A Porter’s Five Forces Analysis explores five principal industry factors to determine the attractive of a given industry in a given market. In this P5F exercise, we look at the automobile industry in India. This is independent of any manufacturer. As such, it applies to every Indian car manufacturer. In any P5F analysis, one must examine the following: 1. The threat of new entrants 2. The bargaining power of buyers/customers 3. The threat of substitute products 4. The amount of bargaining power suppliers have 5. The amount of rivalry among competitors 1.
The threat of new entrants In most markets, the capital and expertise needed to setup an auto or parts manufacturing facility, would be a great enough barrier to entry to prevent many new entrants from setting up. However, given India’s incredible growth forecasts, infrastructure progress (especially new and better roads), and ever-expanding financing options to rural residents, the market is attractive. As such, we expect the threat of new entrants to be high. Result: Unfavorable 2. The bargaining power of buyers/customers Buyers in India have a wide variety of choice.
There are more than 20 foreign manufacturers selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). Of course there are also a plethora of incredibly cheap choices, like the famous Tata Nano. Result: Unfavorable 3. The threat of substitute products India is famous for its two-wheelers (bikes and mopeds) and three-wheelers. These are very real and obvious threats to auto manufacturers. Result: Unfavorable 4. The amount of bargaining power suppliers have It is likely that the suppliers to the manufacturers have considerable bargaining power.
They are not held ransom by one single manufacturer as they can market their products to any of the others in India. Result: Unfavorable 5. The amount of rivalry among competitors High. The industry is not yet in its shake-out phase and is still struggling to find the up-and-coming stars and possibly topple the leaders. Result: Unfavorable India’s auto industry is much like China’s, as far as Porter’s Five Forces is concerned. Like China’s, the P5F analysis ignores the massive future prospects which could indeed render this analysis irrelevant.