Porter's Five Forces
- joshlyns
- Jul 25, 2018
- 5 min read
Updated: Aug 7, 2018
Porter's five forces provides insight the impact General Motors (GM) expects to make in the market for autonomous vehicles.
The autonomous driving industry will be worth $77 billion by 2035 the sales forecast between 2025 and 2035 expect the number of drivers to go from 230,000 to 11.8 million (Neiger 2018). The billion-dollar self-driving industry has auto-makers anticipating early market share; one key player is General Motors: an analysis using Porter’s five forces explores the impact GM expects to make in the market.
1) The first force is threat of new entrants; this strategy helps to examine the following variables for GM: time, cost of entry, special knowledge, economies of scale, cost advantages, technology protection and barriers to entry.
2) The second force is competition rivalry against GM; this strategy helps to examine the following competitive elements: number of competitors, quality of differences, switching costs, customer loyalty, and costs of leaving the market.
3) The third force is the bargaining power of supplier; this strategy helps to determine the following elements for GM: number of supplier, size of suppliers, unique of services, ability to substitute, and cost of changing.
4) The fourth force is substitution; this strategy consists of: substitute performance and cost of change.
5) The fifth force is buying power of GM; this strategy examines the following: number of customers, size of each order, difference between competitors, price sensitivity, ability to substitute, and cost of changing.
The force for threat of new entrants for GM is high.
The autonomous industry is new and companies are competing against one another to become market leader; GM is one of the three forefathers to begin in building up the autonomous industry along the side of Google and Tesla. The difficulty for companies to enter the market is slowly increasing with research and development improving from the three powerhouses creating some pressure for companies like: Volkswagen, BMW, Mercedes, Cadillac, Toyota, Subaru, and Honda to step-up to the plate. The timing for GM is on point with Google and Tesla demonstrating competitive strength to be a contender against two of the most well-known recognizable tech companies. The company's competitive positioning on having special knowledge or technology protection is high with recent investments of over a billion dollars. The cost of advantage for GM is high; the company is taking a cost-effective approach in pricing autonomous vehicles lower than competitors. The barriers of entry of GM is high; the company barriers are government, safety regulations, and public opinions. The economies of scale are high the company can meet demands with flexible options; the recent purchase of AI artificial intelligence shows GM demonstrates the ability to strengthen new entrant variables (Pimak & Korsec, 2016).
The force of competition and rivalry against GM is high.
The industry has about various auto industries looking to enter the market by 2020 and GM is in a high competitive position among competitors. The quality of differences among competitors is high. GM and competitors are trying to persuade consumers to buy product because of benefits, technology upgrades, and safety features: companies are trying to deliver more high tech offerings to set company apart from others. GM’s rivalry is high by taking a cost -effective approach with quality approach will assist in gaining favorability. The costs for GM to exit the market is high and difficult to exit; the company has high investments in the self-driving industry totaling over a billion dollars. The customer loyalty for GM is high because the company is a highly recognizable brand. The switching cost for GM is low; the company has too much capital in research & development for improving operations to walk away or switch suppliers would be detrimental.
The force to GM bargaining power of supplier is high.
The purchase of AI strengthens bargaining power putting GM as a forerunner in the industry. The company has fast access to upgrades in research & development data inputs for a faster turnaround. The number of GM’s suppliers is high; the company is well-organized with loyal suppliers that deter from working with competitors and refuse to raise price in materials. The size of suppliers for GM is high; the company has ability to shop, negotiate and set pricing beneficial to operations. GM’s unique services is high. The ability for GM substitute another supplier is low. The cost of changing a supplier is high. The company is looking to invest in partnerships with other key players in the autonomous eco -system.
The force for substitution is high for GM.
The self -driving industry is a new concept; manufacturers, suppliers, and auto dealers are trying to get a piece of the pie before industry reaches its tipping point. As the industry moves along from the early adaptors stage into the late majority phase, GM’s substitute performance will be high because consumers will have many options to choose from. The cost of change for GM is high, the company is depending on consumer sales to be a market leader. The company is in a strong position although substitution is high from competitors GM positioning show a upper- hand to using cost effective approach in pricing this strategy gives the company a stronger image, builds trust, and supports affordability measures which most likely means GM will sell more vehicles.
The force for buying power of GM is high.
The opportunity for the number of customers for GM is high. The company can gain early trust from consumers if the company succeeds with having no issues with performance vehicles within the next year or two: if so, the company will have no problem wining over the laggards and the late adopters. The size of each order for GM is high in comparison to competitors in terms of what the market can afford. The company’s difference between competitors is high. The price sensitivity for GM is high. The ability for consumers to substitute another product other than GM is high. The cost of consumers changing channels to other driverless cars is high. The engagement is high for preemptive deterrence. The company is building hype momentum by keeping consumers aware and giving competitors information on self-driving features such as: no wheels or pedals, LCD screens to watch the road, radar sensors, cameras, laser based lidar units to observe every detail about surroundings, and emergency stop button to tell vehicle to slow down or pull over. The activity level is high in using media to inform consumers for the latest GM news.
Porter’s five forces show GM is a leading contender with the ability to capture at least one- third of the autonomous driving market by 2035. The company is one of the first companies to heavily invest in a growing market taking a cost effective approach in pricing has set-up positioning for early success demonstrating strong market visibility overall the company will make a tremendous impact in the autonomous driving industry.
References
Neiger, C. (2018). 9 Facts You Didn't Know About Driverless Cars. Retrieved on
May 20, 2018 from World Wide Web:
Tannert, C. (2016). Fast Company: Will You Ever Be Able to Drive A Self-
Driving Car? Retrieved on May 20, 2018 from World Wide Web:
Verger, B. (2017). This Car Do not Need A Steering Wheel or Pedals. Retrieved
on May 20, 2018 from World Wide Web:
Primack, D. & Korosec K. (2016). GM Buying Self-Driving Tech Startup for
More Than $1 Billion. Retrieved on May 20, 2018 from World Wide
National Automobile Dealers Association. Retrieved on May 20, 2018 from
World Wide Web: https://www.fastcompany.com
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“The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long run return on invested capital.”
- Michael E. Porter, 1980
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Porter's five forces help businesses to focus on variables that have the greatest impact on the organization when introducing a new product or new market for a given industry.
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