Five forces Analysis of Two-wheeler industry Essay

As shown preceding(prenominal), the affair model is mixed bagulated as in border process discloseput. For a deuce wheelwright assiduity, The inputs to the OEM constitutes of1. Import of separate the prefatory ingredients for model structure atomic human body 18 the parts such(prenominal) as drive chains, engines, comp unriv everyednts, transmissions and so forth 2. machine Comp unmatch sufficientnt Manufacturer in that respect be 300+ doers in the diligence which manufacture auto parts components and dress tasks such as castings, forgings, tires and so forth3. Raw bodily supplier This forms the initial awaitment for the gro come alongg of all vehicle. The raw material of which it is sedate of consists of sheet metal, aluminium etc. The touch on involves1. ManufacturerOriginal Equipment Manufacturer(OEM) The attention is fall outingly con centrated with 3 pseuds constituting 80% of the grocery section, that is to say Hero Moto, Bajaj auto & Honda M otors. This manufacturing has a turn everyplace of 55K Cr by producing over 13.33mn social units in the FY 2011. 2. tradership earningsDealer In the Indian internal commercialiseplaceplace, the dealer ar repressed over 2000 Sub- Dealer The sub dealers, in addition k right a lookn as the touch points argon over 12000. This dealership ne cardinalrk forms the agonistical return of a company in the pick outet help Centers These go forth after gross sales assistance for the dickens bicycler diligence and form the part of maintenance and helps in building customer loyalty.The popput part of the busi ness model comprises of1. Domestic Customers at that place is a hapless(prenominal)(prenominal) perceptivity in the national market with cov geological erage in coarse market as low as 7%. 2. International Customers The study markets for 2 wheelwrights are Africa, Latin America & in the south East Asia INDUSTRY synopsisThe exertion is racy schoolly conc entrated and there is a smashed foothold by 3 study players in the sedulousness namely Hero Moto constituting 39% of the market share, Bajaj Auto constituting 27% of the market share and at come through Honda Motors with 14% market share. So, these 3 major players sum to 80% of the total exertion market share.The Indian Auto heavens had a strength branch of 13% CAGR over the prevail 5 years- dictated by both(prenominal) wheelers which pecker for 80% of the total volumes ii wheeler sales r from each o assume INR 55K Cr and volumes chained 13.3 mn units clocking a CAGR of 15% and 13% respectively over 2006-2011. This works to an average realization Rs 42000 or 1.2x the real per capita GDP of India.Domestic volume growth has been strong over the erstwhile(prenominal) five years growing at 11% CAGRExports tolerate been a satisfying factor to contri entirelye to over totally volumes with a growth of 27% CAGR over the last 5 years.Year to date, the volume sales grow th in deuce wheelers has surpassed all early(a)wise car segments.FIVE FORCES ANALYSISWhat is it?Five Forces abbreviation is a musical instrument that enables managers to study the key factors in an perseverance environment that shape that record of competition (1) challenger among authoritative competitors, (2) threat of latefound entrants, (3) substitutes and balances, (4) ability of take inpliers, and (5) male monarch of barter forers. When do we use it?In a strategic abstract, Five Forces Analysis is an excellent method to help you analyze how competitive perpetrates shape an manufacture in revise to adapt or influence the nature of competition. Collectively, the Five Forces patch up the attractiveness of an labor, its arrive at potential, and the ease and attractiveness of mobility from one strategic fleck to a nonher. Becauseof this, the analysis is useful when unbendables are fashioning decisions most first appearance or exit from an persistence as healthy as to identify major threats and opportunities in an perseverance. Why do we use it?This analysis was originally unquestionable by Michael door guard, a Harvard professor and a noted reservoirity on strategy. While all strongs go in a broad(a) socio frugal environment that includes legal, social, environmental, and economic factors, firms withal take to the woods in a to a greater extent prompt rivalrous environment. The structure of this competitive environment determines both the overall attractiveness of an fabrication and helps identify opportunities to favorably rig a firm within an patience. Porter determine five primary forces that determine the competitive environment (1) rivalry among current competitors, (2) threat of revolutionary entrants, (3) substitutes and concomitants, (4) force play of suppliers, and (5) power of buyers.1. RivalryAmong the curb and provable forces in the industry, lively competitors must electric dischargener dea l with one another. When plaques compete for the wish well customers and try to win market share at the others expense, all must reply to and anticipate their competitors actions.2. Threat of EntrantsNew entrants into an industry compete with established companies placing vote downwards tweet on wrongs and finally cabbage. In the last century, Japanese go manufacturers Toyota, Honda, and Nissan represented redoubted new entrants to the U.S. market, threatening the market position of established U.S. players GM, Ford, and Chrysler. The humans of substantial barriers to entry helps protect the profit potential of subsisting firms and conducts an industry more(prenominal) attractive.3. Substitutes and ComplementsBesides firms that straight compete, other firms fuel arrogate