Critical Business Skills For Success - Project One

Project One Executive Summary Problem NextGen Manufacturing is a trusted United States based company that has been building engines for the automative manufacturing industry for the last twenty years. In order for our company to continue its growth to be competitive in the global market it is important to look at all opportunities which will allow our company to do so. As more initiatives are pushed to reduce emissions more and consumers are transitioning to hybrid & electric cars,"the United States hybrid & electric cars market grew by 11.5% in 2019" (MarketLine) versus "the United States automotive manufacturing industry shrank by 3.7% in 2019" (MarketLine). Based on this information we can predict that the demand for our engines for the automative manufacturing will continue to decline, "in 2024, the United States hybrid & electric cars market is forecast to have a value of $46,157.2 million, an increase of 53.7% since 2019" (MarketLine). Since we know what is going to happen to the market in the next 5 years we must be proactive now and look at what other industry this company can expand to in order continue increasing revenue. Diversifying our company and expanding into a new industry is the only way our company will be able survive. We must be proactive and plan now for what is to come. Automotive Manufacturing Industry The United States "accounts for 13.1% of the global automotive manufacturing industry value" (MarketLine, 2020) and the largest segment is the truck manufacturing which accounts for "75.1% of the industry's total volume" (MarketLine, 2020). As previously stated, the United States automotive manufacturing industry shrank by 1.5% in 2019 to reach a value of $210 billion" (MarketLine). As for market volume "the United States automotive manufacturing industry shrank by 3.7% in 2019 to reach a volume of 11.2 million units" (MarketLine). The growth of the market volume is also very little "In 2024, the United States automotive manufacturing industry is forecast to have a volume of 11.4 million units, an increase of 1.5% since 2019" (MarketLine). The United States automotive manufacturing industry has a large presence and is also dominated by very large global manufacturers such as AB Volvo, Toyota Group, and Honda and the leading companies are already tapping into the growing demand for hybrid and electric vehicles. "The automotive industry is continually facing new challenges, with globalization, individualization, digitalization and increasing competition putting pressure on the industry" (MarketLine). The United States automotive manufacturing industry has continued to decline in value and volume in most recent years, especially with the COVID-19 pandemic which caused even further decline in 2020 and "recovery is not anticipated in the forecast period" (MarketLine). The United States automotive manufacturing industry market value continues to shrink, the "industry shrank by 1.5% in 2019 to reach a value of $210 billion. The compound annual rate of change of the industry in the period 2015–19 was -3.6%" (MarketLine). The market volume also continues to shrink the "industry shrank by 3.7% in 2019 to reach a volume of 11.2 million units. The compound annual rate of change of the industry in the period 2015–19 was -2.6%" (MarketLine). As the ride sharing or car sharing market has grown significantly in most recent years it has resulted in fewer Americans to buy their own vehicles. Based on a research conducted by UC Berkeley’s Transportation Sustainability Research Center it has "reduced the number of cars by having a shared vehicle per seven cars" (MarketLine). Companies are also facing very stringent regulations for safety as well as having to make environmental commmitments resulting in transitioning to creating more options for hybrid and electric vehicles. "Electric car sales volume grew by 1.3%, while hybrid car sales grew by 16.7%" (MarketLine). The hybrid and electric cars market continues to grow the market value "grew by 14% in 2019 to reach a value of $30,039 million. The compound annual growth rate of the market in the period 2015–19 was 14.9% (MarketLine). For the market volume, the United States hybrid & electric cars market "grew by 11.5% in 2019 to reach a volume of 786,028 units. The compound annual growth rate of the market in the period 2015–19 was 12.1%" (MarketLine). New Industry A rising demand for commercial aircraft is forecasted to boost industry revenue for the United States aircraft, engine & parts manufacturing. The revenue growth for the industry was 0.4% from 2016-2021 however it is forecasted growth of 2.8% from 2021-2026 (IBISWorld, 2021). There are very few competitors in the industry as the major players are Boeing, Lockheed Martin & GE Aviation. As the recovery continues from the COVID-19 pandemic, it is expected to have rapid growth from 2021 to 2021 and with that global and domestic demand for commercial aircraft will be expanding over the next five years which will help drive revenue and growth, "when demand for air transport increases, so does the need for more aircraft. In addition, air transport operators may wish to increase their competitive edge by purchasing newer, more fuel-efficient models, a strategy that also increases demand for manufacturers" (IBISWorld). It is also anticipated that federal funding for defense will be increases in 2021 presenting an opportunity for the industry as well. As the pandemic comes to an anticipated end at the end of 2021 there will be a rising domestic and International