Unit 1 Learning Aim C and D
,Unit 1 Learning Aim C and D
Contents
Introduction................................................................................................................................... 3
SWOT........................................................................................................................................... 4
Strengths................................................................................................................................... 4
Weakness.................................................................................................................................. 4
Opportunities............................................................................................................................. 5
Threats...................................................................................................................................... 5
D2.............................................................................................................................................. 6
PESTLE........................................................................................................................................ 6
Political...................................................................................................................................... 6
Economical................................................................................................................................ 7
Social......................................................................................................................................... 8
Technological............................................................................................................................. 8
Legal........................................................................................................................................ 10
Environmental.......................................................................................................................... 10
D2............................................................................................................................................... 11
Porter's 5 forces.......................................................................................................................... 11
Threat of substitutes................................................................................................................ 11
Threat of entrants.................................................................................................................... 12
Power of suppliers................................................................................................................... 13
Power of customers................................................................................................................. 13
Competition in the industry.......................................................................................................... 14
D2............................................................................................................................................... 14
Workplace culture........................................................................................................................ 15
CSR............................................................................................................................................ 15
Fiscal Policy................................................................................................................................ 16
Internal and External environment...............................................................................................17
Monetary Policy........................................................................................................................... 18
,Unit 1 Learning Aim C and D
Competitive analysis................................................................................................................... 19
Demand, supply and price........................................................................................................... 20
Price Elasticity............................................................................................................................. 20
Elasticity of Demand.................................................................................................................... 21
Factors influencing pricing and demand......................................................................................21
Market structure.......................................................................................................................... 22
M3............................................................................................................................................... 22
M4............................................................................................................................................... 23
D3............................................................................................................................................... 24
Conclusion.................................................................................................................................. 24
Rolls Royce
Introduction
As part of my coursework for learning aims C and D, I have been asked
to write a report about a large business that trades within the EU. I have
chosen to investigate Rolls Royce, which is a wide scale business that
operates in the UK but trades within the EU. In my written report I will
examine these two things, the environment in which RR operates in, as
well as looking at how RR has reacted to change in the market in the
past and how they may react in the future.
,Unit 1 Learning Aim C and D
SWOT
SWOT analysis is a tool which businesses use to make sure that they remain competitive within
the market they are operating in, which gives them a competitive edge. It stands for strengths,
weaknesses, opportunities and threats. Strengths and weaknesses are internal to the business
and the opportunities and threats are usually external.
Strengths
One of Rolls Royce biggest strengths is that they operate on a global scale. They have a
presence in over 50 countries across the world and their customers are spread across 180
countries of the world. This allows them to reach a global audience spanning across all
demographic types which increase their annual sales, revenue and brand awareness
significantly. They achieve this through all their variants of the Rolls Royce signatures like
Phantom, Phantom Drophead Coupé (convertible), Phantom Coupé (coupe) and Ghost are all
popular in the premium automobile segments. Similarly, Rolls Royce Cars have perfected the art
of top-class design in luxury cars and they are also experts in interiors. The build quality is
always of high and the engine and chassis are also superior, helping them lead the market in
high end luxury vehicles. All their products are made by their skilled workforce, who are all
experts in their fields. The Company recruits people with a lot of experience and qualifications in
their respective domains. Furthermore, RR receive both financial and technical backing from the
parent company. This improves their production rate greatly as they have been continuously
researching into the technology and has perfected it over the years. This association with the
parent company acts as their biggest strength, because they gain legal liability, large funds and
access to other subsidiaries owned by the conglomerate.
Weakness
With all the success the company has had over the years they have also had a few issues over
the years, one of which being the exorbitant Pricing. Rolls Royce products are priced at the
highest end of the spectrum and is unaffordable for most customers. This makes the company
target demographic a niche segments, and thus cater to a small clientele which limits the number
of units they sell annually. This forces the company to have a over-reliance on repeat purchase.
Rolls Royce products are seen as luxury items that target a small group of customers and they
depend on client loyalty and repeat business for their revenues, who have high consistent
incomes like athletes and millionaires. Similarly, the designs of Rolls Royce cars have evolved
,Unit 1 Learning Aim C and D
over time and thus the various products draw inspiration from one another, limiting the variation,
and creativity. This makes potential customers to think their products look like a variation of a
single model, and customers who choose Rolls Royce cars are people who prefer the brand for
its standards styling and design.
