Explain the relevance of Porter’s five competitive focus for the automotive industry Flashcards
Porter’s five forces
Determines an industry’s long-term attractiveness.
Five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979
Porter’s five forces
- Rivalry among present competitors
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitute products
- Rivalry among present competitors (conditions that favour a rival)
o Presence of high investment intensity
o Existence of many small firms or no dominant firms exists
o Little product differentiation
o Possibility for customers to switch from one sellers’ products to others easily
- Threat of new entrants (make market entry difficult)
o Presence of strong economies of scale and learning effects
o Industries having strong capital requirements at the outset
o Existence of strong product differentiation among current players
o Difficulty in gaining distribution
- Bargaining power of suppliers (conditions that increase the power of suppliers)
o Cost of switching suppliers is high
o Prices of substitutes are high
o Suppliers can threaten forward integration (control of the company’s distribution – example: Australian wheat board)
o Suppliers product is a large part of the buyers value added (Carmens Muslie containing Australian grown Sanitarian sultana’s)
- Bargaining power of buyers (factors that influence the bargaining power of buyers)
o Extent of buyer concentration
o Switching costs that reduce the buyer bargaining power
o Threat of backward integration (buying or merging with company that supplies its products)
o Product importance to the performance of the buyers product
o Buyer profitability
- Threat of substitute products
o Alternative product types
o Perform essentially the same function
o Put a ceiling on the sales volume and profitability of an industry
o Put pressure on the price when supply demand exceeds.
Porter’s five forces model on Automobile Industry
- Barriers to Entry
- Threat of Substitutes
- Competitive Rivalry
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
