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Porter’s Five Forces of Indian Automobile Industry

Porter’s Five Forces of Indian Automobile Industry

Porter’s five forces outline in regard to the automotive industry in India outlines, new entrant threats, customers/buyers bargaining power, threat of substitute products, bargaining power held by suppliers and the level of rivalry among competitors. These five forces largely influence how the industry performs and they can be outlined as follows:

New entrants’ threat

In majority of markets, the expertise and capital required to setup parts or auto manufacturing facilities would be a huge entry barrier. What this means is that new entrants would have a hard time setting up. However, this is not the case in India given its incredible forecasts on growth, infrastructure progress as well as ever increasing financing options. All these aspects make the industry attractive. This translates to:

Customers/buyers bargaining power

When it comes to choice, buyers in India have numerous options to choose from. There are over twenty foreign manufacturers in the country and this includes high end manufacturers like Lamborghini and Rolls-Royce. What is more, they also have a large number of cheap options to choose from such as the well known Tata Nano. Because of this:

  • The buyer price sensitivity is low
  • There is a low distributors dependency
  • The number of customers is large

Threat of substitute products

India is well known for 2-wheelers (mopeds and bikes) and 3 wheelers which are real and obvious threats to manufacturers of automobiles. This means:

  • There is a high threat in terms of making a switch to substitutes
  • The substitutes are limited

Bargaining power held by suppliers

It is very likely that manufactures have high bargaining power. This means they cannot be held at ransom by one manufacturer because they can easily market their products in India. This translates to:

  • High level of competition among suppliers
  • Low suppliers concentration
  • Critical inputs production
  • Critical volume to suppliers

Level of rivalry among competitors

The rivalry in India is high and yet, the industry has not yet reached its phase of shake out and it is still making struggles to measure up to leaders in the automobile industry. This is translated to:

  • Product differentiation
  • Low costs of storage
  • Limitations by the government to curb competition
  • Large size industry
  • Fast growth rate in the industry
  • Entry of few competitors

 

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Online sources

http://www.wikiwealth.com/five-forces:automobile-industry-india

http://porters-5-forces.blogspot.com/2011/11/porters-five-forces-analysis-indian.html