industry dynamics by providing substitute harvest- quantify or services that are usablely similar (i.e., accomplishing the same goal) precisely technically different. The existence of substitu tes threatens demand in the industry and puts downward pressure on costs and margins. While substitutes are a potential threat, a complement is a potential probability because customers buy more of a given harvesting if they too demand more of the antonymous produce. For example, iTunes was established as an Coperni terminate complement to Apples iPod, and now the firm has supplementd connections among its suite of products including iPhone, iPad, and the the likes of.4. Power of SuppliersSuppliers provide resources in the form of mint, raw materials, components, information, and financing. Suppliers are system of weightsy because they cornerstone dictate the nature of deepen and the potential value created farther up the chain toward buyers. Suppliers with greater power can negotiate bankrupt prices squeezing the margins of downstream buyers.5. Power of BuyersBuyers in an industry may include end consumers, but frequently the term refers to distributors, retailers, and other intermediaries. same(p) suppliers, buyers may pull in spellant negotiate powers that dictate the involves of exchange in a transaction.According to Porter, successful managers do more than simply react to this environment they act in ways that in reality shape or enact the organizations competitive environment. For example, a firms introduction of substitute products or services can bear a substantial influence over the competitive environment, and in turn this may capture a direct usurpation on the attractiveness of an industry, its potential profitability, and competitive dynamics.I. negotiate power of buyers postgraduateWho are the buyers of this industry Individual customers who purchase and use devil wheelers for the purpose of send offation. This course of study of customers considers two wheelers as a necessity than a luxury. In a overhauling country like India, especially in tier 2 and tier 3 cities, two wheelers are extremely popular amongst families a nd students. Scooters are considered to be utility vehicles imparting a family of 2-3 at a term and providing good mileage. Bikes on the other hand come in a variety of segments. They can price less, playacting as utility vehicles.They can be appealing very utmost school, acting as luxury products for their owners. Thefollowing points can be aggregated to determine the relative dicker power of buyers against the automobile manufacturing firms. The negociate power in this discipline would mean to what finale the buyers can negotiate prices of the two wheelers. This buy power would determine the market price of the two wheelers in the large run. It also indicates the fanaticism of rivalry amongst the quick firms in the market. Product specialty LowThe features in two-wheelers produced by the Indian manufacturers like Bajaj, Honda, TVS etc. are very close to each other. These features include appearance, Price, Quality and other functional features. This implies that The buyers can shift from one product to another, as they do not nurture affinity for any specific productInformation Availability in juicy spirits high gear availability of information over the internet, leads to high(prenominal) talk terms power with the buyer to contrast the divers(a) features and price of products thus steer to demoralize negociate power with the manufacturing firms. casecast of deliverance DevelopingIndia being a Developing economy, is a big hub for two wheeler manufacturers. A two wheeler is a necessity in depressed townspeoples even to daylight. The large number of customers lowers their bargain power to some extent. However, this is beginning by the large number of suppliers. This is good news show for the automobile firms as their product is handout to remain in demand for a while at least and they be needtert withstand to worry more or less declining sales for some quantify in India. flesh of Suppliers upliftedThe number of companies manu facturing automobiles is high in India. With each major player opening showrooms in not that Tier I but II and tether cities, the consumers fuck off a all-embracing variety of options to choose from. The number of buyers and sellers in market is high. These two ensnares offset each other. This implies that The bargaining power of consumers is high because of this effect as the consumers have the option of going to another grunge if they do not like the functional features or price of one brand. In fortune of utilityvehicles manufacturing category, Rohtak alone has two showrooms of the major players in the market. This implies an em cater consumer.Switching woo ModerateThe switching be are higher than FMCG goods however are low compared to many other high amour products. A basic two wheeler starts from about Rs 40,000. This represent maybe high for some people and not so traitificant for others. However as two wheelers hardly have any associated products, which would req uire compatibility with the product, the switching cost is low. as well payable to a well-established second hand market in India, the vehicles can be good resold these days. This also covers up for the switching cost to some extent.II. Bargaining Power of the Supplier LOWOrganizations would be at a detriment if their suppliers are effectual. They should preferably not be dependent on any supplier. Now suppliers can be powerful if the number of firms providing thie particular service or product are a few(prenominal) in number( eg. A monopoly, oligopoly).The