Opportunities
With an ever-growing market Rolls Royce have the opportunity to improve their business. One of
which being, green and hybrid vehicles, the increased focus on green and hybrid vehicles will be
a great opportunity for higher end vehicle manufacturing, that are environmentally friendly and
don’t use up fuel sources. This could be very beneficial as the market is shifting towards eco-
friendly products and by starting now, they could end up being the market leaders in multiple
categories and establishing their brand to lower income consumers. Rolls Royce can focus on
low cost, to appeal to other more diverse demographics like the working class. Moreover, they
can offer vehicle customisations. More and more customers are willing to pay a price for cars
that they want, that are tailored to them and fit their aesthetics. This will create a growing need
for personalized cars, an opportunity that Rolls Royce can easily tap. Furthermore, RR can
increase their focus on automation and other technological aspects in their products. There is a
lot of research in automation and building self-driven cars. The growing focus on automation is
an opportunity which luxury car companies can reap easier than regular car companies (The
technology in the automobile industry is growing and one of the biggest trends today are self-
driven cars). This creates a new opportunity for luxury cars like Rolls Royce. Companies are also
trying to integrate new age technologies like IOT, machine learning, and data connectivity and
there will be a new fleet of brands incorporating these technologies. This is a huge opportunity
for luxury vehicle companies.
Threats
One of the biggest threat factors Rolls Royce faces is the growing costs of raw materials. Costs
are on the rise and so are fuel costs. Research on future vehicle options is expensive as well.
This means that the company will have to spend a great deal annually to both maintain position
in the market and staying ahead of the competition. This means they will be spending more than
they are making, significantly dropping their profit margins. Furthermore, the Increased
competition Rolls Royce faces from brands like BMW, Mercedes Benz, Audi, and Lamborghini,
cause them to constantly adjust their pricing to fit the market trend (competitive pricing ).
Similarly, these other companies take away from RR business as they could be taking potential
customers, with their cheaper prices. Additionally, RR needs to focus on sustainability. The
economy in the UK is having serious concerns about sustainable transportation options since the
,Unit 1 Learning Aim C and D
current vehicle system are not environment friendly. However sustainable vehicles are costly and
require more raw materials and longer times to make.
D2
In conclusion, the biggest influence in the swot analysis is the threats. This is because the
business needs raw materials to maintain their production and they also need costs to be
minimal so that their profit margins aren’t outweighed by their loses. This especially significant as
in the future prices of most necessities for the business will be more expensive so they need to
spend as little as possible now, in order to prepare for the future and they also need to find new
alternatives to cut costs.
PESTLE
PESTLE is a mnemonic which is a tool used by businesses to assess the environment that they
are operating in or it could also be used to launch a new idea such as a product or service. Each
letter stands for Political, Economic, Social, Technological, Legal and Environment.
Political
Rolls Royce is a large-scale corporation that trades within the EU. However, current political
matters could have negative implications on their organisation. On Thursday the 23rd of June
(2016) in the UK, citizens went and voted on the EU membership referendum, which ultimately
decides whether the UK would leave or stay in the EU. This resulted in 51.9% voting for “Brexit”
and 49.1% voting to remain. This vote has great implications on RR and the UK as a whole. This
referendum would have a lot of negative effects on the RR. Examples of this would be a drop in
the value of the pound,low interest rates as well as political unrest.
Another political factor that could affect Rolls Royce business, could be the added Tariffs on
exporting and importing parts of machineries across the EU. This would be problematic as Brexit
involves leaving the EU, and the EU provides all countries within the union, free trade.
Furthermore, leaving the EU could mean businesses will have difficulty trading as they will not
have access to the single market. This means that there may be tariffs that will have to be paid in
order to trade within the EU. As the UK is leaving the EU, tariffs may be high resulting RR
incurring more costs, which will consequently result in reduced revenue and profits. The high
tariffs could potentially lead to a ramification of increased product prices, which could
consequently lead to less sales and perhaps a change in suppliers to attain cheaper materials.
Of course, the cheaper materials would have lower quality, which could consequently lead to
less sales as RR are known for their high-quality products and consumers would be more
hesitant to buy from them.
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Additionally, the loss of RR sales would cause their competitors (that aren’t affected by Brexit) to
sell more as there are more people looking to consume similar products, who aren’t purchasing
from RR. Moreover, this would result to RR having a smaller market share which is currently 33-
34%1. Whereas, Honeywell’(Honeywell International Inc. is an American multinational
conglomerate company that makes a variety of commercial and consumer products, engineering
services and aerospace systems for a wide variety of customers, from private consumers to
major corporations and governments.) only has 9.37% of the market share2 which will most likely
increase as RR starts to lose market shares due to sales loss.
Economical
Brexit has had a knock-on effect on the UK economy such as influencing interest rates. Since
Brexit the value of the pound has slumped resulting in Mark Carney, the Bank of England
governor declaring that the interest rate would be 0.25%. This is very low; it has its advantages
and disadvantages. The disadvantages mainly affect consumers and not businesses such as
Rolls Royce.
The advantages of the 0.25% interest rate for RR is that firstly, borrowing money is cheaper for
them. So, for instance if they wanted to take out a bank loan, the interest on top of the loan
would be very low, making it more advantageous and much more of an incentive for businesses
like RR to borrow money.
