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Porter's five forces model is extremely useful in positioning an organisation in its competitive environment. De Wit and Myer (2004) states: "The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's favor."
Threat of new entrants
The threat of new entrants to a market affects all the firms within the same industry not only your own company. Within the automobile industry there is a limited threat of new entrants due to the financial barriers such as the high capital cost of starting such a business. Honda along with the other car makers have no immediate fears of new entrants in the near future.
Buyers' bargaining power
Depending on the size of the buyer demands on the power they command. For Honda Motors their sales are high and remain high because they respond to the needs of their buyers or customers.
Suppliers' bargaining power
Suppliers in the car industry have very little power. In fact quite the opposite is true they are at the mercy of the manufacturer. The importance of avoiding suppliers that fix their own terms because they are the only supplier of the produce. Honda Motors has addressed this situation in rather interesting way. Honda does not have long term relationship with its suppliers. Honda does not organise its own suppliers association as most Japanese firms normally do. Interestingly Honda has investments in its suppliers and at times will directly intervene with internal activities, such as purchasing the raw materials. Its relationship with suppliers is clearly different from the traditional.
Competition among firms
Revelry among the firms in the same industry means that they look for a competitive advantage to their competitors. This can range be achieved through prices changes, innovative products, new technology. Honda motors has maintained competitive advantage in many ways against its rivals. One example is its making optional extras as standard in its cars enticing its customers.
Threat of substitute
The threat of a substitute with the automobile industry is also unlikely. They will always be forms of personal transport. Perhaps the biggest 'substitute' will be how the vehicle is powered; possible substitutes to petrol and diesel fuels. Honda Motors has been addressing this possible threat and has invested a lot of money themselves into developing a design for a cars run using the substitute forms of powering. They themselves may well be threatening the industry with their own substitute.
The five forces are shown graphically in figure 1.1 below.
Threat of new entrants
Competition among firms
Threat of substitutes
Buyer's bargaining power
Supplier's bargaining power
Figure 1.1 Michael Porters five competitive forces model
Porter's Value Chain
According to Porter (1985), whether providing a service or manufacturing a product, the company will have a series of activities and functions that need to be carried out by the firm to fulfil the wants of the customer or consumer. These activities need to be linked together and coordinated in a business system. This is frequently known in the industry as the Porter's Value Chain. Porter's Value Chain can be grouped into the following primary and support activities. Having a different activity system from a competitor can lead to a competitive advantage. The categories for primary activities are the following: Inbound logistics, operations, outbound logistics, Marketing and sales and service. The following are the types of support activities: Procurement, firm infrastructure, technological development and human resources management. A value chain according to McHardie (2007) can be used by an organisation to find ways to increase profits.
In Honda Strategic and operational variables must be factored into the design of a company's global value chain. This definitely happens in Honda Motors.
Figure 1.2 The value chain model (Porter, 1985)
Critical evaluation of the process of 'reconciling dichotomies' at Honda Motors with reference to the 'positioning' versus 'developing internal resources' dichotomy (450)
According to Mair (1997) Honda's innovative strategic management and planning can be described a 'reconciling dichotomies.' He describes reconciliation as the challenge of making two opposite poles compatible. There are many categories for example in buy-supplier relations, work organisation and research and development. Strangely Western managers to no see the importance of these dichotomies. Honda has indeed a very different way of thinking from that of the West. In evaluating these dichotomies, these are seen to be negative according the West and that tradeoffs are assumed if trying to mix two dichotomous concepts. These include taking some of the benefits of one but sacrificing benefits of the other. The West believes that they would end up with the worst of both worlds.
In Honda they have many examples of which characterise dichotomy reconciliation. For example the 'right-first-time' or 'build in quality' approaches. This principle is advantageous to reduce costs, minimise stocks and reduce lead times. They concentrate on building in quality and getting it right first time, instead of having to test quality afterwards.
Another interesting dichotomy is in the organisational structure where the company approaches individual-group dichotomy in the strategic decision making. Honda promotes both individualism and groupism at the same time. Honda seeks to get the best of both worlds. Honda rewards individuals within the company and creates competition between the employees but at the same time the company stress loyalty and cooperation. It promotes group processes and collective decision making.
A very interesting dichotomy to critically evaluate is the 'positioning' versus 'developing internal resources.
The positioning approach according to Minzberg, Ahlstrand and Lampel, (1998) is where a company establishes a customer market they must constantly be adapting itself to the changes in the environment. Strategic planning in terms of market positioning is all about responding and changing to external developments and needs of the customers. Positioning is a long-term process. Porter (1985) suggests that organisations frequently direct themselves to a particular niche market or try and differentiate their products. This is very effective and surely a benefit to the company who thus gain strong and profitable market share and position.
Developing internal resources
An explanation into the 'pressures for global integration of activities' and the 'pressures for local responsiveness' in the context of the global automobile industry (300)
Pressures for global integration of activities
Pressures for local responsiveness
An explanation of Whittington's 'Classical' and 'Processual' Schools of thought in the context of strategy development at Honda Motors (300)
Whittington's 'Classical' school of thought
Whittington's 'Processual' school of thought
A critical evaluation of how to apply these Schools of thought to Honda Motors (450)
Explanation and exploration of which school of thought is preferred giving justifications
A critical evaluation of the implications of cultural dimensions for international strategic managers at Honda Motors in building productive relationships with the outside world. (750)
Grant, Robert. (2005) Contempory strategy analysis, Fifth Edition, Blackwell Publishing
M Porter, Competitive Advantage, Free Press, 1985.
Pascale, R. (1996). .Reflections on Honda., California Management Review, 38, 4, 112-117.