FIVE FORCES ANALYSIS AND UK AUTOMOBILE INDUSTRY
0808626 RGU UK
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Contents:
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Executive Summary: ..................................................... .......................................................................................... .....................................
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Industry Analysis: ................................................... ...........................................
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5-Forces Model and UK Automobile Industry ................................................
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Potential Entrants: ................................................ .............................................
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Supplier Power: ................................................... ...............................................
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Buyer Power: ............................................... .......................................................
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Substitutes: ........................................................ .......................................................................................................... ..................................................
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Internal Rivalry: ........................................................ ................................................................................................. .........................................
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Conclusion 5-Forces Model: ................................................ ..............................
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The Demand for Strategic Choice: ...................................................................
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Specific Examples: ................................................... ..........................................
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References: ................................................ ........................................................ .......................................................... ..
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Executive Summary:
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Porter’s Five Forces Model identifies five principal forces that determine industry competition. These forces are the threat of new entrants, the threat of substitution, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry amongst existing competition in the industry. The paper examines each of these forces in detail and discusses the methods for assessing the strength of each force. An example to illustrate the utility of the model for suitably positioning the firm, amidst competition, is also illustrated Industry Analysis:
Before going to analysis the 5 forces model for UK Automobile industry it is important to identify the boundaries and recognise industry limits because different countries having different external environment factors which determinates its boundaries and limits like “Capital Markets” domestic capital markets affect the strategy of firms. Some countries’ capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run is. Countries with a short-run outlook will tend to be more competitive in industries where investment is short-term. Countries with a long run outlook will tend to be more competitive in indust industrie riess where where invest investmen mentt is long long term. term. Govern Governmen ment’s t’s polici policies es also also affect affect Limits Limits and bounda boundarie riess such such as direct directly ly and indir indirect ectly ly subsid subsidies ies the firms firms,, implem implement entati ation on of tax to corporate, business and property ownership. In additi addition, on, PESTE PESTE analysi analysiss gives gives more more ideas ideas for industry industry to focus focus more more on select selecting ing the appropriate market and segments. Through analyzing political factors, company can get idea about the political stability and government regulations about taxes and tariffs. However, to get long-term profit company has to make good relationship with governments. Economical factors are more related with automobile industry because of consumers' purchasing power and per capita capitall income income in partic particula ularr countr country y relate related d with with demand demand and supply supply.. Moreov Moreover, er, the social social factors influence consumers buying behaviour and lifestyle. Technological factors are the major factors for this industry as it is highly depending on innovative technology and knowledge-based. Technological changes have contributed much more on industry's growth. http://www.loc.gov/rr/business/BERA/issue2/industry.html
5-Forces Model and UK Automobile Industry
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Potential Entrants:
It is very difficult for new firm to enter in automobile industry. An entrant has to spend big amount on safety, safety, motor management, management, comfort, comfort, design and numerous electronic functions. functions. Car industry focused on brand loyalty, and this is an advantage of existing auto firms in the auto industry, because business have invested more to win a customer than keep him like Ford, Toyota, Honda.
Supplier Power:
There are different kinds of suppliers in auto industry. There are suppliers for braking system, classic and frame, cooling system, electrical system and engine, exhaust and fuel supply system. However the most important suppliers are steel suppliers and the biggest suppliers come from china where labour and production cost is very low. The automobile supplier industry is facing a strong restructuring process in the concentration of car makers and an ongoing out-sourcing process of car manufacturer represent new challenges for the supplier.
Buyer Power:
At the present time, car buyers have negotiating power. Buyers knowing the score forehand and knowing how much automakers want to keep sales up in tough times, they can negotiate the term of monthly payment, they can buy last year’s new car with a high discount because backlogs are caused to depreciation, they can get down to a good price before adding an incentive, for instance negotiation a price before the financing and the trade in value. http://www.marketwatch.com/story/five-car-buying-tips-that-take-advantage-of-hungry-dealers
Substitutes:
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There are numerous amounts of substitutes in the automobile market and if the price of one vehicle increases the demand for a substitute will increase. Similarly if the gasoline prices increase consumer tend to buy cars which have less fuel consumption. Generally, the higher the cost of operating a vehicle, the more likely people will seek alternative transport options. http://www.smh.com.au/news/ross-gittins/browser-wowsers-fuel-soaring-carsales/2005/08/02/1122748636664.html
Internal Rivalry:
The auto industry is very concentrated, with top 8 global auto companies having more than 90% of global revenues and top 50 global auto parts companies having 80% of global revenues. Due to globalisation globalisation the concentrati concentration on in auto industry is increasing and the effects of globalisati globalisation on and economies of scale in auto market are remarkable. The advantages of global market and economies economies of scale are leading inexorably inexorably to the concentration concentration of output on hand for fewer and fewer firms. www.investopedia.com/features/industryhandbook/automobile.asp
Conclusion 5-Forces Model:
Conclusion from 5-forces model for UK automobile industry is that threat of new entrants is low due to huge capital and cutting-edge technology. Suppliers are weak because they are spread all over the world and cannot easily easily forward integrate. integrate. Buyers are medium due to low demand for automobile automobile and high switching switching costs; costs; moreover, moreover, buyers are not able to backward integrate. integrate. Substitutes are moderately strong due to different and less-expensive transportation facilities. On the other hand, intensity of rivalry is strong because of major players are dominant in the market by nearly same technology and manufacturing processes, suppliers relationship and distribution systems.