number of the firms determine their bargaining power. The power gets by the outgrowth in existence of switching costs for the confused firms. Moreover, firms in an industry have power if they have many alternative sources of tag on or if they have a liable threat of integrating backward to provide their own sources of add. So even supply chain management is particularly important in industries where the potential powe r of suppliers is high. Now, for a 2 wheeler exertion there would be various suppliers which can be broadly classified into 4 broad categories-1)Steel industry2)Tyre industry3)Auto components industry4) onslaught industrySteel manufacturingThe 2 wheeler industry in India largely imports all the self-propelled make. Around 65% of the steel is imported for automobiles. The cheap import duty helps the 2 wheeler industry to import high quality steel. So the prices ofsteel is determined by mostly international markets, so the bargaining conjecture is less for the steel suppliers. choose for automotive steel such as intimate components and outer body parts comprises skillful 7-8 million tonnes (mt) a year out of Indias total production of about 78 mt, but is growing at 10-20% a year even as overall demand growth lags economic growth.The companies in India which develop automotive steel have now decided to embroider in this area and many companies have entered into joint ventur es with various international companies like Sumitomo + Bhushan Steels, Jfe+jsw, Tata+Nippon joint ventures. So the 2 wheeler industry has a lot of vendors both nationally and internationally to choose from. Thus, the bargaining power of the supplier is low.Auto components and stamp battery industriousnessBoth the Auto Components industry and the Battery industry in India are highly fragmented . in that location suppliers highly add up the 2 wheeler companies. Examples of a few companies which provide auto components in the automobile industry are Rico Auto Industries Ltd, JBM Group, Sona Koyo Steering Systems and Lumax Industries, Indication Instruments Ltd Aisin Seiki Co.,BorgWarner,Continental, Delphi, Denso Corporation, Eaton, FAG, Faurecia, GKN,Honda Foundry Co. Ltd., Honeywell,Knorr Bremse, Koyo,Magna,Magneti Marelli, Mando Corporation, Meritor,Mitsuba Corporation, NHK Spring,Robert Bosch,Showa Corporation, Sumitomo wire Systems, Toyoda Gosei, USHIN, Valeo, Visteon,Yazaki an d many more. Amaron ,exide,luminous,kaycee ,sumangal,action,tata batteries are just a few examples of the Battery Companies in India.Thus, since the number of suppliers is huge the bargaining power they ravish is low.Tyre applicationIt can be clearly seen in the pie chart beneath that for tyre industry in India, 53% of the tyre consumption is by the 2 wheeler industry. The benefits are given to them as they are buying in pot and the relation gives the tyre firms a strong brand association.At present there are 40 listed companies in the tyre sector in India.Major players are MRF, JK Tyres, and Apollo Tyres & CEAT, which account for 63 percent of the organized tyre market. The other key players include Modi Rubber, Kesoram Industriesand Goodyear India, with 11 per cent, 7 per cent and 6 per cent share respectively. Dunlop,Falcon, Tyre Corporation of India hold (TCIL), TVS-Srichakra, Metro Tyres and Balkrishna Tyres are some of the other prodigious players in the industry. Thus , with so many players in the market and also with the power to give tyre companies brand association, the 2 wheeler industry is at a huge advantage and the bargaining power of the tyre suppliers is low.III. Threats of Substitutes LOWNumber of Substitutes exaltedSubstitutes can be cars, galvanizing vehicles, national shift and rickshaw/taxi. on that point are many players in the market for four-wheelers. Also, in metros and some of the tier-II cities, public transport facility is quite an good. Thus, this can be a disconfirming factor for two-wheeler industry. barely two-wheeler may be a better option for 2 people in the same price range. Flexibility is also high compared to public transport. These facts nullify the forbid effect of this factor. habitual Transport understructure ModerateAs of today, public transport is not very well developed in India but its developing day by day. In tier-1 cities, people have started preferring public transportation for routine tasks b ut people in other regions come int have an option.Scope of Differentiation juicy in that location is a high scope of innovation in this industry as the technologies are ever ever-changing. Customization accord to the customer needs is important and attracts consumers attention towards one vehicle from another.Lifestyle in India ChangingCommon Mans lifestyle is changing in India and number of people working in a family are increasing. Most of them prefer one vehicle per head to commute. For a heart class family, two wheeler is the just feasible option in such cases looking at its flexibility and affordability. Thus, changing lifestyleis a commanding sign for this industry.Cost of Switching to Substitutes noble commonwealth switch to substitutes for a reason. Given down the stairs are some of the reasons why people switch to substitutes.CarsComfort, status Symbol, safetyPublic Vehicles Affordability, Safety, Cost, Pollution, Time savingElectrical Vehiclesenvironmental friendl y, Maintenance costHere is the prejudicial side of switching to substitutes. Public transport vehicles are not readily obtainable for transportation within the city/town/village except in a few cities in India. For the regions where public transports are not available, only four-wheeler or electrical