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Silver Atena, a New Tier 2 Safety Critical Supplier

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Silver Atena, a New Tier 2 Safety Critical Supplier University of Nottingham An Analysis of the UK Auto Component Industry: From the perspective of a Tier 2 safety software company Prithviraj Paul Choudhury MBA Prithviraj Paul Choudhury Page 1 To Him An Analysis of the UK Auto Component Industry: From the perspective of a Tier 2 safety software company By Prithviraj Paul Choudhury 2010 A Management project presented in part consideration for the degree of “MBA in Finance” Prithviraj Paul Choudhury Page 2 Executive Summary The automotive industry is a large critical sector to UK economy as it accounts for close to a million jobs and is the highest exporter for the country. The industry is characterised by the presence of world’s major OEMs and Tier 1 suppliers along with a wide chain of other suppliers. The relationship between these players has mostly been studied only to the extent of OEMs and Tier 1 suppliers, leaving a gap in establishing the relationship with Tier 2 suppliers with the other two. This industry has been in the news for quite some time for being less competitive due to low growth and high number of players but there are also positive news about various government initiatives to promote low carbon development and to boost up the existing supply chain. This report aims to unravel the nature of relationship between OEM/Tier 1 suppliers and Tier 2 suppliers in the UK auto component sector and also to discover opportunities that might be present for Silver Atena, a new Tier 2 safety critical supplier. In doing so, first the auto component market structure has been studied to ascertain the current opportunities, trends, government initiatives etc. The relationship between OEM/Tier 1 and Tier 2 suppliers has helped in segmenting the clients into three: Tier 1 suppliers, R&D centres and Design Engineering centres. Based on this segmentation, an exhaustive client and competitor analysis has been provided. It is also observed that most current developments are taking place in the fields of electronics/electrical components involving software which makes it a good proposition for Silver Atena. This report has identified four domains for Silver Atena to focus on viz. powertrain, vehicle control, driver assistance and infotainment & telematics. Even though the future seemed bright, when the current market conditions were analysed it revealed that most participants are making very low profits and even losses making it a very unattractive market to be in. However, based on the future prospects in hybrid, electric and fuel cell technologies, the report has made recommendations for Silver and has also highlighted the challenges that Silver Atena needs to overcome in order to make a successful entry into the auto component market by leveraging its existing skills. Prithviraj Paul Choudhury Page 3 Acknowledgements First and foremost my heartfelt sincere gratitude and thanks goes to my supervisor Professor Chris O’Brien for his continuous encouragement and guidance. His valuable feedback and constant motivation during the course of this research will always be treasured. I would also like to thank all my lecturers, NUBS staffs and colleagues for their encouragement and help. And last but not the least I would like to take this opportunity to thank my family for their love & affection and supporting me all throughout the MBA program, without which this dream may never be realised. Prithviraj Paul Choudhury Page 4 Table of Contents Executive Summary.......................................................................................................3 Acknowledgements........................................................................................................4 List of Figures and Tables..............................................................................................7 List of Abbreviations .....................................................................................................8 Chapter 1: Introduction..................................................................................................9 1.1 Purpose of the study.................................................................................................9 1.2 Research Question .................................................................................................11 1.3 Research Format ....................................................................................................12 Chapter 2: Literature Review.......................................................................................14 2.1 Overview of Auto parts industry............................................................................14 2.1.1 Automobile Safety and Software Industry......................................................15 2.2 Environment Analysis............................................................................................18 2.3 Porter’s 5 Forces ....................................................................................................19 2.4 Buyer Supplier Relationship..................................................................................21 2.4.1 Buyer Supplier Relationship in Automotive Safety and Software .................24 2.5 Internal Analysis ....................................................................................................26 2.6 Financial Analysis..................................................................................................27 2.6.1 Measuring Profitability...................................................................................27 2.6.2 Measuring Risk ...............................................................................................30 2.7 Conclusion- Literature Review..............................................................................32 Chapter 3: Research Methodology...............................................................................33 3.1 Introduction............................................................................................................33 3.2 Methods for research: Qualitative and Quantitative ..............................................33 3.3 Data Collection Methodology:...............................................................................35 3.3.1 Primary data collection ...................................................................................35 3.3.2 Secondary data collection ...............................................................................37 Chapter 4: Data Analysis .............................................................................................38 4.1 External Analysis:..................................................................................................38 4.1.1 PESTLE Analysis ...........................................................................................38 4.1.2 Industry Analysis ............................................................................................41 4.2 Client and Competitor Analysis.............................................................................47 4.2.1 Client Analysis................................................................................................48 4.2.2 Competitor Analysis .......................................................................................55 4.3 Internal Analysis – Silver Atena............................................................................62 4.3.1 Core Competency............................................................................................63 4.3.2 Competitive Advantage ..................................................................................64 4.4 SWOT Analysis .....................................................................................................65 4.5 Financial Analysis..................................................................................................68 4.5.1 Calculation of Financial ratios........................................................................69 4.5.2 Calculation of risk (Beta)................................................................................75 4.5.3 Conclusion-Financial Analysis .......................................................................77 Chapter 5: Discussion ..................................................................................................78 5.1 Market Structure ....................................................................................................78 Prithviraj Paul Choudhury Page 5 5.2 Client-Competitor Analysis ...................................................................................79 5.3 Market Attractiveness ............................................................................................80 5.4 Brand awareness ....................................................................................................81 5.5 Challenges for Silver Atena...................................................................................84 Chapter 6: Conclusion..................................................................................................89 References....................................................................................................................91 Appendices...................................................................................................................96 Appendix 1: PESTLE Analysis ...............................................................................96 Appendix 2: Porter’s Five Force Analysis.............................................................108 Appendix
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