture. It means that companies perspectives are based on short term with profit and loss statement made on a quarterly basis. This is why we ask employees to have quick results. We can also use Hall’s communication context, to try to identify and define the American culture. I think I can say that USA is a low context culture.
In general American people prefer to communicate on situation and are more oriented on their daily life. They mostly communicate within their out-groups in a broad and diffuse way. In general they communicate only on what is necessary. This is one of the main difficulties for the company is to adapt their product to a culture unknown for them. They have to succeed in doing the cross-cultural management and create and make coordination from this cross-cultural management.
Which market entry?
They are many ways for Peugeot to enter in the US market, they are all different, they have all their advantages and drawbacks. But in those times, where everything needs to be done very quickly, some choices are more relevant than others. Importing could be a good solution quick but also complicated in a sense that it would be expensive because as we have seen there are taxes to make enter cars into the US, more of that they will have to find a distributor in the USA and they will lose some of their power in distributing their cars. I think the best, the easiest and the quickest way is to make and create a franchise system. They are many advantages of creating a franchise.
First you will use workforces of the country where you want to be in, and those people already know how their market is working and are things are doing in their country, you don’t have to spend such time looking for information and local people are more aware of those cultural differences. Secondly, you don’t have to change your brand name, it will only cost you few trainings that you have to provide to the employees. It is also very benefic because you can make pay the people that want to make a franchise with your brand some royalties, but in return you will have to give them communication support, you have as I told it before to trained the employees and you will have to keep eyes and see if the franchisee is not doing things on its own.
In general, companies like this kind of market entry because they can keep some control on the franchisee, and because they received royalties which are between 1 and 20%. They are other risk that Peugeot don’t have to forget also. It is the fact that the franchisee will pay with delay or won’t pay at all. Another recurrent issue of the franchise is that the franchisee can use the knowledge taken from the franchisor and use it on its own after that. It is a problem of intellectual property. What about an acquisition?
Making an acquisition could also be a good type of market entry, because of some advantages like:
* Quick entry: it allows acquiring resources and competencies in a new market very quickly.
* Market power: it also gives you more market share if you make an acquisition with a competitor, you will take its market share and it will help you to be bigger.
* Market penetration: it also allows you as in this case to enter in a new country or market.
* Gain of competencies and resources: you will also earn some knowledge and knowhow from the new company and you will improve your productivity. But it has also some disadvantages:
* Cost of acquisition: acquiring another company could be very expensive and specifically if we talk about a hostile takeover. The price depends on the size of the company, their market shares, their resources and other many things.
* Managerial issues: the company that you are acquiring may have different way to work, different business culture and it can create tensions between the two entities.
* Unrelated diversification: a company can make different acquisition, an horizontal and a vertical one. The company has to be careful and see if the company that it acquire has relation with its industry to make the acquisition easier.
* Management of workforces: when acquisition happened it is not unusual to see people fired and it can create tensions within the company or strikes like in France.
The International Product Life Cycle:
The international product life cycle has some particularities. The IPLC is divided in 4 phases. In general, during the first phase, it is the US exportation that dominates the global market. But when this phase is ending, the next 3 phases see the producers from other developed countries becoming more and more important. Those countries first established their production and sale their product only in their own market, but in a second phase they go to third country market and finally integrated the US market in the last phases. If the US market is very strong in the very first phase is for some reasons we have seen previously.
In effect, the important market size, the acceptance for innovation, the R & D resources and the well-developed marketing information system, make of the US market a very good market to launch a new product. So if we looked and follow what we have seen just before we would be in the fourth part of the international product life cycle, but because we are talking about an innovation in a very well-known market and industry we can talk about a new product so we would have been in the first phase, but in this first phase we already have seen companies from countries different from the US like Toyota, exporting and developing the Hybrid market in the US. I think the Hybrid car market is not at the maturity phases and it will reach in the future more customers.
Effects of the exchange rates and inflation:
In effect, the exchange rate is an issue that Peugeot have to consider if they want to make business in another country. The device in the US is the USD (United States Dollar) while in France it is the €, which is good in fact, because it will cost less for the French company to invest in the US. We should have a quick look at the fluctuations of the exchange rate of the two devices since the beginning of the year:
As we can see, the exchange rate has fluctuated a lot with a minimum of 1.21 and a maximum of 1.34. Even if it seems to be a small change, in reality it represents a huge amount of money due to the big quantities of possible product sold. Peugeot has to take into account those fluctuations, but the consequences are less important that if would have been in the other way passing from dollars to euros. They still have to be careful and to anticipate those changes in aim to invest at the right moment. This is also very important, because the whole euro zone knows some bad times due to the economic crisis, this is why it could be interesting for them to invest in a country in a more “stable” country.
First of all, before adapting its way to communicate and sale its product, the French company has to define its target. Because it stills an innovative product, the final consumer should have an higher income’s average and should be from the high-middle and upper class. Also the majority of people that are buying hybrid car are people about 55 years old and older. They are also people that are aware and that are concerned about environmental issues that the planet is facing and that what to contribute to its safety, but also that think that they are going to save money because the price of the fuel is going to increase. When you want to sell a product in United States, you have to take into account many factors. First that they see themselves as the best business men and having the biggest companies of the world and that foreign companies are inferior.
But American people are also expert of cross-marketing which means that they like to promote their product on different support like blogs, website, banners, tv adverts… The use of technology is also important and using them is very important when you want to sell your product to an American consumer. Finally, American people love to have humor on their advertising. But contrary to France, they prefer to make humor on situations of the everyday life and not on the people.
More of that when you want to communicate in the US, you have to be careful with the fact that this country have a lot of different ethnics within it. They are people coming from South America that are latinos but they also have a strong black community which have a lot of power, so you have to communicate to each of them. Making communication and selling products in USA is very different from selling in France and Peugeot again has to adapt to that issue. But with the principal Idea of making a franchise in the US it will be easier to adapt their communication to their customer because they will have employees from the US and that understand the American culture.
International marketing controls:
I think that if Peugeot what to be successful in the US, they will have to constantly make marketing controls. The different points we have been through this final are part of the control that Peugeot have to make. Make studies about their competitors, use the Porter’s 5 forces and Porter’s diamond, making a SWOT analysis, making a PEST analysis, controlling their financial management with the money they have invested in R & D for example, controlling the fluctuation of the exchange rate and studying the international product life cycle, all those elements are tools that all companies have to be careful about. A good marketing strategy is established in a long term vision by preventing changes or at least adapting their strategy as soon as possible by finding the needs of the customers.
Exporting a new product to another country is something difficult for many reasons. The very first one is because of the cultural differences between the countries. But the cultural differences are not the only issues; there is also the way that the Peugeot want to enter the American market. But I think that the company should do it, because as we have seen through this final, USA is a good country for innovative product but also because it is a huge country with a lot of potential consumers. Being present on the American market could also be a good start for the company to be durably present on such powerful market where a lot of innovations came to. But if they are aware of that, it means that other companies from other countries are also aware of it, so if they want to be successful they have to take a quick decision and to take the risk to do it, because as many business men say, the biggest risk is not taking any risks.
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