PESTEL framework for Volvo
The following is a political, economic, social, technological, environmental, and a legal framework analysis of Volvo in Saudi Arabia. It presents an overview of the external business environment that the Volvo brand faces presently and in the immediate future. The report focuses on Volvo’s business area that deals with Volvo trucks, buses, and cars.
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Changes are happening in Saudi Arabia on the political, economic, and social front, but the country is fairly stable and predictable in the area of politics. This predictability provides businesses with an ample environment for making long term plans about their marketing and brand-building strategies in the county.
The government is interested in attracting manufacturing companies in the country to help grow the economy and supplement the importers of goods that sustain the general consumption. It has been at the forefront of enacting favourable policies on industrialization. The government’s industrial diversification strategy places the domestic automatic industry as one of the highest priority industries. It is expected that the commitment towards the sector will last for several coming decades (Berger 2013).
There are some concerns about corruption in the government authorities, which favour businesses that have a long-term relationship with the authorities. This challenges the certainty of doing business in the country (Waite 2006). Nevertheless, the government maintains a corruption-free zone within all its offices and interactions when it comes to service provision and policymaking.
Saudi Arabia is a kingdom, and its leaders belong to the royal family. For example, its kings have always been sons of former kings, and this tradition began with the founder of the country. Leadership challenges are attributed to the large family size of the royal family that presents so many candidates (princes) for a succession of the present king (Waite 2006). However, there have been no reported succession crises in history, and the situation is expected to remain the same.
The Saudi government supports the policies of the World Trade Organization and has liberalized many of its productive economic sectors (Waite 2006). The existence of natural oil resources in the Middle East provides an easy source of income for most households employed in the sector or benefiting from government assistance (Nakov & Nuño 2013). In 2000, Saudi Arabia created the Saudi Arabian General Investment Authority (SAGIA), an institution that has eased the process of Foreign Direct Investments (FDI) inflows in the country.
Saudi Arabia has been able to increase its FDI inflows from 20 billion dollars in 2006 to 80 billion dollars in 2010 as a result of the institutional framework for FDI. The country is still one of the largest car importers in the Middle East, which is a testament of its large economy size, relative to other countries in the region. Its dependence on its vast natural oil resources also ensures that Saudi Arabia does not suffer greatly from foreign currency shortages. The result of the constant flow of exports is that Saudi households still continue to afford imported goods (Long & Maise 2010).
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Nevertheless, there are impending changes to foreign-made vehicles as cars made in Saudi Arabia are likely to begin selling by 2017 (Murad 2014). In fact, the company responsible for the Saudi-made cars plan is Jaguar Land Rover, which is one of the rivals to Volvo. The proposed investment to have a local manufacturing plant in the country is a product of a favourable FDI inflow environment in the host country, as well as the persistent increase in the aggregate consumption in the GDP. It is expected that other car manufacturers will also move their manufacturing to Saudi Arabia to cover the regional market and to enhance their brand identity among locals (US-SABC 2013).
Absolute foreign ownership of investments is permitted in the country. In addition, the country does not levy taxes on income, value-addition and land, as well as property (Waite 2006). Joint investments with the locals may also benefit from easy access to capital from the government through its Saudi Industrial Development Fund, which was established to fulfil the industrialization plans of the government (SIDF 2014).
Market needs are changing as people become aware of international vehicle brands. Most of the customers in the Middle East prefer western car brands for their associated prestige (Murad 2014). People from around the region freely interact with Saudis and this interaction creates a favourable environment for cultural exchange. Saudi Arabia is also well connected to the world due to advancement in globalization. Therefore, many western culture influences are evident within its borders, such as the preference for luxury and the demand for entertainment amenities and sports.
The population of Saudi Arabia continues to increase, and this growth has implications for the government challenges of delivering social services (Berger 2013). It, therefore, has an indirect influence on political and social stability. The country’s population is expected to double by 2025. The country is also embracing reforms that are allowing women to exercise more freedoms, which is expected to increase the demands for accountability for the government and business in the country.
The recognition of women as equal citizens is also expected to spur demand in male-dominated markets, such as the automotive industry (Renard 2008). On the other hand, discrimination of women also creates a separate social characteristic and differentiates Saudi Arabia from other countries. Its women have activities and discourses that are only for women and managed by women (Renard 2008). From a marketing perspective, this separation calls for the use of special branding and marketing strategies that specifically target the women’s gender group.
