Sei sulla pagina 1di 5

Competition from Substitutes The price customers are willing to pay for a product depends, in part, on the availability

of substitute products. The absence of close substitutes for a product, as in the case of automobiles, means that consumers are comparatively insensitive to price (i.e., demand is inelastic with respect to price). The existence of close substitutes means that customers will switch to substitutes in response to price increases for the product (i.e., demand is elastic with respect to price). The extent to which substitutes limit prices and profits depends on the propensity of buyers to substitute between alternatives. This, in turn, is dependent on their price performance characteristics. The more complex the needs being fulfilled by the product and the more difficult it is to discern performance differences, the lower the extent of substitution by customers on the basis of price differences. Rivalry between Established Competitors For most industries, the major determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry. In some industries, firms compete aggressively sometimes to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising, innovation, and other non price dimensions. Six factors play an important role in determining the nature and intensity of competition between established firms: concentration, the diversity of competitors, product differentiation, excess capacity, exit barriers, and cost conditions. Threat of Entry If an industry earns a return on capital in excess of its cost of capital, that industry acts as a magnet to firms outside the industry. Unless the entry of new firms is barred, the rate of profit will fall toward its competitive level. The threat of entry rather than actual entry may be sufficient to ensure that established firms constrain their prices to the competitive level.

Economies of Scale Since Indian automobile market is of order $ 350 billion, the economies of scale are very high. Thus, threat of new entrants is low. Product Differences Since there is hardly any difference in the offerings of the various providers, so product differentiation is low. So threat of new entrants is high. Brand Identity Since there is no big Retailer like Amazon.com or Wall Mart in India, So, threat of new entrants is high. Government Policy Since the Government Policy has been quite restrictive till now with respect to the Retail market & FDI, so threat of new entrants is low. Capital Requirements The capital requirements for entering in the automobile sector are substantially high( high fixed cost and cost of infrastructure), so only big names can think of venturing into this area So, in that respect threat of new entrants is low.

Access to distribution Since in India there is no well established distribution network. So threat of new entrants is low. Bargaining Power of Buyers The firms in an industry operate in two types of markets: in the markets for inputs and the markets for outputs. In input markets firms purchase raw materials, components, and financial and labour services. In the markets for outputs firms sell their goods and services to customers (who may be distributors, consumers, or other manufacturers). In both markets the transactions create value for both buyers and sellers. How this value is shared between them in terms of profitability depends on their relative economic power. The strength of buying power that firms face from their customers depends on two sets of factors: buyers price sensitivity and relative bargaining power. Product Differences Since there is hardly any difference in the offerings of the various providers, so product differentiation is low. So, bargaining power of buyers is high. Buyer Information Todays customers are well educated about the various product offerings in the sector. So, bargaining power of buyers is high. Buyer Switching Costs Since customers dont have to pay a fat premium to be registered for provision of services , so bargaining power of buyers is high. Brand Identity High Brand Identity and trustworthiness reduce the bargaining power of buyers but, otherwise the bargaining power of buyers is high. Buyer Profits Since dealers offers discounts and various bundling services like 0%insurance, old car sale, etc, on different items. Hence bargaining power of buyers is high. Bargaining Power of Suppliers Analysis of the determinants of relative power between the producers in an industry and their suppliers is precisely analogous to analysis of the relationship between producers and their buyers. The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party. Product Differences Since there is hardly any difference in the offerings of the various suppliers, so product differentiation is low. So, bargaining power of Suppliers is low. Supplier Information Todays automobile manufacturers are well educated about different Suppliers. So, bargaining power of Suppliers is low.

