PORTER’S FIVE FORCES OF INDUSTRY ANALYSIS – CHINA’S

AUTOMOBILE INDUSTRY

By: Mokete Ntahleng Idlert

Student Number: 2022Y90400002
Course name: Advanced Management
School: School of Management
Tutor: Professor He Shan
Date: 2022/ 10/ 25

China remains the world’ largest automotive manufacturing country and automotive market
since 2009. New entrants to an industry bring new capacity and a desire to gain market
share that puts pressure on prices, costs and the rate of investment necessary to compete.
Motor vehicle manufacture is a capital-intensive industry that requires very large fixed
capital investments in machinery, equipment, land, factories and fabrication and testing of
prototypes before formal production. All these features make it difficult for potential
entrants to enter the market because they first need to raise the sufficient capital and
second, they must prepare to bear debt for a long period of time.
In the last few years, a large profitability gap has opened between the leading players and
their low-end rivals. Because this industry displays a monopolistically competitive market,
the competition is not too intense as the market is mainly controlled by the top companies
which most of them are state-owned and have formed a joint venture with big foreign
companies. Within the big companies, each company is in a constant battle to one up the
other company, striving to remain the leader for the most advanced car options. They are
constantly improving the safety of their vehicles, and working to accommodate the needs of
the consumers as they evolve. But Chinese local companies still come on top with their New
Electric Vehicles (NEV).
Because of many differentiated products within an industry, customers tend to have more
bargaining power than the suppliers. There is a perfect price discrimination in the industry
because of the strong bargaining power of consumers compared to weaker bargaining
power of producers.
If an industry does not distance itself from substitutes through product performance,
marketing, or other means, it will suffer in terms of profitability and often growth potential,
(Porter, 2008). The main threat currently lies in an alternative means of transportation
including bicycles, motorcycles, trains, DiDi (出行) and walking, each of these options are
limited in their purpose of design. Bicycles were made for use in travelling shorter distances,
like within smaller cities for example, but the average person doesn’t want to exercise every
time they need to get from one place another. Motorcycles do save on gas so they are
popular thought in that respect, but they have other major factors such as the lacking of
safety in a collision when compared to a car. However, China keeps on improving its
transportation means in an attempt to reduce cars on the road.