The second advantage is that lower interest rates are an incentive for spending. Interest rate is
defined as “the reward for saving and the cost of borrowing”. People are less likely to save their
money in a savings account as the reward; the interest on top of their savings would be very
small. Therefore, consumers are more likely to spend; these are advantageous for RR because
consumers will go to the store and spend, perhaps even buying more expensive products such
as the Rolls Royce Phantom VIII. Again, this is beneficial because RR will generate more
revenue, contributing to their products.
A disadvantage of Low interest rates can also lead to unwelcome behaviour in the financial
sector. After all, low interest rates make borrowing cheap and saving unattractive, and
encourage market players to take greater financial risks. In a low interest rate environment, the
best returns are available in high-risk markets. Another disadvantage of Low interest rates can
also give the wrong incentive if they tempt governments to postpone the reduction of the huge
accumulated deficits. There is also an incentive to shorten maturities in the financing of the
increased public debt levels, because short-term interest rates are still appreciably lower than
long rates (the yield curve is steep, in other words).
1 http://businesscasestudies.co.uk/rolls-royce/the-power-of-partnerships/increasing-market-share.html
2 https://csimarket.com/stocks/competitionSEG2.php?code=HON
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Another economic factor is inflation; inflation is a general increase in the cost of prices. The
current inflation rate is at 2.9%, this is due to the results of the EU referendum. As the UK voted
to leave the EU, this then caused a sharp drop in the pounds value, which then increased the
costs of imported goods from abroad, such as from the EU itself. As RR is a business that trades
within the EU, the effect of inflation has a negative impact. This is because an increase in prices
will mean that stock from suppliers will also increase in price, this will mean that RR costs will go
up, to counterbalance this RR would have to push up their prices. This will have a negative effect
on RR since consumers do not like to spend lots of money, so if RR has high prices on their
products, consumers will spend elsewhere, where prices are lower. The effect of this on RR is
that they could lose loyal customers and see a reduction is their revenues and profits. This could
see RR discount competitors GE and Honeywell stealing some of their customers and their
market share, Honeywell sales have increased to 14.3% recently, gaining market share quickly.
Social3
Every country and culture have its own way of doing business, and these methods allow them to
construct their own social factors that are unique to them and their nation/culture. These social
factors can not only help companies (e.g.) like Rolls Royce to better understand their
demographic, but it can also help them with the way they do business and understand their
customers preferences within the UK and to an extent the EU. Social factors can include – health
& safety attitudes, societal roles and norms, attitude towards certain products and services,
traditions, gender roles, culture, demographics, and leisure interests.
One social issue that RR could have is the broader attitudes towards migration, which is going to
be negative in United Kingdom due to the restrictions that come with Brexit. This is because it
would be more difficult for people within the EU to live in the UK as the UK is contemplating
leaving EU.This can impact Rolls-Royce Holdings ability to bring international leaders and
managers to manage operations in the UK as the process of entering the country would be more
difficult; Prior to Brexit RR plc were able to bring skilled worker that operated for different
branches and bring them to the UK. This was especially doable as the UK’s laws weren’t as strict
on migrants from within the EU; now because Brexit, RR can’t bring international employees as
easily.
Technological4
Rolls Royce invests over two billion dollars annually on innovation and technology (“Globally, we
invest more than $2 billion per year in innovation and technology to meet current and future
customer needs”). This dedication has allowed RR to acquire companies like ATG ( The Applied
3 http://blueoceanuniversity.com/frontpage/pestelcoanalysis/17811-rolls-royce-holdings
4 https://www.rolls-royce.com/country-sites/sea/partners-in-progress/research-and-technology.aspx
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Technology Group), that is located in their Seletar campus which specialises in the development
of the core aspects of the corporation; driving research in Materials support technology,
Computational engineering, Electrical power and control systems and all Manufacturing
technology.
One technological factor that can influence the operations of RR is the increased use of new
technology in their production, which is used to increase the rate and productions and lessen the
number of human errors, while producing high quality products that are of their standards. This
appeals to a wider audience as it allows RR to be more innovative in their production and come
up with new and unique systems/features to implement into their vehicles and crafts.
Additionally, they reassure the customers/consumers, as they are getting products that are being
manufactured in the most innovative ways. Also, they use of new and unique designs is used to
overcome the decreased margins in the industry and surpass the other manufacturers in the
market
Furthermore, RR must follow strict rules and guidelines set by them to ensure that they are only
using machines that contribute hardly, if not any to the global carbon emissions or other
environmentally harmful substitutes. They do this to be environmentally friendly and lessen the
global carbon footsteps.
● Rate of technological
diffusion
Moreover, Rolls Royce plc is
limited by the rate of
technological diffusion ( the
rate at which technology is
circulated in the market). The
more modern and the less
regulated the technologies
spread through the market
quicker, as similar
companies are using and
copying the production of the
technologies used. This has
a negative effect on the
market as it, decreases
variety in the. This influences RR as they have to copyright all their technologies as soon as the
produce them or before, which delays both the production/ manufacturing and the circulation/
availability to the public.
