Porters Five Forces: High-End Premium Industry in China Essays
In this Section take a closer look at the main structural features of China’s automobile industry for luxury and premium cars.
We use Michael Porter’s (1980) Five-Force model to analyze the industry. These five forces jointly determine the intensity of competition within the industry and in turn help firms to set their strategies.
1. THREAT OF NEW ENTRANTS
New entrants to an industry will bring new supplies, new ideas and new competition. Therefore, the threat of new entrants is crucial to existing firms’ profitability.
We analyze domestic entry, foreign entry through imports and foreign entry through foreign direct investment (FDI).
The automobile industry in general requires large …show more content…
Especially luxury car producers do not only compete on price but rather on image, exclusiveness, environmental-friendliness etc. Consumers can easily switch between brands. That is why brand equity plays an important rule.
The bargaining power of buyers is low and therefore favorable.
4. BARGAINING POWER OF SUPPLIERS
Suppliers can influence the industry by deciding on the price atwhich the raw materials can be sold. This is done in order to capture profits from the market.
Once we focus on automobiles, the suppliers are producers of raw materials as well as of auto parts and components such as seats, air conditioners, exhaust systems, wheels, automobile glass, car braking system, airbags, seatbelts etc.
Since there are a lot very small local parts and components suppliers in China they do not have bargaining power with automakers. Also the fact, that only a few large automakers, especially in the high-end class, dominate the Chinese market intensifies the automobile suppliers dependency on the carmakers as a client.
In addition to that many large automakers have their own subsidiary component plants in order to maintain long-term relationships with the supplies and to ensure component quality. This vertical integration structure further weakens the