Porter's five forces is a framework produced by Michael E. Porter that we use to analyse the industry regarding the internal and external environment, competitors, and also better understand the industry context in which the firm operates.
The aim of the five forces is to change the strategy or perhaps some rules in the firm favour to be able to remain competitive, enhance the position, and realize profit.
Porter's five forces is an extremely useful tool, since it can help us to comprehend the existing position of the firm, and take advantages from the strengths of competition and also improve the weaknesses, and steer clear of taking a wrong strategy to do not stack in the middle, and lose position in the market.
This framework is utilized to recognize whether something, service, business will be profitable, and also know the suppliers; power of buyers, substitutes, new entrants and rivals that will face the firm in order to remain attractive.
Rivalry: this force shows your competition between existing organizations that offer the same service or product, and even have the same strategy. If there is many competitors, then you should have just a little power over them by adopting a strategy which may be predicated on price, quality, innovation, advertisement, like differentiation, cost leadership, or the concentrate on a narrow segment.
Threats of new entrants: new businesses entering the industry provides new competition, to be able to gain the market, and decrease profitability for existing firms, above all those firms who've little protection and barriers to entry, then expecting some businesses to exit the market.
Threats of substitutes: the power of customers to find other alternative ways and products with lower prices and better quality that must gratify the same needs. There is a product for product substitute, substitute needs and also generic substitute that relates to something that people can do without.
Buyers bargaining power: determines the ability of buyers to impose strain on the firm either by switching to another company or having other substitutes, or cutting down prices. They can also affect the conditions under which all the organizations operate.
Suppliers bargaining power: determines the ability of suppliers to operate a vehicle up prices which put pressure on organizations if there is a few variety of suppliers, or by the uniqueness with their products and the control they may have over firms.
By analysing and understanding each force, and exactly how it influences the strategy of the firm, it offers the chance to identify the strengths of the firm and the ability to modify some points of the technique to make sustainable profits, and achieving success in obtaining and establishing appropriate strategies.
Rivalry: competition in the automobile industries is high, because there are many organizations in this industry that offer many selections for the clients, so each firm try to do its better to make more profit than others, and make its products a lot more sellable in the market.
Toyota, Ford, General Motors are the main opponents of Honda, so that it should keep on innovating, improving, researching, and developing to remain effective in this sector.
"The amount of rivalry in the automotive industry is further heightened by high fixed cost associated with manufacturing cars and trucks and the low switching cost for consumers when buying different marks and models"
Source: http://www. scribd. com/doc/44521940/Tata
Threats of substitutes: there isn't a huge threat of substitute in the auto industry that offers utility, independence and no wasting time, even if there is a large number of transportation. You will discover bicycles, subways, buses, trains and airplanes that will make our life easier, but that can be less convenience than automobiles. The price tag on fuel have a huge effect on the consumer's decision to buy vehicles, also the maintenance and the insurance of the car, but the automobile still has an important use in our personal and daily life.
Barriers to entry: it isn't easy for an entrant to enter into the auto industry easily, as a result of brand loyalty of the consumers. It is substantial for established companies to possess barriers to entry to protect themselves, because some companies are entering into foreign markets by purchasing an existing company or either merging with it and then realising a huge profit. With local knowledge and expertise, companies have the potential to compete in the market in which they operate from the domestic firms.
"Honda took the risk of getting into an extended and complex relationship during the 80s with a European company universally regarded as one of minimal capable automobile manufacturers in the west "British Leyland".
Source: the research study of Honda
Buyers bargaining power: consumers have many selections and brands, however the factors that affect more the consumer to buy a certain brand from another are: the appearance, quality, price, design. Consumers want always something new and nice looking with the latest technologies. The car had to be efficient, by saving fuel, protecting the surroundings, and running fast.
Since there are lot of competitors, folks have more choices to choose the less costly, and better in quality, for being loyal to a certain brand, that is why Honda tries to make its cars unique.
"Honda has a brief history of delivering high quality and fuel efficient vehicles, therefore the individuals are seeking the best product for a good price. Honda has being a leader in producing fuel efficient and low emissions vehicles"
"Honda's achievements on the technology front are well recognised, which range from its cutting edge low pollution and low fuel consumption engine technologies. The CVCC engine attempts to reduce emission of the pollution and with less fuel used, while VTEC engines was fuel economy with more power"
Source: the research study of Honda
Suppliers bargaining power: there a wide range of suppliers in the auto industry, and "many suppliers rely using one or two automakers to buy a majority of their products. If an automaker decides to switch the supplier, maybe it's devastating to the previous supplier business. As a result, suppliers are extremely vunerable to the demands and requirements of the auto manufacturer and hold hardly any power. "
Source: http://www. investopedia. com/features/industryhandbook/automobile. asp
Honda depends on some main suppliers for the items and recycleables that uses in the manufacture of its products.
"Honda has only a small number of components makers that might be considered to participate in its supplier's family. "
Source: research study of Honda
Porter's Value Chain
The value chain is a framework developed by Porter to spell it out the introduction of competitive advantage and the worthiness of the business. It is a chain of activities for a company operating in a particular industry.
