Kia Motors PESTEL Analysis
Kia Motors is a leading South Korean automobile brand, owned one-third by the Hyundai Motors corporation. In recent years, Kia has seen a lot of success driven by its focus on product quality, passenger safety, and technological innovation. Its products have found immense popularity in the US and Indian markets especially The company has introduced a nice range of automobiles including sedans, crossovers, SUVs, and minivans. In the Indian automobile market, the brand has risen fast to become one of the leading and best-selling automobile brands within just a period of 18 months. Despite the pandemic, when the entire automobile industry experienced a severe drop in sales, Hyundai and Kia managed to keep the impact of the pandemic under control and retain steady sales.
Kia is eyeing faster growth in the future. Therefore, it is investing in developing electric cars since the demand for electric mobility has grown fast with the pandemic. However, its growth in the coming years depends on many factors. Apart from the economic pressures created by the pandemic due to which the automobile sector might take longer than expected to fully revive, increased competition is also a leading challenge before Kia Motors. The pandemic has brought a major change in how people shopped for products. Now customers are more interested in eco-friendly cars. They also want more innovation from the automobile brands.
In this Pestel analysis, we will take a look at the leading forces that will shape the future of Kia Motors including Political, economic, social, technological and other forces.
Political factors are playing an increasingly central role in the world of international business. Companies have to be careful regarding the local political environment and government control and influence on business in the markets where they are operating. For example, the political environment of a market directly influences the supply chain and sales of automobiles in that market. Government policies and regulations related to the automobile industry also affect automobiles' sales in a given market.
For example, while Kia has seen higher success in the Indian and the US markets, its sales in China have kept deteriorating in the Chinese market. The political environment and structure of the Chinese market are much more complex compared to the other markets. Kia has partnered with a local brand in China for the production and sales of Kia cars locally. However, despite China being the largest market for automobiles globally, Kia has been experiencing a decline in sales and market share there since 2014. Its market share in China is now only at 1.3%.
The Chinese government and its policies mainly encourage local businesses. While businesses can enter the market through local partnerships, difficulties remain due to a complex political and tax structure. Therefore, the local car manufacturers can find higher success in the Chinese market than international car manufacturers. Compared to China, Kia Motors' sales of cars grew faster in India and the US.
Political factors play a crucial role in the success of large and international businesses in a specific market. For example, the tax structure of the country and trade relationships can also affect car sales in that market. The trade wars between the US and China have also exacerbated the situation and made it difficult for international (particularly American) car brands to compete against the local brands.
Economic factors also affect the success of car brands in the global markets. Sales of cars depend on the level of economic activity and certainty in the global and local markets. The global economy was in strong shape earlier, but all the leading markets took a major hit since the pandemic. Even China, which is the largest auto market in the world, was hit badly. However, it recovered faster compared to the other markets. The other markets where car sales were badly hurt included the US and several European markets.
Overall, globally car sales declined by around 20%. Most carmakers, including some of the biggest like VW, Toyota, and GM, experienced a substantial decline in sales and revenue mainly due to economic reasons. However, Kia and its parent company Hyundai were able to pull out impressive sales despite the pandemic. The main reason was that the two companies experienced stable sales because while they expanded their product portfolio and made it more attractive, they have also been investing a lot in research and development. Their performance could have been even better if the economic situation around the globe was more stable.
The pandemic led to a recession and millions of people around the globe lost their jobs. Due to the increase in the unemployment rate in leading markets like the US, China, India, and several European markets, the car brands experienced a decline in sales as people avoided all forms of nonessential purchases. Sales are expected to grow faster in 2021 as the global economy rebounds and emerges from the impact of the pandemic.
When the global economy is performing well and the level of employment in leading markets is high, companies experience a growth in sales and revenue. On the other hand, if unemployment rates are high and the economy is experiencing lower activity, sales of automobile brands may be the first to be severely hurt. In this way, economic factors play a key role in determining the fate of automobile brands like Kia Motors. However, Kia has continued to experience growth in the face of adverse economic conditions mostly due to its focus on innovation and customer experience. The level of competition in the industry is high and soon as the markets gain and consumer confidence is high again, companies like Kia might be able to gain higher sales and generate more revenue.
It is due to the level of impact that economic factors can have on the sales of automobiles that these businesses consider them while formulating strategies for specific markets. If the economic activity in a particular market is low, releasing higher priced models in that market could lead to lower sales.
Sociocultural factors are also highly relevant in the case of automobile businesses. Changes across various societies and cultures globally can have a direct impact on automobile businesses and drive the sales of specific car models higher or lower. Demographic changes across the globe have affected several changes that have also affected the automobile industry.
The millennial generation is interested in innovative models. It leads a highly digitalized lifestyle and wants car models that fit in its lifestyle easily. The taste and preferences of this generation also differ from that of the previous generations. If the sales of SUVs have grown higher in recent years, it is because the modern generation is more interested in SUVs.
