Five Forces Model determine intensity of the industry competition and profitability.

In brief this model suggests that, industrys profitability (i.e. return on invested capital relative to its cost of capital) is a function of interactions among five forces: suppliers, buyers, competitive rivalry among firm currently in the industry, product substitute and potential entrants to the industry. Threats of New Entrants:New entrants are important because they can threaten the market share of existing competitors by bringing additional production capacity due to this supply of that particular product is high and holds consumer cost down and results in less revenue and lower returns for competing firms. Their main objective is to gain market share and this may force existing players to look for new distribution channels such as Ecommerce. Success of new entrants depends upon two factors; barrier to entry and the retaliation (revenge) expected from current industry participant. Bargaining power of suppliers: Increasing prices and reducing the quality of their products are potential means used by suppliers to exert power over firms competing within an industry. Profitability of the firm will be reduced by its suppliers action. A supplier group is powerful when o o o o It is dominated by few large companies. Satisfactory substitute products are not available. Suppliers goods are critical to buyers marketplace success. High switching cost for the industry firm

The airline industry is an example of an industry in which suppliers bargaining power is changing. Though the number of supplier is low, the demand for the major aircraft is also relatively low. Boeing and Airbus compete with each other for most orders of the aircraft.

 Bargaining power of Buyer: Firms seek to maximize their return on invested capital. Alternatively, buyers want to buy products at the lowest possible price. Buyers bargains for higher quality, greater level of service and lower prices. Customers are powerful when o They purchase a large portion of an industrys total output. o The sales of the product being purchased account for significant portion of the sellers annual revenue. o Switching cost is low. For individual customer switching cost is very low. For example when you choose between Air India and Indigo prices are same and switching cost zero.

Threats of Substitute Products: Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that industry produces. NutraSweet is a substitute for Sugar which performs same functions as Sugar. Consumer prefer substitute product when; o Switching cost is low o Products price is lower. o Qualities and performance is equal Differentiating a product along dimensions that customers value (such as price, quality and service) reduces substitute attractiveness.

Rivalry among Competitors Because an industrys firms are mutually dependent, actions taken by one company usually invite competitive responses. Competitive rivalry intensifies when a firm challenged by competitors action or when company recognizes an opportunity to improve its potential market.

The competition in automobile industry is intense. General Motors and Ford have experienced significantly lower earnings due to price cuts.

BARRIERS Economies of scale: o Economies of scale derived from incremental efficiency improvement through experience as firm get larger. o Here quantity of the product produced during given period is increases and cost of manufacturing each unit declines. Product differentiation: o Meaning: A product different and better from the competitors product having unique value and characteristics. o Companies like Coca-Cola, Pepsi and famous automobiles company spend huge on advertising their products uniqueness and due to this customers tend to become loyal with product and company. o It is a challenge for new entrants to overcome this loyalty if customers. Capital Requirement: o Competing new industry requires a firm to have resources to invest. In addition to physical activities capital is needed for inventories, marketing activities & other critical business functions. o Even if the new industry is looking attractive, the capital required for successful market entry is not available to pursue an apparent market opportunity. Switching cost: o Switching cost is the one-time cost customer incur when they buy from a different supplier. o Today if you want to change your mobile service provider, you can do that with help of Mobile Portability and the switching cost involved is very low. o Here existing players can offer loyalty program in order to retain their customers.

o New entrants must offer substantially lower products or much better product to attract the buyer. Access to Distribution channel: o In FMCG is space it becomes very difficult for new entrants to develop their distribution network. o New entrants must persuade to carry their products or they can also go for cooperative advertising allowance however those practices reduce the profitability of the new entrants. Government Policy:o Through licensing and permit requirement government can also control entry into an industry. o Liquor retailing, radio and TV broadcasting and Banking are the example of industries in which government decisions and actions affects entry possibilities.

Porters Five Force Model of Indian Automobile Industry Threat of RivalryAmongst Competitors Despite the high concentration ratio seen in the automotive sector, rivalry in theIndian auto sector is intense due to the entry of foreign companies in the market. In India the Foreign companies are Mercedes Benz, Audi, BMW which are International luxury car companies whereas in the 2 wheeler segment companies like Ducati ,Harley Davidson, Hyoseng give competition to Indian 2 wheeler companies like Hero Moto Corp, Bajaj Theindustry rivalry is extremely high with any being product being matched in a fewmonths by the competitors. This instinct of the industry is primarily driven bytechnical capabilities acquired over years of gestation under the technicalcollaboration with international players like
MarutiSuzuki,ToyotaKirloskar,Hyundai Motors India ltd In all car segments there are equally powerful competitors like in 2 wheeler segment Hero Moto Corp & Bajaj are equally powerful Due to increase in Fuel prices and high interest rates there is slow industry growth which stands at 8.3% Marutis car sales recorded single digit growth which was 7% whereas Hyundais sales were at 8% Diesel car manufacturers; Tata Motors and Mahindra , recorded highest growth of 53% and 27% respectively

 Sales of two wheeler companies had also reduced with TVS motors recording growth of -12% The slowdown has also hit companies like Ford, General Motors and Honda. The sharpest fall
was for General Motors whose sales were -23%, Ford was -17% and Hondas sales were -7%

Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. With increasing fuel prices focus shifts to efficiency India is famous for its two-wheelers (bikes and mopeds) and three-wheelers. These are very real and obvious threats to auto manufacturers. The switching cost associated withusing a different mode of transportation, may be high in terms of personal time,convenience and utility like in case of train. Used cars threaten the new market Product differentiation is important too. In the car industry, typically there are many cars that are similar example in mid-range Toyota and we can easily find a very similar Nissan, Honda, or Mazda Threat is there from vehicles that run on electricity and solar power known as Hybrid cars

Suppliers Power In the relationship between the industry and its suppliers, the power is tipped in industrys favor. The industry is comprised of powerful buyers who are generally ableto dictate their terms to the suppliers. In the car industry this refers to all the suppliers of parts, tires, components, electronics, and even the assembly line workers (auto unions ). 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 Steel is a major input in this industry and so steel prices have asharp and immediate impact on the product price The industry being capital intensive switching costs of suppliersis high, other than steel as raw material which is highly pricesensitive and the firm may easily move towards a supplier with lower cost High interest rates results in increasing manufacturing costs results in slowing industry confidence Buyers Power In the relationship between the automotive industry and its ultimate consumers, thepower is tipped in the consumers favor. This is due to the fairly standardizednature and the low switching costs associated with selecting from among competingbrands like switching between Maruti Alto & Hyundai Santro

 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 cars of incredibly cheap choices, like the famous Tata Nano. 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.

the threat of new entrants is thus high In the Hatchback segment, Coopers have made an entry in the Indian market whereas in
the bike segment, international companies like BMW, Aprilia, Triumphare quickly entering the two wheeler markets. Barriers To entry Challenging to attack existing car companies Barriers to entry For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Initial capital to start operations in India is high Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies like what Honda had done while entering Indian Markets with associating itself with Hero and becoming Hero Honda However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there.

Maruti Suzuki
Threat of New Entrants

Maruti Suzukis market share is always under a threat from new entrants When Hyundai launched Santro and Daewoos launched Matiz o Strategy: Maruti responded by introducing cars from Zen, Esteem, WagnoR, Gypsy &Baleno. In the year 1991 GOI was liberalizing the economy & this process was allowing foreign automobile companies to come into India and the result of this companys market share declined; at one time it was 84% then it declined to 58.6%, 54.41%, 50.9% in FY02, FY03 and FY04 respectively. New entrants are Volkswagon& Toyota who are planning to launch variations in Jetta &Etios respectively to challenge Maruti Baleno. Recently Maruti entered the SUV segment with its new car () Economies of scale Maruti Suzuki charge a low price for their cars which gives rise to economies of scale. Base model of Alto costs Rs 4 lacs Product Differentiation Under Maruti swift is the most selling car. New entrants find it hard to take the customers preference away as it offers mileage at a low price Capital Requirement Maruti has its capital requirement fulfilled by entering into a partnership with Suzuki in fifty one fourty nine percent deal Switching Costs MS cars are famous for fuel efficiency Access to distribution MS enjoys a healthy distribution channel. It has a highly planned channel which starts from the manufacturing plant to the vendors
Buyers Power

 MS focuses on giving better quality products to all classes of people Few years after Maruti 800 launched a survey conducted to understand the consumer behavior and when consumer were asked about their next Car, the majority of the respondent decided about some other car, some of them are ready to buy from competitors table. Maruti reacted to it by introducing Maruti Alto which is then became one of highest selling car in the year 2004-05. MS recently was ranked No1 of most famous brands by a Mckinsey report MS offers car loan facility where it has tied up with ICICI bank where they offer cars at 0 percent interest To keep their buyers happy, special offers like more no of maintenance checkups, gifts, like dvd players etc are offered On diwali discounts upto 10000 are offered on high end cars MS caters to all segments Hatchback swift, alto, wagon R Sedan swift drive ,baleno, esteem Luxury Kizashi

Suppliers Power

Problem:- They were importing most of the components from Japan. Company were facing problem because of rising yen & custom duty on raw material. Solution:- Company started development of components in India. They made Japanese supplier as there equity partner in this way they would able to bring Finance as well as well technology. Management also follows practices such as Quality Circle, JIT and 5S model.(
Set in Order, Shining,Standardizing, Sustaining) Sorting,

Threat of Substitutes

 Substitutes for MS are from 2 wheelers and trains 2 wheelers and trains make for comparatively faster travelling and are readily available Switching costs are low when a person travels by train rather than car Substitutes are also in the form of hydrid cars which are slowly entering the market like Toyota Hydrid Problem of parking is avoided

Threat of Rivalry Amongst Competitors

MS faces threat from Hyundai Motors for its market share To compete with Marutis Alto Hyundai launched During the Manesar strike at Marutis plant, Hyundai had increades its sales to take advantage of the situation Threat from Tata Nano MS is preferred choice of people MS primarily focuses on promoting itself as a family car whereas Hyundais image is that of individuals. MS focuses on fuel efficiency