PPQ Parts: Expanding Business in Germany Essay

Introduction

The paper attempts to describe the environmental scanning of a country in which PPQ Parts will expand its business, and it also discusses the internal strengths and weaknesses of the country. Additionally, it includes discussion of both short and long term goals and strategies incorporating limitations and benefits of entering into the desired market. The location decided for expansion for PPQ Parts is Germany.

Environmental Scanning

Economy

Germany is a developed economy that has a vast supply of specialized knowledge and expertise. The German economy had surpassed a global recession which occurred in 2009, but since then it has recovered losses that occurred in the recession. Germany has expertise in both exports and extensive knowledge base in manufacturing.

Germany is amongst world’s top 10 strongest economies. The foreign direct investment in the country increased by 45% in the year 2009, where overall FDI decreased around the world by 37%. The country has recorded a consistent 2.2% increase in GDP of the country on a quarterly basis and 9% on an annual basis. The small and medium enterprises contribute to the larger portion of the economy of the country.

Generally, it is the larger firms that contribute towards the economic growth, but the case is opposite in Germany where SME’s and MM’’s contribute 99% of the overall companies with significant innovative products. The labor market in Germany is slow, but it is gaining strength. It is a formidable prospect to invest in the particular country where the spending rate of consumers is high due to high standards of living, and therefore, it would be financially beneficial for PPQ Parts to enter the market with small SUV’s (Bolgar, 2010).

Competition

The automotive industry of Germany is the biggest in the European Union with almost 35% of the global market share employing a large of skilled individuals. The country is the birthplace of automobiles, and it is in the fourth place amongst countries producing automobiles.

Amongst the top producers of small SUV’s BMW, Mercedes-Benz, and Volkswagen top the list. The competition is fierce in the saturated market of SUV’s. However, the small SUV’s category market is still untapped. The automobile industry constitutes over 20% revenues of the total German economy (GTAI, 2012).

Political Stability

Germany is an active member of the European Union, and it uses Euro as its currency. The country has a federal democracy, and the political situation has been continuously on the road to stability since World War II. The country is politically stable, but over the years it has experienced problems of Euro. The government has taken steps to resolve Euro debt crisis by having a certain amount of control over their budgets and changes in the economic policies of member states (AMB Company Inc, 2012).

Internal Strengths

The profit margin of the company is equal to the average profit margin of the entire industry in the United States. The company employs over 5,000 employees, which shows that the company is a large employer. PPQ Parts takes an interest in the social corporate responsibility while investing 0.5% of the total profits in charity and community building activities.

The company plans to expand its business internationally to diversify its product portfolio and earn higher revenues. PPQ Parts has a worldwide market share of 5% of the small SUV’s market, which reflects that the company is performing well, but it has targeted to achieve more in the next 4 years. The company has a positive stance to create a strategic plan for 4 years that could yield positive results for the company.

Weaknesses

The turnover rate of employees of the company is at 28%, which is comparatively higher than the industry average of 25%. The turnover rate of employees is high due to many reasons including low salary, low incentives and motivation provided to employees, and poor working conditions. The company mostly operates in the United States with almost 80% of its revenues generated from this market, which means that the international existence is low.

The shares of the company are trading at $10 per share, which represents that investors have a little interest in the company. The company plans to expand 80% of its business outside United States, but the company does not have many resources to go international. The company is new in the international market and has limited experience which might become a problem for the company in the future.

Short-Term Goals

1. Employees Appreciation. The employee turnover rate can be reduced through employee appreciation and motivating them to deliver their best. If a company becomes as a good employer then more employees will seek jobs, and the turnover rate could be reduced from 28% to 17%.
2. Increase shares. The company focuses on increasing stock prices per share by $22. To achieve this goal, the company needs to become efficient and reliable in profit making. The growth and profit making ability decides the share price of the company.
3. Improving Human Resource. PPQ Parts aims to its work force by 10,000, which can be achieved by growth in the international presence of the company. Extended operations in different countries would result in an increase in its labor force.

Long-Term Goals

1. Increase Innovativeness. PPQ Parts should increase innovativeness by investing more on Research and Development. The new products and changes in its existing designs would account for more recognition worldwide and increase in its revenues (Heizer, Render, & Rajashekhar, 2009).
2. Expansion. The company shall expand its business worldwide to increase their international presence. Up till now, the company has just 20% of its operations outside the US. Entrance in Germany will allow it to enter in the European markets.
3. Increase Market Share. The company aims to increase worldwide market share by 5%, which can be accomplished by entering into different economies across the globe. The products should be in accordance with the demand of the overall population of particular countries (Heizer, Render, & Rajashekhar, 2009).
4. Revenue Goal. The company aims to increase its profit margin from 6% to 13%. This can be accomplished through an increase in its production and lower cost of operations, which would eventually make profits to pile up.

Benefits and Limitations

Benefits

Germany offers opportunities for cost effective production. The country has a strong presence of skilled labor, which allows high productivity rate and quality standards. The location of Germany is central in Europe, which provides ways for exporting easily to other European countries through freeways, waterways, and railways.

The country has a large number of small and medium sized companies; therefore, chances of survival for a smaller company are higher than a large manufacturing firm. PPQ Parts has an advantage to invest in the particular country to increase its global presence. The company can expand its business further by investing in different European countries (PKF, 2010).

Limitations

Corporate taxes, as well as, individuals’ taxes are comparatively higher in Germany as compared to other European countries. Taxation is the only serious concern for PPQ Parts (PKF, 2010).

Reference List

AMB Company Inc. (2012). AMB Country Risk Report. Berlin: AM Best Company Inc.

Bolgar, C. (2010). Foreign Investors Flock to Europe’s Economic Motor. Web.

GTAI. (2012). The Automotive Industry in Germany. Berlin: Germany Trade and Invest.

Heizer, J., Render, B., & Rajashekhar, J. (2009). Operations Management. New Delhi: Pearson Education India. PKF. (2010). Doing business in Germany. Hamburg: PKF.