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PSA Peugeot-Citroen - Strategy Development


3.  Conclusion and Options for the Future

As a conclusion to the above assessments, the competitive strategy of PSA was effective as the company could utilize their core competences to create competitive advantages to the environment they served. 

However, environmental change and developments could significantly alter an industrys competitive environment.  Moreover, new developments or shifts could sometimes dramatically affect the value and threaten existing sources of competitive advantage.  Therefore, SWOT analysis and Critical Success Factor Analysis were used to identity potential changes and the future options for the company.

3.1 SWOT Analysis

A SWOT analysis was used to summarize the key issues from the business environment and the strategic capability of the company that were most likely to impact on strategy development (Johnson et al, 2002).  The analysis of the company was shown in the following table:

Strengths

Weaknesses

Opportunities

Threats

P         The third largest car manufacturer in Europe and the largest French exporter

P         Economies of scope and synergies

P         Value chain provided low cost advantage and inimitability

P         Good relationship with distribution network

P         Strong R&D

P         Strong financial background

P         Independent project teams and technical platforms was the risk of overlooking potential synergies

P         Poor relationship with Japanese

P         Simplification of product range might mean the lack of product differentiation

P         Integration of European Union and removal of local tariffs on imported cars

P         Possibility of a single European currency

P         Asia pacific region except Japan was in fastest growth

P         Economic depression in three major markets: Japan, Western Europe and North America

P         The industry was in maturity stage of its life cycle, so the industry was more price sensitive with lower demand and hence fierce competition

P         Sales in Japan (as the second largest market) were flatten due to tightened environmental laws, parking restrictions and increase of sales tax

P         In Western Europe, the government protection was predicted to disappear, leading to a more level playing field

P         Mergers & acquisitions became common

P         Political uncertainty and risk of cross-border wars in Asia Pacific region

3.2 Critical Success Factors

Critical success factors were the features that were particularly valued by customers and used to distinguish between potential providers (Johnson et al, 2002).  The analysis was shown in the following table and the analysis of demand was based on assumption to end-users:

What do customers want?

(Analysis of demand)

How do firms survive competition?

(Analysis of competition)

Critical success factors

P         Price sensitive

P         Look for value-added products due to economic downturn

P         Safety was priority

P         Need for differentiated product as people were more educated

P         Environmental protection

P         Quality products

P         Scale economies and experience

P         Product differentiation

P         Brand identity

P         Strong financial background

P         Strong distribution network and relationship

P         Absolute cost advantages

P         Ability to influence government policy

P         Strong R&D

P         Ability to expand new terrains

P         Value added

P         Absolute cost advantages through scale economies and experience, and cost control

P         Strengthen brand identity

P         Focus on safety products

P         R&D developed differentiated and value-added products with environmental concerns

P         Access to finance to strengthen competitive power, support R&D and future developments

P         Maintain good relationship with distribution network and governments

P         High quality

PSA had its competitive advantages to achieve part of the critical success factors, of which they would need to sustain their advantages that depended on several factors (University of Warwick, 2002).  Firstly, they were required to maintain the levels of commitments in resource terms relative to competitors.  Secondly, they had to avoid ease of copying and nullifying the advantages by their competitors and hence, they needed to catch-up for updated customer needs and wants, as well as technological changes.  Thirdly, they had to keep ahead and continuous searched for enhanced or new advantages.  Fourthly, they might need to change the game of the industry.  For example, they might change customer requirements such as using electric instead of fuel.  Finally, the company were required to continuous assess their environment and competitive advantages for self-sustainability and mutual reinforcing of existing advantages.

For the other critical success factors, the company needed to find ways to strengthen its brand identity, focus on safety products development, efficient use their R&D to develop differentiated and value-added products with environmental concerns and maintain good relationships with governments.  Regardless of which strategy the company selected, high quality was an essential pillar of competitive advantage and critical success factor because high quality built high market share and distinction; both led to high profitability. 

