A

PROJECT ON

PORTERS FIVE FORCES MODEL

FOR

FOUR WHEELER COMPANY

TATA NANO

INDEX.
1. INTRODUCTION TO PORTER’S FIVE FORCES MODEL.
2. INTRODUCTION TO Tata Nano.
3. PORTER’S FIVE FORCES FOR HERO HONDA.
4. THREAT OF NEW COMPETITORS.
5. RIVALRY AMONG EXISTING FIRM IN INDUSTRY.
6. THREAT OF SUSTITUTES.
7. SUPPLIERS BARGAING POWER OF CONSUMERS.
8. BIBLIOGRAPHY.
1. PORTER'S FIVE FORCES

Diagram of Porter's 5 Forces

Threat of Entry
Rival
Economies of Scale.
• Number and size of
Product Differentiation.
firms
Capital Requirements.
• Industry size and
Cost Disadvantages
trends
Independent of Size.
• Fixed v variable
Government policies.
cost bases
Industry profitability.
• Product/service
ranges
• Differentiation,
Supplier Power strategy
r
Importance of
volume to supplier
y
, BUYER POWER
Impact of inputs on
cost or Bargaining leverage
differentiation e Buyer volumes, JIT
Switching costs of g scheduling
firms in the Buyer information
: Brand identity
industry
Presence of Price sensitivity
substitute inputs • number and size Threat of backward
of firms Integration
Β rand reputation
• industry size and Product
Geographical
trends differentiation
coverage
• fixed v variable Buyer concentration
Product/service level
cost bases vs. industry
quality
• product/service Substitutes
Relationships with
ranges available
customers
• differentiation, Buyers' incentives
Bidding
strategy
processes/capabiliti
es
• number and size
of firms
• industry size and
THREAT OF trends
SUBSTITUTES • fixed v variable
Switching costs cost bases
• product/service
Buyer inclination to substitute
Price-performanceranges
trade-off of substitutes
• differentiation,
strategy
A brief Information about the product :

The Tata Nano is a rear-engine, four-passenger city car built by

Tata Motors, aimed primarily at the Indian market. The car is very
fuel efficient, achieving around 78mpg on the highway and
around 92 in the city. It was first presented at the 9th annual Auto
Expo on 10 January 2008, at Pragati Maidan in New Delhi, India.
Nano had a commercial launch on March 23, 2009 and, a booking
period from April 9 to April 25, generating more than 200,000
bookings for the car. The sales of the car will begin in July 2009,
with a starting price of Rs 115,000 (rupees), which is
approximately equal to UK£1,467 or US$2,421 as of June 2009.
This is cheaper than the Maruti 800, its main competitor and next
cheapest Indian car priced at 184,641 Rupees. Tata had sought to
produce the least expensive production car in the world — aiming
for a starting price of Rs.100,000 (approximately US$2,000 in
June 2009).

FORCES OF PORTER’S MODEL:

1. The threat of the entry of new competitors: 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 profit rate will fall
towards zero (perfect competition).

• The existence of barriers to entry (patents[1], 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.
• Economies of product differences
• Brand equity
• Switching costs or sunk costs
• Capital requirements
• Access to distribution
• Customer loyalty to established brands
• Absolute cost advantages
• Learning curve advantages
• Expected retaliation by incumbents
• Government policies
• Industry profitability; the more profitable the industry the more
attractive it will be to new competitors

2. The intensity of competitive rivalry: For most industries,

the intensity of competitive rivalry is the major determinant of
the competitiveness of the industry.
• Sustainable competitive advantage through innovation
• Competition between online and offline companies; click-and
mortar-v- slags on a bridge
• Level of advertising expense
• Powerful competitive strategy

The visibility of proprietary items on the Web used by a company

which can intensify competitive pressures on their rivals. How will
competition react to a certain behavior by another firm?
Competitive rivalry is likely to be based on dimensions such as
price, quality, and innovation. Technological advances protect
companies from competition. This applies to products and
services. Companies that are successful with introducing new
technology, are able to charge higher prices and achieve higher
profits, until competitors imitate them.

3. The 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:

• Buyer propensity to substitute

• Relative price performance of substitute
• Buyer switching costs
• Perceived level of product differentiation
• Number of substitute products available in the market
• Ease of substitution. Information-based products are more
prone to substitution, as online product can easily replace
material product.
• Substandard product
• Quality depreciation
4. The bargaining power of customers (buyers): The
bargaining power of customers is also described as the market
of outputs: the ability of customers to put the firm under
pressure, which also affects the customer's sensitivity to price
changes.

