Since increasing attention has paid to environmental issues, researchers are searching actively for new exploitable resources that can instead of petrol and diesel.
Bio-fuels are one of the most favorite substitutes at current, which says made from renewable resources such as agricultural crops or waste. They are more environmental friendly and can be refined as conventional petrol that used in today’s engines.
Another substitute is natural gas that is relatively cleaner compare with other alternatives. Besides, it is claimed that natural gas is not only a cheap energy, but also can well suited to motoring uses.
In addition, Lewin believe hydrogen fuel cell cars that will hit the market in near future and many automakers are planning to launch this kind of product.
Besides, solar power is also a feasible substitute for carmakers. It is claimed that the very first solar power deal for reviving car batteries had made by a Canadian manufacturer of solar panels with the VW.
.Computer Aided Design Program
Wernle and Bolduc point out that vehicles design in the new century must be distinctive and alluring so that it would win a ideal market share. It is always a hard and time consuming process for car designer to design a car that not only combine with great comfort and safety performance, but also has unique style. Now, with the help of some computer programs such as Alias it would save much time for automakers to get cars to market quicker by reducing the number of clay models and prototypes.
. GPS and Car Navigation System
It is report that Garmin Ltd., the largest GPS device maker in the world had sold around 5 million units in 2006 for personal navigation equipment. Nowadays, GPS becomes more and more important to car drivers in every day life. With the help of GPS system information associated by odometers, gyroscopes, a car navigation systems can get drivers wherever they want to go. Information is transmitted by autonomous navigation systems without the participation of an external server by the use of a two-way communication between navigation center and the onboard vehicle sensors. The system can calculate the optimal route automatically and then give necessary guides and some programmes even can provide users with additional information such as hotels and shopping malls showing on its digital maps. As GPS and car navigation system has widely accepted by many people, it will become an important factor when people making their consideration.
2.2 The Structural Analysis of Industries
Competition between firms is crucial to modern economies. In competitive environment, there is a set of external influences which is able to affect organisations’ action. Organisations have to fully understand that environment in order to make effort to create competitive advantage so that to achieve success. In the following part, Porter’s five-forces’ (see appendix II) approach will be used to examining the competitive environment.
2.2.1 The Threat of Entry
Johnson suggest that the barriers to entry determine the threat of entry. If the barriers are high then the threat of entry would be relatively low.
The entrance barriers in global car industry can be proposed as following:
. Economies of Scale
Since the ever falling car price, in order to reduce cost, many carmakers keep increasing their output volume. For example, Toyota Motor Manufacturing had increased from 220,000 to 285,000 on Toyota Corolla and Avensis models in UK 2004 annual production capacity and Mazda’s domestic production capacity has increased by 14 percent in the same year. Thus, new entrants who want to come in this industry have to come in with either at a large scale and risk strong reaction from existing companies or they have to come in at a small scale and accept a cost disadvantage.
. Production Differentiation
For carmakers, it is always hard to create distinctive products, as the basic techniques of car manufacturing are no longer a secret for few manufactures. Now the focus is gradually turning to safety, style, comfort and new technology for example a computer control panel such as providing the driver with telematics, GPS because of the quality gap among the different manufacture become narrower. As a result, it would obviously more time consuming and would spend more money for those carmakers to design a new model that is different from the competitors’.
.Capital requirement of Entry
To entry the automotive industry requires not only advanced technological but also enormous capital. It costs a lot on designing a new model, production, distribution and so on. And the larger the scale the company has the more capital would be spent. So entrants who want to come into this industry should first make sure if they have enough money.
. Cost Disadvantages Independent of Scale
Porter state that established companies may have cost advantages such as proprietary product technology, favorable locations, favorable access to raw materials. Many famous carmakers have already established their cost advantages. Take the example of Ford, it spend around 450 million on automotive research and development in Britain to keep advanced technology every year. As a result, it is difficult for a competitor who does not have cost advantages to break into the industry.
To sum up, the entry barriers in world automobile industry is relative high, so it is not an easy work for new entrants to come in to this field.
2.2.2 Bargaining Power of Suppliers
Suppliers may have strong power over the industry if the industry is dominated by few suppliers or the switching costs is high to change one from another .
When considering the components segment of automobile industry, it is now facing a globalization trend. Rivals not only exist in the domestic market, but also rise from abroad, which means that the components segment is full of competition and the bargaining power of suppliers would be reduced.
Beside, car companies are now seeking component makers and original equipment manufacturers in some developing countries such as India, China and Far East in order to save money. Honda, which used to source major part of its components from UK suppliers, for example, is now reducing its UK vendor base. As a result, this worldwide sourcing trend has become a threat that limited the power of suppliers.
In addition, in auto industry there is a trend of allying with other manufacturers to share design and development costs recently. It is said that vehicle manufactures are working together much closer with their partners and try to develop vehicle platforms jointly. Most of large car manufacturers like Ford, GM, and Volkswagen have cut down their number of platforms and some models will use the same platform in order to reduce cost. Manufacturers can not only reduce their manufacturing cost to some extend by this way, but also would become more powerful when bargaining with components suppliers because increasing volumes of components may need. And meanwhile it may help manufacturers reduce raw material costs.
In a word, the bargaining power of suppliers in global automobile industry is low. It is an opportunity for many car manufacturers that provide a chance of planning their purchasing strategy better and more profitable.
2.2.3 Bargaining Power of Buyers
According to Porter’s theory, buyers have the power of forcing down prices, bargaining for higher quality and more service, and playing competitors against each other. In the following part, the bargaining power of buyer in global industry will be discussed from several different aspects.
As in global car market the product differentiation is not very obvious due to the auto manufacture acknowledge is no longer a secret. There are lots of carmakers in this market, and the basic functions of their products are almost the same and the only differences would be the design and some other additional functions. So customers can always find alternative supplier who offers a cheaper price, gives the most satisfied product, and provides the best customer service.
. Importance of Purchasing
If the product is very important for the buyers, the bargaining power of buyers may relative high. In automobile market, the importance of purchasing seems rather low. Statistic shows that in developed countries, the average ownership of cars is quite high, take Britain as an example, statistic shows that 3 in 4 households have access to a car and over half (52%) of all rural households had two or more cars in 2005. So in those countries to purchasing a new car may not be so necessary for most of the families.
. Information Searching
If buyers have full information about product, demand, market price, their bargaining power would be greater than those with less information. We are now entering a great new era of information. People can seek product information through various methods, such as friends, sales assistant and different medias. And it is said that individuals especially those who are highly involved with the purchase of a product are thought to be more active on information searching. Today’s mass media, no matter the newspapers, magazines, radio, or television, all contain a large amount of information. Besides, the entering of Internet era has simplified the process of information searching process to a great extend. All these factors mentioned above have provided consumers with more information.
What it comes down to me is that in automobile industry, the car manufacturers’ marketing strategy would be effected by the relative high customer bargaining power.
2.2.4 Pressure From Substitute Products
Substitutes play a limitation role in industry, it provide the same function as the product of the industry to restrains industry making profit. There are several means would be the substitute products of automobile.
. Public Transportation