Bridgestone is a Japanese tire manufacturer; it is the industry leader in the industry. The firm was founded in 1931 and is headquartered in Kyobashi, Tokyo, Japan. The company has the primary business of manufacturing tires. The company has always championed innovation and led the industry through innovative products. The company is the largest tire producer based on revenue; in 2019, Bridgestone reported $27.23 billion (Statista, 2021). The company has two businesses, the primary is tire manufacturing, and the other is Diversified products. Bridgestone, through its diversified portfolio, manufactures Industrial products, Bicycles Motorcycles, and Bridgestone Aircraft Tire. The company has production facilities in 24 countries. Bridgestone has a global business; the expansion globally has increased its outreach and helped grow the revenue. Porter’s five forces model is an appropriate analytical tool to evaluate threats Bridgestone faces and the opportunities it can potentially explore.
Competitive Rivalry in the Market
The tire manufacturing industry is highly competitive globally, as well as in Japan. There are competitors of Bridgestone that only operate in the domestic market and produce high-quality tires. These companies push the company hard to gain and retain market share. There is intense rivalry among the existing competitors; the major companies are Bridgestone, Michelin, Goodyear, and Continental. In 2020, Bridgestone reported $28.1 billion and $2.6 billion (Fortune, 2021). Michelin has reported a revenue of $27 billion and a profit of $1.9 billion; the company is ranked at 472nd place in the Fortune 500 companies (Fortune, 2021). In 2020, Goodyear reported revenue of $12.3 billion (Forbes, 2021), and Continental had reported a revenue of $42.9 billion (Forbes, 2021). The presence of mega corporations intensifies the rivalry; therefore, the tire manufacturing industry is highly competitive.
Threat of Substitutes
The threat of substitutes is high when there are better alternatives available; there is excess competition, and the alternative products or services on offer are better in quality and price (Porter, 2008). The threat of substitutes is low in the industry as there is no natural substitute for the tire. The tire is an essential component of all vehicles; without it, any car is incomplete. The tires are also associated with the vehicle owner. Thus, they are to meet rigorous standards and quality standards. They are firms trying to innovate and improve the quality; the only substitute available is counterfeit products. These products are cheaper, but they are a big trade-off between quality and price. Usually, consumers prefer original products. Therefore, the threat of alternatives is low.
The Threat of New Entrants
The threat of new entrants is perceived to be high when there are favorable conditions for growth, access to financing options, and a supportive regulatory environment. The threat is considered to be low. There is enormous cost involved in setting up a tire manufacturing plant; it requires significant outlay. Not only is there a high cost required at inception, but there is also a requirement for substantial working capital. Greater capital outlays act as deterrents for the new entrants (Caves & Porter, 1977). Another factor that deters the new aspirants is the well-positioned incumbents. In the tire manufacturing industry, there are incumbents with established distribution channels and market share. Therefore, the threat of new entrants is low in the industry.
Bargaining Power of Buyers
Buyers’ bargaining power depends on the industry’s factors and the specific conditions associated with buyers. The buyers usually have higher bargaining power if they are concentrated; they are aware of their importance, low switching cost among products, and options to choose from. The industry is highly competitive and therefore gives buyers plenty of opportunities to select from. There is very little differentiation among products; the primary factor is a quality other than that tires are pretty standardized in terms of dimensions. There is low or virtually no switching cost among products, and therefore buyers can switch from one product to another. Low switching cost adversely affects the relationship between consumer and manufacturer; it enables the consumer to exit the market without hassle (El-Manstrly, 2016). Considering the above factors, buyers have high barraging power.
Bargaining Power of Supplier
Suppliers’ power depends upon the underlying factors affecting the supply chain such as the importance of the supplies for the business, the nature of supplies and the importance of supplies for the supply chain. The suppliers have low or moderate bargaining power at best in the industry. Many suppliers supply the raw material to tire manufacturing, and the material used is the commodity in another industry, making it easier for the buyers to acquire it. Buyers’ have multiple sources to acquire materials from and have virtually no reliance on the suppliers. Dual-sourcing prevents over-reliance and hence prevents the supply chain interceptions (Silbermayr & Minner, 2016). Therefore, suppliers have low bargaining power in the tire manufacturing industry.
References
Caves, R. E., & Porter, M. E. (1977). From entry barriers to mobility barriers: Conjectural decisions and contrived deterrence to new competition. The quarterly journal of economics, 241-261.
El-Manstrly, D. (2016). Enhancing customer loyalty: critical switching cost factors. Journal of Service Management.
Forbes. (2021). Continental. Available at: https://www.forbes.com/companies/continental/?sh=783406885833
Forbes. (2021). Goodyear (GT). Available at: https://www.forbes.com/companies/goodyear/?sh=1c934a553982
Fortune. (2021). Bridgestone. Available at: https://fortune.com/company/bridgestone/global500/
Fortune. (2021). Michelin. Available at: https://fortune.com/company/michelin/global500/
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 78.
Silbermayr, L., & Minner, S. (2016). Dual sourcing under disruption risk and cost improvement through learning. European Journal of Operational Research, 250(1), 226-238.
Statista. (2021). The world’s largest tire producers in FY 2019, based on tire-related revenue. Available at: https://www.statista.com/statistics/225677/revenue-of-the-leading-tire