Car Industry
Car Industry
Porters 5 Force
Porter (1980) illustrates in this analytical tool 5 variables that determine the attractiveness of an industry for organisations in terms of profitability in their immediate environment. Using the forces in this model we can analyse how attractive the global car industry is to enter, the 5 forces are as follows.
The threat of potential new entrants
High barriers to entry is one of the determinants of whether a firm can enter into the industry or not, the higher the barriers the more likely entry is discouraged. It’s not possible to enter into the global car market as a major player since barriers to entry are much too high, unless the potential entrant has the capital requirements to match of those such as GM, Ford, Honda, Toyota and Nissan to develop a market presence. Investment in equipment, factories and plants, raw materials, R&D, advertising, access to distribution channels and technology are all major costly elements to consider when entering this industry. Any new entrant moving into this industry is likely to face the high level of responsiveness from global competitors. Looking at the experience curve (1960: Boston Consultancy Group) a new entrant must have the investment needed to achieve cost parity with existing firms in the industry so it can achieve the economies of scale needed to compete on cost advantages along side the competition.
New entrants need to have the same or better cost margins against similar levels of output. Other barriers to entry depend on the new entrants being able to achieve an individual level of product differentiation, this would either require heavy promotions and costly advertising in order to gain exposure which the new entrant has unique product that gives it a better competitive advantage in the global car industry. For example technological innovations such as hybrid fuel and electric cars may be able to undercut fuel based engine cars and attain market share. In
Porters 5 Force
Porter (1980) illustrates in this analytical tool 5 variables that determine the attractiveness of an industry for organisations in terms of profitability in their immediate environment. Using the forces in this model we can analyse how attractive the global car industry is to enter, the 5 forces are as follows.
The threat of potential new entrants
High barriers to entry is one of the determinants of whether a firm can enter into the industry or not, the higher the barriers the more likely entry is discouraged. It’s not possible to enter into the global car market as a major player since barriers to entry are much too high, unless the potential entrant has the capital requirements to match of those such as GM, Ford, Honda, Toyota and Nissan to develop a market presence. Investment in equipment, factories and plants, raw materials, R&D, advertising, access to distribution channels and technology are all major costly elements to consider when entering this industry. Any new entrant moving into this industry is likely to face the high level of responsiveness from global competitors. Looking at the experience curve (1960: Boston Consultancy Group) a new entrant must have the investment needed to achieve cost parity with existing firms in the industry so it can achieve the economies of scale needed to compete on cost advantages along side the competition.
New entrants need to have the same or better cost margins against similar levels of output. Other barriers to entry depend on the new entrants being able to achieve an individual level of product differentiation, this would either require heavy promotions and costly advertising in order to gain exposure which the new entrant has unique product that gives it a better competitive advantage in the global car industry. For example technological innovations such as hybrid fuel and electric cars may be able to undercut fuel based engine cars and attain market share. In