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2. Select an Automobile industry in India, and evaluate its competitive business strategy using Porter’s five force model? What strategies can you suggest to convert the unattractive forces in to attractive ones? Introduction Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces: - Threat of new potential entrants - Threat of substitute product/services - Bargaining power of suppliers - Bargaining power of buyers - Rivalry among current competitors
The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the
costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure.
Porter’s five force model - Automobile industry
Threat of new entrants: Low
It is difficult for new brands to enter the automobile industry which is because of the large investment required. Initially, a quite huge investment will be required to set up the manufacturing facilities, distribution network and to hire skilled staff. Another major barrier is the level of competition from the existing brands. Unless a new brand brings an innovative and differentiated product to the market, chances to gain a market share are low. While law does not mean a barrier for the new entrants, still brand image and reputation can be major challenges before new players. Brand image is a major competitive advantage for the existing brands. Any new brand would have to focus a lot on engineering and product quality. Getting access to raw material can be easy but then achieving economies of scale difficult for small players. Moreover, penetrating new markets is not easy either. Some governments have applied high import taxes to discourage foreign brands. So, there are several factors that minimize the threat from the new players.
Bargaining power of suppliers: Low
The bargaining power of suppliers in the automotive industry is weak for most of them are small players. Only few of them are significant in size. The threat of forward integration is minimum from the suppliers for the reasons discussed in the first category. These suppliers have to play per the rules set by the brands. the brands hold immense clout because the raw material is always available in plenty and switching from one supplier to another is not difficult for them. In this way, the bargaining power of suppliers is considerably low.
Bargaining power of buyers: High
A large p[art of the buyers are the small individual buyers that buy single vehicles. However, there are corporations and government agencies that buy fleets of
vehicles. Such buyers are in a position to bargain for lower prices. Whether small or large buyers can easily switch to a new brand. There are no big costs involved in
switching to another brand or to an alternative mode of transportation. The buyers are price sensitive mostly and would switch to another brand that offers lower
prices. However, none of the buyers whether big corporations or individual small buyers poses a threat of backward integration., Still, based on the overall picture their bargaining power is moderately strong. Brands focus on building customer
loyalty through design, quality and by offering competitive prices.
Threat of substitutes: Low
There are several substitutes and alternative modes of transportation including taxis, buses, trains and planes. However, none of them can provide the kind of accessibility and convenience that owning an automobile does. Your own car will serve you round the clock but if you missed a train or bus you have to wait for another. However, ion alternative modes you do not need to worry for maintenance. Still, owning a car is both a matter of convenience and prestige for most. So, the threat of substitutes is weakened.
Competitive Rivalry in the industry: High
The number of recognized and influential brands is low and the exit barriers very high. Any brand trying to exit would have to bear very large losses. The level of customer loyalty is high and while the industry is large, it has matured. This intensifies the competition or market share. However, different brands target different market segments but yet they overlap. Brands compete on the basis of price, design, quality, technology, customer safety and several other points. Overall, competition in the auto industry is a strong force rather very strong.
Recommendations on Strategy for automobile industry
