PORTER’S FIVE FORCES MODEL

AARTI KATOCH ROLLNO.1

ABHIT JHANJI ROLL NO 2.
Threat of New Entrants
• Indian compact car market facing high intensity of competition.
• The market which is growing at 20-25% annually is attracting
international player like Volkswagen, Toyota, Nissan and Ford, etc.
• The new players plan to differentiate their products through
competitive pricing and additional features like added space, fuel
efficiency and better performance.
• New entrants in this category need to address various challenges
such as inflation, low-price barriers, substantial changes in raw
material prices, and government regulations, etc.
• Time and cost of entry
Time is most essential thing while launching a product in any market. The launch of the NANO is quite
viable as the demand of the small car is on the rise in the market.
• Knowledge and Technology
The TATA motors have great knowledge/ experience in the automobile industry and has renowned
technological advantage because of the recent acquisition and mergers. 
• Product Differentiation and Cost Advantage
The new product has to be different and attractive to be accepted by the customers. Attractiveness can
be measured in the terms of the features , price etc.
• Government Policy and Expected Retaliation
Although government's job is to preserve free competitive market, it restricts competition through
regulations and restrictions. The government tried to promote the TATA Motors to start a plant by
providing land and tax rebates. But the unexpected retaliation by the local people surface in the setting
up of the plant which costed the company a lot.
• Access to Distribution Channels
The TATA motors had a advantage of well established distribution channel across the world.
Rivalry Among Existing Firms
• The small car market in India is very competitive with players like Maruti
Suzuki, Tata Motors, Huyndai etc. which was pretty much dominated by
Maruti. But with launch of Nano the 1 lakh car the whole momentum of the
market has shifted.
• The Nano is alleged to have severely affected the used car market in India, as
many Indians opt to wait for the Nano's release rather than buying used cars,
such as the Maruti 800, which is considered as the Nano's nearest competitor.
Sales of new Maruti 800s have dropped by 20%, and used ones by 30%
following the unveiling of the Nano.
• The launch of Tata Nano is expected to diminish the sales of the used cars
under Rs. 1 Lakh - 2 Lakhs range and also the sales of the other entry level
cars like Maruti 800, Alto, Chevrolet Spark etc.
• A source in the automobile industry with direct knowledge of the plans said
Alto will have a stripped down version to compete with Tata Motors’ small
car Nano.
•NUMBER AND DIVERSITY OF COMPETITORS
Now to be competitive in market other companies have to either slash rates of
their existing model or have to go back to the drawing board and build again.
•PRICE COMPETETION
NANO is the only player so it has the price freedom but as the Maruti and
Honda are also planning to launch the car in the same segment the price
competition will start.
•EXIT BARRIER
If NANO fails or falls flat the TATA motors will not be in a state to slow down the
product even when NANO production line can be used by the other products
after few modification as for NANO only the new product line were setup and
huge cost were incurred.
•PRODUCT QUALITY
On the other hand if no one else can provide products/ services the way you do
you have a monopoly. NANO enjoys the monopoly are there are no competitors
in this segment.
 Threat of Substitutes
• The threat of substitute for Nano car is that of electric car, the new entrant in the small
car sector is the world famous clock-maker Ajanta group. The company is planning to
manufacture an electric car at its unit at Kutch district and market it at a price lower
than Rs 1-lakh Nano.
• The company is already manufacturing electric scooters and bikes under ‘Oreva' brand.
Production of electric car is not difficult for them as the technology is almost similar and
70 per cent of its parts can be produced in-house, giving them an edge over the vehicle's
pricing. The Ajanta group is serious in its attempt to keep the basic price of the proposed
car as low as Rs 85,000.
• At present, in the electric car segment only Reva car is available in India.
• Tata itself is believed to be making an electric version of the Nano, called the E-Nano
which might well turn out to be the "world's cheapest electric car" which is more eco-
friendly.
• So there is a high threat of substitutes for Nano.
 Bargaining Power of Buyer

• As the Nano car is made for lower income group people we can say there is
no power in the hands of buyer at present as only Nano is available in Indian
market but soon there will be cheaper car in the Indian market and buyers
will have power to switch to other cars.
• Tata Motors has to work out their strategies to meet the challenges of :
-Sales
-After-sales services
• Switching Costs
If switching to another product is simple and cheap the customers does not
think much before doing it. In case of NANO car the switching cost from bike
to car isn’t too high. Thus increasing the demand of the car many fold.
• Number of customers/ Volume of sales
If there are few buyers then they are able to dictate the terms. They pull
down the cost by Bargaining. They force the manufactures to improve the
quality. All this can be clearly seen in the case of NANO car the price tag at
which it has been offered or the quality of the NANO car no compromises
has been done at any front.
• Brand Image
The brand image of the TATA and the price segment in which the NANO has
been is the most attractive thing in the entire package.
Bargaining Power of Supplier
• Number and Size of Suppliers
A company to manufacture its products requires raw material, labor etc. If there are few
suppliers providing material essential to make a product then they can set the price high
to capture more profit.
In case of NANO the supplier are limited and the size of the suppliers are big enough
to bring about the controlling power in the price of the car. The NANO car has more
than 128 suppliers in all and the major portion of the building cost of the car is the parts
supplied by the suppliers.
• Unique Service / Product
Suppliers’ products have few substitutes. Supplier industry is dominated by a few firms.
The entire production line depends upon them only.
• Ability to substitute
Suppliers’ products have high switching costs. In many case even when substitute are
available its not that easy to opt for substitute as the next product in the assembly line
depends upon it. If the change in the any part is brought about the long list of depended
parts also have to be changed , which in most cases is not feasible to do.
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