"All organisations consist of activities that link together to build up the value of the business enterprise, and together these activities form the organisation's value chain. Such activities may include purchasing activities, manufacturing the products, distribution and marketing of the business's products and activities. The value chain framework has been used as a robust analysis tool for strategic planning of organisation. Its aim is to increase value creation while minimizing costs. "
Source: www. coursework4you. co. uk/essays-and-dissertations/value-chain-analysis. php
Value chain represents the processes from getting raw materials and components until providing the whole product or service.
In order to conduct a value chain analysis, the company is divided into primary activities and support ones. Primary activities are those related to production, and the cost of providing the merchandise or service, while support activities are those that maintain and arise the effectiveness and efficiency of the firm to improve the merchandise value.
"Primary activities: inbound logistics, operations (production), outbound logistics, marketing and sales (demand); services (maintenance).
Support activities: administrative infrastructure management, HRM, technology (R&D), and procurement. "
Source: http://en. wikipedia. org/wiki/Value_chain
Inbound logistics: it is related to bringing recycleables from suppliers, and handling them.
Operations: it is related with the products and handling the raw material, to come up with the ultimate means activities that transform the inputs into the output.
Outbound logistics: it is related with activities of distributing the product.
Marketing and sales: analyse the needs and wants of customers, creating awareness, advertisement, and sales promoting to attract people.
Services activities are the ones that maintain and improve the product's value including customer care, repair service.
Procurement: purchasing recycleables for the business's operation at a high quality and low prices.
Technology development: it is concerned with know-how, expertise and knowledge that lead the business enterprise to survive such as research and development.
HRM: it is an important way of attaining sustainable competitive advantage by recruiting, training, motivating, and rewarding the workforce.
Firm infrastructure: finance, quality management, R&D.
Inbound logistics: Honda purchases the raw materials from a number of components and tries to get advantages in quality and cost as much as possible. Both manual and automated assembly tasks to handle the components together to come up with the ultimate product, and it also adopts an impressive strategy for the look production called small batch production systems, in order to reduce costs and having a product variety.
Operations: Honda has developed a tiny batch production system, in which same vehicles are sent down the assembly line in batches, and then personnel execute the same task for each batch, then components are delivered to the assembly line in batches which exactly match the vehicle they'll be fitted into. Addititionally there is the facelift that Honda applies to its cars; the components are then replaced by others more developed to come up with a new product. Honda designs models that are related to geographical dimension depend of different market segments.
Marketing and sales: Honda expanded several products and models that customers could choose among them, and and yes it adopts a good production system that relates to its marketing and sales.
Honda's strategy emphasizes the high technology build into all its products and it offers features like advanced engines as standards rather than optional extras, thus simplifying product variety within each model type, so that every customers could reap the benefits of it long lasting model of the automobile.
The alignment of output levels with customer demand tends to concentrate on sales strategy, so the production levels of particular models can be varied up or down as a function of demand.
Services: Honda is looking to enhance their relational with the consumers, when you are attentive to the service support throughout maintenance and repair, and adopting a higher level of transparency with the customers.
Procurement: for a number of components, Honda arranges to acquire the recycleables gaining advantages in cost and quality. It has also the possibility of buying raw materials from component maker's located very long distance away to allow cheap labour sources in other regions, or purchasing them few square kilometres which is advantageous for in time logistics.
Technology development: Honda has technologically innovative products, developing new low pollution power sources for its vehicles such as CVCC and VTEC to be able to truly have a good market positions, and also it gives to its models a cosmetic facelift every four years to be able to gain competitive advantages.
HRM: Honda praises the achievements of individuals, makes merit the main element to promotion, and awards responsibility to younger employees across elder ones.
Firm infrastructure: Honda had become well known in the business for the collective decision making process employed by its top executives. Honda adopts too much dichotomies in their strategies management taking advantages from all. There is also a good research and development department looking to improve the quality of the merchandise and entering new technologies to gain sustainable advantages.
The primary activities and the support ones are related to one another, one activity make a difference the cost of another activity. Thus, the principal activity is related to the creation of the product by handling recycleables together and selling it, and the support activity relates to the competitive advantages that you gain from purchasing the components at an inexpensive and with a superior quality also to the technology used in the merchandise. So those linkages between your two activities added value to the firm, and can be a source for a sustainable competitive advantages.
This approach of reconciling dichotomies can be used in an array of activities of Honda, and it represents the innovation strategy that seeks to look at different ways and opposite polarities.
Dichotomy means two contradictory polarities that do not fit together, and reconciling in this context, identifies an approach in which those two poles are somehow made appropriate for each other. Honda's strategic thinking rejects the trade off, or to choose one strategy, however, Honda has mixed way too many dichotomies to incorporate the best of both worlds, which plays a part in the success of its strategy.
After Honda had selected its market and customers segments, it is time to decide how it wants to put itself within this segment.
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