Harvard Case - PSA Peugeot Citroen: Re-Entering the United States
"PSA Peugeot Citroen: Re-Entering the United States" Harvard business case study is written by Irina Surdu, Kamel Mellahi. It deals with the challenges in the field of International Business. The case study is 15 page(s) long and it was first published on : Oct 31, 2017
At Fern Fort University, we recommend PSA Peugeot Citro'n refrain from re-entering the US market at this time. While the US market holds significant potential, the company faces substantial challenges that outweigh the potential benefits. Instead, PSA should focus on solidifying its position in existing markets and pursuing strategic partnerships and acquisitions to achieve sustainable growth.
2. Background
This case study examines PSA Peugeot Citro'n's (PSA) decision to re-enter the US market after a 20-year absence. The company, facing declining sales in Europe, saw the US as a potential growth market. However, the US automotive market is highly competitive, dominated by established players with strong brand recognition and customer loyalty. PSA's previous attempt in the US, with the launch of the Peugeot brand in 1991, ended in failure due to poor brand recognition, limited dealer network, and a lack of marketing appeal.
The main protagonists in the case are:
- PSA Peugeot Citro'n: The French multinational automotive manufacturer seeking to re-enter the US market.
- General Motors (GM): A major US competitor with a strong presence in the US market.
- Ford Motor Company: Another major US competitor with a strong presence in the US market.
- Toyota Motor Corporation: A major Japanese competitor with a strong presence in the US market.
- The US Government: The government's policies and regulations influence the automotive industry, including fuel efficiency standards and trade agreements.
3. Analysis of the Case Study
We will analyze PSA's potential re-entry using the Porter Five Forces framework to understand the competitive landscape:
- Threat of New Entrants: The US market is characterized by high barriers to entry due to significant capital requirements, established brands, and stringent regulations. This makes it difficult for new entrants to compete effectively.
- Bargaining Power of Buyers: Consumers in the US have a wide range of choices, leading to strong bargaining power. They are price-sensitive and influenced by brand reputation, fuel efficiency, and safety features.
- Bargaining Power of Suppliers: The automotive industry involves a complex supply chain with numerous suppliers. While some suppliers have significant bargaining power, PSA's global reach could provide access to a diverse range of suppliers.
- Threat of Substitute Products: The US market offers a wide variety of alternative transportation options, including public transportation, ride-sharing services, and electric vehicles. This poses a threat to traditional automotive manufacturers.
- Competitive Rivalry: The US automotive market is highly competitive, with established players like GM, Ford, and Toyota holding significant market share. This intense rivalry puts pressure on pricing, product development, and marketing.
Further analysis reveals additional challenges:
- Brand Recognition: PSA lacks strong brand recognition in the US, making it difficult to compete against established brands.
- Dealer Network: Establishing a robust dealer network in the US requires significant investment and time.
- Marketing Costs: Reaching US consumers requires substantial marketing expenditures to overcome brand recognition challenges.
- Fuel Efficiency Standards: The US government's stringent fuel efficiency standards pose a challenge for PSA, which may need to invest in developing more fuel-efficient vehicles.
- Trade Policies: Trade policies and tariffs could impact PSA's production and import costs, potentially making its vehicles less competitive.
4. Recommendations
Given the competitive landscape and challenges outlined above, we recommend PSA refrain from re-entering the US market at this time. Instead, PSA should focus on:
- Strengthening its position in existing markets: PSA should focus on expanding its market share in Europe, Asia, and other emerging markets where it has a strong brand presence and established dealer networks.
- Strategic partnerships and acquisitions: PSA should explore strategic partnerships with other automotive manufacturers or technology companies to gain access to new technologies, markets, and distribution channels.
- Investing in innovation and sustainability: PSA should invest in developing innovative technologies, such as electric vehicles and autonomous driving systems, to remain competitive in the long term.
5. Basis of Recommendations
This recommendation is based on the following considerations:
- Core competencies and consistency with mission: PSA's core competency lies in producing high-quality, fuel-efficient vehicles for the European market. Re-entering the US market would require significant investment and resources, potentially diverting focus from its core markets.
- External customers and internal clients: While there is potential demand for PSA vehicles in the US, the company lacks the brand recognition and established dealer network to effectively serve US customers.
- Competitors: The US market is dominated by established players with strong brand recognition and economies of scale, making it difficult for PSA to compete effectively.
- Attractiveness ' quantitative measures: The financial attractiveness of re-entering the US market is questionable, considering the high costs associated with establishing a presence and the potential for low returns due to intense competition.
- Assumptions: This recommendation assumes that PSA's focus on strengthening its position in existing markets and pursuing strategic partnerships will lead to sustainable growth and profitability.
6. Conclusion
PSA's re-entry into the US market would be a risky endeavor with uncertain outcomes. The company faces significant challenges related to brand recognition, dealer network, marketing costs, fuel efficiency standards, and trade policies. Instead of pursuing a costly and uncertain re-entry, PSA should focus on strengthening its position in existing markets and exploring strategic partnerships to achieve sustainable growth.
7. Discussion
Alternative options for PSA include:
- Limited market entry: PSA could consider a limited market entry strategy, focusing on niche segments or specific regions within the US. This would require careful market research and a tailored approach to marketing and distribution.
- Joint venture: PSA could partner with a US-based company to leverage their existing brand recognition and dealer network. This would require careful negotiation and a clear understanding of roles and responsibilities.
The risks associated with these alternatives include:
- Limited market impact: A limited market entry strategy may not generate sufficient returns to justify the investment.
- Partner conflicts: A joint venture could lead to conflicts over control, strategy, and resource allocation.
The key assumptions underlying our recommendation include:
- PSA's ability to successfully strengthen its position in existing markets.
- The availability of suitable strategic partnerships and acquisition opportunities.
- The continued growth of the global automotive market.
8. Next Steps
PSA should:
- Conduct a comprehensive market analysis: Evaluate the potential for specific segments or regions within the US market.
- Develop a detailed business plan: Outline the costs, risks, and potential returns associated with each market entry strategy.
- Explore strategic partnerships and acquisitions: Identify potential partners and acquisition targets that align with PSA's strategic goals.
- Invest in innovation and sustainability: Develop new technologies and products that meet the evolving needs of consumers and regulatory requirements.
By focusing on these priorities, PSA can position itself for long-term success in the global automotive market.
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Case Description
In 2017, PSA Peugeot Citroën (PSA), the French-based automaker known for its famous Peugeot and Citroën brands, announced its plans to re-enter the U.S. market after having exited North America in 1991. This was not the first time the company tried to re-enter the U.S. market. In an effort to reduce its reliance on declining European markets, PSA had attempted to re-enter the United States in 2003, again in 2014 with its premium automobile range, and most recently in 2016 in a partnership with a French-based ride-sharing operator. What are PSA's strategic options for its international growth by focusing particularly on U.S. re-entry? Would re-entering the U.S. market help PSA respond to growing competitive pressures in the global automotive industry?
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