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Peugeot: Global Value Chains in Turbulent Times Essay

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Updated: Jun 13th, 2022

Company Background and Activities

Peugeot is a French car automaker that was founded more than a century ago. The Paris-based firm has a global market presence in more than 160 countries and is currently owned by a larger conglomerate – PSA Groupe (2020a), which controls the brand among four others: Citroën, DS Automobiles, Opel and Vauxhall. Peugeot operates more than 10,000 sales outlets in its key markets around the world (PSA Groupe, 2020a). They are responsible for more than 1,710,000 units in sales that the company has reported in the past year (Craft, 2020). The French automaker sells vehicles, which are its main products. They are categorised into four key segments, including electric, sports, luxury and commercial vehicles (PSA Groupe, 2020a). These products are designed to fit contemporary styles, designs and emotions for purposes of aligning product specifications with customer behaviours.

Transaction Modes

Multinational organisations engage in different types of transaction models. Some of them involve selling similar products in home and export markets, creating a major dependency on overseas business where exports are valued, approving limited fixed investments overseas, and limiting commitment vs. opportunism (Lorvoralak and Wongsurawat, 2019; Hofer, Niehoff-Hoeckner and Totzek, 2019; Monreal-Pérez and Geldres-Weiss, 2020). The process of selecting the best transaction model to use as the appropriate foreign market entry strategy for a company should be of critical importance to businesses because it influences the processes of implementing and establishing corporate goals (Gnangnon, 2019; Samiee and Chirapanda, 2019). Therefore, a company’s main objectives should align with its transaction model.

Peugeot practices the “limited commitment and opportunism” model as its main internationalisation plan. Aligned with this strategy, the company often scouts for new and emerging opportunities among selected partners who will help it to achieve its overall corporate goals (PSA Groupe, 2020a). Peugeot has also employed a merger and acquisition plan that has helped the company to expand its market presence in countries that have limited market data. For example, in 2019, it finalised a merger agreement with Fiat Chrysler to create the fourth-largest automaker in the world with an estimated market value of around $50 billion (Eisenstein, 2019). Peugeot also uses the partnership model to collaborate with other established firms and improve its global market presence.

The success of its electric vehicle product category is linked with its partnership agreements because such contracts have enabled Peugeot to gain access to quality production inputs from reputable third party networks. For example, the firm has a partnership agreement with Nidec Leroy-Somer Holding, which provides vital manufactured parts, such as its drive-train components for its electric vehicles (PSA Groupe, 2020a). The partnership was conceptualised to reduce the cost of production, expand existing market opportunities and increase Peugeot’s compliance with environmental regulations across different markets (PSA Groupe, 2020a). The process of implementing the “limited commitment and opportunism” transaction model by the French firm has been premised on the recognition of scarce market opportunities in the global business environment.

Peugeot also engages in the development of production facilities in new and emerging markets to exploit some of the production opportunities that exist in these new areas of operation. For example, the French automaker has signed contracts with Latin American countries to establish large production facilities to serve the South American region (Automotive Intelligence, 2020). Argentina and Brazil are two countries that have benefited from such agreements and currently host some of Peugeot’s most important production plants in the world (Automotive Intelligence, 2020). Broadly, through the implementation of such transaction modes, Peugeot has been able to successfully build a formidable brand portfolio in the international automotive market.

Application of OIL Concept

Dunning’s theory of eclectic production has been used to evaluate internationalisation processes for global firms. It presupposes that international production of goods and services is dictated by global market opportunities as well as ownership and location advantages – “OIL” (Casillas, Acedo and Rodríguez-Serrano, 2020; Rahman, Shahriar and Kea, 2019). By applying this model to Peugeot’s business plan, three key issues emerge: identification of its “ownership” advantages, understanding behaviours change patterns and impact of location rewards on business operations. These three areas of the “OIL” concept are further discussed below.

