Porters 5 Analysis Auto Industry in 2009
Introduction
The case on the global automobile industry demonstrated by lowering cost through innovative production without sacrificing quality is the defining characteristic in a successful company. I found this case interesting because it characterized a successful automobile producer as one that will cut cost in an innovative approach to deal with a market that is constantly changing. The innovation in producing automobiles started with Ford through mass production and continued all the way to today with companies promoting major suppliers to move closer to assembly plants to cut cost. Since the beginning of the automobile industry the company that was able to lower their cost was the company that would lead the way. However, giving up quality is not a viable option. Lower quality automobiles lead to the down turn in the American automobile market share. In my Porter’s 5 Forces analysis I will identify key competitive forces in the automobile industry.
Risk of Entry by Potential Competitors
The risk of entry by potential competitors in the automobile industry is weak because a substantial amount of capital is needed to begin an automobile company and to maintain it as well. Companies already in the automobile industry have an absolute cost advantage against potential new automobile producers. Toyota’s “lean production system” was an innovative process of producing vehicles in a cost effective manner without forgoing quality. The lean production system was imitated by America companies after 30 years of its existence. It is a superior production process that was not simple for an established company to imitate and would be exponentially harder for a new company to imitate.
Furthermore, the industry is in the mature stage and has achieved economies of scale through mass production. The new, successful companies in the auto industry are now conceived through joint ventures such as GM and Shanghai Automotive Industry in China. Emerging automobile companies
The case on the global automobile industry demonstrated by lowering cost through innovative production without sacrificing quality is the defining characteristic in a successful company. I found this case interesting because it characterized a successful automobile producer as one that will cut cost in an innovative approach to deal with a market that is constantly changing. The innovation in producing automobiles started with Ford through mass production and continued all the way to today with companies promoting major suppliers to move closer to assembly plants to cut cost. Since the beginning of the automobile industry the company that was able to lower their cost was the company that would lead the way. However, giving up quality is not a viable option. Lower quality automobiles lead to the down turn in the American automobile market share. In my Porter’s 5 Forces analysis I will identify key competitive forces in the automobile industry.
Risk of Entry by Potential Competitors
The risk of entry by potential competitors in the automobile industry is weak because a substantial amount of capital is needed to begin an automobile company and to maintain it as well. Companies already in the automobile industry have an absolute cost advantage against potential new automobile producers. Toyota’s “lean production system” was an innovative process of producing vehicles in a cost effective manner without forgoing quality. The lean production system was imitated by America companies after 30 years of its existence. It is a superior production process that was not simple for an established company to imitate and would be exponentially harder for a new company to imitate.
Furthermore, the industry is in the mature stage and has achieved economies of scale through mass production. The new, successful companies in the auto industry are now conceived through joint ventures such as GM and Shanghai Automotive Industry in China. Emerging automobile companies