Technological advances in car manufacturing are allowing car manufacturers to cut the time it takes between the creation of new car concepts and the actual delivery to markets. Better visualization and improved testing ensure that newer designs are being made to be safer, faster, and more appealing than the older models. A consequence of rapid innovation is a heightened competitive situation in the market.
Saudi’s industrial output is forming a cluster of technologies relevant to the automotive industry. Advances in the industries related to automotive manufacturing, such as the capturing and storing of carbon dioxide emissions and aluminium folding technologies make are sure to attract more car manufacturing companies (US-SABC 2013).
As a Muslim nation in the Middle East, Saudi Arabia’s social fabric presents extremist threats against expatriate workers. Some citizens in the country are likely to sympathize with extremist groups that support terrorism activities or religious seclusion. Such cases divide society and present marketing challenges for businesses in the region. The government is making efforts through policy and security-related actions to crack down on extremist groups to sustain ample social cohesion in the country (Black 2014).
Car owners are increasingly becoming aware of the environmental costs of car emissions and now show concerns for individual or household carbon footprints (Griskevicius & Kendrick 2013). Among the remedies proposed to deal with the excessive car, emissions are to buy cars with smaller engine capacities, buying cars with adequate emission control technologies and to opt for electric cars because of their lack of emissions (Latham & Watkins 2010).
Saudi Arabia follows the Kyoto protocol, which is an international agreement on cutting down carbon emission. Vehicles are regarded as one of the most significant contributors to carbon dioxide emissions. They are also one of the easiest to regulate. Countries have national pledges of cutting emissions and are expected to periodically alter their environmental policies to apply behaviour changes and to meet their targets. Therefore, any car manufacturing company seeking to operate in the Saudi market has to consider the implications of government environmental policy on its product features and ability to meet market needs. The country relies on a General Environmental Law (GEL) to enforce its environmental regulations, such as the prohibition of acts that have diverse environmental effects of any kind (Latham & Watkins 2010).
Although environmental regulations on car emissions are mostly voluntary and advisory, failure of the vehicle manufacturing industry to meet the targets of reducing emissions set up by quasi-government authorities triggers concerns. First, there is likely to be a governmental directive on vehicle dealers to cut emissions, irrespective of their engine sizes.
Businesses in Saudi Arabia have to comply with its religious laws, which many Western-owned companies may not be familiar with. All laws enacted within the country subscribe to the provisions of the Sharia law, which is a collection of fundamental principles (Latham & Watkins 2010). The country recognizes internationally registered intellectual property and it has laws for protecting various forms of intellectual property and business assets.
Saudi Arabia’s basic law affirms the Kingdom’s status. The monarchy relies on its council of ministers to establish laws, contracts, international agreements, special rights, and other legal instruments that govern social order and business activity. At the same time, there are bylaws that are specific to any of its 13 provinces or governorates within the provinces (Latham & Watkins 2010). Parties feeling aggrieved in their business relationships have the option of seeking arbitration within Saudi Arabia under the country’s laws or abroad because the country is a signatory to the UN Conventions that address foreign arbitration awards (Latham & Watkins 2010).
Strategic advice to Volvo
Although Volvo has not entered the Saudi market as a car manufacturer yet, it has the opportunity to do so given that the government’s long term support is assured. Currently, many consumers only import Volvo cars and trucks personally or through dealerships.
Transportation continues to play critical roles for a globalized economy and road transport is still the preferred way of moving goods in short distances and in areas where alternative transport is unavailable. The ease of developing road infrastructure compared to air or rail also makes transportation via vehicles as the most affordable form of transport in the short-term.
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Many small businesses first opt to invest in small-capacity trucks before advancing to large capacity trucks or outsourcing their logistics to third-party companies. Either way, the growth of businesses ensures that there is a growing demand for goods transportation in an economy. In this regard, there will be opportunities in the goods transport sector that Volvo can exploit with its truck business.
