Porters Industry Analysis: The automobile manufacturing industry
The Automobile Manufacturing Industry
Power of Buyers (Medium-High)
Power of Suppliers (Low)
Threat of New Entrants (Low)
Threat of Substitute products (High)
Internal Rivalry (Medium)
Relative Power of Other Stakeholders (High)
The Automobile Manufacturing Industry
The automobile manufacturing industry is comprised of companies that produce self-powered vehicles: cars, trucks, vans and commercial vehicles (trucks, buses, farm equipment). For the past twenty years, the automobile manufacturing industry has experienced continuous growth and globalization. The industry utilizes a global supply chain and provides its services to a universal customer base. Porter developed a five-force model, which outlines the five competitive powers of the automobile manufacturing industry. The five basic competitive forces are: (1) market competitors, (2) new entrants, (3) suppliers, (4) buyers, and (5) substitutes (Porter, 1985). Porter identifies the forces are being the power of buyers and suppliers, threat of new entrants and substitutes, and potential rivalry with the companies within the industry (Kotler, 2009). It was not until later that a sixth force was developed: relative power of other stakeholders. Its inclusion was made to add a much-needed holistic element to the analysis of competition within an industry. Ultimately, I will be analyzing the automobile manufacturing industry using Porter’s six-force foundation. Being that passenger vehicles add a significant contribution to the revenues of the automobile manufacturing industry, the primary focus of this paper will revolve around this part. Power of Buyers (Medium-High)
A car is typical purchase for American that continues for up to six years after the purchase for a customer. So, it is obvious, that is does not justify for a repeat buyer or purchasing in bulk; especially for purchase that are for personal and/or private use. The lack of repeat buyers/behavior reduces the ability to bargain for those who have high buying power/behavior. That being said, consumers also include companies that purchase automobiles for leasing and freight and/or transport companies that use vehicles in their everyday operations that buy in bulk and have high repeat buying behavior and high levels of bargaining power. With the introduction of new technology tools such as website and print advertisements and increased easy access to information consumers are more conscious of manufacturing features, pricing and discounts. Hence, consumers are able to make smarter decisions using the available resources to research products and services of multiple suppliers, which eventually enables them to bargain on the sheer basis of an abundance of possibilities. Thus, consumers have increased buying power due to the abundance of available options that they can choose from. That being said, there are two different types of buyers: individual buyers who have medium buyer power and the bulk buyers who have high buyer power. Power of Suppliers (Low)
The automobile manufacturing industry has a multitude of suppliers. Automobiles are composed of several components and each component has a different supplier. Manufacturers, both commercial and private, are involved in most aspects of manufacturing including engine manufacturing and assembly. The other components can and often are outsources to the different suppliers used by the automobile industry. The steel industry is one of the most important suppliers used by the automobile manufacturing industries. The majority of the steel purchased is produced by China, India and Africa, which are regions with low labor costs that do not posses high bargain powers. With regards to outsourced components, the larger automobile manufacturers utilize exclusivity clauses with their suppliers, which in turn forces...
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