Ownership Advantages

The ability of a company to exploit its resources for the advancements of its goals is one of the most important hallmarks of good business practice. Ownership advantages are among beneficial aspects of effective resource management for multinational firms (Outila et al., 2020). Peugeot has ownership advantages that stem from its roots in France. The company’s brand name is uniquely French and is indirectly linked with the pride of the French in the automotive industry. To demonstrate its role in the country’s national pride, the government has a 14% ownership stake in PSA Group, which is Peugeot’s holding company (Eisenstein, 2019). Therefore, the role of the French government in the firm’s ownership structure shows that the company is a national brand and continues to enjoy first-mover benefits from the French people based on its ability to provide employment opportunities to thousands of people in France and around the world.

Internationalisation Opportunities

A company’s ability to take advantage of leadership opportunities in the global business environment depends on its proficiency in adopting effective management styles to exploit existing operational advantages that exist in the business environment through the effective utilisation of key resources (Koveshnikov, Vaara and Ehrnrooth, 2016). Particularly, this statement is true for the type of international market expansion strategy adopted by specific companies. Relative to this assertion, most firms either use the ethnocentric or geocentric management style.

Both techniques are often contrasted with each other because they adopt different modalities of overseeing international operations. The ethnocentric technique is aligned with the wishes of managers who want to hire employees that are of the same nationality as the parent company (Steenkamp, 2019). Comparatively, the geocentric approach is focused on finding the best talent as the main criteria for recruitment (García-Gallego and Mera, 2016). Peugeot has used the latter approach to seize international market opportunities.

Location Advantages

Multinational businesses often rely on location advantages to create a competitive edge over their rivals. This is because location advantages are often seized by countries willing to exploit incentives offered by host markets (Virtaharju and Liiri, 2019; Chaudhuri, Park and Kim, 2019). In the case of Peugeot, it has leveraged human resources found in host markets to drive the company’s sales in its internationalisation plan (PSA Groupe, 2020a). In other words, the firm has used local personnel to understand foreign market dynamics and avail products that would be suitable for their respective customer segments. This strategy is linked with the geocentric management approach, which allows managers to scout for the best talents to run international operations, regardless of nationality. For example, locals head Peugeot’s Nigerian operations (Peugeot Nigeria, 2020). Broadly, the company’s management style takes advantage of location advantages and aligns them with the French culture of diversity and dynamism to create a blend of local and international experiences in management. Indeed, as observed by PPT (2020), France is a highly diversified country because of its large mass size and diversity of people. Therefore, its geocentric management style is linked to the French culture of dynamism.

Impact of Two Events

Like other businesses around the world, Peugeot has managed problems affecting the international market space. Trade disputes between nations and the recent COVID-19 pandemic are two events that have had the greatest impact on the automaker because of their effects on corporate profitability and supply chain functions (Li and Chen, 2020; Paris, 2019). For example, the exit of the United Kingdom (UK) from the European Union (EU) has changed the legal and market environment that Peugeot operates in (Dent, 2020). Indeed, the UK is one of the most important markets for the French automaker. Therefore, a change in its legal environment and relationships with partner states affect the company’s business profile in Europe.

In line with the above statement, a government’s trade policy could affect current operations by making it difficult for Peugeot to trade across international borders. Therefore, the lack of international cooperation among states has a significant impact on the firm’s operations (Stanford, 2020). The Covid-19 pandemic, which has forced governments to shut down borders, stop air travel and businesses to close has had similar effects on Peugeot’s business strategy because it affects access to markets and the utilisation of human resource capabilities. The impact of these events on the company’s operations will be evaluated from the perspectives of customers, employees and suppliers based on their effects on Peugeot’s two main product categories – electric cars and large commercial vehicles.