Similar other socio cultural changes have also influenced the automobile industry. For example, the millennial generation is also more interested in eco friendly cars. As a result, companies are now focusing heavily on making electric cars and hybrids with zero or low environmental impact.
In terms of marketing too, the automobile manufacturers have to keep sociocultural factors in mind while marketing to specific audiences across various cultures and societies. They may need to take different approaches to marketing when promoting their products across various geographic regions mainly due to the social and cultural differences. For example, a few things that work in the US and Canada markets may not help the company find success in the Chinese, Indian or Japanese markets. Companies sometimes also make changes to their car models to suit the taste and preferences of the local audiences.
Technology has remained the main driver of change across the automobile industry in the twenty-first century. The automobile industry is experiencing very high competition. There are several competitors of Kia Motors in the global market including GM, Toyota, Ford, and many more. However, the main factor that has helped Kia position itself as the brand for the masses and achieve faster growth globally is its focus on technological innovation. Due to the heavy competition in the automobile industry, it is already quite tough for automobile brands to differentiate their products from others. Apart from product quality and design, the customers are also looking for excellent performance, passenger safety, and digital features that make the cars more attractive. Millennial buyers are interested in innovative products. Due to that also, it has become highly important for automobile brands to focus on technological innovation.
With time, the demand for electric cars has kept rising. Kia is investing in expanding its portfolio of electric cars over the next few years to meet the growing popular demand worldwide. Apart from that, the company is also investing in other technologies including autonomous driving technology. The popularity of cars with autonomous driving technology is also growing. While it will still take some more years before fully automated cars are on the roads worldwide, Kia expects to develop fully automated driving technologies by 2030. In 2021, it expects to release new vehicle models equipped with autonomous technology.
Technology has become the leading differentiator for automobile brands in a hypercompetitive market environment. As such their focus on research and development has grown. Brands are investing in the manufacturing of safer and more environment-friendly or fuel-efficient car models. With time, the focus on technology in the automobile industry will continue to grow as competition grows since technology will be the main differentiator and driver of car sales in the future. Kia is investing in research and development and also working on several new technologies in tandem with Hyundai to bring innovative cars that are superior to the rivals in terms of fuel efficiency, environmental impact, design, and passenger safety. The future of mobility is going to be more and more technology-driven and therefore, the automobile brands are maintaining a critical focus on technological innovation.
Environmental factors are also critical to the successful operations of automobile brands. Companies in this sector have to focus on sustainability just as much as on other factors to maintain their growth momentum and avoid losing to competitors. Apart from that, governments around the world have also framed laws that encourage electric car brands. With the pandemic, the focus on the environment and sustainability has grown manifold.
People are now more inclined towards electrical and environment-friendly cars or cars that are low on emissions.
As a result, car brands now need to grow their focus on making environment-friendly cars (electric cars and hybrids). Governments have made stringent laws related to emissions, and any violations can cost the automobile brands, including Kia motors. Kia is continuously working on strengthening its position in the European markets. However, the EU has also tightened emission-related regulations. However, Kia has always focused on being a sustainable brand, and apart from fuel efficiency technologies, it has also focused on making cars that are low on emissions.
Apart from making environmentally safer cars, Kia also focuses on sustainability in its business operations. From supply chain to logistics, manufacturing, and marketing, the focus is on following sustainable principles in all aspects of business operations. The company has taken both mid and long-term approaches in terms of managing its environmental impact. It has established an eco-friendly production process and considers the environmental impact of the processes at each stage of production. It has also achieved key milestones with regards to controlling its Greenhouse gas emission in its production chain.
Sustainability has several benefits. Companies with higher focus on sustainability have a stronger brand image in the market. Kia has also maintained heavy focus on sustainability and its sustainable image has helped the company maintain a clean image that will be highly beneficial in the longer run. The company has also achieved significant progress in the direction of being a highly sustainable company.
Legal factors are also an important consideration for automobile brands. Compliance is essential for all automobile brands since noncompliance can result in hefty fines for companies. The automobile industry is subject to higher regulation and oversight by legal and government agencies. Automobile companies cannot afford to lose focus on laws and compliance since that will hurt them financially and cause operational costs to run high. It will also hurt a company's brand image.
There are several laws that the automobile players need to comply with. From labor to product quality, passenger safety, and supply chain, there is a complex web of laws that the automobile brands need to comply with. Moreover, these laws can vary from country to country and market to market. So, based upon the legal framework of the local market and local laws, the companies need to form internal policies and business strategies for each market. All the leading automobile brands that operate in global markets have formed policies to require their staff and suppliers to comply with all the laws that apply locally.
Kia’s focus apart from legal compliance also remains on ethical management of its business operations. The company has continued to grow its business internationally while also remaining compliant with all the laws that apply locally in each market where it operates.