economics

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Threat Of New Entrances In UK Automobile Industry

The industrial boundaries help the industry to identify their producers, competitor and substitute products; therefore it is important to define the industry boundaries as we are attempting to analyze the industry. The analysis enables the industry to identify the nature of the competition and the competitive position of the industry in the business. The industry boundaries help to identify the purpose for industry to collect data, statistics and information. (Eg: a doctor first checks and test his patient before giving him the medicines)(1) While defining the industry boundary we can determine the arena in which the firm is competing. This is the key to design a competitive strategy for the industry analysis.

The frame work to analyzing the industry nature and extent of competition surrounded to an industry can be done by implement five force models they are the threats of new entrants to the industry, the threat of substitute product, the power of the buyers, power of the suppliers and rivalry among businesses.

The five force model provides helpful records to the UK automobile industry in statical and dynamic study of the industry (a), as this information will be helpful for the industry to make their strategy, planning, operations and business decisions. (b)

The threat of new entrances in UK automobile industry plays an important role in determining the market share and market opportunities for the industry. The capital costs of entry in the market, the customer switching costs, the resistances offered by the existing businesses (d) are the factors which determine the threats which are faced by UK automobile industry. The resistance to the new entrants in the market can be limited by the existing competitors by cutting down costs (e.g. “if existing businesses are obtaining economies of scale, it will be possible for them to undercut the prices of new entrants because of their cost advantage”)(e). As UK Automobile industry is very gigantic the threats of new competitors is considerably less, or there were no new firms in the market (f) because there are many factors that has reduced the new entrants to come into the market.

The powers of the buyers in the UK automobile industry is relatively high as there are less large players,(g) and the market is expected to be affected by slowing economic growth and weakening consumer confidence (h). The buyers are very cost sensitive, as they do not have to buy cars in great numbers, the need, the perceptions and budget are less (i) so, they tend look out for alternatives.

The power of supplier has a great impact on the UK Automobile industry, as there are many small and large suppliers and the power of supplier is determined on the factors of resources in the industry. The UK Automobile industry has number of supplier with their uniqueness, powers and skills that easily substitute by other powers (e.g. the rate or exceptional skills can command higher salaries than lesser skilled workers) (j). For UK Automobile industry the switching cost from one supplier to another is high and the forward integrations also provides economies of scale for their suppliers. The bargaining power of the supplier is very low of the industry as it is highly fragmented. The power of supplier cannot be stated strong as the buyers have started to produce their own production of components in the industry. (k)

The threats of substitutes is very low as their no alternative for the buyers other than automobiles , as the alternative substitutes work in a totally different environment and it is difficult to competitor in all the factors (lower price or improved performance ) that can determine the change the willing to change suppliers preferences. There can be an option of public transport e.g. trains.

At the end the completive rivalry amongst the businesses describes the rigorous competition among the rivalry players. The price plays an important factor in the competing firms in UK Automobile industry as the profit margins will be more rigid and affects every single firm in the industry. The market of the industry is dynamic and so the turnover(m)

As far as the application of the Porter’s Five Forces Model does not affect the UK Automobile Industry as the industry is enjoying profits and the competitors are experiencing losses. On the analysis we can come to a conclusion that even if the UK Automobile is experiencing varying level of annual growth, the industry is not striking for the new entrants to enter in the industry. The major limitation to the five force model is to claim the industry profitability. The five force model also states that the nature of the industry is extremely dynamic so, in order to overcome with the crisis the industry should increase the awareness of the industry products information in order to attract the customers.(n)

The UK Automobile is facing a dramatically high fall of sells (Source SMMT) The industry at the same time is also serving to providing personal freedom and economic growth, has also served for the development technological progress, employment and convenience of transportation (o).

In order to sustain the competition the UK Automobile industry is trying to enlarged its attractiveness, we can come across the change in the industry as they are doing their strategies differently. For example: BMW is one of the world’s largest premium car manufacturers providing three strongest premium brands for different segmented markets and providing a state of art technology development. They have constantly strained on developing their technology, minimization in the production processes and fuel efficient products. The company is also emphasizing on the development of cutting down emission technology. This has altimately resulted into an increase sales of their products (see chart below) (p).

Vehicle production

 

2004

2005

2006

2007

BMW

1,059,978

1,122,308

1,179,317

1,302,774

MINI

189,492

200,119

186,674

237,700

Rolls-Royce

875

692

847

1,029

Motorcycles *

93,836

92,012

103,759

104,396

(Source: BMW Education Programme, research and information, http://www.bmweducation.co.uk/coFacts/view.asp?docID=73

Accessed on 19/11/2009)

To make the industry a profitable firm, the industry should develop competitive attractiveness for near and long term , it should also the size and growth potential, study the favorable impact of driving forces, the degree of risk and uncertainty in the future considering the profitability of the firm. The industry should also focus on the current global tendency of the customers and investors, businesses including the national and domestic markets, and the world wide environments.


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