Porter Five Forces Model of the automotive industry

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					Porter Five Forces Model of the automotive industry
Porter Five Forces Model of the automotive industry
China's continuous rapid growth of auto market and the total size of the
continuous expansion of China's auto market to significantly enhance the
international status of China's auto market has become an integral and
important world car market part. Car sales in China accounted for the proportion of
the world's total vehicle sales has been from 2001 to 4.3% to 8.1% in 2004,
the year 2005, total demand reached 5.75 million vehicles around, China has become
the world's second compared with Japan largest car consumer market,
further raised to 8.7%. Incremental global annual vehicle sales in China accounted for
25%, China has become a global car market to promote the growth of the main force.
Five Forces Model Michael Porter (Michael Porter) made in the early 80s, to cause a
global business strategy far-reaching implications. Used for the analysis of
competitive strategy, can effectively analyze customer's competitive
environment. Five forces analysis, external analysis of the micro-environmental
analysis, mainly used to analyze the competitive landscape of the industry, business
and other sectors of the industry and the relationship between. According to Porter (M.
E. Porter) point of view, the competition in an industry, not just competitors for the
original, but there are five basic competitive forces: potential new entrants to the
industry, the competitive alternatives buyer bargaining power, bargaining power of
suppliers and industry competitors are now competitive. These five basic competitive
forces, and integrated intensity of the situation, determine the degree of intense
competition in the industry, which determines the ultimate profit potential in trade and
capital flows to the industry level, all ultimately determines the ability of enterprises
to maintain high yield . First proposed a viable strategy should include recognition
and evaluation of these five forces, the characteristics and importance of different
forces due to the different industries and companies change, Porter's
competitiveness model significance is the resistance of the five competitive forces
contains three types of successful strategic thinking, which is well-known: overall
cost leadership, differentiation strategy, specific strategy.
The following five forces model used to analyze the field of automobile industry and
its strategic approach.
1. The bargaining power of suppliers
Enough to increase the number of cars in China strategic plan, such as: Ford Motor
Company in the future China will continue to strengthen investment and cooperation
in their efforts and seek to obtain 10% of car market share, production capacity will
be achieved from the original 40 000 40 tremendous changes in units and realize the
localization of the majority of vehicle production. Toyota global production layout,
except the Japanese homeland, the North America (especially the U.S.) and Asia
(especially China) is Toyota's largest overseas investment in the region.
Toyota, the United States and China has become the main production base overseas,
Toyota's overall target market is the 2010 ~ 2012 in China, with 10%
market share. Honda Motor Co. plans for the future was a 10% market share in China,
and plans capacity expansion from the current 270,000 to 530,000 in the second half
of 2006 (including exports of 50,000).
The current situation, the automotive market has not only become popular, GM,
Honda, Hyundai, etc. have a significant impact in China has a strategic market for
multinational companies, Hyundai Motor Company has China as an important part of
its global strategy, plans by 2010 passenger car production capacity in China reached
100 million units, making China second only to its four overseas plants in
India's second-largest overseas plant; the same time, the automobile
production and sales as the center, through manufacturing, services, financial and
other automotive related industries expansion, to achieve the 2010 goal of 20 billion
U.S. dollars of sales; In addition, modern China is also planning to enter the
commercial vehicle market, it is possible to join hands with the establishment of
commercial vehicle production base Jianghuai planned annual production capacity of
50,000 units by 2010, small business car engines, 10,000 buses and 90,000 trucks
annually. World auto parts industry giants, have also made a capital increase of
China's plan, the U.S. Goodyear Tire & Rubber Co., Ltd. will
relocate its Asia Pacific headquarters in Shanghai, Bosch also additional investment in
Porter Five Forces model shows that the cost leadership strategy has been the major
car companies eliminate non-interest-bearing operations open, the construction of
production bases in China, according to national conditions and no doubt look at
lower cost, manpower, transport costs, greatly reduced costs, but also face many
objective problems reduce the negative impact of buyer bargaining. Supply-side
factors, mainly through the increased input prices and lower quality unit value the
ability to influence industry profitability of existing enterprises and the
competitiveness of products. Imported cars for the side force depends mainly on what
they provided to the buyer what input factors, when the supply-side input elements
provided by the buyer of its value products constitute a large proportion of the total
cost of production process is very important to buyers , or seriously affect the quality
of the product when the buyer, supplier bargaining power for the potential buyer on
the greatly enhanced.
