COMPETITIVE STRUCTURE OF INDUSTRIES

PREPARED BYAWANTIKA DIWAN(HA&HC)

WHAT IS AN INDUSTRY?•Industry consists of all those firms which produce goods and services.•In other words , industry is that part of the business which creates form utility.•An industry may be defined as a group of firms competing against one another.•For example-the tire industry is made up of all the tire manufacturing firms like MRF, Dunlop,Ceat,J.K,Apollo etc.

COMPETITIVE STRUCTURE•Description of the current state of a product’s market indicating- (1) number of competitors (2) relative strength of each competitor,(3) level of demand and supply, and (4) ease of entry into the market.

PORTERS 5 FORCES•Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E.Porter of Harvard Business School in 1979.•It draws upon Industrial Organization (IO) Economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.•Three of Porter's five forces refer to competition from external sources. Remaining are internal threats.

FORCES IN DETAIL1.THREAT OF NEW COMPETITION

•Profitable markets that yield high returns will attract new firms. •This results in many new entrants, which eventually will decrease profitability for all firms in the industry.• Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero.

Cont..•The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.•Industry profitability; the more profitable the industry the more attractive it will be to new competitors.•Customer loyalty to established brands

2.Threat of substitute products or services

•The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives.•Note that this should not be confused with competitors' similar products but entirely different ones instead•. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product.

Cont..•Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks).•Relative price performance of substitute•Number of substitute products available in the market

3.Bargaining power of customersAdvantage that results where

(1) the buyers are concentrated or organized

(2) their purchases represents a large part of the supplier’s revenue,

(3) their purchases represent a large part of their own costs, or

(4) there are too many suppliers chasing too few buyers. Buyers in such position can (and do) put relentless pressure on the suppliers by demanding higher quality at lower prices

Cont…•It is very important aspect for customers to have an intense bargaining power to sustain and remold their business strategies effectively and remain in the competition.• For this the customers need knowledge empowerment and need to collect all the related information regarding the project they have invested in.• This knowledge and information could help them to become project specific and experienced enough to deal with suppliers and bargain strategically.• But acquiring this knowledge and experience is very difficult unless and until all the minute technical and calculative aspects are not explored.

Cont…One of the essential

requirements in today’s business scenario is to realize and evaluate the bargaining power of customers. The word bargaining here does not only mean price negotiation, it is a much differentiated and broader term. Bargaining can be encompassed throughout the process of deal.

4.Bargaining power of suppliers

•The bargaining power of suppliers is also described as the market of inputs.•Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes.•Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

Cont…•Strength of distribution channelSupplier competition - ability to forward vertically integrate and cut out the BUYEREx.: If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.

5.Intensity of competitive rivalry

•A starting point to analysing the industry is to look at competitive rivalry. •This term describes the intensity of competition between existing players (companies) in an industry If entry to an industry is easy then competitive rivalry will likely to be high.•If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high.

Cont..•Not all industries are equally competitive. Generally competitive rivalry will be high if:• There is little differentiation between the products

sold between customers. This reduces customers’ brand loyalty.

•If the competitors all have similar strategies. •It is costly to leave the industry hence they fight to just stay in (exit barriers). Examples of such high exit barriers include redundancy payments, penalty clauses or tax losses.

TATA VS MARUTI MARUTI-•Maruti cars are leading the market for the special impact they leave on the car owners. •All the Maruti car owners experience minimum problems when compared to other car owners. Another key factor pushing Maruti cars to a height is the low-cost of maintenance and easy availability of service stations. •Low maintenance cost and high number of service stations are the USPs of Maruti Cars.

TATA MOTORS•Tata cars are produced with unique design and style. These cars have a performance that is par excellence but yet fail to compete with the low maintenance costs of Maruti cars.•MARKET COMPETITION-• Also, the Maruti cars have topped the list of J.D. Power survey on customer satisfaction for about eight consecutive years. •J.D. Power is a global market research firm that ranks different car models based on their services, maintenance costs, running costs, performance and customer response. Whereas, the Tata Motors occupied the last position in the customer satisfaction Index ranking (2007).

RUNNING COST•The running costs of Maruti cars are much lower than Tata cars.• The running costs of Tata cars shoot up after running a distance of around 40,000 km due to replacement of spare parts and other essential repairs including the brake pads, brake discs and the tyres. •On the other hand, the running costs of Maruti cars do not witness any inflection point even after travelling a distance of 40,000 km. Maruti cars are capable of running a distance of around 90,000 km without any repair and maintenance

MAINTANENCE COST•All the car models require maintenance after three to five years of survival on Indian roads.• At normal conditions, the maintenance costs of Maruti cars increases over a period of five years. Luxury cars produced by Maruti need more maintenance as compared to small and compact cars because these are loaded with expensive accessories that need proper care. •The maintenance costs of the car go up to around Rs 1,000 per month or Rs 12,000 after running successfully.

Cont..•On the other hand, Tata cars require maintenance after running successfully for three years. •The costs outgo Rs 8,500 per annum in the second year, Rs 12,000 in the third year and around Rs 20,000 in the fourth year. •This way the percentage of maintenance costs keep on increasing after every year.

•Overall, the Maruti cars score high in terms of low maintenance cost whereas Tata cars do not differ much with Maruti cars with respect to the maintenance or spare part costs. But the frequency of changing the spare parts in Tata cars is more as compared to Maruti cars.

REFERENCE

LINKS-•businessdictionary.com•en.wikipedia.org/wiki/maruti suzuki•En.wikipedia.prg/wiki/tata motors•Slideshare.net/bargaining power of coustomer

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