Transworld Auto parts Harvard Case Solution & Analysis

Part 1:

            This first part is about the company and the industry’s information. In this information evaluation, the two divisions are considered to analyze namely; luxury division and economy division. The evaluation is as follows:

External business environment and key economic, social and other factors

            The company is operating under an automobile industry, the automobile industry is highly depending upon the external environment like the customers' attitude and it efficiency to buy automobile. In the US, the demand for automobiles is affected by the global downturn of 2008.

transworld auto parts case solution

transworld auto parts case solution

            During recession, people buy less cars because of the uncertainties in the economic condition, therefore people consume less and avoid purchasing goods like cars and other goods for which they have better substitutes in the market.

            The luxury good market is performing well because the economic recession has not affected the rich people at that extent, however the people in the middle - income class are largely affected, which has resulted the revenues and profitability from economic midsized vehicles (Exhibit 4).

Industry and key issues (e.g. Structure, competitors, the strength of competition, how the business model operates to make money etc)

                        However, this downturn has affected the profitability of the company and industry as a whole, but the demand for such economical cars is high in the Asian region and very low in American and European region. The low priced vehicles contribute 75% of the total market, whereas low priced vehicles contribute only 30% of the North American market and 15% of the European market (Exhibit 3).

            The global light vehicle production is declining in the only North American region whereas; it is increasing in the Asian, South American, European, Asian and African region. The production is shifting to those regions where the labor costs are low in Asian region (Exhibit 5). The lower cost results in high profitability, therefore the Asian market is more attractive due to lower costs and market demand for lower price cars.

            The competition is faced from European market that is the leader in manufacturing luxury cars and Asian market is more competitive for selling lower price products. The global market is increasing for cars in numbers and the highest contributor is Asia, which has China and Japan that are manufacturing competitive cars at a reasonable price. The luxury market is led by European market that has Germany as a leading manufacturer of the luxury cars (Exhibit 6).

            The strategy to earn money is to supply the demanded product to the market like luxury products to European and North American market, but the Asian market must be given the lower priced products that are demanded there. This strategy is appropriate to increase the revenues of the company in the automotive industry (TAP).

            The second strategy is to generate profits through low cost structure, as the Asian market has lower labor costs as well as other costs that can affect the profitability. It is better for TAP to transfer its production units in the Asian region for economic goods and luxury goods where it is possible to generate higher profits through low cost structure. Since the company has faced losses since years, therefore a step to reduce costs and increase profitability is expected from TAP.

Markets and key issues (customer types and segments, products etc)

            The market has three segments; Asian, European and North America. The demand for each segment is different due to changes in their living standards and per capita income. The European and the North American regions prefer more luxury products rather than economical products, however little demand for such economical products is there in both the market segments. The Asian market shares are around 75% of economical products with low price. The issue is that the company is selling all the products in all these three markets, whereas the products must be sold according to the demand in the market, but not those products that have less demand and loss making selling prices.Transworld Auto parts Case Solution

The market has four products or customer divisions, which are economic small to mid-size, moderately priced, luxury and trucks. The demand for luxury products in the North American region is 30% for low priced products and 20% for trucks and 20% for moderate price products. In the European region, the demand for low price products is 15%, 75% of luxury products, 3% for moderate price and only 7% for trucks. In the Asian region, the demand for low price products is 75%, 20% of luxury products, 5% of medium price and unfortunately 0% for trucks. TAP is willing to close its medium price and truck segments, however, the demand is there in North American market, therefore it may not be acceptable decision to close the division completely....................

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