2. The bargaining power of buyers
Buyers, mainly through its lower prices and require a higher quality product or service
ability, to influence industry profitability of existing enterprises. Car seller in the
domestic foreign trade by the large number of relatively small-scale enterprises for the
composition of the market price of these companies was lower than imported vehicles,
just because made in China? Many more may be a low-cost meet the conditions of the
pro-public marketing strategy.
Developed regions in China such as Beijing, Shanghai and other cities buyers are
buying is essentially a standardized product, while the number of vendors to purchase
products in the economy are entirely feasible. This resulted in each product diversion
buyers and will also be several competitors in the situation. This has created a buyers
ability to achieve backward integration, while the seller can not pre-integration of the
potential market to the disadvantage. Increased bargaining power of buyers, the price
of domestic cars will have a certain level of decline. If there is no substantial
appreciation of the yuan, import car prices on the domestic price pressures have small
cars, domestic cars in 2006 caused the price decline was primarily driven by
competition among domestic firms, fundamentally leading to overcapacity oversupply.
However, excess capacity is not necessarily directly lead to lower prices, such as the
United States, Japan and other countries, widespread automobile industry
overcapacity problem, and these countries not only failed to decline in car prices, but
slow rise in the year. The reason why judge-made cars in 2008 prices will continue to
fall from there, mainly in China's car market is currently running in both
the need for lower prices, but also the real possibility of lower prices there.
Second, the average tariff down auto parts pressure of RMB appreciation will
contribute to the reduction in the price of imports. July 2005 exchange rate of RMB
against the U.S. dollar one-time appreciation of 2%, within six months after the
exchange rate of RMB against the U.S. dollar has appreciated by 0.44% in 2007 and
now exceeds 7.5 mark, and the continued existence of the pressure of RMB
appreciation. If the 2008 appreciation of the yuan to a small extent, it will directly
contribute to the cost of imported cars declined. Conducive to people's
purchasing power increases, the passive increase our bargaining power. Also let the
joint venture made a fortune from.
3. The threat of new entrants
Entered the Chinese market and the expansion of large multinational companies eager
to catch up, to seek competitive in price. Ford as the world's second largest
car maker, the current state of development in China is not commensurate with its
status, beginning in 2005 significantly increased the intensity of the operations in the
Chinese market, Fox's lowest price was 12.8 million, as a Europe and the
United States model very competitive, sales growth. Toyota is also appropriate to
change the practice, the theme of steady progress in accelerating the pace. In early
2005, the Corolla, Vios price reduction is just the beginning, competitive products
will continue to introduce new, more competitive prices. New entrants to the industry
in bringing new production capacity, new resources, will want to divide up existing
enterprises has been completed to win the market place, which may occur with the
existing business of raw materials and market share competition eventually lead to the
industry reduce the level of the current corporate earnings, serious, may also endanger
the survival of these enterprises. The seriously threatened the competitiveness
depends on two aspects of Yin Su, which is entering new areas of Zhangaidaxiao and
Yu Qi Qi Ye for access to those existing in the reactions.
Competitive new products and practices is a lethal price into the market. Honda to
launch in 2006 "Civic," Honda has consistently adhered to the
product strategy "to step pricing" strategy, Accord, Fit, CRV
and other models listed have adopted such a strategy, reason to believe that Honda at
competitive prices launched the "Civic." Another new M3
Mazda listed in 2006, and is unified by the Ford operation. Ford beginning in 2005 is
clearly in the use of means to obtain competitive prices to expand market share as
soon as possible.
Potential new entrants industry is an important force for competition in the industry,
most of these new entrants with new production capacity and some of the necessary
resources, looking forward to a favorable market position. New entrants to the
industry, the expansion will bring production capacity, bringing the requirements of
the market share, which would inevitably lead to competition with existing businesses
to lower prices; on the other hand, new entrants to obtain resources production, which
could make the industry cost increases, both of which would lead to decline in the
profitability of the industry.
