Renault is a leading automobile manufacturer based in France. It was established in 1899 with headquarters in Boulogne-Billancourt, France. The company produces a variety of cars and vans. The company has a number of subsidiaries operating under it. Renault is exclusively involved in various sports racing events such as Formula E and Formula 1. It has also started producing electric cars in collaboration with Nissan. In 2018, the company produced 4,120,063 vehicles and generated revenue of 57.42 billion Euros (Renault, 2019). The company has more than 181,000 employees (Renault-2, 2019).
Following is a detailed Porter Five Forces Model Analysis of Renault:
Competitive Rivalry – High
Renault competes against various other automotive manufacturers such as Nissan, Chrysler, Ford, and Honda. The industry continues to grow as mergers and alliances are formed between various manufacturers to pool resources for better output. The fixed costs of the business are high as establishing a manufacturing plant and marketing costs in billions of dollars. All brands offer different products. Commitments make it difficult for an organization to exit this industry. Customers would incur a moderate switching cost if they wish to procure a vehicle of another manufacturer as a car costs in thousands of dollars. Since each product is complex, customers-producer interaction is required. As a result, competitive rivalry is intense.
The Threat of New Entrants – Low
Renault has established a performance and cost advantage through experience. Its products are also proprietary and it is an established brand in the automotive industry. Buyers incur a moderate switching cost if their vehicle is a new and low switching cost if their vehicle is older. The capital needed to enter the industry is high in terms of establishing a production unit and marketing. Distribution channels are another issue as well for new entrants. Government licenses and compliance with various regulations in production is also required. Those already in the industry have gained a competitive advantage in terms of performance and cost through research and development. Thus, the threat of new entrants is low for Renault.
Bargaining Power of Suppliers – Low
The raw material needed by Renault includes plastic, glass, paint, aluminum, and various other components. All of these are standardized products and not unique. This also makes the switching cost for organizations in this industry low as the input materials are not differentiated. The contracts with suppliers are also short-term making it easier for switching to other suppliers. Once relationships are established with a supplier, new suppliers cannot easily enter the business as quality and other factors require trust that is built through time and experience (Navvabpour, 2018). Numerous suppliers are willing to provide the required components as the company offers business in millions. Also, the business is important for the suppliers as they gain continuous business from Renault. As a result, they are not in a position to bargain with the company.
Bargaining Power of Buyers – High
The number of buyers in the market is large but each of them is making an expensive purchase and may also purchase in installments that last for several years. The switching costs for the buyers are also low as they can sell their current vehicle and purchase a new one at any time. The customer can get the required information about the product from various third-party sources and does not rely on the seller and is aware of the need for the information. Buyers cannot manufacture their cars. Buyers are also sensitive to price and tend to purchase vehicles that come within their budget. The products offered by each brand are unique and customized deals are planned for each customer based on their ability to pay upfront and the value of monthly installments. This provides buyers with excessive bargaining power.
The Threat of Substitutes – Moderate
The substitutes of cars are a railway, public transport, bicycles, motorcycles, and so on. Each of them is a suitable substitute that is often made use of by buyers. They have certain performance limitations in terms of comfort and convenience associated with owning a car (Navvabpour, 2018). The switching costs incurred by buyers are in terms of tickets, passes, and fares. Thus, there are several substitutes available for the products manufactured by Renault. Customers may not go for these substitutes once they are habitual of using their vehicle and the available variety that places vehicles in the access of almost everyone. Therefore, the threat of substitution is moderate for Renault.
References
Navvabpour, R., 2018. Renault-Nissan Strategic Alliance, Case Analysis. [Online] Available at: https://www.slideshare.net/RaminNavvabpour/renaultnissan-strategic-alliance-case-analysis [Accessed 18 Dec. 2019].
Renault, 2019. CONSOLIDATED FINANCIAL STATEMENTS 2018. [Online] Available at: https://group.renault.com/wp-content/uploads/2019/03/renault-consolidated-accounts-2018.pdf [Accessed 18 Dec. 2019].
Renault-2, 2019. Facts & Figures. [Online] Available at: https://group.renault.com/wp-content/uploads/2019/04/factsfigures-2018.pdf [Accessed 18 Dec. 2019].