demand for air travel as many people have not been able to travel for business due to regulations or visit their family and friends as they usually do. "Over the five years to 2026, industry revenue is forecast to rise at an annualized rate of 2.8% to $266.0 billion" (IBISWorld). The airlines will continue to replace older aircraft with newer and more fuel-efficient ones causing a demand for need of newer and next generations aircraft as well as airlines looking to expand their fleets. "The increase in US aircraft production and air travel is also projected to increase the supply of imported parts, components and complete aircraft, with the value of industry imports increasing an annualized 2.5% to $60.2 billion over the five years to 2026" (IBISWorld). Porter’s Five Forces Analysis of the New and Automotive Industry Rivalry among existing competitors New Industry Automotive Manufacturing Industry The concentration and competition level in the industry is considered to be medium. There are just a handful of competitors in the aircraft, engine and parts manufacturing industry, "engine manufacturing is primarily made up of General Electric and Pratt and Whitney" (MarketLine). Boeing is the dominate in the industry however, they are the only US manufacturer for airplanes, Boeing has a market share of 20.3%. GE Aviation has a market share of 6.5%. The company has benefited from an increase in global aircraft sales which as led to an increase in demand for its engines. To stay competitive some companies may have to provide significant discounts in order to win contracts as well as providing quality features and efficiency. The companies that can provide the most fuel efficient and easily maintainable engines will be able to secure the most amount of orders. In addition "a manufacturer that is able exclusively to supply engines for an aircraft model will reduce competition" (MarketLine). There are companies like Boeing who are The automative manufacturing industry in the US is dominated by four companies, Daimler, AB Volvo, Toyota Group, and Honda. Daimler is known as the leading player currently who manufactures cars and trucks in the country under its Mercedes brand. Daimler has produced "313,000 Mercedes-Benz cars, 174,000 trucks, and 45,654 Mercedes-Benz vans at its US manufacturing facilities in 2019" (MarketLine). Volvo is a leading truck manufacturer but also produces cars, they "delivered over 62,000 trucks in North America in 2019" (MarketLine). Honda which is also a leading player in the industry within the car and motorcycle manufacturing segments and the "company accounted for over 17% of cars and almost one quarter of motorcycles produced in the US in 2019" (MarketLine). Partnerships and strategic alliances are known as a common strategy as companies share technological and intellectual property. Toyota has an alliance with Subaru, Mazda and Suzuki and believe that the "principle of such alliances is to ''respect each other's strengths in technological development, production Threats of new entrants to the market continuing to increase on offering theie planes with a selection of multiple engine causing an increase in competition. "An engine supplier's ability to provide quality aftermarket service is also essential because companies can earn as much as half of their revenue from such work" (MarketLine). engineering, and sales networks" (MarketLine). All the companies seem to have strategic partnerships one way or another to allow each one to help the other based on their strengths. Technology in the car manufacturing industry has continued to evolve rapidly causing a race for the leading companies to create the first autonomous car that can be sold to the public. Tech giants like Apple and Google have entered the market which is causing the leading companies to be under a lot of pressure. The change in technology is also forcing a shift in traditional supply chain relationships. The Aircraft, Engine and Parts Manufacturing industry is considered a moderate level of capital intensity, "for every dollar spent on labor, industry operators will spend $0.18 on capital" (MarketLine). The products for aeronautics is considered to be very sophisticated with highly advanced production lines. The capital intensity is continuing to increase since many of the industry products are considered to be one of a kind and require an investment in specific production equipment and methods. The ease of entry for a competitor is very unlikely as it does require a large capital cost. "Due to the sophistication of aerospace products, workers must be highly skilled. As a result, average wages are high, especially for engineers and management. Barriers that a company would face when beginning to supply engines to the automotive industry would be that there really is not currently a big demand for it, and the already strong alliances the automotive industry has with each other would make it very challenging for a new engine manufacturing company to enter the market. Strengths that the known brands have and their reputation are important in the US automotive industry which makes it difficult for new players to enter the industry especially since brands such as Toyota and Honda have such a strong hold on the market. "Due to the high fixed costs of design and manufacture, as well as the economies of scale gained from mass production, new start-up companies are rare as the capital requirements for a manufacturing facility of feasible scale are simply too Bargaining power of suppliers The shortage of engineering and science related