Porter’s Five Forces Indian Automobile Industry
Porter’s five forces Indian automobile industry analysis indicates where there is power in this industry. Porter’s five forces can be defined as a model that entails the identification and analysis of 5 competitive forces that play the role of shaping an industry while determining the strengths and weaknesses of that industry. The Indian automobile industry is among the largest auto industries globally. Its annual production between 2014 and 2015 was 23.37 million vehicles. This was an 8.68 percent growth from the previous financial year. This industry accounts for about 7.1 percent of the gross domestic product. A Porter’s five forces analysis will explore the five major factors that make this industry attractive.
Detailed Porter’s five forces Indian automobile industry analysis
- Threat to new entrants
Most markets require expertise and capital to establish an automobile parts or auto manufacturing plant. This is usually a great barrier to entrants and it prevents most investors from setting up plants in those markets. Nevertheless, there are incredible forecasts for growth in India, infrastructure progress, more so better and new roads, an attractive market and ever-expanding options for financing for rural residents. Therefore, the industry is attractive to new entrants translating to the following:
- Requirement for high capital
- Increased sunk costs limiting competition
- Advanced technological requirements
- Patent limit that new competition has to face
- Need for strong brand names
- Economies of scale
- The bargaining power of buyers or consumers
Indian buyers have different choices. This is because India has over 20 foreign companies manufacturing and selling cars there. They include high-end manufacturers like Lamborghini and Rolls-Royce. There are also cheap choices which include Tata Nano. As a result, there is low dependency on distributors, buyers have low price sensitivity and there are more customers.
- Substitute products’ threat
The threat of the products of the Indian automobile industry includes bikes and mopeds. India is popular for the 2-wheelers and 3-wheelers. These are obvious and real threats to the automobiles manufacturers. The implication of this is that the threats in regards to switching to the substitutes are high. However, there are limited substitutes.
Suppliers’ bargaining power
It is highly likely that the bargaining power of the automobile suppliers in India is high. This implies that no single manufacturer can hold suppliers ransom because marketing the products of the automobile industry in India is very easy. This is related to high competition level among suppliers, critical production of inputs, and low concentration by the suppliers as well as critical volume to the suppliers.
Existing rivalry intensity
Rivalry in the automobile industry in India is very high even if the industry is yet to reach the shakeout phase. The Indian automobile industry is also struggling to measure up to the leaders of the auto industry. This translates to product differentiation, low storage costs, government limitation in an effort to curb the competition, large industry size, fast rate of growth of the industry and few competitors’ entry.
Why Porter’s five forces Indian automobile industry analysis is important
The five forces that are analyzed using this model are what influence the performance of an industry. Any company that wants to venture into the automobile industry in India needs to use this model in analyzing the industry. This will enable it to determine whether the industry is attractive or not. This analysis does not depend on a specific manufacturer. Therefore, it applies to all car manufacturers in India. It can be used in identifying the structure of the industry with an aim of determining the corporate strategy to implement. Using it, a company can search for attractiveness and profitability in the Indian automobile industry.
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