1. Using any industry with which you are familiar, please analyze the industry using Porter's Five Force Model. Please explain your rationale.
One of the most significant industries in the modern day US is the automobile industry. The global automobile has it advent in the 18th century, 1769, when the steam propelled invention by Nicholas Joseph Cugnot was introduced into the roads for purposes of hauling people and goods from one point to another. The automotive industry in the US commenced in the year 1893 when the Duryea Motor Company by brothers Frank and Charles Duryea; the first vehicles to be sold by the Duryea Company were the costly limousines which were produced up until 1920. A Porter’s Five Forces Model analysis is important for a company or industry due to the fact that it enables the affected organizational heads to maneuver their business operations in a manner that gives than an advantage over their rivals. Moreover, such an analysis provides knowledge to the firm on the nature of the industry context in which its commercial operations are based. An evaluation of the American automobile industry using the Porter’s Five Force model requires that the three major automobile companies in the US are analyzed. These three companies are general Motors, Ford and Chrysler.
(a) Threats of New Entry/ Barriers to Entry
This force assesses the levels of complexity or ease for new companies to enter the automobile industry. General Motors, Ford and Chrysler hold 20%, 16.8% and 12.1% of the US market share respectively. The threat for new entrants in the US in low due to the high barriers to entry; this is due to the large amount of capital, advanced technology and business capabilities necessary to start a successful automobile company. Moreover, the dominance of these three American companies for a long time is an indicator of less rivalry. Nevertheless, Toyota and Honda have already entered the US market and are competing with America’s big three.
(b) Threat of Substitutes
In the American market bicycles, train services and transportation by bus are options that are available to consumers. The recent inconsistencies in price of fuel as well as the increased operating costs of personal automobiles may cause American consumers to opt for substitutive transportation. The switching costs for consumers are also low. Consumers in geographic places like New York and other suburbs have no alternatives but to own locomotives. Nevertheless, customer loyalty and vehicle branding are also important in determining whether or not customers opt for substitutes in the market.
(c) Competitive Rivalry
This force refers to the level of competition in the automobile industry. The US automobile industry is characterized by great rivalry, both domestically as well as in regions such as Japan and Europe. The competition has increase with the entrance of foreign companies which compete for a market share. The automobile companies have thus had to invest largely in advertisements.
(d) Bargaining Power of Buyers
The bargaining power of consumers in an automobile industry is based on their volume and density, the information they possess, their awareness of costs as well as the competitive prices in the market. The bargaining power of the American consumer is restricted. The oligopoly in the industry implies that the options for consumers are limited. Moreover, substitutes such as public transportation are only available in urban centers.
(e) Bargaining Power of Suppliers
The concentration of dealers, their positions and presence of a monopoly affects their bargaining power. Dealers in American automotive industry are found in every town; the supplies are dependent on the automobile companies for inventories of manufactured products. Consequently the dealers have to maintain good relations with automobile industries. Other supplies are those that offer automobile constituents such as seats, navigations structures and tires.
2. Form a strategic management prospective; examine the U.S domestic automobile industry. Which of the influences in the broad (remote) environment do you see as having the greatest impact in the next 18 months? Why? Please explain your rationale
There are a number of important features that characterize the American automobile industry. The very first important aspect is the market structure. The market structure of the American automobile industry is described as being an oligopoly; this implies that is controlled by a few dominant companies. As already indicated the three big domestic automobile companies are ford, General Motors and Chrysler; this oligopoly in the US automobile industry also includes two foreign companies: Honda and Toyota. The manufacture and dissemination of automobiles in different markets is a very significant process that necessitates that the involved commercial organizations and their shareholders be prepared to maker great investments in terms of raw materials, work force, technology utilized, haulage as well as R&D.The American domestic automobile industry plays a very significant role in the financial systems and economy of the nation. As a matter of fact, an estimated 20% of the American production resources have historically been perceived as being connected to the manufacturing, logistics and supplies activities in the automobile industry. In recent days, the opening up of national and regional trade boundaries, commonly described as a consequence of globalization, have decreased the conspicuousness that initially existed between the foreign and domestic industries in the United States of America, particularly in the automobile industry.
3. Explain the relationship between a firm and the various levels of external environment. Which stakeholder in the operating environment do you believe to be the most important? Why? Please explain your rationale.
Commercial firms forge relations with different people and institutes in society; the term ‘stakeholder’ is used to describe the individuals and organizations that are affected by the activities of a business organization. These include workers, customers, suppliers, shareholders, the media, government and societal in general. It is generally agreed that the most important stakeholder for a commercial institute is its workforce. This is due to the fact that the work force is tasked with the responsibility of carrying out operations to produce quality goods and services. In addition to this, workers play a significant role in creating a positive image for their organizations. The PESTEL model has been used in the last couple of years to analyze the Political, Economic, Social, Technical, Ecological and Legal environment in which commercial organizations and industries exists. While the economic environment refers to the rivalry faced by a company and its products in the market as well as the company’s financial resources, social environment refers to the demographical transformations and way of life of people in a society. The technical environment refers to the inventions, techniques of organization or cognitive patters fashioned to deal to classical or emergent issues in the commercial organization. Political and legal environment refers to the influences of the government and legal decrees on the region in which a firm operates on the commercial firm.
4. How do you identify direct competitors and what are some of the common mistakes in identifying them? What tools are used to assist executives in examining direct competitors?
A company’s direct competition refers to firms that offer consumers with similar products and services at the same prices; the competitors may be direct or indirect. A company needs to identify its direct competitors so as respond to them effectively. This is usually done by assessing the competitor’s business objectives, market presuppositions, resources, abilities and group target; the geographic and sector target is also important. It may be difficult to identify one’s competitors due to the fact that they may arise from demand or supply sides. Managers often make the mistake of concentrating to much on the product market segment in the analysis of their competition and ignoring the competition emanating from the resources and aptitude of indirect or prospective rivals.
5. In Porter's model we are asked to consider potential entrants and substitute products as additional competitors. On What basis do we judge whether a firm is a potential entrant? On What basis do we determine if a competing product is a substitute?
In competition analysis it is important to determine whether or not a competing product is a substitute. A product is considered a substitute in the event that it is similar in characteristics, purpose and cost. Product is perceived as differentiated if their price change does not affect its sales significantly. A possible entrant is that which offers similar products or services in a similar industry.
6. Please compare and contrast the terms environmental determination, strategic choice, stakeholder approach, enactment, and adaptation.
Organizational choice and environmental determinism are independent factors in the sets of procedures involved in adaptation. Institutions are able, in their decision making processes, to establish, get rid of or reconstruct the objects of their environment. The importance of stakeholder approach is demonstrated in its strong connection with the application of its principles and financial performance.
7. What do we mean by saying a resource-based view of the firm? What are these resources and what makes them valuable?
A resource based view of the firm refers to the manner in which the important and identical resources at the disposal of a commercial organization are utilized to give the form a competitive edge. The said resource may be tangible or intangible and heterogeneous in characteristic. Such resources are very valuable due to the fact that they not easily imitated or substituted with others.
8. Please compare and contrast Porter's five forces model with blue Ocean prospective. Are these competing approaches? Please explain your rationale.
Porter's Five Forces model highlights a firm’s major competencies that offer it a competitive edge over its competitors; the Blue Ocean Prospective inclines on the establishment of increased demand rather than competing for the existent demand. This implies that the two approaches are not competing but rather complementary; organizational firms can benefit a lot from utilizing a model that blends the two approaches.