Porters Five Forces Model
Porter's 5 Forces Analysis of French Automobile Industry and Extent of each competitive force
The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
Threat of new entrants | small
It's true that the average person can't come along and start manufacturing automobiles. There are substantial commercial (distribution network and brand reputation) as well as competence barriers (advanced technology and experience) to enter the car market. The industry is capital intensive and economies of scale are important. Japanese companies faced large barriers when entering the European markets and only by applying a low price strategy was it possible for them. The development of a new brand is very difficult. The luxury sector has even greater entry barriers and except for some exceptions (e.g. Toyota with the introduction of Lexus) the attempt of entering the luxury sector often ends in failure (e.g. Renault-Peugeot’s failure to launch premium models under their existing brands). The strategy used by automobile companies to penetrate the luxury market has so far been to buy already existing brands (e.g. Jaguar by Ford, Bentley by Volkswagen, Rolls-Royce by BMW).
Power of Suppliers | medium
The supplier industry of car manufacturers has experienced a concentration process during the last decades. High standards in quality have led to a situation where only the most profitable, high quality providers could survive. The result of this concentration process is that the surviving suppliers have large ordering volumes and therefore notable bargaining power. Switching costs can be considerable and have an effect on the product quality. There is also a trend towards outsourcing large parts of the production cycle in order to reduce operational risk. Power of buyers | high
The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
Threat of new entrants | small
It's true that the average person can't come along and start manufacturing automobiles. There are substantial commercial (distribution network and brand reputation) as well as competence barriers (advanced technology and experience) to enter the car market. The industry is capital intensive and economies of scale are important. Japanese companies faced large barriers when entering the European markets and only by applying a low price strategy was it possible for them. The development of a new brand is very difficult. The luxury sector has even greater entry barriers and except for some exceptions (e.g. Toyota with the introduction of Lexus) the attempt of entering the luxury sector often ends in failure (e.g. Renault-Peugeot’s failure to launch premium models under their existing brands). The strategy used by automobile companies to penetrate the luxury market has so far been to buy already existing brands (e.g. Jaguar by Ford, Bentley by Volkswagen, Rolls-Royce by BMW).
Power of Suppliers | medium
The supplier industry of car manufacturers has experienced a concentration process during the last decades. High standards in quality have led to a situation where only the most profitable, high quality providers could survive. The result of this concentration process is that the surviving suppliers have large ordering volumes and therefore notable bargaining power. Switching costs can be considerable and have an effect on the product quality. There is also a trend towards outsourcing large parts of the production cycle in order to reduce operational risk. Power of buyers | high