PORTERS FIVE FORCES

 Threatof new entrants

Access to technology is not an entry barrier in tractors, and capital investment
requirements are low. The key entry barriers are developing products suitable for diverse
regional requirements, build a brand name and set up an extensive rural distribution
network.

·         Threat of substitutes
Tractors are used for agricultural and commercial purposes, based on which the threat of
substitutes has been assessed. Human labour in the case of agriculture and commercial
vehicles [tippers for goods and 3-wheelers, light commercial vehicles (LCVs) and utility
vehicles for passengers] in the case of commercial usage act as substitutes. But tractors
help in increasing agriculture productivity, save time and improve efficiently. They are
used for the transportation of goods and passengers, construction activities and hauling
of luggage when not used for farming purposes. Hence, as a result, the presence of
substitutes is not a major concern for tractor players. 

·         Bargaining power of suppliers

Almost all major tractor players have long term relationships with suppliers, several of
which are group companies (in case of critical inputs). This results in players being sure
of timely and quality supplies of major inputs.

·         Bargaining power of buyers

The top four players (in terms of market share) - M&M [including Punjab Tractors Ltd
(PTL)], TAFE, Escorts and International Tractors Ltd (ITL) - accounted for around 83 per
cent of the tractor industry volumes in 2007-08. As against this, buyers of tractors
(farmers) are highly fragmented, which reduces their bargaining power with the tractor
manufacturers.

·         Intensity of rivalry among players

The intensity of rivalry among players has reduced in the last 3 years (based on the
Herfindahl-Hirschman Index) partly due to TAFE's acquisition of Eicher Motors' tractor
business and M&M's acquisition of PTL. Hence, the key differentiating factors among the
players are product portfolio and distribution reach. This moderate intensity of rivalry
can be seen from the pricing flexibility enjoyed by tractor manufacturers.