Threat of New Entrants Profitable industries that havehigh returns will attract new firms to participate.
New competitors may forceexisting firms to be more efficient and to learn how to compete on new level. Thethreat of new entrants is high when it is easy for new competitors to enter amarket ad low when there are significant entry barriers to entering a market.These entry barriers make it difficult for new firms to enter an industry andoften put them at a competitive disadvantage even when they are able to enter. Domesticcars made in Malaysia are Proton and Perodua. This seems that in the automobileindustry, there have high barriers for new entrants to involve in.
Thepotential for new high entrants are economies of scale which Perodua is able toproduce cars in large numbers and achieve low cost in producing products andable to provide flexible pricing when producing enterprise products, promoteproduct differentiation for special products, require capital requirements tobe based on high capital requirement for Automotive industry to operate. Inaddition, the automotive business requires not only highly advanced technicalsupport for routine manufacturing activities, but also specialized technicalpersonnel to operate these machines Threat of Substitute Products A substitute product is a changethat uses different technologies to solve the same economic needs. The threatof substitute product or service is high when they are many alternatives to aproduct or service and low when there are few alternatives for them to choose. Thesubstitute product’s quality and performance are equal to or greater than theexisting product while the selling price is lower. The factor that faced are thenumber of substitute products available in the market, the intention of buyer substitute,the relative prices, and quality of substitute and buyer’s switching costs.
Therefore, if there have a high threat of substitute products, there is higherthe possibility for Perodua to have the loss in advantage and profit of the products.So, the threat of substitute products in automobile industry is low because thesubstitute product of vehicles that have is motorcycle, bus, van and so on. Althoughthere have many types of transporting vehicles, cars still hardly to substituteby other vehicles since bus and van are more consider as public transport whichmeans the time and distance are uncontrollable by single person. Formotorcycle, it will affect by the weather when driving and less safety thancars. So nowadays, most of the people will buy car as their main of transportationbecause of the weather which may be sunny or rainy day and capacity ofpassenger that can bring compared to buying motorcycle which in rainy day, needto wear raincoat in order to prevent get wet in rain and more comfortable thanchoosing van and bus as their transport. Bargaining Power of Buyers The bargaining power ofbuyers is the ability of buyers to influence the price they must pay for anitem.
Firms can take steps to reduce buyer power by giving discount that helps companiesfind out who the company’s loyal customers are. Buyers’ power is high if buyershave many options and it is low if they have few choices given. In automotiveindustry, the bargaining power of buyers is moderately strong because most of buyers are small individualbuyers that buy vehicles. Such buyers can bargain forlower prices while every buyer can easily switch to a new brand because thebuyers are sensitive towards price and would switch to another brand thatoffers lower price which is Proton. And for the consumers who more concern aboutsafety or speed, they may choose Volvo or BMW as their main car brand.
Thus,the Perodua need to focus on customer loyalty through design, quality and byoffering competitive prices. Bargaining Power of Suppliers The bargaining power ofsuppliers is the supplier’s ability to influence the price they charged forsupplies which including of raw materials, labour, and services. The supplier powerswill increases when supplier’s products create high switching costs. Accordingto the 2013 Automotive News, there have about 20 largest companies on theAutomotive News list of the top 100 suppliers for 2012. Therefore, there seem thatmany suppliers in the automotive industry have the option of obtaining rawmaterial. As a result, the bargaining powers of suppliers in this industry isconsider as low because Perodua can easily concerted to other suppliers thatprovide additional benefits and the switching cost might be lower than otherindustries.
Intensity of Rivalry amongCompetitors Rivalry among existingcompetitors is high when competition is fierce in a market and low whencompetition is more complacent. For most industries, the intensity ofcompetitive rivalry is the main determinant of the competitiveness of theindustry. Therefore, it is important to understand the industry rivals to successfulmarketing of the product. Besides that, a business must be aware of itscompetitor’s marketing strategy and pricing which the reactive will occur ifthere have any changes made. Firms seek to differentiate their products in termsof customers value and business competitive advantage.
Common rivalrydimensions include price, after sales service, innovation and etc. For example,most automobile industry will launch similar car price, the similar serviceafter the sale in the reason to beat the competitors. As a result, the lowerthe rivalry among competitors, the higher the profit that firms receives.