Harley Davidson External and Internal Analysis

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Harley-Davidson is a major player in the motorcycle industry, specializing in the manufacture and sale of choppers. The corporation is stable and highly profitable, with the generation of annual revenues in the excess of $5 billion. Nevertheless, the company’s management needs to pay close attention to the external and internal business environment in the development of their strategic plans to ensure long-term profitability. This paper is an analysis of the external and internal business environments. The first part of the paper covers the external environment which consists of the major driving forces for change, dynamics of competition, statistics regarding the size of the motorcycle industry, and strategic issues faced by firms. The analysis determines if these external factors create opportunities or threats for the business. The second part of the essay covers the internal business environment. It highlights on the financial status and factors as well as the competitive aspect of the industry.in order for Harley-Davidson to continue being a strong brand and major player in the motorcycle industry, the management must draw a strategic plan based on the analysis of both aspects of the motorcycle industry. It goes a long way in ensuring long-term profitability in the domestic and international markets. However, it all depends on how the company addresses the opportunities and threats associated with the nature of business.

The Analysis of H-D’s External Environment

Major Driving Forces for Change in the External Environment

The major driving forces of change in the external environment comprise of all the factors that shape the future of an organization. They influence the kind of decisions that the company needs to make in order for it to remain competitive within the motorcycle industry. Typically, every industry has these factors that determine the policies that are executed at any given company. Similarly, there are three crucial factors that guide the direction taken by the motorcycle industry.

Firstly, the industry pays close attention to the regulatory influences and government policies in the countries where they wish to break the market. For instance, President Bush, of the United States of America, put tariffs on steel in 2002, which is a raw product in the manufacture of motorcycles. The imposition of new tariffs on these materials posed a threat to the industry because of the overreliance on steel to build the bikes. The impact of imposing tariffs perpetuates to the cost of manufacturing the bikes. Subsequently, there will be a decrease in demand since less people will be willing to buy. The decrease in the purchasing power is partly contributed to by the fact that motorcycles are a luxury product. Thus, they are easily expandable. The potential customers may also shift to alternative products that are less costly compared to the bikes. As a result, the profitability of the companies reduces significantly. In as much as this policy may be a threat, it presents an opportunity for growth. Harley-Davidson, which is based in the United States of America, may utilize this chance by merging or forming formidable business bonds with the internal steel manufacturing firms. In so doing, the corporation avoids the importation of steel from other countries. It means that they will not be affected by the imposition of tariffs enabling them to continue manufacturing the bikes cheaply.

As with any industry, global recession affects the motorcycle industry adversely. Recession refers to a temporary decline in the economic state.it is marked by reduced trade as well as industrial activity. There is also a reduction in the Gross Domestic Products across two consecutive quarters. As highlighted previously, motorcycles are a luxury product, which means that they are not essential to the survival of mankind. Instead, they serve to make life much comfortable. At times of global recession, people all around the world tend to work towards saving money and only using it for the purchase of item and services that are pertinent for their survival. They also direct the money towards investments to cope with the pressures of economic declines. Harley-Davidson, which specializes in the manufacture of choppers is likely to be hit hard by this driver of change, choppers are heavy bikes that are perceived as recreational products rather than for use in the typical transportation. Therefore, people are likely to go for substitute products such as smaller bikes or cars. Fortunately, the company formulated recession resistant policies that enable it survive these times. Their stocks continued to rise through the infamous Great Depression during which sixteen out of the seventeen Wall Street analysts rated it “buy” which attracted investors.

Moreover, the changes in the customers of the product and how they use it influences the direction taken by the industry. This factor is evidenced by the increase in sales when females began embracing the heavy bikes. The trend differs from the formative days when it was widely regarded as a sign of masculinity and was associated with males. Similarly, there was the infamous trend of the Harley-Davidson motorcycles being associated with the members of the Hells Angels gang. The group was known for the exclusive use of these specific bikes and their notoriety in the criminal world of drug trafficking and organized crimes. There was a drastic drop in the sales during the 1960s as a result of the perception of the general public. The change in the customer demography presents an opportunity for the company. With the addition of new buyers from the feminine gender, there is an increase in demand for the product. It reshapes he entire state of the market as well as the competition. The firm needs to make a special consideration of the female buyers of the heavy bikes when manufacturing the products. The motorcycles need to be deigned to suit the interest of the females in terms of appearance and color. Additionally, the company must strive to alter the perception held by the people that associates the heavy bikes with gangs. For instance, the production of the 1969 movie, Easy Rider, changed the attitude of most people regarding the use of heavy motorcycles, thus boosting their sales.