Supplier Switching Costs Since different Suppliers hold resources as per buyers requirements and a large inventory has to be maintained. So, bargaining power of Suppliers is low as they would have to incur a huge cost on switching. But if they get automobile manufacturers for similar products who can pay higher Supplier switching cost is low. In such case, bargaining power of Suppliers is high. Brand Identity High Brand Identity and Trustworthiness of a Supplier increases the bargaining power of Suppliers. But, otherwise the bargaining power of suppliers is low. Measures for more Co n d u c i ve Growth The automobile industry across the world has great potential to trigger sustained employment, mobility, inter- sect oral industrial growth and thus conduce conditions for general economic and social well-being. However, there is need to promote and sustain international cooperation between Governments and industry. There is need for coordinated research and development, standardization of designs and broader technologies, effective cost cutting to enhance affordability and loosening of trade barriers across the globe. There are separate measures, which require addressing at the national and international levels. Some suggested steps at both levels are listed below. Suggestions at the national level Further lessening the incidence of taxes and loosening of non-tariff barriers has to be attempted with a faster pace faster. A regime of single tax across the country is an ideal situation and possibilities of this should be explored. A vehicle retirement programme which will assist not only in fleet modernization and reduction of emission but will also provide quantum fillip to the demand should be put in place. There is a need to brief the international communitys on technological and quality related capabilities of Indian automobile industry.

Porter's Five Forces, also known as P5F, is a way of examining the attractiveness of an industry. It does so by looking at five forces which act on that industry. These forces are determinants of that industry's profitability. The five forces are: 1. The threat of new entrants In the auto manufacturing industry, this is generally a very low threat. Factors to examine for this threat include all barriers to entry such as upfront capital requirements (it costs a lot to set up a car manufacturing facility!), brand equity (a new firm may have none), legislation and government policy (think safety, EPA and emissions), ability to distribute the product (Alfa Romeo has been out of the US since the early 90s largely due to the inability to re-establish a dealer network. But if you are looking at Singapore, for example, only one Alfa Romeo dealer is needed!). 2. The bargaining power of buyers/customers Who in the US has ever bought a car without bargaining? Anybody? In 2009 especially, US dealers were giving great deals to buyers to get the industry moving. While quantity a buyer purchases is usually a good factor in determining this force, even in the automotive industry when buyers only usually purchase one car at a time, they still wield considerable power. However, this may be different in other markets. In Singapore it sure is lower than in the US, creating a more favorable situation for the industry but not the buyers. Generally, however, it's safe to say the customers have some buying power, but it depends on the market. 3. The threat of substitute products If buyers can look to the competition or other comparable products, and switch easily (they have low switching costs) there may be a high threat of this force. With new cars, the switching cost is high because you can't sell a brand new car for the same price you paid for it. A P5F analysis of the car industry covers the new market, not used or second-hand. But what about the threat of substitute products before the buyer makes the purchase? You need to know whether the market you are analyzing has many good alternatives to new cars. A vibrant used car market perhaps? Used cars threaten the new market. How about a very good mass-transportation system? Product differentiation is important too. In the car industry, typically there are many cars that are similar - just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda, or Mazda. However, if you are looking at amphibious cars, there may be little threat of substitute products (this is an extreme example!). 4. The amount of bargaining power suppliers have In the car industry this refers to all the suppliers of parts, tires, components, electronics, and even the assembly line workers (auto unions!). We know in the US the auto unions are tremendously powerful. But we also know that some suppliers are small firms who rely on the carmakers, and may only have one carmaker as a client. So this force can be tricky to evaluate. 5. The intensity of the competitive rivalry (which is in part determined by 1-4) We know that in most countries all carmakers are engaged in fierce competition. Tit-for-tat price slashes, ad campaigns, and product developments keep them on the edge of innovation and profitability. Margins are low and pressure between rivals is high. All major car-producing nations experience this intense rivalry. This obviously includes the US, Japan, Italy, France, the UK, Germany, China, India, and more. State-owned car manufacturers like Proton in Malaysia experience less rivalry but are still under pressure from imports. While a P5F analysis applies to all companies competing in one industry (and market) the same, what differs is that those firms' profitability will vary between them. This is because of their own competitive

advantages and varying business models. So just because all firms in one industry and market are subject to the same forces doesn't mean they perform equally. A P5F analysis should always be done in conjunction with other assessments, and should not be regarded as being absolute. It should only serve as an indicator, not absolute fact or even necessarily accurate. There are many critical assumptions that should be made and explained in one's P5F analysis. The market must be described, the competition must be explained, and the products must be defined. For example, a P5F analysis of the car industry in the US would not necessarily apply in China. The markets are totally different, and the product life cycle is not even close to being the same. Another example is the type of automotive industry. A P5F analysis of the electric car industry would be entirely different than one of the conventional car industry.

Potrebbero piacerti anche