3.3  Options for the future

Based on the analysis of SWOT and the critical success factors, the options for the future open to PSA using Ansoffs product/market opportunity matrix was shown in figure 4 (Dibb et al, 2001; Cannon, 1998): 

Option 1: Status Quo

PSA, as the third largest car manufacturer in Europe and the largest French exporter, had strengths and competitive advantages to survive in the automobile industry.  However, economist argued that competitive advantages were by their nature temporary in character and therefore decayed quickly (University of Warwick, 2002).  Firms who wanted to survive in the fast changing environment especially in view of those threats, were required to continuous review whether their competitive strategies were effective and efficient.  Hence, this was not a feasible option for the fact that the environment was dynamic, the fierce competition within the industry and changing customer needs and wants. 

Option 2: Market Penetration

It was a strategy to increase sales in current markets with current products.  As the current markets were in economic depression and in its maturity, PSA should extend their strengths in the markets and seek ways to improve sales to existing or new customers through intensive distribution, increased promotion, and price competition (Cannon, 1998). 

The company should avoid their weakness of independent project team by re-structuring the organization to hybrid function.  Better co-ordination should be enhanced in every departments or activities in the value chain to avoid overlooking of synergies.

Price and quality were key success factors so the company should try to sustain their competitive advantages and immediately strengthen the brand identity to build market share.  This was essential in facing the challenges of intense competition when the Western Europe advantage diminished since the government protection was disappeared.  They should be well prepared as well for the opportunities from the integration of European Union and the possibility of single currency in Europe.

Option 3: Product Development

It was a strategy to increase sales by improving present products or developing new products for current markets.  Drivers such as the growth of Asia Pacific region, and the success in Western Europe depended on the prices and new models etc, PSA should explore ways to increase buyers awareness and opportunity to buy their products.  This could be done by new variants (like environmental cars such as solar car), range extension (new marque with differentiation), or new innovation on current models (extra attributes or value-added function). 

Simplification of product range was not suitable here as it might mean that the company had limitation in variety development.  As safety concern was one key success factor, the company should also focus on the issue and might support their products with some kind of safety test record or statistics.  Therefore, the company adopting this strategy should well utilize their strong financial background to support their R&D to gain new opportunities.

Option 4: Market Development

It was a strategy to increase sales of current products in new markets.  New continents included Asia Pacific such as China, Middle East etc would require strong financial background, distribution networks and good relationships with the governments.  The company might also consider building market share in Japan as they were the second largest market.  Mergers and acquisitions might be good strategies to extend their market development for several reasons: lower risks, financial issue and the advantages in building awareness in the local market.

Benefits of market development included entering fast-growing markets, recovering investment costs, creating a strong image, and accelerating learning and knowledge transfer.  However, there were also expense such as building leverage, potential inflexibility, the challenges of cooperating across subsidiaries, and possible political instability in some countries.

Option 5: Diversification

It was a strategy to increase sales by developing new products to be sold in new markets.  This option was the most uncertainty as it would be a new product and market to the company.  For example, the company might consider developing a small car tailoring to Japanese market with environmental concerns at low price. 

Finally, it was recommended that PSA Peugeot-Citroen should do extensive market research for either option they would choose.  They should also understand that any change in strategy would also affect the companys skills, structures, systems, culture, and staff, etc thus careful planning and consideration were required.


Reference List

Cannon, Tom (1998), Marketing: Principles & Practice, 5th Edition, Cassell London

Dibb, Sally; Simkin, Lyndon; Pride, William M and Ferrell, O C (2001), Marketing: Concepts and Strategies, 4th European Edition, Houghton Mifflin Boston

Johnson, Gerry and Scholes, Kevan (2002), Exploring Corporate Strategy: Text and Cases, 6th Edition, Financial Times Prentice Hall Europe

Pitts, Robert A and Lei, David (1996), Strategic Management: Building and Sustaining Competitive Advantage, West Publishing USA

Warwick Strategic Advantage Study Notes (2002), University of Warwick


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