Over the years, the car manufacture activity is categorized as one of the largest industries in the world. It is also known as the automotive industry. Car manufacture industry is one of the most important sectors in the economy due to its revenue contribution in the international market. The industry does not only manufacture and develop the vehicles but it also sells and markets them globally. The purpose of the paper would be to conduct an analysis of the car manufacturing industry using the 5-force analysis. The technique is also known as the porter’s five force analysis. There are five important competitive forces In the Porter’s five force analysis that are affecting an industry.
The five forces in the Porter’s analysis impacts the industry level of competition. Profitability is inversely proportional to the strength of competitive forces. The stronger the competitive forces are in a given industry the less profitable it tends to be. Easy entrance to the car manufacture industry due to low barriers would lower the profitability levels of the organization. The industry gets less attractive to the potential investors in situations where there are few suppliers and buyers. The increasing levels of substitutes and competitors lead to low profits.
The high profits of the industry define its competitiveness and the attraction of new entrance. In addition, the realization of high profits in the industry goes hand in hand with availability of high barriers that regulates or minimizes the entrance of new investors. The weak bargaining power from suppliers enables the stakeholders in the car manufacturing industry to maximize on the available market share thus increasing its levels of profitability and productivity. On the other hand, the presence of few or less substitute products and service plays a significant role in the profitability levels of the industry. It increases the sales volumes of the goods and services due to lack of high competition in the market share. The low competition in the market gives the top institutions in the industry the opportunity to be dominant over the market structure. It therefore gives room for the introduction of new strategic marketing approaches to enhance high quality service and products delivery (Nieuwenhuis, Paul & Xiao, 110).
The low barriers increase the level of new entrance thus leading to the emergence of unattractive industry which in turn results to low profits. The automotive manufacture industry faces the challenge of low barriers therefore creating more opportunities for other interested parties to engage in similar activities. The organizations operating in the automotive industry experience low productivity in the event of a having a strong bargaining power from the supplier. The strong bargaining power from the supplier reduces the profit margins of the organization in the car manufacturing industry.
According to recent research, it is evident that the strong bargaining power from the buyer has impact on the profits and competitiveness of an organization. The buyers bargaining power dictate the approach to which the organization would use to market or sales its products and services. Based Geels 2011, the availability of high level of substitutes leads to fluctuation of prices and demand in the industry. The markets get surplus supplies leading to low profits. The business becomes unattractive when the industry or market share has many substitute service or products. The recent statistics show that the competition levels define the direction to which the industry would incurs the profits or losses. An industry with intense competition is likely to experience low returns.
The research outlines the factors that has attributed to the flourishing of the car industry. A Porter’s analysis shows the reason why the cars manufacture industry has been able to attain it current position in the world market. It also pin point the factors and challenges encountered in the industry and the strategic measures set in place to eliminate any threats facing the industry.
Threats of new entrants
It is prudent to state that this force acts as the determinant of the emerging issues in the automotive industry. The new entry is determined by the number of barriers. It is easy to enter a business that has few barriers for a profitable industry. On the other hand, business with few barriers and easy entry has higher chances of increase of the rivalry. When the number of organizations competing for the share of a single particular market increases, profits soon start to decrease. It is usually important for already existing companies to create barriers for the purpose of deterring new entrance.
There is high threat of new entrance when the amount of capital required is low as compared to the entrance rates. It means that most of the new entrants would be in better position to acquire the necessary capital to start the investment. Most of the new entrance would not get much difficulty raising the low capital required therefore increasing the threat of new entrance. The threat of new entrance would also be high when the existing businesses do not have control over the new entrance. The existing business in the car manufacturing industries should in able to set limit or mechanisms that would regulate the entry of new businesses. It includes the introductions of unique trademark to protect the existing business from being outshined by the new businesses. According to Davies, Huw, and Paul, over the years, the American automotive industry has been stable due to the fact that the existing business has established brand reputation or patents protecting them from the new entry.
The automotive industry has been on the top list in the governmental economic projects. The government has enforces policies and regulation to protect existing business from being eliminated by the new entrants. It has policies that allow the existing business to protect or safeguard it existence. The government has well defined procedures to be adhered to by the new entrant. The new businesses are required to meet all the set standards and policies in order to be considered to participate in the automatic industry. The government has protected the industry which in turn has advocated for high profitability thus improving the economy of the country. The threat of entry is caused by the less cost for a firm to change to other industries also known as low customer switching prices or costs. The low loyalty of customer and production of nearly identical products contributes to the emergence of new businesses into the automotive industry. The economies of scale in the market facilitate easy entrance of new businesses which increases competition in the market share. The existing businesses need to differentiate their products for the customers (Geels, Frank, et al, 20).
High absolute barriers are there to the entry of the car industry. This makes it hard for new entrants. A few entrepreneurs and new players have the ability to venture into the car industry because it requires high capital to enable a distribution network and set up the required facilities for manufacturing. It is also a fact that the existing car manufacturing companies benefit from large economies thus making it extremely difficult for a new entrant company to offer any competitive pricing. A new entrant will find it extremely hard because in the industry of issues durability, safety and reliability are so salient. Buyers base their views of a model on the previous manufacture’s performance on the specific issues. This makes it extremely difficult for a new entrant to compete with already existing firms. All these factors in the car manufacturing industry make the level of new entrants in this market low and thus the decrease of threat.