Porter’s Five Forces Model of Competition

The advent of new company entries in the motorcycle industry could potentially reduce the customer base for Harley-Davidson. However, their impact on the sales of H.D is low because of the moderate economies of scale. There is a high cost of brand development that also works in the favor of H.D. Furthermore, the firm is close to its point of maturity which would take a long period for the upcoming competitors to achieve. (Young, 2016)

• Competition from other firms in the motorcycle industry
• Rivalry and competition from other companies in the motorcycle as well as automotive industry affect the performance of products from Harley-Davidson. They are associated with the external factors that create a competitive environment including the high number of alternative products, high number of companies, and a moderate variety of corporations. There is a high number of companies, including the less established ones in the local markets that pose competition with Harley-Davidson. Additionally, the corporation faces the challenge of dealing with effective alternatives such as cars, in the transportation sector. Notably, 43% of the North American market was dominated by a model of the Harley-Davidson motorcycles in 2001, while 57% of the bikes circulating the market comprised of products from the competitors. In Europe, the share of the market dominated by the same model in the same year was significantly lower at only 7%. In Asia, H.D owned 20% of the market. The rivals of the company can compete on the grounds of ease of service, product designs, and performance features. (Young, 2016)
• Bargaining power of the customers
• Customers are the most important aspect of a business. They determine the success of any given product in the market. The customers are empowered in the industry by the availability of substitutes to the product in the market. The ease of access to these alternative products is a strong force that works against H.D. The moderate switching costs enables the buyers to be attracted to the substitutes. Moreover, the competing firms provide high quality information to the potential customers allowing them to make informed decisions. Finally, there is minimal differentiation across the Harley-Davidson products. (Young, 2016)
• Bargaining power of the suppliers
• The suppliers of the raw materials used to manufacture the H.D motorcycles have a significant hold on the bearing of the company. The level of integration, stability of supply chains, and number of suppliers determine the cost of production which influences the profitability of the company in the long run. Fortunately, the suppliers of the corporation have low forward integration which deprives them of the control over the companies in the industry. The supply chains are also stable. Therefore, the suppliers have no leverage that allow them to impose demands on H.D. (Young, 2016)
• The threat of new entrants

• Threat of substitution
• The categorization of heavy motorcycles as a luxury item creates a wide range of products that can be substituted for the, including cars, planes, trains, buses, and transit trams. However, the issue of congested traffics serves to the advantage of the bikes since they are convenient for navigation at such times. However, the people may be inclined to purchase lighter motorcycles in this sense. (Young, 2016)
• Statistics
• The appeal of the Harley-Davidson bikes has expanded across the whole world with the motorcycles consuming nearly 35% of the market share internationally. In the United States, the bikes have dominated the market with a share of 27.60%. Their biggest rival is the Honda company at 35.60%. (Hanzala, 2015)
• Strategic issues faced by the industry
• The industry mainly faces the challenge of attracting buyers since it deals in a luxury product that is not necessarily important for the survival of the people. As a result, the industry has struggled to compete with the other transport vehicles such as buses and cars. Additionally, the industry faces threats emanating from the increase in oil prices all around the world. The heavy motorcycles consume a lot of oil thus making them expensive to sustain. The motorcycles have not penetrated the market for persons under the age of forty-two years. Moreover, the expiry of the United States government initiative set to stabilize the credit market programs puts a limit on the corporation’s access to capital marketing. Finally, the stringent law regarding noise and environmental conservation imposed in most European nations affects the sale of heavy motorcycles in those markets.
• The Analysis of H-D’s Current Strategy: Two Views
• Balance Scorecard
• A balanced scorecard is primarily centered on the analysis of four performance metrics including customers, internal business processes, learning and growth, as well as financial status. The financial metrics measures the long-term shareholder value based on revenue growth and cost efficiency. The customer perspective evaluates the level of satisfaction, retention of buyers, and the market share owned by the company. The internal business process metrics are grounded on the ability of the mangers to run the company well and the conformity of the products to the customers’ needs. Finally, the learning and growth perspective is a measurement of the employee satisfaction, turnovers, and the skill set of the workforce. (Gill, 2014)
• Ratio Analysis for Harley-Davidson

* Indicates calendar year-end data information

Key Ratios

ProfitabilityProfitability

GrowthGrowth

Cash FlowCash Flow

Financial HealthFinancial Health

Efficiency RatiosEfficiency Ratios