Monday, March 1, 2010

Strategic Management:: Five Forces Model

Use Michael Porter’s “Five Forces Model” to explain the global automobile market in which Skoda is now forced to compete.


Threat of Entry

Because of the increased buying power of consumers in former Soviet Union countries and in emerging countries, many firms may see this as an opportunity to move plants to Eastern Europe to reduce their costs and compete

in that market. In addition, for the first time in 50 years, Eastern European consumers have access to a greater variety of cars than they have had. Both of these factors should heat up the competitive environment.

Bargaining Power of Buyers

With increased competition worldwide in the automobile manufacturing industry, consumers have many more choices from which to select when purchasing a car. In addition, the movement to a global industry from one which had been formerly a monopoly or oligopoly within a country or region, has caused intense price competition to arise.

Therefore, this industry could certainly be classified as a “buyer’s market” today. In less developed countries, buyers are being wooed with lower prices; and in more developed countries, they are being wooed with product differentiation.

Bargaining Power of Suppliers

With a movement toward just-in-time inventory systems worldwide in the automobile manufacturing industry, there has been greater pressure upon suppliers to move their plants to locations contiguous to the automobile plants they are supplying. Some automobile companies have also begun supplying their own parts and thereby eliminating many of the suppliers they formerly used. Therefore, the bargaining power of suppliers has been greatly weakened.

Pressure from Substitute Products

There appears to be very little pressure from substitute products in this market because automobiles have actually become the substitute product for other forms of transportation such as bicycles in developing countries.

The only true threat of a substitute product in more developed, heavily populated countries is public transportation. This supplies a cheaper, faster means of transportation into large cities where parking is at a premium. This is often a product of choice in many European countries where public transportation has been greatly refined.

Rivalry Among Existing Competitors

The global automobile manufacturing industry is one of the most competitive in the world. In addition, new car companies are emerging in the developing countries of Asia and Central and Eastern Europe. These companies are all trying to reduce costs by moving to low-cost countries, so Skoda’s location in such a country will not be a competitive advantage for long.


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