4. Threat of substitutes
Two companies in different industries, Keneng be produced as products are replaced
each other 品, which between them mutual Jing Zheng Chan Sheng act that was
derived from alternative forms of competition will affect the industry, Yi Ge Zhong
Xian with the competitive strategy. The industry and the production of alternative
products, the competition of other industries, often require the industry to take joint
measures to all enterprises and collective action. Global automotive industry is the
biggest challenge facing the development of the price is right and the style is
attractive environmentally friendly cars.
July 2007 GM (General Motors Corp) said it and Penske Corporation (Penske Corp.)
Reached a joint venture agreement to purchase the Italian diesel engine maker VM
Motori 50% of the shares. The company did not disclose the deal amount. General
Motors said it would jointly develop a new and VM Motori 2.9 liters, V-6 turbo diesel
engine. VM Motori will be launched in 2009 in Europe, its Cadilac CTS, and plans to
build the factory in Italy Cento new department. According to GM Vice Chairman
Bob Lutz said GM will be the U.S. market in 2010, in Cadillac and Saturn series,
matching the high fuel economy of diesel engines. Diesel will be used in GM cars,
Crossover and light truck on. A series of product planning and development and
application of new energy sources will verify that General Motors as a leader in the
automotive industry for the real goal of the harmonious development of his
outstanding efforts made.
Recently, General Motors Europe announced a new environmental strategy in the
short term will reduce emissions of carbon dioxide as the main objective, and
long-term goal is to end through the application of new technologies to achieve zero
emissions vehicles to realize the harmonious development with the natural
environment. First, the existing enterprise product price and increase profit potential,
there will be users as an alternative to facilitate the acceptance of restrictions;
GM announced the new environmental strategy: internal combustion engine will
improve the efficiency and diversification of energy as a means to reduce carbon
dioxide emissions. GM Europe plans by 2012 to develop 16 new engine matched to
93 new models on, in addition to 10 new transmission will be used on 48 new models.
As the producer of the invasive alternatives, allows existing businesses need to
improve product quality, or to lower prices by reducing Chengben, or make the
products characteristics, or their sales and profit growth objectives could be frustrated;
GM are Touzi more than one billion U.S. dollars for the development and application
of hydrogen energy technologies. Currently, GM's hydrogen strategy has
been out of the lab, began to practice in a variety of models, the ultimate goal is to
achieve mass production of fuel cells.
In short, the lower the price of alternatives, the better the quality, the lower the
switching costs users, the pressure of competition can generate strong; and that
alternative producers from the intensity of competition can substitute for the specific
sales by examining growth, productivity and profitability of alternative factory
expansion to describe the situation.
5. Existing competitors, the competitive industry
Most industry companies, mutual interests are closely linked, as part of the overall
strategy of automobile company competitive strategy of enterprises, aimed at both
enterprises to make their advantage relative to competitors, so will inevitably arise in
the implementation of the phenomenon of conflict and confrontation, conflict and
confrontation of these constitute the existing competition among enterprises.
Competition among existing enterprises is often reflected in the price, advertising,
product introduction, service and so on, its competitive strength and a number of
After years of accumulation, independent brands to enhance overall competitive
advantage, indicating that auto industry will be two ways to promote economic
development (GDP growth and promote the upgrading of the structure to promote
exports). The majority of our own brand car development began in the year 2000, the
overall development of relatively smooth, especially the first two years of
China's accession to WTO, more rapid growth for its own brand laid a
good foundation. However, due to the impact of macro-control, in May 2004 from the
overall passenger car market slide, more independent brands affected. However, after
their own brands of hard work and support of relevant national policies, the
competitive advantage of its own brand in 2005 has been fully upgraded with
Chery's own-brand sales represented a significant growth. Since the
development of independent brands, the export capacity of China's
automobile industry significantly increased automobile imports more than exports
over the years the situation was reversed in 2005 for the first time. 2005 l ~ 10 月份
total automotive exports of 16.26 billion U.S. dollars, up 55.67%, total imports of the
automotive industry 12.08 billion U.S. dollars, down 5.52 percent, exports exceeded
imports by 4.2 billion U.S. dollars. 1 November 2005, total automotive exports
reached 13 million, total imports of 12.8 million vehicles, exports for the first time
greater than imports. Several independent brands, such as Chery, Geely and others
have large amount of exports.