The Demand for Strategic Choice:
To surviving in the auto industry’s interchangeable environment, it is required enough discipline, specific information and innovation centres from the firm, organisation and flow of capital. Firms should offer something different every year like Peugeot with electric car Peugeot Leonin (Fig.1) in order to attract more customers than other competitors and it should find ways in order to keep its domination on suppliers and some important buyers such as rental companies. www.ecofriend.org/entry/eco-cars-peugeot-leonin-electric-car-complements-peugeot-s-lion/
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To achieve compliance with the industry rules, firms must develop structures, processes and a culture in which listening and adapting to the environment becomes engrained. •
Individual firms should implement technologies which best address their own brand values and market sectors.
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In medium term, improvement of conventional powertrains and transmissions can have significant impact on fleet average CO2
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Introd Introduct uction ion of increa increase se levels levels of hybri hybridis disati ation on / electr electrifi ificat cation ion is depende dependent nt on the availability of battery, motor and power electronics technology with high power density, high energy density and low cost.
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Widespread uptake of electric vehicle technology is dependent on availability of batteries with low cost and high energy density along with the availability of an infrastructure http://www.berr.gov.uk/files/file47663.pdf
Specific Examples Research • • •
Propulsion
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Energy Storage
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Vehicle Efficiency
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System control Energy + Fuel Supply Process + Tools
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Medium Term Planning Higher efficiency IC engines Capacitive boost systems All electric actuation Systems Optimised range extender engine Lower cost e-motor Heat Energy recovery (e.g. E-turbine)
Next generation batteries 300+ Wh /Kg Flexible power electric modules Other forms of energy recovery New Vehicle classes and configuration Combination of function to reduce weight / cost Minimise weight / losses Advanced information enabled control Intelligent P/T and HVAC mgmt Intelligent energy / re-fuelling infrastructure (e.g. fast charge) Industrial scale demonstration of new 2nd gen bio fuel processes Auto optimisation methods using virtual systems. •
http://www.berr.gov.uk/files/file51139.pdf References: www.loc.gov/rr/business/BERA/issue2 www.loc.gov/rr/bus iness/BERA/issue2/industry.html /industry.html www.investopedia.com/features/industryh www.investopedi a.com/features/industryhandbook/automob andbook/automobile.asp ile.asp http://www.investopedia.com/features/i http://www .investopedia.com/features/industryhandbook ndustryhandbook/porter.asp /porter.asp www.boozallen.com/media/file/56733.pdf
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faculity.winthrop.edu/stonebrakerr/book faculity.winthrop. edu/stonebrakerr/book/automobiles.htm /automobiles.htm www.johnkay.com/industries/26 http://www.smh.com.au/news/ross-gitti http://www .smh.com.au/news/ross-gittins/browser-wowsers-fue ns/browser-wowsers-fuel-soaring-carl-soaring-carsales/2005/08/02/1122748636664.html www.zacks.com/stock/news/16378/Auto+Industry www.ecofriend.org/entry/eco-cars-peugeot-leonin www.ecofriend.org/ent ry/eco-cars-peugeot-leonin-electric-car-complements-peug -electric-car-complements-peugeot-s-lion/ eot-s-lion/ www.marketwatch.com/news/story/five-car-buyin www.marketwatch.com/news /story/five-car-buying-tips-take-advantage g-tips-take-advantage/story.aspx?guid={BB6 /story.aspx?guid={BB6D1A98D1A98A1BB-4293-887E-B4EE1C336C63} http://www.berr.gov.uk/files/file47663.pdf http://www.berr.gov.uk/files/file51139.pdf
Figure 1
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