workers in the United States has also increased wage costs, as competition for labor rises" (MarketLine). The aircraft, engine and parts manufacturing industry is highly regulated due to the total nature of aircraft accidents. "In the United States, commercial aircraft products are required to comply with Federal Aviation Administration regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety" (MarketLine). For another company such as ours who also produced automotive engines would have to be financially stable and would require a large investment as well as scaling up the operations in order for them to be able to enter the industry. high" (MarketLine). The only change is the emergence of electric car technology and a push towards autonomous vehicles has given a rise for some new major entrants such as Tesla. Companies are also now facing more stringent regulations in regards to safety and environmental commitments when it comes to automobiles and in the current modern climate companies are required to continually be innovative in order to stay successful. There is a large variety of raw materials which are used in the production of aircraft, engine and parts, but the main items are composite materials, aluminum, titanium and steel. "Due to the expensive nature of the metal sand mining industry,it is dominated by large global players suchas RioTinto, Arconic and Arcellor Mittal,which benefit from economic of scale" (MarketLine). These raw materials listed make up 90% of the average aircraft. Even Companies that provide the raw material for automotive engines are iron & steel manufacturing companies as well as aluminum and metal stamping & forging as well as the ball bearing, screw, nut & bolt and metalworking machinery manufacturing in the US. "The share of revenue from each product segment rarely changes because they are all standard components in most engines" (IBISWorld). It is forecasted that in "2021, new gasoline engines are expected to account for 67.2% of Threat of substitute products though these are the main providers of the raw materials we already have agreement with supplies which can be cross utilized that we currently use to manufacture the automotive engines. There has been a progression towards engines being able to provide more technological data such as Pratt & Whitney's 1000G Geared Turbo Fan engine has "5,000 sensors in it that generate up to 10 GB or data per second" (MarketLine). The technology allows the engines to adjust thrust level and help to reduce fuel consumption by 10%15%. industry revenue" (IBISWorld). The largest vehicle manufacturers also tend to be the largest engine producers as well. It is expected that in the coming years industry concentration will decline. The industry uses a substantial amount of steel, iron and aluminum in order to manufacture vehicle engines. The purchasing cost of materials is expected to be 66.7% of the industry revenue in 2021. "As metal commodity prices gradually increase over the five years to 2026, purchase costs are expected to increase" (IBISWorld). The threat of substitute products would be only from competitors and the progression towards technologically advanced engines. There are not too many aircraft engine manufacturers currently so the competition would be between our company and the other handful that are currently in the market. If we can create the best engine with the latest technology that the airlines are looking for than we can beat out the competition, and there is a demand and enough airlines out there that we can all have a healthy market share. GE, Rolls Royce and Pratt & Whitney are ahead of our company as they have already been in the industry for much longer and have gained knowledge and data from their research and experience of being in As a shift to hybrid and electric vehicles along with demand increases, the need for gasoline automotive engines will slowly decrease. An threat that is emerging to the industry is the introduction of electric vehicles from large automakers and smaller companies that are specializing in this newer technology. With electric vehicles there is no need for gasoline engines since the motor is powered by a highvoltage lithium-ion battery. Many of the large automakers have already introduced fully electric models or concept vehicles and the biggest threat currently is Tesla Inc. who continues to gain market share. Automotive companies are counting to focus on autonomous drive capabilities moving forward, electric vehicles are "anticipated to become Bargaining power of buyers the industry, this is one threat that can cause our company to put us towards the bottom of the list. the primary drivetrain system for autonomous cars" (IBIS World). As the shift to electric and hybrid vehicles continues to occur over the next decade or two, there may come a day when we will no longer need to build gasoline powered engines causing our company to go out of business. The first tier buyers of aircraft engine & parts manufacturing in the US would be domestic airlines in the US, along with charter flights, international airlines, and public administration. The companies which would buy the engine specifically would be the big players in the industry who actually make airplanes such as Boeing and Airbus who would put the engine inside their airplane and then sell the plane to an airline company. The list of airlines based in the US that are both domestic and international is vast which means that it would lead to a demand for new orders of airplanes from Boeing and Airbus which would then need new engines for