Also among the major foreign competition can not be questioned, for example: to
reverse the sharp decline in U.S. auto market situation, GM (GM) recently announced
by cutting prices, the abolition of overlapping series of initiatives on the current
model The substantive changes to the U.S. market strategy to counter the rapid
occupation of east and west coast of the U.S. market, foreign brands densely
populated areas. GM increased U.S. sales of the four measures:
Low price adjustment strategy highlighted the advantages of
Integration Pontiac (pontiac) and Buick (Buick) brand, to reduce overlap model
In attracting customers to increase investment
Upgrading of key agents in the field of capital market
Although faced with international automotive companies and intense competition
from Chinese auto companies, resulting in nearly 3 years, car prices fell rapidly, but
GM still plans increase productivity, and confidence in the future in China. GM China
President Kevin Wale (Kevin Wale) said that by 2020 China will become the
world's largest car market, if the market growth rate to remain at the
current level of 15%, that day will come early. Chen Hong, general manager of
Shanghai General Motors, proud about their competitive differentiation strategy,
sounds and talk about "the future be able to win in the market, must be
done in a better competitive differentiation in the enterprise." He believes
that China's auto market, the level of competition is not high, basically still
stuck in the homogenization stage, everyone in the "burn."
Therefore, performance in the market, often you cut prices, and I cut prices; your
promotion, I also promote. Shanghai GM is trying to follow a path of competitive
differentiation. With competition in the market to further expand the breadth and
depth, the competition among enterprises has gone beyond the level of competition in
operating efficiency. Competitive business, not only in the business chain are creative,
and that its brand and product users have a clear positioning, providing the products
and services allow users to find value for money. For example, compared with Excelle
sedan, by the famous Italian car designer George. Alor designed Excelle HRV, is a
new five-door hatch hatchback, with rich European style. After extensive market
research, Shanghai GM to determine the characteristics of their target customers are
health (Healthy), recreation (Recreational), energy (Vigorous), and with them the first
letter for the car from a name - HRV, we look forward to the HRV can be created in
the auto market downturn Another beautiful scenery.
Industry more or less every business must deal with the threat posed by these forces,
and customers will face the industry moves each competitor. Unless it is necessary
that the head on the benefits and there, such as asking for a large market share, or
customers can set up barriers to entry, including the differentiation and switching
costs to protect themselves. Based on the above discussion of the five competitive
forces, I think that companies can take as much as possible to their operations and cut
off the forces of competition, and strive to impact the needs from the interests of
competition rules, and gain a favorable position in the market before re-launched
offensive competitive actions and other means to deal with the five competitive forces
to strengthen their market position and competitive strength.
Five forces analysis model defects
In fact, five forces model on the practice of using a lot of debate has always existed.
Present a more consistent view is that: the model is a more theoretical thinking tool,
rather than the actual operation can be a strategic tool.
The model is based on the theory based on three assumptions:
1, can develop strategies to understand the information industry as a whole, the reality
is obviously difficult to do;
2, only the competition between the same industry, there is no cooperation. However,
in reality there are several cooperative relations between enterprises, not necessarily
in the rat race relations;
3, the industry size is fixed, therefore, only by the share of opponents to win a greater
share of resources and markets. But the reality is often not between enterprises and
the opponents by eating rivals but shared a cake big industry to obtain greater
resources and markets. Meanwhile, the market can continue to increase the
development and innovation capacity.
Therefore, to Porter's competitiveness model is used effectively to practical
operation, the above does not exist in reality, the three assumptions will allow the
operator to either do nothing or clue thousands.
