There are distinctive barriers to entry in the automotive industry. The main 10 firms operating in the automotive industry have great power in terms of reputation, finances, experience, technology and existing large product portfolios. It would be highly difficult for a new company to compete with the above.
• The existing companies within the industry are joining forces, which at times do have detrimental effects for new comers to the market and for some existing companies. For instance, the situation of Rover in the UK. In the past, the profitable components of Rover were purchased by BMW and Ford, and Rover was left producing poor quality and old vehicles, which consequently led to its bankruptcy in April, 2005 (BBC, April 2005).
• Due to the environmental and technological factors mentioned previously, car firms must heavily invest in research and development. New comers to the industry may find it difficult to compete with the investments made by existing large firms.
• It is anticipated that the ways of being able to over come the barriers to entry in this industry would be to enter the market with vehicles that consume other forms of energy and vehicles that are environmentally friendly.
• As mentioned previously, Chinese cars are entering the industry. It is believed that they were able to overcome the barriers to entry due to the prices of their vehicles. Through cheap labour and components, Chinese firms are able to produce cars at a lower cost than the American manufacturers. (China daily, 2005)
Threat of Substitutes
• Although the public are becoming increasingly aware of global warming and therefore choosing other forms of transport such as trains, busses and bicycles, it can still be said that cars and other private vehicles are viewed as a necessity especially for those who do not live in city centres.
• It is therefore believed that no real threat of substitutes exist today.
• In the future, if cars that use other forms of...
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