The various initiatives by the government on improving the prospects of Saudi Arabia as a manufacturing destination and transforming the economy industrially are also attractive for Volvo as a foreign investor. A proper way to take advantage of the government initiatives would be through seeking joint ventures with local companies that not only have the necessary distribution and marketing knowledge of the economy, but also have established interests and capacities in either dealership or manufacturing. These local companies would be eligible for government support and provide Volvo with co-branding opportunities to help the Volvo brand rapidly build its reputation in the local economy (Rauch 2012).
Unfortunately the lack of restrictions on foreign ownership of investments within Saudi Arabia makes it easy for companies to enter the market. While this is a good thing for Volvo, it also encourages its competitors to move into the market and grow their presence in the country. As a result, Volvo will likely face considerable competition challenges in the coming years, which will be heightened by the start of local manufacturing of vehicles by various companies.
Market segmentation would be a preferred way of tackling competition in Saudi Arabia. Other than dividing the population based on gender and age to influence brand-targeting campaigns, the company can also divide its truck and car business. A separation will increase the brand’s focus and response to market changes for each segment (Kotler 2012).
The current organizational and business differences between Volvo cars and Volvo trucks already lays the necessary foundation for carrying different brand campaigns for the two products and their target markets. It is important to have different marketing strategies because the needs of commercial customers for buses and trucks are different from the need of luxury car buyers. For example, trucks are marketed for their fuel efficiency and robust engines, while cars are marketed for their safety and design (Volvo Cars 2014).
Innovation in car safety and compliance with environmental directives on emissions is also another area where Volvo ought to increase its investments to sustain competitive advantages (Griskevicius & Kendrick 2013). As mentioned in the PESTLE analysis on social dimensions of Saudi Arabia, the country’s population is well versed with consumerism trends in the developed Western world. Therefore, Volvo should expect Saudi nationals and expats living in the country to prefer vehicles that are innovative in their environmental and safety features.
Already, Volvo has been in an advantaged position over its rivals because it created a collision warning system that is incorporated in its branded vehicles to prevent accidents (Baltas & Saridakis 2010). The technology relies on wide-angle sensors placed strategically around the vehicle to act like radars (Quinn 2011). Drivers and car occupants only have to watch out for warnings from the car collision sensor equipment. In extreme cases, the artificial intelligence of the car is able to take over the steering of the car to prevent collision.
Other noteworthy technological innovations by Volvo include Alco-key, which seeks to lower alcohol related driving and Sleep Detection system that relies on lane departure warning systems and driver alert control systems to ensure that drivers remain alert and drive carefully on the road (Quinn 2011). These technologies catapult the Volvo brand to the number one position of car safety. Customers would be attracted to the brand if it emphasized these features because consumers are looking for safety as one of the criteria for picking cars.
Another avenue for technological advancement to gain brand superiority would be to come up with consumer cars and commercial trucks that use hybrid fuels. Although in the Saudi Arabian perspective, consumers may not be too concerned about fuel efficiency due to the high income status of the country, they will still respond to global trends in embracing hybrid fuel cars. On the other hand, the business will prefer to have vehicles that allow them to manage their transportation costs (Baltas & Saridakis 2010). Consumers in Saudi Arabia will embrace opportunities to become hybrid owners in their quest to show their affiliation to environmental conservation ideologies. In this regard, embracing the hybrid tag for Volvo brand is welcome (Urde, Baumgarth & Merrilees 2013).
As a kingdom, Saudi Arabia has a socio-political environment that fosters the cultivation of traditions among different generations. Brand penetration strategies that will work in this society must consider is religious, political, and social characteristics. One way for Volvo to build on these factors would be by embracing consumer oriented advertising and association. Volvo has an advantage over other vehicle brands from other regions because most consumers already prefer Western brands for their associated superiority.
However, it will continue to face still competition from other Western car brands. It must ride on consumer’s familiarity instead of introducing novel concepts abruptly. Consumers prefer self-protection and will likely reject a brand that radically transforms its image and associated features within a short time (Griskevicius & Kendrick 2013). Therefore, as Volvo embraces segmentation and works in co-branding relationships with joint venture partners, it must seek to retain its notable brand features within the Saudi market.
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Quinn, JR 2011, ‘Simpler antidote for heavy eyelids’, The New York Times, 2011.
Rauch, C 2012, Corporate sustainable branding, Springer, Heidelberg.
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