Customers

Out of the two events described above, the Covid-19 pandemic has had the biggest impact on customers because of its effects on their disposable incomes and the ability to use Peugeot’s products. For example, limitations on movement have negatively influenced the ability of customers to drive their cars to and from work, thereby undermining the potential for Peugeot to justify the sale of new cars (JATO Dynamics Limited, 2020). At the same time, the Covid-19 pandemic has caused a significant decline in disposable incomes among households, thereby limiting their ability to spend money on “luxury” goods, such as cars. The health crisis has also had an impact on customers by limiting their access to quality services when employees are unable to drive to work on time (JATO Dynamics Limited, 2020). This limitation emerges from the reliance on after-sale services by automobile users. Concisely, carmakers are unable to effectively provide quality services in an environment characterised by disrupted supply chain networks and limited movement of specialised personnel. Therefore, the pandemic has negatively affected customers.

The lack of international cooperation among countries has also impacted customers negatively by limiting access to products and services. For example, when one country bans the products of another one, it limits the scope of goods that its citizens will gain access to (Li and Chen, 2020; Paris, 2019). Stated differently, customers are less likely to enjoy the variety of products that would be available when free trade is curtailed. Therefore, they are negatively affected by such disputes in the market. Similarly, trade conflicts between nations could make certain cars more expensive than others are through the imposition of an unfair tax regime or the withdrawal of specific interest gains by the governments involved. For example, Peugeot’s electric vehicle has had relative market success because of favourable tax policies in certain European countries, which encourage customers to buy vehicles that use sustainable power, as opposed to fossil fuel. The Covid-19 pandemic and trade disputes have made it difficult for customers to enjoy such advantages.

Employees

The Covid-19 pandemic also affects employees as another key stakeholder group in Peugeot’s operations because of movement restrictions across borders. For example, employees have been unable to attend to their work commitments because of safety concerns and difficulty in attending work. These limitations have negatively impacted Peugeot’s operations because they limit the company’s potential to exploit its human resource capabilities effectively (Morgan, 2020). In this regard, employees are unable to work productively. The problem has been exacerbated by current trade disputes between nations, which have caused uncertainty in the global market because Peugeot has experienced difficulties making long-term plans when such uncertainties persist (PSA Groupe, 2020b). For example, research and development activities associated with vehicle design processes have to integrate market preferences and considerations, which are subject to changing consumer attitudes and preferences. These problems have made it difficult for employees to plan their tasks effectively, especially in the electric vehicle category, which requires adequate planning.

Suppliers

“Large commercial vehicles” is another product category for Peugeot that has been affected by the Covid-19 pandemic and ongoing trade disputes among nations. This product category is important to Peugeot’s supply chain activities because most of its clients buy commercial vehicles to fulfil their order requirements and transport goods, raw materials or services from one location to another. Supply chain disruptions caused by the Covid-19 pandemic have further affected Peugeot’s operations in this product category as businesses are suffering from a decline in the demand for goods and services, which has negatively affected their profitability and ability to make new vehicle purchases. Therefore, it has become increasingly difficult for Peugeot to sustain or increase its sales in this product category due to the two events described above.

Recommendations for Further Adjustments

Current Situation

As highlighted in this paper, the Covid-19 pandemic has affected car makers in varied ways. According to appendix 1, new passenger car registrations in the European automotive industry decreased by up to 39% at the onset of the crisis (JATO Dynamics Limited, 2020). Peugeot has been affected by the crisis because it was forced to shut down 15 production sites in at least seven countries where it operates (Morgan, 2020). The most affected locations were France and Spain where the firm operates large-scale production and manufacturing facilities (Morgan, 2020). The closure happened gradually as certain sites were shut down in phases and employees forced to stay home due to the uncertain effects of the health emergency on customers, employees and businesses.

