Executive Summary
This report analysed and critically evaluated the strategies adopted by automotive supplier Continental AG from the beginning of 1990s to date. The analysis revealed firstly, that Continental AG set the agenda for strategic change by calling the company to focus on profitability and innovation. Secondly, implanting profitability towards a new growth strategy was achieved through decentralisation of the organisation into independent profit orientated divisions; increasing the profitability of the company’s service functions through outsourcing and central coordination of decentral activities to prevent inefficiency. Thirdly, Continental AG successfully fostered strategic innovation by investing in central R&D facilities, developing and acquiring additional competences in brake and chassis systems and rewarding entrepreneurial behaviour. Fourthly, Dr. Stephan Kessel was correct in saying that the company should focus on establishing chassis systems as its core competence, integrating tyres with chassis components and maintaining entrepreneurial energy to deal with its future challenges. This is because chassis systems will be more vital in vehicles with growing electrical components, integration of tyre and chassis components will allow Continental to be a trendsetter in technological innovation and that innovation and entrepreneurship are more important than ever in today’s rapidly changing and volatile commercial environments. Finally, it seems that Continental’s future strategy is going in right direction with the company looking to build its hybrid product portfolio, increase its presence in the automotive electronics business and expand further into India and China due to increasing opportunities on those areas (Datamonitor, 2007a). Nonetheless, 68.8% of Continental’s revenue comes from Europe, which makes the company vulnerable to economic fluctuations in that region and therefore Continental would have to develop strategies to counteract this imbalance. Continental AG achieved record breaking profits, gained automotive supplier status and became an important part of the world automotive industry as a result of the strategies adopted. One can therefore conclude that the strategies chosen by Continental AG were appropriate for their situation and effectively carried out. Hence, it is recommended that Continental maintains its entrepreneurial culture that now exists within the company and create new products and market opportunities. In light of its revenue bias towards the European market, it would also be advisable for Continental AG to expand further into growing market regions such as Asia-Pacific. 1. Introduction The main objective of this report is carry out a critical analysis and evaluation of the strategies adopted by Continental AG since the beginning the 1990s to date through applying suitable theories and models from strategic management literature. The Continental Corporation is the second largest automotive supplier in Europe and the fourth largest in the world. The organisation offers comprehensive know how in tyre and brake technology, vehicle dynamics control, electronics and sensor systems in order to make individual mobility safer and more comfortable.
Stage Models
To some extent, most international expansions could be classified as the Stage Model (Bell et al 2004). This model suggests that SME’s should stagger their entry into new national markets at a pace which reflects their stability and confidence. The Stage Model suggests that firms gradually become more integrated within their new market and this begins by exporting directly to customers from their domestic country. For manufacturing companies, this is an ideal form of expansion as it represents limited risk, by maintaining their base in their domestic market, whilst building a customer base and testing sales in a new market. If this is deemed to be successful, the firm could move on to implementing more risky, but potentially fruitful strategies. However, firms outside of the manufacturing market such as service companies may find this more difficult to complete (Bell et al 2004). As this builds in popularity, the organization could choose a number of routes to enter their target market such as the acquisition of an already established company, building a second base within the target country or expanding their role by networking such as joint ventures. The acquisition of an already established company within their target market is a very risky strategy for an SME. The requirements for it to be feasible are also strict as it would be very costly, potentially problematic and would commit them heavily to the new market. Although this is a feasible strategy, it is unlikely that many SME’s would be willing to choose this option over the less risky and costly options available. However, the promise of an already strong domestic brand, potentially with an established product base makes it an important option to be noted. Building a base within the new country is also a high commitment, high cost option which is more suitable for organizations considering a long term expansion strategy. Having a production and office base within the new country would cut the export and transport costs, particularly if the expansion is intercontinental. It also offers direct links to customers in countries which neighbour the target market. However, this is heavily dependant on the organizations management, long term goals and commitment to the expansion.
Industry and Environment Analysis: France
This report recommends expansion into France for the following reasons. France is a country with a close proximity to the UK, which offers excellent transport links, minimising costs and problems should they choose to export directly from their UK base. France is also the second largest agricultural producer in the world (after the USA) and is the largest European producer, which offers a large and reliable market base to target (Business in Europe 2007). Although Acomb tyres already have free trade within the EU, a potential base on the continent would offer easier access to new markets through differing transportation routes. This is particularly important with countries such as Turkey joining in the next few years as this is the country which has a massive agricultural market and with them included in free trade they will be more open to innovative technology offered by Acomb Tyres. Ellis and Williams (1995) suggest that the desire for movement is caused by the push pull factors of each country. Although France is lacking in the “pull” factors of a new market and lower production costs, it offers an answer to the push factors of the UK market. These factors will now be considered in more detail. Although agriculture only accounts for 6% of the French workforce, it produces 22% of the EU’s agricultural products (French Embassy to Australia, 2007). In response to this the market has undertaken significant modernization in the past 30 years, with traditional farming methods being abandoned in favour of more efficient and effective farming techniques. The farms which do exist are also significantly larger than they were three decades ago, with smaller farms merging to produce greater land averages per farm. This concentration coincides with a growth in the amount of technology used on farms. 1,310,000 tractors are now owned by farmers with many owning several to serve their larger land bases (French Embassy to Australia 2007). As customers are encouraging of new technology in order to improve their efficiency further, competitors must be innovative and invest heavily in research and development in order to continue producing cutting edge tyres. This is particularly important for organizations who strive to have the newest technology. With new technology constantly being produced, those who serve the French market must maintain the tyres to keep up with this. As this is something which Acomb Tyres already strives to do, this should be an ideal situation for Acomb to thrive in. The leading agricultural tyre competitors are Bridgestone, Trellebourg and Michelin, all global, multi brand companies. Firstly, this means that their competitors will have significantly more time and money to invest in developing cutting edge tyre technology; they also have a massive brand image and established links within France making them strong competitors However, this does not exclude Acomb Tyres from the market, as many countries tyre industry’s are dominated by global organizations. There is also scope for the admission of specialist agricultural tyres manufacturers such as Acomb Tyres, as long as they are aware that heavy investment in new technology is integral to success in this sophisticated market. There are also several distribution companies operating in the country such as Centre du pneu d’occasion, Euromaster and Nordic Pneu, which could either serve as competitors or network agents, depending on the strategy which Acomb Tyres eventually chooses (DMOZ Open Directory Project 2007). These findings are summarised in a STEP analysis below. STEP Analysis