Threat of substitutes
This force is threatening when substitute products could easily be found by buyers at a better quality or attractive prices. when the switching from one service or product comes with little cost to buyers. The threat of substitutes to the car manufacture industry does exist. Urban drivers tend to use public means of transportation when there are increases in the prices of fuel. Most people who own vehicles will still agree to the fact that the convenience of having a personal car offsets fuel prices being increased. However if car manufacturers are not able to give a better cost efficient solution and the tread continues, this threat will persist and increase.
A company like Ford that is in the car manufacturing industry has from time to time tried to ease this pressure of substitutes like public transport. When determining how available substitutes are, factors like money, time, convenience and personal preference are considered. The threat of substitute’s exposes the industry into differs challenges. The availability of substitute products and service divides the markets share into different segments. It gives customer the option of choosing from the alternative products. The product differentiation does not stand out a substitute products. The automotive industry has substitutes in that the new entrants develop new product in the market posing a threat to the existing organization.
Suppliers bargaining power
Strong power of bargaining allows suppliers to sell higher priced or materials of low quality raw to their buyers. This directly affects the profits of the buying firms’ because it has to pay more for the materials. In most cases the strong bargaining power of supplier is evident when there are more buyers as compared to the suppliers. It prompts the supplier to increase their prices leading to losses for the buyers. The supplier bargaining power destabilizes the industry. The buyers would not be in a better position to sell the products and service at profitable rates. To maximize the profit the buyer increases the price which leads to a drastic decrease of demand. The suppliers threaten to forward integrate because they are large. The existence of few substitute raw materials contributes to the bargaining power of the supplier. The bargaining power of the supplier is determine by the scarcity of the resources. In addition, it is influenced by the high switching cost of raw materials (Carson, Iain, and Vijay, 13).
The number of existing potential suppliers in the car manufacturing industry dictates the power of the suppliers. The costs of switching are high because establishing specifications and part designs requires an initial fair investment. There is also little threat that moving forward this suppliers will integrate. Car manufactures require parts, input labor, services and raw materials. Profits are significantly impacted by the cost of these inputs.
Buyer bargaining power
The car manufacturing industry consists of powerful buyers that reduces or cuts down the profit potential for the rest of the buyers in the industry. The industry has different types of buyers that force down the prices leading to an increase of the competition in the market. The buyers’ power to bargain gives them privilege of more and improved quality of goods and services. The bargaining power allows the buyers to play competitors against the rest of the buyers in the industry. In the long run, the bargain power of the buyer diminishes the profitability of the industry. Car manufacture industry has report a good relationship among the active member in the industry (Davies and Paul, 169). The bargain power brought about the established of a good relationship regarding the market condition. The car manufacture industry identifies the bargaining power of the buyer through the characteristics that related to the present market condition or situation. The buyers’ capacity to manipulate the market share through the reduction of prices is not a common case in the motor industry. The powerful buyers in the automotive industry try to eliminate competition by reducing their price thus attracting more customers
Industry rivalry
The technology advancement has adversely affected the automotive industry. It has led to the introduction of more sophisticated and high quality product into the market. According to recent research, it is evident that the emergence of technology has advanced the level of production in the industry. The presence of high quality products and service has increased the competitive levels in the market.
The competitiveness of the automotive business is determined by the quality of their products. Competition is a diverse terminology in the automotive industry. The production process of the automotives has encountered high competition across the globe. Majority of the organization are highly competing in terms of prices, quality and customer relationship (Jussani, and Carlos De Moura Côrtes, 34). The economy has benefited from the increasing competition while leads to more innovation and creativity. The industry is in rivalry for the dominance of the market share. In other terms, the automotive industry has wide market but due to the increasing new entrants.
In conclusion, the car manufacturing industry is believed to be among the importance factors affecting the economy. The industry is influence by the five forces of the poster analysis. The threat of entry allows more business into the marking leading to an increase of competition. The buyers and supplier bargaining power influences the pricing policies and competition levels. The emergence of rivalry among the business in the industry is as a result of high completion and new entrants in the business.
Automotive industry has benefited from the government support. The government has set rules and policies to protect the business from internal and external factors. The automotive industry requires much integration of the new technological skill for provision of high quality goods and services. The international market has the car manufacturing industry as the major businesses generating income. Automotive industry has benefited from the government support. The government has set rules and policies to protect the business from internal and external factors. The automotive industry requires much integration of the new technological skill for provision of high quality goods and services. The international market has the car manufacturing industry as the major businesses generating income
Works Cited
Carson, Iain, and Vijay V. Vaitheeswaran. Zoom: The Global Race to Fuel the Car of the Future. New York: Twelve, 2007. Print.
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Geels, Frank, et al. Automobility in transition?: A socio-technical analysis of sustainable transport. Routledge, 2011.
Goyal, Manu, Serguei Netessine, and Taylor Randall. "Deployment of manufacturing flexibility: An empirical analysis of the North American automotive industry." Available at SSRN 2077659 (2012).
Jussani, Ailton Conde, Andreas Heer, Ugo Ibusuki, and Carlos De Moura Côrtes. "Electric Car and Porter’s Five Forces: Marketing Positioning in the Automotive Industry." SAE Technical Paper Series (2015). Web.
Nieuwenhuis, Paul, and Xiao Lin. "China's Car Industry." Nieuwenhuis/The Global Automotive Industry The Global Automotive Industry (2015): 109-26. Web.