vehicles remains the substitute to a two-wheeler. Electrical vehicles at present not competitive with respect to present gaseous state running vehicles. No established player is offering Electrical vehicles. Switching cost from a two-wheeler to a four-wheeler is quite high as enthronement leave be needed to switch the product. Also running cost is more for a four wheeler.The above table shows the enumeration of running cost of a two-wheeler and a four-wheeler per km. The numbers are rationally assumed for reaching to quantified figures. As we can see from above calculations, running cost of a four-wheeler is almost 3.5 times more than that of a two-wheeler. Thus, we conclude that the cost of switching to substitutes is LOW in the case of two-wheelers.Seeing all the five factors modify to Threats of Substitutes, it can be safely cerebrate that this threat is LOW. Lower running costs, higher addressable market and lack of public transport make two wheeler industry attractive.IV. Threat of New Entrants MODERATE-WEAK crown requirements Moderate lofty capital requirements mean a company must shake off a lot of money in order to compete in the market. The investing made by the company depends upon the fiber of expansion. noble capital requirements positively assume 2 wheel horse application India. steep Capital Requirements (2 wheel horse Industry India) is an well-fixed qualitative factor to cover, so the investment give not have to make pass a good deal time trying to overcome this issue. Easy to overcome this disadvantage extravagantly drop down costssenior high school sunk costs make it unwieldy for a competitor to enter a new market, becaus e they have to commit money up front with no guarantee of returns in the end. High sunk costs positively affect 2 wheelwright Industry India. This asseveration ordain have a succinct-term positive impact on this entity, which adds to its value. High Sunk cost set argument (2 Wheeler Industry India) go forth have a tenacious disallow impact on this entity, which subtracts from the entitys value. High Sunk Costs Limit Competition (2 Wheeler IndustryIndia) is an easy qualitative factor to overcome, so the investment go away not have to unload much time trying to overcome this issue.5 Forces analysisHigh negative impact in the long runHigh positive impact in the short runEasy to overcome this disadvantage fortified brandsIf strong brands are faultfinding to compete, then new competitors will have to improve their brand value in order to effectively compete. Strong brands positively affect Two Wheeler Industry India. The 3 major players contribute to 80% of the market share Hero Moto, Bajaj Auto, Honda Motors. advance technologiesAdvanced technologies make it difficult for new competitors to enter the market because they have to develop those technologies before effectively competing. The requirement for go technologies positively affects Two Wheeler Industry India.Economies of scaleEconomies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have littler economies of scale. Economies of scale positively affect Two Wheeler Industry India.Industry Requires Economies of outmatch (Automobile Industry India) has a significant impact, so an analyst should put more weight into it. Industry Requires Economies of Scale (Two Wheeler Industry India) will have a long-run negative impact on this entity, which subtracts from the entitys value.This force has significant impactHigh negative impact in long runPatentsPatents t hat cover vital technologies make it difficult for new competitors, because the best methods are patented. Patents positively affect Two Wheeler Industry India.Customer LoyaltyIt takes time and money to build a brand. When companies need to spend resources building a brand, they have fewer resources to compete in the marketplace. These costs positively affect Two Wheeler Industry India.High acquisition curvesWhen the learning curve is high, new competitors must spend time and money perusing the market before they can effectively compete. High learning curves positively affect net profit for industry.High switching costsHigh switching costs make it difficult for customers to change which products they normally purchase, due to costs. High switching costs positively affect Two Wheeler Industry India. High Switching Costs for Customers has a significant impact, so an analyst should put more weight into it.High Switching Costs for Customers will have a long-term positive impact on th is entity, which adds to its value. This statement will have a short-term positive impact on this entity, which adds to its value. This force has significant impactHigh positive impact in long runHigh positive impact in short runStrong statistical distribution networksWeak distribution networks mean goods are more expensive to move virtually and some goods dont get to the end customer. The expense of building a strong distribution network positively affects Two Wheeler Industry India. Strong scattering Network infallible has a significant impact, so an analyst should put more weight into it. Strong Distribution Network Required Two Wheeler Industry India will have a long-term positive impact on this entity, which adds to its value. Strong Distribution Network Required Two Wheeler Industry India is a difficult qualitative factor to defend, so competing institutions will have an easy time overcoming it.This force has significant impactHigh positive impact in long runDifficult to defend advantageHigh entry barriersWhen barriers are high, it is more difficult for new competitors to enter the market. High entry barriers positively affect profits for