This is the detailed Porter’s Five Forces of Suzuki Motor for analyzing the competitive forces that shape an industry. The model identifies five key forces that shape the competitive environment of an industry. These forces are:
- The Threats of New Entrants
- The Bargaining Power of Suppliers
- The Bargaining Power of Substitutes
- The Threat of substitutes
- The intensity of Competitive Rivalry
Introduction
Suzuki Motor is a multination automobiles manufacturing company. It is based in Hamamatsu, Shizuoka, Japan; it was founded in 1909. The company manufactures cars, motor vehicles, all-terrain vehicles and small internal combustible engines. The company is one of the largest automobile manufacturers in the world. Suzuki Motor sold 381,000 vehicles, including passenger cars, commercial vehicles, and buses, in 2020 (Statista, 2020). The company has more than 45,000 employees and has a global footprint; it has production facilities in 23 countries and a distribution network in 192 countries.
The company’s significant subsidiaries are Maruti Suzuki, Pak Suzuki Motors and Suzuki China. Company has the vast experience in the manufacturing and distribution of vehicles. It has been operating for over a century. The company has accumulated Japanese domestic mini-vehicle sales of 25 million units. Porter’s five forces model is an appropriate analytical tool to evaluate Suzuki Motor’s threats and the opportunities it can potentially explore.
Competitive Rivalry in the Market
The competition in the automobile manufacturing industry varies from country to country. There is fierce competition in the Japanese automobile industry; the increased demand for Japanese vehicles has also increased competition. The world’s most renowned automakers are Japan-based because of technological advancement and progressive society. The major competitors of Suzuki Motor are Toyota Motor Corp., Nissan and Honda. In 2020, Suzuki Motors earned $29.9 billion and a gross profit of $8.1 billion (Forbes, 2021). In the same period, Nissan has posted revenue of $74.1 billion with a gross profit of $9.3 billion (Forbes, 2021).
Toyota motors are by far the largest automobile company in Japan; they reported revenue of $256.6 billion and earned a profit of $45.5 billion (Forbes, 2021). Honda forms the contingent of the big four car manufacturers; in 2020, Honda reported profit and revenue of $25.7 billion and $124.1 billion, respectively (Forbes, 2021). Therefore, it can be deduced that the Japanese automotive market is highly competitive.
Threat of Substitutes
The threat of substitute is moderate to high in the industry; the biggest onus on the industry is the switch from internal combustion to electric vehicles. Climate change is forcing the hand on the vehicle producers, and it has garnered global attention towards the negative impact of combustion engines on the environment. The transportation sector has responsible for 14% of the carbon emission (Hannappel, 2017).
There are already electric vehicles available in the market; the main problem they face is charging network ether is the lack of infrastructure for the vehicles to charge. The other problem is the availability of better batteries. Governments are supporting fewer carbon-emitting vehicles to support the ecological change that is required. Therefore, the threat of substitutes remains moderate to high.
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 industry is highly capital intensive and requires huge capital to start operations; another caveat is access to the technology. The companies need to acquire experts to operate and navigate operations. The presence of established incumbents also deters newcomers; however, the availability of financing through favorable terms made it easy to acquire capital.
Moreover, there is immense regulatory support available for the breakthrough companies if they are going to produce Electric vehicles; this has encouraged the companies to set up business in the auto industry. Tokyo’s government has announced that by 2030 all cars in cities will be either hybrid or electric (Statista, 2020). Therefore, the threat of new entrants is moderately strong.
Bargaining Power of Buyers
The buyers’ power depends upon the state of the industry and the genetic factors related to buyers. The buyers have high bargaining power if they are concentrated; there are better available alternatives and general competition. The industry is highly competitive, and there is fierce competition in the market. Buyers have many options to choose from due to crowded market space, and the entry of electric vehicle manufacturers has provided consumers with more opportunities. Besides, now consumers are more informed about their purchases and decide prudently.
There is low switching cost among the manufacturers; low switching cost adversely affects the relationship between consumer and manufacturer (El-Manstrly, 2016). Keeping the above factors in insight, buyers have moderate to strong buying power.
Bargaining Power of Supplier
Suppliers bargaining power depends upon the underlying factors affecting the supply chain. The underlying factors that determine suppliers’ power are the importance of suppliers for the business, the nature of supplies and the value for the buyer’s supply chain. In the automotive industry, suppliers have increased significance and therefore can exert high bargaining power.
Suppliers have concentrated in the last few years, and they act as assemblers rather than suppliers only. There are only 20 mega suppliers available for supplies in the auto industry. Suppliers’ contribution in the auto industry has increased from 56% from 1985 to 83% now (Kallstrom, 2015). Therefore, suppliers have moderate to high bargaining power.
References
- El-Manstrly, D. (2016). Enhancing customer loyalty: critical switching cost factors. Journal of Service Management.
- Forbes. (2021). Honda Motor Co., Ltd. Available at: https://asia.nikkei.com/Companies/Honda-Motor-Co.-Ltd
- Forbes. (2021). Nissan Motor Co., Ltd. Available at: https://asia.nikkei.com/Companies/Nissan-Motor-Co.-Ltd
- Forbes. (2021). Suzuki Motor Corp. Available at: https://asia.nikkei.com/Companies/Suzuki-Motor-Corp
- Forbes. (2021). Toyota Motor Corp. Available at: https://asia.nikkei.com/Companies/Toyota-Motor-Corp
- Hannappel, R. (2017). The impact of global warming on the automotive industry. AIP Conference Proceedings 1871, 060001 (2017). https://doi.org/10.1063/1.4996530
- Kallstrom, H. (2015). Suppliers’ power is increasing in the automobile industry. Yahoo Finance. Available at: https://finance.yahoo.com/news/suppliers-power-increasing-automobile-industry-190607186.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAMyR_QJ4w-8YYbdvLXdX02z9ujeitRevjPz3a9tL1AVITeuPXZF-EWLJSdZldZw1lb5_WSRnXhTu4pgcf8DC1JuYnCN0hA1T3vMJYJSPIg1yAEke3aXSk9j3cGWvydsBR1d9fo2W_60et5dJKh1OAl5As7eBU-WtWHy67higlh_p
- Statista. (2020). Tokyo one-ups rest of Japan with 2030 electric vehicle goal. Available at: https://asia.nikkei.com/Business/Automobiles/Tokyo-one-ups-rest-of-Japan-with-2030-electric-vehicle-goal#:~:text=Japan’s%20capital%20has%20already%20committed,the%20cost%20of%20these%20cars.
- Statista. (2021). Leading car manufacturers in Japan in 2020, based on sale. Available at: https://www.statista.com/statistics/348427/car-sales-in-japan-by-brand/