Analysis of the Engineering Industry

Analysis of the Engineering Industry Executive summery: In the assignment below, the engineering industry is critically analyzed by studying its characteristics, identifying and analyzing its key areas and its current position and how it is affected by micro and macro environmental factors. All these analysis is done by using analytical tools like Porters Five Forces framework, PESTEL analysis, Industry Life-Cycle analysis, drivers of change within the industry, etc. The mechanical industry after carefully analyzed, important future long scenarios have been made demonstrating on how the industry will act and perform in innovative long term run based on the present analysis and trends in that particular industry. Also, one most likely situation has been identified, with relevant reasons, which the industry will most likely to face in the future. The entire assignment is based on the engineering industry in Indian markets being considered as the support to conduct appropriate researches. Introduction to the industry: The industry is one of the biggest and most refined in India and also in the world which provides the latest technology not only to the fast growing multinational companies but also to the global market. Some of the worlds biggest engineering companies largely depend on the automotive industry of India. It is a diverse industry with a number of segments, and can be broadly categorized into two segments as follows: (1) Heavy engineering (2) Light engineering The engineering sector is relatively less fragmented at the top, as the competencies required are high, while it is highly fragmented at the lower end (e.g. unbranded transformers for the retail segment) and is dominated by smaller players. The engineering industry in India manufactures a wide range of products, with heavy engineering goods accounting for bulk of the production. Most of the leading players are engaged in the production of heavy engineering goods and mainly produces high-value products using high-end technology. Requirement of high level of capital investment poses as a major entry barrier. Consequently, the small and unorganised firms have a small market presence. The light engineering goods segment, on the other hand, uses medium to low-end technology. Entry barrier is low on account of the comparatively lower requirement of capital and technology. This segment is characterized by the dominance of small and unorganized players which manufacture low-value added products. Classification of the Engineering Sector in India http://www.dnb.co.in/Engineering/images/Classification.gif Source: http://www.dnb.co.in/Engineering/overview.asp Portors five forces framework: Following are the external environment of engineering industry by analyzing the Porters 5 forces: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghUQ40txNd-PTM7eTUWWBR-cHlOlJ34-uLQLWPI3UzlGX9kd2BeMcH_2faSvbYwWmmVP2tg97WBaFHqFdXGeRLpXQzuaLb8yphGlajo84Px5ck_ofb6gQK7JcdMnY_PirSfLQtKQpqbV-G/s400/porter.jpg Source:https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghUQ40txNd-PTM7eTUWWBR-cHlOlJ34-uLQLWPI3UzlGX9kd2BeMcH_2faSvbYwWmmVP2tg97WBaFHqFdXGeRLpXQzuaLb8yphGlajo84Px5ck_ofb6gQK7JcdMnY_PirSfLQtKQpqbV-G/s400/porter.jpg The five forces are as follows: 1 The threat of new entrants: The threat of new entrants for engineering industry in India it is a very low threat Factors to examine for this threat of new entrant in India is include all barriers to entry into this market such as upfront capital requirements, brand equity (a new firm may have none), legislation and government policies, (safety) ability to distribute the product . 2 The bargaining power of buyers/customers: Customers consider both purpose and price; the engineering companies are attempting to produce engineering products that compete in various price segments. In India bargaining power is lower which is creating a more favorable situation for the engineering industry but not the buyers. The quantity a buyer purchases is usually a good factor in determining this force, even in the engineeringwhen buyers only usually purchase one \ at a time, they still possess considerable power (Car freaks, 2008-10). However, this may be different in other markets. 3. The threat of substitute: In Singapore the threat of substitute is high because of the numerous other forms of transportation substitutes are available, but none of them offer the utility, convenience, independence, and value afforded by sport cars. Substitutes such as rental cars, Sport bike industry, Rental Sport car clubs like Luxe sport club in Singapore Millionaire asia singapore, 2010). (For details please refer Appendix no 4) 4 The bargaining power of supplier: The bargaining power of supplier is low in Singapore because of the availability of substitutes and the amount of competition in the sport car industry. Suppliers dont have a great deal of influence in the terms of supplying the sport cars parts. The sport car industry which refers to all the suppliers for the parts, such as tires, components, electronics, and even the assembly line workers. Some suppliers are small firms who rely on the carmakers, and may only have one carmaker as a client. So this force can be tricky to evaluate in the sport car industry in Singapore market (For details please refer to appendix no 5). 