The turnover in automotive industry is growing significantly. Companies need to sell their product across borders. To realize this, companies must evaluate the market forces in target markets in order to increase sales. One strategic tool used in evaluating market forces is porters five forces model. This tool highlights the key factors that determine the industry competition and the viability of such a market. The porters five forces model has been evolving with time. The principle ‘’the state of competition in an industry depends on five basic forces’’ (Porter, 2008 P.3) is still relevant. This analysis model covers a wide range of factors affecting the industry. Companies with awareness about their environment are able to make strategic decisions concerning their business. This paper discuses the application of Michael porter’s five forces model by Tata Motors Company on their new product, Tata Nano. Tata motors are the largest automobile company in India with revenues in excess of USD 16 billion in 2011. Tata motors have subsidiary companies and associate companies involved in various industries including mining, oil, manufacturing, and telecommunications. Tata motors have operations in Spain, Korea, Thailand, UK, and South Korea. The paper begins by identifying porters five forces. Second, a brief history of the Tata Nano is discussed. Third, the paper discuses how Tata Motors have applied the porters five forces model in its quest to make Tata Nano brand a success. Executive summary
Development of a business competitive strategy is essential for the success of a business firm. There is need to study the forces that can be harnessed by an organization to provide competitive advantage. In his book, Michael Porter (2008) gave the idea of deployment of five- force model for industry analysis. These five forces are (1) Bargaining power of buyers, (2) Bargaining power of suppliers, (3) The intensity of competitive rivalry, (4) Threats of substitute products or services and, (5) Threats of new entrants. Porter’s five models involves making a company product a monopoly in its class and enhancing competition among thee company suppliers. The purpose of monopolizing a product is basically enhance better control of a firm’s revenues and expenses in order to increase the profit margin. This is because monopolies are viewed as price makers while pure competitions are seen as price takers. The level of a firm’s concentration in terms of business transactions and its number of participant is attributed to the level of barrier of entry. This means that a monopoly has a higher level of barrier of entry as compared to a pure competition. Therefore, porter’s five forces provide a good glimpse through which the formation of market structures can be analyzed by studying market concentrations. The five forces also provide the insights on dealing with factors outside an industry that influences a firm’s competitiveness in a given market. Porter’s five forces
Bargaining power of buyers refers to pressure exerted on sellers to lower the price of the firm’s products. It also includes demanding better quality of a product or service. Strong buyers are able to lower the profits of an industry by lowering the prices while increasing the costs. Such buyers are well versed with the intricacies of the markets and tend to purchase goods in bulk (Porter, 2008). Bargaining power of the suppliers refers to ability of suppliers to increase the price of raw materials. Strong suppliers are able to charge high prices for their supplies, thereby affecting the industry’s profitability. In addition, the products have a few substitutes and have high switching costs. The threat of substitute’s products involves having other products that may satisfy a customer just as the given product. Substitute’s affects the pricing of products by imposing limit on the price the firm...
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