the airplanes they would potentially be selling. The major automotive engine & parts manufacturing companies in the US already manufacture their own engine such as Ford Motor Company who has a market share of 30.1%, General Motors Company who has a market share of 10.4%, Toyota Motor Corporation who hold a 9% market share and Honda Motor Co. Ltd who has a market share of 8.2%. We currently have only a few companies or few customers that need our automotive engine since the big players already make their own. Comparison of the Industries The automobile engine manufacturing industry versus the aircraft engine manufacturing industry are very similar in certain ways but also differ as well. The rivalry amongst competitors is different as the automobile engine manufacturing industry has multiple players some small but also some that are very large in company size, while the aircraft engine manufacturing industry, the companies themselves are very large due to the nature of the industry however there are very few players in the industry. The threat to new entrants is high for the automotive engine industry as electric vehicles are becoming increasingly demanding and threaten the existence of any gas powered engine manufacturer while the airline industry is not seeing a large shift from the current engines being created except for a technologically smarter and innovative engine to help with fuel efficiency. The bargaining power for both industries is about the same since both utilize the same raw materials. The threat to a substitute product is high since the introduction and transition of vehicles to battery powered versus gas powered engine while the threat is low for the airline engine industry. The bargaining power in the automotive industry is lower since the market is already dominated and all the large players already have strong strategic alliances created while the aircraft engine manufacturing company only has a handful of large players and they are not in any strategic alliances. Summary of Findings The automotive industry in the United States is continuing to struggle to recover even as we come out of the COVID-19 pandemic. There has been severe disruption with exporting of Chinese parts and widespread manufacturing plant closures as well as automakers having to temporarily shutdown productions at plants which will lead to further industry decline in 2020. The rise of ride sharing or car sharing this had led to a lower number of new cars being sold. Leading automotive manufacturers across the world have already made significant promises to only deliver hybrid and electric vehicles along with the demand for hybrid and electric vehicles the automotive industry that only produces gasoline engines will continue to shrink until becomes obsolete. The market value off the automotive manufacturing industry has continually shrank for the past four years to -3.6%. "The hybrid & electric cars market grew with a compound annual growth rate (CAGR) of 14.9% between 2015 and 2019" (MarketLine). There has already been a rise of a number of new entrants who are focused solely on electric vehicles while the incumbents are already diverting into this new segment. It has been announced that large players such as "Volvo (Geely), General Motors, Aston Martin, and Jaguar Land Rover have all announced plans to switch over to manufacturing only electric or hybrid cars at some point within the coming decade" (MarketLine).If our company is to grow and survive it must diversify as well and move into an industry that will not be obsolete in the next decade which is the aircraft engine manufacturing industry. The transition to this industry should be smooth even though it will require a high capital and a large start up cost due to the innovative technology already being used. It is "anticipated 11.2% rise in 2021 as the economy reopens and more people travel post-pandemic" (IBIS World). The demand for commercial aircraft both globally and domestic will likely continue to expand over the next five years which will drive revenue and growth. There will be rapid recovery from 2021 to 2022 from the pandemic and as the world goes back to normalcy the demand will continue to grow. With this growth our company will be in a position to strategically be able to supply to the demand needed for expansion of airplanes for the airlines. Porter’s Five Forces Analysis Chart—New Industry Threat of new entrants medium because the start up cost, technological investment and scaling the size of operation requires a big investment. Bargaining power of suppliers medium because the raw materials being utilized are controlled by a small group of corporations. Rivalry among existing competitors high because there are only a few companies currently producing airplane engines. Threat of substitute products low because not many companies currently exist that can create a substitute product, the market for airplane engines is currently almost a monopoly. Bargaining power of buyers medium because buyers have only a selection of airplane manufacturers to choose from. Porter’s Five Forces Analysis Chart—Automotive Manufacturing Industry Threat of new entrants high because of the new shift and demand for autonomous and electric vehicles. Bargaining power of suppliers medium because there is a good selection of suppliers. Rivalry among existing competitors low because they already have created strategic alliances. Threat of substitute products high because of the demand for electric and autonomous vehicle. Bargaining power of buyers low because the industry is saturated.