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External Environment Analysis -Industry Analysis (Porter’s Five Forces Analysis)

Porter’s Five Forces Framework Model analyses the competitive forces within the environment in which a company operates, to assess the potential for profitability in an industry. Porter consists of the threat of new entrants, the threat of substitute, buyer power, supplier power, and rivalry among existing competitors. The change in any forces normally requires firms to observe the market and make the decision in the overall change of industry information.

Threat of New Entrants

Profitable industries that have high in returns will attract new firms to take involved. New competitors may force existing firms to be more efficient and to learn how to compete on new dimensions. The threat of new entrants is high when it is easy for new competitors to enter a market ad low when there are significant entry barriers to entering a market. These entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter. The domestic cars that have produced in Malaysia are Proton and Perodua. This can seem that in the automobile industry, there have high barriers for new entrants to involve in. The potential factors that cause the high barriers of new entrants are economies of scale which is Perodua is able to produce automobiles in huge amount and gain low cost in producing company’s products and able to provide flexibility in pricing, differentiation of product which promote special products, requirements of capital refer according to cars industry which requires high capital capability to open and operate the business. Furthermore, automobiles business not only need high advanced technologies support daily manufactures activities, but also requires professional technical staff to manipulate those machines.

Threat of Substitute Products

A substitute product is a change that makes which used a different technology to solve the same economic needs. Threats of substitute products or services are high when they are many alternatives to a product or service and low when there are few alternatives for them to choose. The substitute product’s quality and performance are equal to or greater than the existing product while the selling price is lower. The factor that confronts is the number of substitute products available in the market, the intention of buyer substitute, relative price, and quality of substitute and buyer’s switching costs. Therefore, if there have a high threat of substitute products, there is higher the possibility for Perodua to have the loss in advantage and profit of the products. So, the threat of substitute products in automobile industry is low because the substitute product of vehicles that have is motorcycle, bus, van and so on. Although there have many types of transporting vehicles, cars still hardly to substitute by other vehicles since bus and van are more consider as public transport which means the time and distance are uncontrollable by single person. For motorcycle, it will affect by the weather when driving and less safety than cars. So nowadays, most of the people will buy car as their primary transportation because of the weather which may be sunny or rainy day and capacity of passenger that can bring compared to buying motorcycle which in rainy day, need to wear raincoat in order to prevent get wet in rain and more comfortable than choosing van and bus as their transport.

Bargaining Power of Buyers

The bargaining power of buyers is the ability of buyers to affect the price they must pay for an item. Firms can take measures to reduce buyer power such as given discount by helps the company to find out which is firm’s loyal customers. Buyers’ power is high if buyers have many alternatives and it is low if they have few choices given. While in automotive industry, the bargaining power of buyers is moderately strong because large parts of buyers are the small individual buyers that buy vehicles. Such buyers are in a position to bargain for lower prices while every buyer can easily switch to a new brand in the fact of buyers are sensitive towards price and would switch to another brand that offers lower price which is Proton. And for the consumers who more concern about safety or speed, they might chose Volvo or BMW as their primary car brand. Thus, the Perodua need to focus on building customer loyalty through design, quality and by offering competitive prices.

Bargaining Power of Suppliers

The bargaining power of suppliers is the supplier’s ability to affect the price they charged for supplies which including of raw materials, labour, and services. The supplier powers will increases when supplier’s products create high switching costs. Based on Automotive News in 2013, there have about 20 largest companies on the Automotive News list of the top 100 suppliers for 2012. So, there seem in automotive industry, there gave many suppliers that firms can choose to get the raw material. Therefore, the bargaining powers of suppliers in this industry is consider as low since Perodua could easily switch to other suppliers that provide more benefits and the switching cost might be lower than other industries.

