Five Forces Analysis was developed by Michael Porter to better identify competitive opportunities and attractiveness within an industry or market. Other than a SWOT analysis, this is another analysis tool to identify opportunities and risks before entering an industry. Porter’s model supports analysis of driving forces in an industry. The management can make better decision by using the information that evaluated from detailed Five Forces Analysis.
The five forces that Michael Porter has identified are widely used to assess the structure of any industry. They are:
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Customers
- Threat of Substitutes
- Competitive Rivalry between Existing Players
Automobile is one of the most convenient transportation tools in our modern society today. Globalization enables foreign auto dealers to enter American market easily and also creates competition. In
Threat of New Entrants: MEDIUM
It is not that easy for an entrant to enter into a car industry because of the brand loyalty of customers. However, some of the well known foreign companies entered into US car industry easily, for instance, when Honda Motor, Co. opened its first office in
Bargaining Power of Suppliers: LOW
Suppliers have a little power in an automobile industry. That’s because numerous suppliers rely on some particular auto manufacturers to buy their products. Each manufacturer has many suppliers. For example,
Bargaining Power of Customers: HIGH
There are various brands and models of the cars to choose from nowadays. The factors that affect consumer to make a buying decision are: the appearance, quality, price, and environmental effect. People always want a new and nice looking car. For those rich people who love cars, they always purchase the new released and attractive model. Besides that, the quality of the car is an important issue. The car has to efficient, which means saving gas, protecting our safety, and running fast. In addition, since there are many competitors, consumer have more choices to select a cheaper, but good quality car. Moreover, because of the global warming and other environmental effects, a lot of the manufacturers make their cars unique in order to protect the environment. Based on a variety of the lifestyles, people choose to purchase a car in a different way.
Threats of Substitutes: LOW
It is true that there are many of transportations substituting automobiles. They are bicycles, subways, buses, and trains. These substitutions really make our life easier if we live in the cities. On the other hand, for those people who live in
Competitive Rivalry between Existing Players: LOW
Competition between existing automobile companies is high because there are too many choices for the customers. That may cause the industry earning lower profits when the cost of the competition is high.
Top 20 motor vehicle manufacturing companies by volume 2006
|Total motor vehicle production (1000 units)|
|Key||Cars||Light Commercial Vehicles||Heavy Commercial Vehicles||Heavy Buses|
|Total global production: 68340|
|Reference: World motor vehicle production by manufacturer: World ranking 2006. OICA (July 2007).|
|*Toyota total includes Daihatsu production figures, which OICA list separately. Daihatsu is a Toyota Motor Corporation subsidiary.|