Porters Five Forces: High-End Premium Industry in China
8. Structural Charakteristics oft he Market
In this Section take a closer look at the main structural features of China’s automobile industry for luxury and premium cars.
We use Michael Porter’s (1980) Five-Force model to analyze the industry. These five forces jointly determine the intensity of competition within the industry and in turn help firms to set their strategies.
1. THREAT OF NEW ENTRANTS
New entrants to an industry will bring new supplies, new ideas and new competition. Therefore, the threat of new entrants is crucial to existing firms’ profitability.
We analyze domestic entry, foreign entry through imports and foreign entry through foreign direct investment (FDI).
The automobile industry in general requires large fixed investments and is therefore characterized by very large Economies of Scale and Economies of Scope. A other characteristic is the fact that even long existing firms still need to provide a huge amount of resources to research and development (R&D) and marketing to introduce new models, obtain technological breakthroughs, and maintain and raise consumers’ loyalty as well as the firm’s market share and profits. Both, Economies of Scale and Scope and huge R&D investments and marketing cost put potential entrants in very disadvantageous positions because first they need to raise sufficient capital and second they must prepare to bear the debt for a long period of time, since these long-term investments cannot be recovered within several years.
Pure local entry is very unlikely expected since there are already a lot of firms in the luxury-car market and because it is improbable that local governments will again heavily subsidize new entrants because the central government has been discouraging this type of investment.
On the other hand makes the continuing growing demand of luxury cars the Chinese market very attractive for local and global luxury-automobile manufacturers.
The rapid growth of the high/upper class,
In this Section take a closer look at the main structural features of China’s automobile industry for luxury and premium cars.
We use Michael Porter’s (1980) Five-Force model to analyze the industry. These five forces jointly determine the intensity of competition within the industry and in turn help firms to set their strategies.
1. THREAT OF NEW ENTRANTS
New entrants to an industry will bring new supplies, new ideas and new competition. Therefore, the threat of new entrants is crucial to existing firms’ profitability.
We analyze domestic entry, foreign entry through imports and foreign entry through foreign direct investment (FDI).
The automobile industry in general requires large fixed investments and is therefore characterized by very large Economies of Scale and Economies of Scope. A other characteristic is the fact that even long existing firms still need to provide a huge amount of resources to research and development (R&D) and marketing to introduce new models, obtain technological breakthroughs, and maintain and raise consumers’ loyalty as well as the firm’s market share and profits. Both, Economies of Scale and Scope and huge R&D investments and marketing cost put potential entrants in very disadvantageous positions because first they need to raise sufficient capital and second they must prepare to bear the debt for a long period of time, since these long-term investments cannot be recovered within several years.
Pure local entry is very unlikely expected since there are already a lot of firms in the luxury-car market and because it is improbable that local governments will again heavily subsidize new entrants because the central government has been discouraging this type of investment.
On the other hand makes the continuing growing demand of luxury cars the Chinese market very attractive for local and global luxury-automobile manufacturers.
The rapid growth of the high/upper class,