[Edit] five forces model by Porter to find quality companies
Enterprises not only in the usual sense of our competitors, there are a number of other
aspects, such as meat hygiene is not just competing manufacturers of pork students
from other manufacturers, as well as beef and mutton Health Manufacturers so called
pork, beef and mutton of these alternatives. Porter Five Forces Model helps us
understand more fully the competitors of these five factors are the competitors,
potential entrants, substitutes, suppliers and buyers.
The threat of entry depends on market entry barriers exist in the degree. Barriers to
entry to those who want to compete with the success of new entrants to overcome the
obstacles necessary. Barriers to entry of potential entrants will normally delay the
timing of market entry, but will not constitute a permanent obstacle to the other,
barriers to entry may prevent many potential entrants, but not all. Barriers to entry
typically include: economies of scale, financial constraints, distribution channel
requirements, experience, expected retaliation, legislation or government action, and
differences and so on. For example, China's policy of relative monopolistic
market barriers to entry is quite high, such as telecommunications, oil and banking
monopolies, etc. have strict policies of access restrictions.
Threat of substitutes. Almost any product has its own alternative, but a different
degree of substitution of these alternatives are also possible with the guarantee that
any monopoly industry can not expand infinitely the price of the product. Such as
beef and mutton replace each other, and the relevance of alternative (substitution)
larger, pork and beef are substitutes, but the degree of substitution as lamb, beef is
also a food and alternative products, but the alternative is even more weakly
correlated. Internet telephone, postal and telecommunications are an alternative to
coal and oil are also highly substitute, the existence of these substitutes limits the
price of the upgrade of these monopolies. In the alternative the most important to note
that new technologies and new products, demand for the production of the original
alternative, it may be the basic needs of the original disappeared. Production such as
digital cameras, photo film market demand to disappear.
Buyers and suppliers of power. The threat of substitutes and to enter the competition
is horizontal, while the buyers and suppliers is the strength of vertical competition, or
an industrial chain with the competition. If the buyer power more powerful, the
product of the bargaining power of suppliers is relatively weak, the other hand, if the
supplier when the strength of the stronger, the demand for those products relative
bargaining power is weak. If an enterprise upstream suppliers and downstream buyers
have strong bargaining power, can be predicted that the company would survive very
tired, and even difficult to maintain, as many Chinese garment factory OEM, is a
strong fabric upper production plant, and downstream is a strong brand clothiers,
these foundries almost live in the cracks between them, little profit; the contrary, if an
enterprise upstream suppliers and downstream buyers have less bargaining power
time, the company will live more moisture, if the strength of the large supermarkets,
appliance stores, because they have a large number of consumers, so manufacturers
made the upper reaches of the various unreasonable demands, such as into the store
charges, Dianqing charges and so on, and because they are dispersed to their
individual consumers, virtually no bargaining power, upstream and downstream so
they are more powerful forces. Of course, these two extreme cases are relatively rare,
more are in a state of equilibrium.
Industry competition. Affect competition in the industry, including key elements: the
balance of power among competitors, market growth, the industry's fixed
costs and exit barriers, the degree of difference in status.
Through the five forces model, we are to try to sort out these five factors can account
for a large advantage in the competitive business, try to avoid these five factors are
not dominant or even the relative comparative disadvantage in the enterprise. Such as
Suning Appliance, as has a large customer base, in the home appliance manufacturer
partners, do anything to create or follow a myriad of so-called line regulation; but the
consumer is a powerful marketing, consumers basically bargaining power; in the
alternative, the integrated shopping malls and small stores of alternative basic
disappeared, many integrated appliances shopping area has been canceled; and
potential market entrants to solve the first problem is the brand, financial, network
Layout and other factors, it can rapidly expand the market shortly; in competitors
across the nation compete with Suning only country the United States one, other
regional appliance store has been Gome, Suning far left back, this time out of things
after Huang Guangyu, China's strategy on how the United States following
the layout, Huang Guangyu of GOME will be implicated is unknown, so, by five
forces analysis, that the development potential of Suning unprecedented prosperity. Of
course, the dynamic analysis of five forces model is a model, well positioned today in
all factors of the company's future may not have big advantage now
underdog in the future, not always at a disadvantage.

Description: Porter Five Forces Model of the automotive industry