Denso Corporation is a multinational company that manufactures automotive parts, systems, and technology. The company is ranked at the world’s number 2 company for the purpose of making the automotive parts, technology, and system. The company is based in the city of Kariya, located in Japan. The company was founded in 1949, and the current capital amount of the company is ¥187.5 billion. The company has collected a revenue of 48.3 billion USD in the year 2019 through which the operating profits of 2.8 billion USD were achieved as the net profits were 2.3 billion USD. The company has 171,992 employees in different offices of the world, with 211 subsidiaries (Denso, 2020). The company has achieved exceptional success over the decades, and to continue this growth and success, the porter’s five forces analysis is conducted to understand the industry environment.
Competitive Rivalry
The automotive parts industry has a number of large companies that are competing with each other for the market share. The depth in this industry is a reason for such a high number of competitors, which mainly includes Webasto, Denso, Bosch, Magna, and Inalfa. The annual revenue of Webasto at the end of 2018 was 3,512 million euros speaking volumes of its size and success (Webasto, 2020). The annual revenue of Magna was 36.588 billion USD in 2017, showing the financial stability and success of the company (Macrotrends, 2020). Along with these, Bosch, and Inalfa is also among those that collect revenues in a million dollars. The presence of a high number of companies with such a high financial and distribution power is evidence of a high level of competition in the global automotive parts industry.
Bargaining Power of Buyers
The automotive companies are the buyers of the automotive parts manufactures, and the suppliers are dependent on those companies for their sales. The number of car manufactures can be counted on fingers, which means that the automotive parts suppliers have to rely on some customers to make massive sales. If the automotive parts supplier loses one customer, it would be a big loss as the suppliers or manufacturers of auto parts are highly dependent on the companies through bulk sales. This high dependence of suppliers on the companies is the reason that the automotive manufacturing companies dominate the automobile parts manufacturers during the process of negotiation (Schaede, 2010). Therefore, the domination of the automotive manufacturing companies keeps the bargaining power of buyers high.
Bargaining Power of Suppliers
The suppliers of the automotive parts industry are found in large numbers because the materials required are not scarce, and they do not require massive capital with a high level of skills. This ease of the acquisition of the raw material by the manufacture of auto parts has made the automotive parts manufacturers dominant for the purpose of making the negotiation regarding the contracts (Wei & Chen, 2008). Therefore, the bargaining power of suppliers is low for the automotive parts industry.
Threat of New Entrants
The setup for the manufacturing of automotive parts is a capital intensive setup, and it requires massive cost for the purpose of developing a facility for its manufacturing. The capital intensive nature is not the only hurdle on the way of new entrants in this industry, but the requirement of continuous innovation in the industry along with dependant on the few customers are the other hurdles on the way of investors. The automotive companies have loyalties with the already supplying automotive parts manufacturers because the companies are depending on the level of trust between the supplier and company (Amin & Smith, 2017). Although the industry is massive, the presence of financial and non-financial hurdles is the reason that the threat of new entrants is low in this industry.
Threat of Substitutes
Automobiles have become a need, and there are other forms of transportation, but there is no other form that is replacing the automobile completely. The manufacturing and usage of cars have increased in recent decades due to the high trend of owning a personal car. Even though the strong bus systems in a few countries are there, but these systems also require automobiles such as busses. Automobile-based transport has become a need for routine and business life, and there are no effective substitutes that are going to replace the needs of automobiles in the near future which means no substitute for the automobile parts (Yang et al., 2015). The low probability of close substitutes is the reason for the low threat of substitutes.
References
Amin, A., & Smith, I. (2017). Vertical integration or disintegration? The case of the UK car parts industry. In Restructuring the global automobile industry (pp. 169-199). Routledge.
Denso. (2020). About us- Facts and figures. Available at: https://www.denso.com/global/en/about-us/facts-and-figures/
Macrotrends. (2020). Magna Revenue 2006-2019 | MGA. Available at: https://www.macrotrends.net/stocks/charts/MGA/magna/revenue.
Schaede, U. (2010). Globalisation and the reorganisation of Japan’s auto parts industry. International Journal of Automotive Technology and Management, 10(2), 270.
Webasto Group. (2020). The Company – Facts and Figures. Available at: https://www.webasto-group.com/en/the-company/facts-figures
Wei, C. M., & Chen, C. Y. (2008). An empirical study of purchasing strategy in automotive industry. Industrial Management & Data Systems.
Yang, S. S., Ngiam, H. Y., Ong, S. K., & Nee, A. Y. C. (2015). The impact of automotive product remanufacturing on environmental performance. Procedia CIRP, 29, 774-779.