Since the start of the pandemic, the health and safety of workers has been a top priority for Peugeot and PSA Group because they are committed to employee health and customer safety. In this regard, Peugeot has introduced a raft of measures aimed at improving sanitary and hygiene conditions in the workplace for its workers (PSA Groupe, 2020b). The changes made in these facilities have been adapted to the industrial, commercial or administrative contexts of each market and production facility involved (PSA Groupe, 2020b). Some of these protocols were developed after consulting trade organisations and health bodies, thereby providing a holistic response to the emergency response plan (PSA Groupe, 2020b). However, Peugeot needs to make more changes to improve the company’s preparedness in managing future customer concerns. In light of this goal, recommendations are provided below.

Recommendations

Guided by the need to meet customer safety concerns, Peugeot should communicate to its customers that it is developing cars that meet their specifications in a post-COVID-19 world. This strategy means abandoning traditional assumptions about customer needs and preferences, as they are likely to shift in a post-COVID-19 world. This statement is supported by Peugeot’s acknowledgement that its industrial activities are informed by trends in the commercial business space (PSA Groupe, 2020b). Therefore, the firm must align its business model to reflect contemporary trends and situations.

Marketing

To avert the effects of the COVID-19 pandemic on Peugeot’s operations and the safety of its workers, the firm should focus on integrating virtual commerce in its business model. For example, the company should consider developing an online sales portal where clients can log in and review videos of their preferred cars, as recommended by Jabłoński (2019) and Strohmeier (2020). Upon scrutiny and consultations with sales representatives, the virtual model would allow customers to make payments and receive purchased units at their doorstep. This new business model will involve integrating aspects of virtual payments and delivery systems into the company’s business-to-customer framework (Flyverbom, Deibert and Matten, 2019; George, Merrill and Schillebeeckx, 2020; Donnelly et al., 2015). Although Peugeot may require short-term structural adjustments to accommodate the aforementioned changes, it will become increasingly clear that adopting such measures would not only improve the health and safety of its customers and employees but also create significant cost savings for the business.

Procurement, Supply Chain and Technology Management

Peugeot’s traditional business model is often characterised with high costs of operations because the firm has to operate and maintain physical stores where customers and salespersons interact in a confined space. In a virtual business environment, the need for maintaining such physical stores is eliminated and all transactions and communications are completed in a contactless manner (Ritzer and Miles, 2019; Milkau, 2019). Peugeot should replicate this model throughout its international business plan because other companies have successfully adapted it to facilitate the global shipment of goods and services in various sectors of the economy.

Human Resource Management (HRM)

The potential for wide-scale e-commerce adoption in Peugeot’s business model should be further supported by a change of organisational culture, which should dictate organisational behaviour in the long-term. Since the remodelling of the business plan to a virtual model could portend significant changes for Peugeot’s employee management processes, it would be imperative for the company to involve workers in the change management plan, as recommended by Belizón (2019). Their input would ensure that they provide the same quality services online as they do offline.

Peugeot’s functions should be located in the company’s headquarters because the parent organisation is domiciled there. Moreover, it would be possible to control overseas operations virtually from the same location. Doing so should involve constituting a diverse board of directors to oversee global operations from the Paris main office. The diversified board may cover different cadres of management, including finance, marketing, industrial operations and human resource management, as implemented by Peugeot Nigeria (2020). This model of operation should also reflect the geocentric management approach, which has also been observed in Europe because Peugeot has appointed executives from different parts of the world, with the main criteria of recruitment being their understanding of local market dynamics (Sharpe, 2020). For example, the head of its UK operations is a non-French national who has a wealth of experience working in similar markets around the world (Sharpe, 2020). These professionals could be relocated to France and control their regional operations from there in the proposed business model.

To exploit the aforementioned opportunities, it will be increasingly important for Peugeot to demonstrate its commitment to improving the health and safety of its workers. The current measures and approaches adopted by the company offer essential protection against the adverse effects of the crisis but they should form the first criterion for jumpstarting production sites and not “a” consideration, as is currently the case. Doing so will increase the commitment of workers towards fulfilling their daily tasks because they will be assured of the management’s commitment to prioritise their health and safety.

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