5. The competitive rivalry within an industry: In Singapore sport car industry competition between existing automobile companies is high because sport car carmakers are engaged in fierce competition. Prices, ad campaigns, and product developments keep them on the edge of innovation and profitability. Margins are low and pressure between rivals is high. This may cause the sport industry earning lower profits when the cost of the competition is high (Car freaks, 2008-10). PESTEL ANALYSIS: Source:http://www.business.gov.sg/NR/rdonlyres/06030A45-6CCF-45BC-8F2C-F2833D5D44B4/6514/entrepreneurguide.pdf Well use the PESTEL to analyze the macro-environmental changes and influences on the engineering industry; Political: Majority of the companies like, etc. have their manufacturing plants in India because of cheap labour and low cost of production. But these countries are usually politically unstable and can create hindrance for the companies. Economic: Economic slowdown such as the recent recession can have negative impact on production and sales of the engineering companies. Also other economic factors like the economic policies of European Union member countries make it tougher for the industry participants to penetrate the engineering market. Socio-cultural: The social and cultural restraints and obligations directly affect the buying pattern of people, the brand loyalty, female share of the market, etc. also the companies now-a-days thrive to keep up with corporate social responsibility to maintain their Public relegation status. Technological: The technology keeps changing and varying from place to place. Techonology plays a vital part in the engineering industry. The engineering manufacturing companies have to keep abreast with the changing technology so as not to give a competitive edge to competitors by speeding up their change of products and designing ability. Environmental: Many industry participants have become aware of environmental hazards and are putting in efforts to do their bit for environment and the society with activities like Legal: Companies in the engineering industry in India face many legal matters usually pertaining to labour wages, working conditions, etc. or that of contract manufacturing and copying of products or ones related to trade agreement. Structural drivers of change for Engineering industry: I have identified some of the drivers of changes that have impact on the engineering industry. The following are the structural drivers which bring about changes in the industry; Technology: Technology is the most vital driver of change in engineering industry. Introduction of internet has sky-rocketed the sales for the companies. Also it helps the RD departments to come out with new engineering products quickly and efficiently. Industry driver: lamborghini_headquarters_italy Source:http://www.egmcartech.com/wpcontent/uploads/2008/05/lamborghini_headquarters_italy.jpg Related and supporting industries are extremely important because engineering product manufacturers live and die by creative and innovative design engineering (Automotive industry, 2010). India offers support to other industries such as, steel, rubber, petroleum, oil gas, transportation industries. Indias infrastructural facilities helps to setup a engineering industry in form of power supply, machinery, capital, raw materials and labour which will raise foreign direct investments have led to the rapid growth in terms of engineering goods production and exports (European foundation, 2004). Mergers and Take-overs:- t=1usg=__vO8BPfXSsu76pCVOchvBejU2hUg= Source: http://www.vr-fullerton.com/images/223069.jpg One of the most significant drivers of growth in the engineering industry is the trend of mergers and acquisitions. Such buyouts and mergers enable manufactures to build up their technology and service scale up to the mark, the two factors essential to gain competitive edge. Outsourcing of design and engineering functions, leading to growth in companies offers high value-added Services. Life cycle model for the industry: C:UsersVishikadDesktoplife cycle.bmp Source: Adopted from (Johnson et al., 2008) The Engineering industry as per the life cycle model shown above is currently at the Shakeout stage for the following reasons: The buyers are becoming more selective of their purchases due to brand loyalty and performance according to their own preferences taste. Also as far as the competitive conditions are concerned, the major engineering products manufactures have started innovations and sales promotion activities to attract more and more buyers towards companys product range. The engineering companies also trying to shakeout their industry rivals by acquisition or merger processes with other engineering manufactures. This way they can have their monopoly over the engineering markets as well as minimising the competition within the engineering sector. Scenarios for Long term future of the industry: The following scenarios based on the research on Indias engineering industry that indicates the possible long term future of the industry (1) Scenario: Increase in sales, product diversification advanced RD: The attitude of selling the products into engineering market is changing day by day. Engineering companies trying to connect with the customer directly. This will done by opening up showroom or signing contracts with large MNCS like Also the engineering product makers will focus on advanced RD whereby, they not only focus onperticular group of buyers. Also the companies are diversifying their products more too international engineering product manufactures. This scenario will benefit the industry in the following manner; It will help engineering companies to connect with their buyers and thus understand their likes, dislikes and expectations, preferences about companies offering. The companies can get direct feedback on their products so that they can improve on overall performance of the company. .Most Likely Scenario: The most likely scenario applicable in the future is the 3rd scenario. Following are the reasons supporting my conclusion; The companies can alter their engineering products, design as per the customer reaction to their previous products. This can be done by feedbacks and data collected which wont be lost or manipulated as itll directly go to the company. The companies are already starting to do intense and advanced RD to introduce new technological aspects The customers are always keen on trying out new exciting products and the failure of such products is very rare. Also the Engineering industry is growing at a rapid pace. All other industries are now trying to sell their products at retail prices which is the same the Engineering industry is going to do in the future. Conclusion: In India the future of engineering industry seems encouraging. In terms of the expected surge in global demand and rise in foreign investments. Several trends such as developed markets, globalization, technology advances, regulation and environmental consideration, and market fragmentation and product diversification will result in the rapid growth of this Engineering industry in India.