What Does it take to Succeed in this Industry? Economic Sociocultural Global Technological Political / Legal Demographic IndustryCompetitor Threat of new entrants Power of suppliers Power of buyers Product substitutes Industry rivalry Future Objectives Current Strategy Assumptions Capabilities General Environmental Analysis

What Does it take to Succeed in this Industry? Economic Sociocultural Global Technological Political / Legal Demographic IndustryCompetitor Threat of new entrants Power of suppliers Power of buyers Product substitutes Industry rivalry Future objectives Current strategy Assumptions Capabilities General Environmental Analysis

What Does it take to Succeed in this Industry? General Environmental Analysis Economic Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Automakers reducing their number of suppliers in favour of larger T1 suppliers Good for Tier 1 suppliers Tier 2 Suppliers Tier 1 Suppliers Tier 2 - Pursue differentiation strategy focusing on engineering and design or seek vertical integration opportunities Tier 1 – Broaden economies of scope and scale through market and Product Development and keep costs as low as possible

What Does it take to Succeed in this Industry? General Environmental Analysis Economic Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Prolonged economic downturn reduces consumer demand for new vehicles for indefinite period Liquidity strained Tier 1 and Tier 2 suppliers Liquid Tier 1 Suppliers or those with Access to investment capital Tier 2 suppliers should look to diversify into alternative markets if possible or pursue cost reduction strategy - Tier 1 – Broaden economies of scope and scale through Market and Product Development Tier 1 – forward integrate into auto assembly - Magna

What Does it take to Succeed in this Industry? General Environmental Analysis Economic Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Credit market becoming restrictive Heavily debt laden firms and those with low cash reserves Any firms that were looking to expand into new markets Firms with strong balance sheets or financial backers Strong Tier 1 one firms to continue to diversify through acquisitions Downsizing or down scoping to restructure weakened firms

What Does it take to Succeed in this Industry? General Environmental Analysis Economic Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Rising cost of commodity parts All suppliers as power of buyers forces squeezes margins Firms with alternative materials technology or superior processes capable of meeting new costs Diversification would allow exposure to specific commodity increases price to be reduced Differentiating product on technological leadership as well as design value added would provide strong competitive advantage

What Does it take to Succeed in this Industry? General Environmental Analysis Economic Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Credit market becoming restrictive Heavily debt laden firms and those with low cash reserves Any firms that were looking to expand into new markets Firms with strong balance sheets or financial backers Strong Tier 1 one firms to continue to diversify through acquisitions Downsizing or down scoping to restructure weakened firms

What Does it take to Succeed in this Industry? General Environmental Analysis Global Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Developing countries increasing auto production particularly China and Eastern Europe Conversely Developed countries decreasing auto production Smaller Tier 2 firms focusing on North American Market Firms focusing on labour cost efficiencies Cheap labour diminishes advatage Larger multinational Tier 1 firms already in these markets or firms with experience in emerging markets Tier 1 Firms should increase presence in these markets through market development strategy leveraging core competencies developed domestically.

What Does it take to Succeed in this Industry? General Environmental Analysis Technological Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Increase in demand for: Green technologies GPS technologies Materials and alternative fuels Tier 1 and 2 firms focusing on cost competitiveness Tier 2 firms focussing on technical leadership and design capabilities in these fields Larger diversified suppliers should purchase promising suppliers of this technology Firms with related capabilities should develop these core competencies

What Does it take to Succeed in this Industry? General Environmental Analysis Political Legal Environment IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Governments willingness to subsidize alternative technologies development n/aSupplier focussing on these parts Develop or purchase capabilities and ideally core competencies in these areas Governments willingness to come to the aid of OEM’s and Car makers so that they do not fail Smaller Tier 1 and Tier 2 Suppliers Larger Tier 1 and Tier 2 Suppliers Be Big

What Does it take to Succeed in this Industry? Environmental Analysis Power of Buyers IssueThreat to…Opportunity forStrategies to Mitigate Risk / Create Competitive Advantage Auto companies exert huge amount of pressure to lower costs and maintain qulaity Suppliers focussing on commodity components without cost efficiencies Efficient cost competitors (large suppliers) Design or technology differentiated niche suppliers Compete on price in commodity parts Pursue operational efficiencies and economies of scale Alternatively differentiate on design and technologies Industry

What Does it take to Succeed in this Industry? Industry Environmental Analysis OpportunitiesThreats The Auto parts market continues to consolidate at a diminishing rate. Large parts suppliers do well Smaller parts suppliers Parts suppliers can enter the market to supply new technologies OEM emerging in Uzbekistan, Hungary, Ukraine, Indonesia, Slovenia Argentina all over 25% growth 2008 T1 emerging in these markets as well Threat of New Entrants

What Does it take to Succeed in this Industry? Industry Environmental Analysis OpportunitiesThreats Weakened buyers may be more willing to renegotiate deals Increased power of unionization Weakened buyers may sell off divisions providing acquisition opportunities Increasing raw materials costs Few number of major players leaves non integrated firms exposed to individual firms failure Strength of Suppliers

What Does it take to Succeed in this Industry? Environmental Analysis Future Objectives Competitor Large T1 competitors are looking to survive short to medium term, and where possible continue to vertically integrate into strategic T2 firms and even forward into OEM market Large T1 competitors may look to restructure sell domestic operations and pursue further market development strategy into emerging markets in order to maintain market power and not fail. Smaller T2 firms may look to diversification and product development strategy to move away from cost based competition and focus on differentiation in emerging and novel solutions

What Does it take to Succeed in this Industry? Environmental Analysis Future Objectives Competitor Large T1 competitors are looking to survive short to medium term, and where possible continue to vertically integrate into strategic T2 firms and even forward into OEM market Large T1 competitors may look to restructure sell domestic operations and pursue further market development strategy into emerging markets in order to maintain market power and not fail. Smaller T2 firms may look to diversification and product development strategy to move away from cost based competition and focus on differentiation in emerging and novel solutions