Intensity of Rivalry among Competitors

Rivalry among existing competitors is high when competition is fierce in a market and low when competition is more complacent. For most industries, the intensity of competitive rivalry is the major decision of the competitiveness of the industry. Therefore, having an understanding of industry rivals is important to promote a product smoothly. Besides that, a business must be aware of its competitor’s marketing strategy and pricing which the reactive will occur if there have any changes made. Firms seek to differentiate their products in ways that customers value and in which the firms have a competitive advantage. Common rivalry dimensions include price, service after the sale, innovation and etc. For example, most automobile industry will promote the similar price of the car, the similar service after the sale in the reason to defeat the competitors. So, the lower the rivalry among competitors, the higher the profit that firms can gain.

Internal Environment Analysis

Value Chain Analysis is a strategic tool used to analyze the strength and weakness of internal firm activities. There are value chain and support activities that should be analysed, while each activity should be examined through competitor’s abilities. Therefore, the firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

Value chain activities are the activities the firms” complete produce products and sell, distribute, and service in the ways that create value or customers. There have five primary activities which are Supply-Chain Management that handles sourcing, procurement, conversion, and logistics management that necessary for the firm to receive raw materials and convert them into the final product. For example, Perodua has a good relationship with suppliers and the company provides the Electronic Supplier Information & Management System (e-SIMS) to reach it supplier. Personnel are well trained for overseeing the transit of goods while all the process is transparency and monitoring through deployment of IT. There also have effivient storage of facilities to ease storage and retrieval. Distribution is the activity that relates the final products to customers which efficiently handling customers” orders, choosing the delivery channel and working with the financial support for customers” payments. For example, if there has a customer order cars in Perodua, employees need to efficiently handle their orders and arrange the customers to make payment. Marketing including Sales is the activities that target customer on the basis of satisfying customers” needs and locate the additional customer. For example, the Perodua has conducted various campaign and promotions activities. They also provide panel of finance and insurance for customers. Besides that, they also providing structured approach to understand the requirements of customers and the showrooms is available for nationwide including United Kingdom, Singapore, Brunei and Fuji Island. Operations are the activities that developing employees” working schedule, designing production process and determining production capacity needs in order to change the raw materials into finished products. For example, professionalism of Perodua is implemented in all operations. Besides that, Perodua Manufctuing Sdn Bhd is the company that responsible for the manufacturing of Perodua vehicles while Perodua Engine Manufacturing Sdn Bhd undertakes all assembly of the vehicle engine and also manufacturing of selected engine components parts. They also provide adequate of training to ensure stable source of skilled manpower and still continuous drive to improve efficiencies of Kanban and Kaizen system. Lastly is the Follow-up Service is the activities that taken to increase a product’s value for customers. For example, Perodua keep the product or service working effectively for the customers after it is sold and delivered. Service information and service package such as body repair and paint centres are available for nationwide for the customer. Besides that, the advantage for using Perodua Car products is easy availability to find the spare parts.

Besides that, procurement, human resource, and management information system is the support functions which their activities in the firm can create customers value through work being done to produce, sell, distribute, and service the products when firm is producing. For example in Perodua Company, the procurement support department will be finding out what resources that firm needs to operate and negotiating with vendors the best prices. In other hand, e-SIMS aims to establish smart business partnership and develop more opportunities locaaly and globally by being able to response effectively and efficiently through supply chain technology.

Besides that, human resource department will associate with managing the firm’s human capital such as employs the workers and retraining in ways that create a capability. For example, Perodua believe that efficient human resource is vital in achieving the company mission. They encourage employees to be in teamwork so that can develop ideas for greater efficiency and productivity. Besides that, Perodua has provided a conducive working environment and reward their staff by constantly reviewing their performance and upgrading the benefits of company.

Lastly is the management information system which obtains and manage the information and knowledge throughout the firm such as determine the ways to collect and distribute knowledge by linking relevant information and knowledge to organizational functions. For example, Perodua has invested substantially amount in manpower of IT software for its R&D activities which the main activities are localisation of car parts and components, styling and modelling of future models and facelifts of current product range.

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