Strategic Management
Introduction
Friendly Environment Car is a company that operates in the large and established automotive industry. The company is found in hybrid-ecological cars segment. This automotive segment is a new segment that takes into account ecological concerns of the environment. This segment is also concerned with fuel efficiency whose prices keep on escalating. Friendly Environment Car focuses on manufacture cars that are ecologically friendly and cost effective.
Porter’s five forces model analysis is a critical tool that is used to analyze competition intensity in the industry. Five forces in Porter model provide tools that are used to identify risks and opportunities of venturing into untapped or new industry. Porter’s model is used extensively in analyzing attractiveness of an industry. The five forces as postulated by Porter are threat of new entrants, rivalry among established companies, bargaining power of suppliers, buyer bargaining power, and threat of substitutes (Hill & Jones, 2010).
New entrants into the market present threats of competition to the industry. Potential entrants are firms that are not currently competing in the industry but likely to enter into the market at any time at present or in the future. The level of entry into an industry by new firms depends on the degree of competitiveness in the industry that creates entry barriers. High levels of entry may suggest less competition in the industry and vice versa. Brand loyalty, cost advantage, economies of scale, capital requirement, and government regulation are the principal sources of barriers to the entrance into the market (Lee, Kim & Park, 2012).
Hybrid-ecological segment industry has had some significant new entrants since the year 2006. Some of the entrants since this year are Honda and Toyota. The explosion of the hybrid-ecological segment is attributed to rapid switch in customer preference to purchase economical cars as well as environmental preservation. The weak competition in the industry coupled with government advocacy on greener energy weakness barriers to entry into the market. Thus, this presents greater risk of new entrants into the industry.
According to Lee, Kim and Park (2012), bargaining power of customers is usually prevalent when they are few in number, purchase in large quantities, purchase from multiple suppliers at once, the industry is dependent on them, threaten to enter the industry by themselves, and when switch costs for buyers is low. Customers, dues to these factors, can bargain to bring down prices of commodities or demand high quality of products that may raise costs. The biggest challenge to Friendly Environment Car is unrealistic expectations for fuel saving abilities of cars that customers buy from the company. Fuel efficiency performance of its cars does not usually live up to Environmental Protection Agency estimates. This gives customers power to dictate the quality of its cars thereby impacting on the cost of production. Additionally, the company may be forced to lower it premium charges as a way of accelerating purchase of its products.
Supplier bargaining power is also a vital force that is essential in the analysis of competitiveness of an industry. Suppliers have the ability reduce the quality of input supplied to different firms within an industry (Lee, Kim & Park, 2012). Supplier power can be achieved if suppliers are concentrated, switch costs are high, suppliers have the capacity to integrate forward, they offer unique goods and services, and the industry at large is not attractive to them. These supplier factors make suppliers a threat to firms in any given industry. Majority environment automotive industry suppliers are located in cities and across all states in the country. Additionally, there are no major suppliers who can operate on a modular and systems basis. Furthermore, the technological gap that has existed in the industry has been reduced by the entrance of new foreign suppliers from Germany. These two suppliers make better quality products thereby adding value to the company. Therefore, supplier power in the industry is strongly curtailed and has no significant impact on the company.
The fourth force in the analysis of industry competitiveness and risks or threats is the threat of substitutes. Customer needs can be fulfilled by different products and services that are different but close to those offered by the firm or industry. The closer the products or services are the greater the threat of substitute products in an industry. The emergence of petro-electric environmentally friendly cars in the world in the past five years is a source of opportunity rather than a threat to the company. Hybrid vehicles are thought to reduce emissions that are dangerous to the environment than the conventional petrol-powered cars (Min, 2005). Ever since the introduction of environmental friendly cars, the demand is positive, and there is no threat of substitute products.
The last force in Porters model is rivalry among industry enterprise. If there exists intense competition among established firms within the industry, the profitability of firms and the industry at large is threatened (Lee, Kim & Park, 2012). Various factors shape the intensity of rivalry within the industries. For instance, industry competitive structure, demand conditions, cost conditions, and height of exit barriers. This industry segment is fully backed by the government and other environmental groups. Government is encouraging the growth of the industry at all costs. Competition in this segment of the industry is both local and foreign. Presently, there are more than fifteen hybrid car manufactures in the country. Three companies which are Toyota, Volkswagen, and Ford are the most established hybrid car manufactures in the country. Despite high competition from industry rivals, production of environment friendly vehicles remains below the market demand.
From Porters analysis of Friendly Environment cars, there are substantial opportunities and threats to the company. Firstly, favorable government policies on cleaner fuel present an opportunity for the company to invest more in friendly environment cars. Secondly, the mounting concern over fuel or energy sustainability is another opportunity to invest in hybrid cars. Additionally, the accelerating industry growth coupled with lack differentiation of cars is an enormous opportunity to the company. The major threat to the company is increased competition due to new entrants into the industry. The lucrative industry seems to attract many firms, which will intensify competition in the industry thereby threatening company profitability.
Conclusion
The ecologically friendly segment of the automotive industry provides a fertile terrain for progress of Friendly environment cars. The introduction of alternative sources of fuel in the country and the world at large offers an opportunity for the company to continue to build process innovation in the manufacture of cars. Though there are substantial obstacles and threat in the industry, the company is bound to strengthen it business as a leading hybrid car manufacture domestically and globally.
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