WORKSHEET ON THE ELEMENTS OF INDUSTRY STRUCTURE
An industry analysis is an important step in developing an appropriate strategy for a firm. To do the analysis properly, the analyst must take an objective perspective and look at the industry as a whole to identify the factors that are important to competitive success. The Five Forces Model, developed by Michael Porter, is one tool that can help identify important industry characteristics.
To apply the model to an industry of interest, answer the questions associated with each of the five forces that appear on the following pages. After looking at each force, and identifying the key factors within each, make a ...view middle of the document...
Are there any important proprietary product differences in the industry? Each auto manufacturer has numerous proprietary parts and technology that make up their vehicles. | Yes | |
3. Are there any important established brand identities in the industry? Most auto makes and models have strong brand identity that the consumer is well aware of. | Yes | |
4. Do customers incur any significant costs in switching suppliers? There may be significant costs of ramping up production, tooling, etc. by the supplier. | Yes | |
5. Is a lot of capital needed to enter the industry? There is the cost of R&D, skilled labor, automation, manufacturing capacity, tooling, distribution channels, advertising, etc. | Yes | |
6. Is serviceable used equipment expensive? | | |
7. Do newcomers to the industry face difficulty in accessing distribution channels? To access a consumer base outside of the local manufacturing area, distribution channels are challenging. Shipping, dealerships, etc. | Yes | |
8. Do newcomers to the industry have any problems in obtaining the necessary skilled people, materials, or supplies? Union issues, finding suppliers who are not beholden to competitors, etc. | Yes | |
9. Does experience in the industry help firms to continuously lower costs? | Yes | |
10. Are there any licenses, insurance, or qualifications which are difficult to obtain? Govt. regulations (MPG), insurance or highway safety certifications | ? | |
11. Can newcomers to the industry expect strong retaliation on entering the market? Auto market is saturated (many have downsized) – any new idea will be copied by competitors. | Yes | |
Overall assessment on the threat of new entrants
A. Based on the above analysis, the key factors regarding new entrants are:
B. Based on the above analysis, are new entrants likely to be a threat to this industry?
New entrants will have a very difficult time carving out a profitable portion of the industry. The auto manufacturing industry has undergone significant downsizing and restructuring in recent years.
II. BARGAINING POWER OF BUYERS
For the following questions, “yes” answers suggest that buyers will have little or no bargaining power while “no” answers indicate that buyers may have a higher level of bargaining power. For each question, be sure to note the factors that lead you to either a “yes” or “no” answer and the likely strength or impact of these factors.
| Yes (+) | No (-) |
1. Are there a large number of buyers relative to the number of firms in the industry? Domestically there are millions of buyers but there are very few major auto-manufacturers (Honda, Ford, GM, Chrysler, Dodge, Hyundai, Kia) | Yes | |
2. Do buyers typically purchase in small quantities (relative to...