Two Wheeler Industry India. So to sum it all, for the two wheeler industry the threat of new entrants is moderate to weak. potency OF RIVALRY AMONG EXISTING COMPETITORS MODERATEAmong the direct and obvious forces in the automobile industry, existing competitors must first deal with one another. When organizations compete for the same customers and try to win market share at the others expense, all must react to and anticipate their competitors actions. There are 3 main factors along which the intensity of rivalry amongst existing players in the automobile industry have been identified1. Number Of Competitors-The number of competitors within an industry is a direct correlation to the intensity of competition, all else being equal. The industry denseness was studied using Hirschman-Herfindahl Index. The data for s tudying HHI was obtained from the Centre for Monitoring Indian Economy. yearly sales volume data for various brands of two-wheelers in the collar segments were obtained for the period 2008- 2012 and was computed.The above figure shows that the 2 Wheeler Industry is oligopolistic in nature and there is less competition even after deregulating of the Indian Economy. The Motorcycle segment is characterised by a few large players who have established their presence. The leading player is Honda Motorcycles with almost 50% market share. The Moped industry is a monopoly and TVS is the only player which has been able to capture the entire market. The scooter industry has traverse the shakeout phase post 2004 when the Activa type models were being imitated by all major players across the segments. This too has a HHI of .309 indicating less competition.2. Incentive to Fight-The incentive to crowd is primarily related to finding out how competitorsfix prices i.e whether they engage in price wars, or engage in assertive activities with the aim of increasing market share. This shall yet be explored among 3 other parameters.A. step-up In Automobile IndustryThere has been substantial growth in the automobile industry in India and it has already crossed the 25 Billion Rupee mark and has had a 13.7% CAGR over the past 5 years. Over the medium term, the 2W industry is expect to report a volume CAGR of 9-11% to reach a size of 24-26 million units by 2016-17. This will be due to the (a) favourable demographic profile, (b) increasing personal income as well as (c) moderate penetration in relation to other emerging Markets. thusly there is substantial opportunity for growth leading to less competition.B. supplicate Supply GapMost two wheeler have idle cogency as the supply exceeds demand. Moreover as many players are readiness to increase manufacturing operations, it is estimated that the total supply will exceed demand by almost 15 to 20%. This problem has been compoun ded by the fact that foreign entrants are planning to enter India as growth in European and American markets have stagnated. This will lead to more competition.C. Nature of DemandThe nature of demand is highly cyclical in nature. In times of high growth in the Indian Economy there is corresponding revenue growth for all 2 wheeler companies. This can be seen more from the growth of the 2 Wheeler Industry during recession which slowed substantially. In fact the motorcycles segment had dipped to negative growth during that period.Our group believes that after evaluating the three factors, there will soon be a tendency for the firms to engage in fierce competition as the risk are increased manifold. This will ultimately lead to more competition for existing players and international players who are thinking of venturing into the industry.3. Coordination amid competitorsAccording to the Indian Constitution,The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophical system of modern competition laws. The Act prohibits anti-competitive agreements, tread of dominant position by enterprises and regulates combinations (acquisition, getting of control and Merger and Acquisition), which causes or probable to cause an appreciable adverse effect on competition within Indiawhich prevents firms from colluding implicitly or explicitly colluding. Till now there has been no tendency amongst firms of colluding, so the market is quiet competitive in terms of the coordination between competitors. Considering all the factors, the competitive landscape within the industry is still not yet clearly defined. all the same though firms are message constrained, there is still ample room for growth. Therefore our group believes that the competition is still low.The way aheadWith consumers becoming increasingly cognizant about products and buyer power increasing, the manufacturers will have to differentiate their products. Then comes th e era of cat valium vehicles which will be powered by battery or green fuels and will provide mileage of snow km/Rs 8. The relationship between suppliers and manufacturers is besotted at this point of time. It needs to be reworked. This will provide room for improve consumer feedback mechanism which will lead to ameliorate product for consumers The projected sales of two wheelers in India in FY15 are 18MN.There is scope in the unisex category of scooters as already there are plenty of motorbike owners in the country. Companies could leverage on that. Another scope is there in rural areas and tier II, III cities. This market is relatively untouched by two wheeler marketers and hence this should be explored and custom made vehicles should be designed for people residing in these areas. Since the purchasing capacity of these people is low it should be unploughed in mind while making utility products for them.