ANALYZING INDUSTRY STRUCTURES

Industry Analysis II: Five Forces (b)

Learning Objectives

Application
Analyzing the two vertical competitive forces in the automotive industry

Dicussion
Highlighting common pitfalls of industry analysis

2
The threat of new entrants is the fourth competitive force
Determinants
Capital/knowledge requirements
Economies of scale of incumbents
Cost (or learning) advantages of incumbents
Branding advantages of incumbents
Governmental and legal barriers
Retaliation of incumbents
Access to distribution channels for new entrants
Automotive
• High investment in manufacturing
• High product development costs
• Economies of scale in product development and
manufacturing
• Significant learning effects
• Regulated approval process
• Strong patent protection
Threat of new entrants high in high-tech,
otherwise low
[13] [14] [15]
Porter (1980), Grant (2015) 3
The threat of substitutes is the fifth and final force
Determinants
User loyalty and switching costs
Availability of close substitutes
Substitute power/aggressiveness
Substitute relative performance
Substitute relative price
Automotive
• Increasing availability of alternatives types of
transportation (e.g., public transport, car sharing,
e-bike)
• Low switching costs
• Growing environmental awareness
• Growing regulatory constraints
• Wish to own a car still present
Threat of substitutes still moderate,
but likely to increase
[16] [17] [18]
Porter (1980), Grant (2015) 4
Is there any other competitive force that should be added to
Porter's five forces model?
The bargaining power of complements could be a sixth force
Determinants
Complement substitutability
Firm complement integration
Customer focus on system
Complement value contribution
Complement differentiation
Complement concentration
Automotive
• Complements historically no bottleneck
• Growing importance for alternative fuels (LPG,
electric, hydrogen)
• Charging network critical for uptake of electric
cars
• Car companies build own network
Bargaining power of complements relatively
low, but increasing
H2
[19] [20] [21]
Porter (1980), Grant (2015) 6
Many of the potential pitfalls of industry analysis can be avoided

Defining the industry too Using static analysis

broadly or too narrowly that ignores industry trends

Making lists instead of engaging Pitfalls Confusing cyclical changes

in rigorous analysis to avoid with structural changes

Paying equal attention to all Using insights only to assess industry

forces rather than focussing on most attractiveness and not to guide strategic
important ones choices

Porter (2008) 7
Summary

Application
Analyzing the two vertical competitive forces in the automotive industry

Dicussion
Highlighting common pitfalls of industry analysis

8
Sources

Image Sources
[Cover] Compass <https://pixabay.com/de/photos/magnetkompass-navigation-richtung-390912/>

[13] Tesla Model S <https://www.tesla.com/de_de/models/design#battery>

[14] NIO Logo <https://commons.wikimedia.org/wiki/File:NIO_(Automobilhersteller)_logoText.svg>

[15] Geely Logo <https://commons.wikimedia.org/wiki/File:F4_Argentina_Championship_logo.png>

[16] Mercedes Benz <https://commons.wikimedia.org/wiki/File:Car_Icon.svg?uselang=de>

[17] Bicycle <https://commons.wikimedia.org/wiki/File:Bike_icon.png>

[18] Bus <https://commons.wikimedia.org/wiki/File:AIGA_bus.png>

[19] Sign <https://commons.wikimedia.org/wiki/File:Zeichen_365-53_-_Autogastankstelle,_StVO_2006.svg>

[20] Sign <https://commons.wikimedia.org/wiki/File:Free_EV_charge_station_sign_evinfra.svg>

[21] Sign <https://commons.wikimedia.org/wiki/File:Zeichen_365-53_-_Autogastankstelle,_StVO_2006.svg>

Content Sources
• Porter, M. E. (1980). Competitive Strategy. The Free Press.

• Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review. 86(1), pp. 78–93.

• Grant, R. M. (2015). Contemporary Strategy Analysis. John Wiley and Sons. 8th Edition.