• Buyer concentration to firm concentration ratio

• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with high fixed
costs
• Buyer volume
• Buyer switching costs relative to firm switching costs
• Buyer information availability
• Ability to backward integrate
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry products
• RFM Analysis

5. The 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.
• Supplier switching costs relative to firm switching costs
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labor unions)
1. Threat of New Entrants:
Indian compact car market seems to be getting hotter, with not only
better car models, but also the intensity of the competition in the segment.
The market which is growing at 20-25% annually is attracting international
player like Volkswagen, Toyota, Nissan and Ford, all of whom are
expected to come up with a number of new launches in this segment
of the Indian car market. The new players plan to differentiate their
products through competitive pricing and additional features like added
space, fuel efficiency and better performance. It seems like competition is
set to go to a whole new level for existing players in the market.
The way in which Nano is produce such a methods will lead to even
more new manufacturing innovations to offer affordable cars to consumers.
New entrants in this category need to address various challenges such as
inflation, low-price barriers, substantial changes in raw material prices, and
government regulations, for example vehicles above 650cc pay excise
taxes in India, but with 624cc engine, the Nano is exempt. Achieving a
US$2,500 will be difficult for any carmaker, but going forward more
automakers will develop low cost cars. It takes 4 to 5 years and a huge
investment for a car maker to design and build a low cost car, which itself
has low margins.
So, there is threat of new entrant to Nano in the long run.
 2. Rivalry Among existing Firms:
This force describes the intensity of competition between
existing players (companies) in an industry.

Competition between existing players is likely to be high when

 There are many players of about the same size.

 Players have similar strategies.

 There is not much differentiation between players and their

products.
 Number and Diversity of Competitor - This describes the
competition between the existing firms in an industry.
the current scenario, the small car market in India is very
competitive with players like Maruti Suzuki, Tata Motors, Hyundai
etc. which was pretty much dominated by Maruti. But with launch
of Nano the 1 lakh car the whole momentum of the market has
shifted. Now to be competitive in market other companies have to
either slash the rates of their existing model or have to go back to
the drawing board and build again.

 Price Competition - Advertising battles may increase

total industry demand, but may be costly to smaller
competitors. Price competition often leaves the entire
industry worse off.

NANO is the only player so it has the price freedom but as

the Maruti, Bajaj and Honda are also planning to launch the car in
the same segment of price.

 Exit Barriers – Even if the product fails in the market

its not easy for the company to exit the market just like
that because of the heavy investment it has made in
the initial stage.
If the NANO fails, the TATA motors will not be in a state to
slow down the product even when NANO production line can be
used by the other products after few modification as for NANO
only the new product line were setup and huge cost were
incurred.

 Product Quality - Increasing consumer warranties or

service is very common these days. To maintain low
cost, companies consistently has to make
manufacturing improvements to keep the business
competitive. This requires additional capital
expenditure which tends to eat up company's earning.
On the other hand if no one else can provide products/
services the way you do you have a monopoly.
NANO enjoys the monopoly because there are no
competitors in this segment.

It shows there is threat of rivalry for Nano car.

3. THREAT OF SUBSTITUTE :
The threat of substitute for Nano car is that of electric car,
the new entrant in the small car sector is the Morbi-based world
famous clockmaker Ajanta group. The company is planning to
manufacture an electric car at its unit at Kutch district and market
it at a price lower than Rs 1-lakh Nano. The company is already
manufacturing electric scooters and bikes under ‘Oreva' brand.
Production of electric car is not difficult for them as the
technology is almost similar and 70 per cent of its parts can be
produced in-house, giving them an edge over the vehicle's
pricing. The Ajanta group is serious in its attempt to keep the
basic price of the proposed car as low as Rs 85,000.
At present, in the electric car segment only Reva car is
available in India. Another player in the small car segment, the
Rajkot-based Field Marshal group, is in negotiations with
Australian company Farnow Technologies for a joint venture for a
low cost electric car.
Tata itself is believed to be making an electric version of the
Nano, called the E-Nano which might well turn out to be the
"world's cheapest electric car" which is more eco-friendly. It's
supposed to be as cheap as the conventional gasoline version.
Economic Times reported that the "electric Nano" would still make
good sense for economic, clean and green personal mobility in
countries around the world.
Since two-wheeler owners are used to getting 60-70 km per
litre, as compared to the Nano's 20+, the cost of ownership of a
Nano is likely to be far higher than that of a two-wheeler. One
time investment of buying car can be done by the lower income
group people but it will be difficult for them to overcome
maintenance cost and cost of running i.e. fuel these people would
like to remain in bike segment only.
 So there is a high threat of substitutes for Nano as electric
cars trying to keep prices lower, less cost of running as a product
differentiation.

5. Threat of bargaining power of buyer:

Tata Motors has to work out their strategies to meet the
challenges of sales and after-sales. The first is to meet the high
demand that is likely to get created. As there would be many first-
time customers, the sales force will have to advise them on issues
like running and maintenance of the car. Further, the Indian
consumer is very discerning and the product and after-sales
service quality will need to live up to the consumers' expectations
for the Nano to be successful.
As the Nano car is made for lower income group people we
can say there is no power in the hands of buyer at present as only
Nano is available in Indian market but soon there will be cheaper
car in the Indian market and buyers will have power to switch to
other cars.
6. Threat of bargaining power of supplier:
For Nano about 60 suppliers collectively spent about Rs. 500
crores ($112.7 million) to locate on the Singur complex. Suppliers
have said that they have the capacity in existing plants to be part
of the Tata Nano launch, if the Tata plant moves to Pantnagar, or
even Pune. Other suppliers are willing to stay, put and use their
sheds as warehouses to store the components.
The company said most of its vendor relationships are
covered by a “bill marketing” system, where Tata’s bank makes
payments to the vendors, and Tata Motors pays the bank.
Tata Motors had set up a so-called suppliers’ council to
address several issues, including delayed payments that were
causing friction between the auto maker and its parts’ suppliers.
Rather than a threat to Nano, suppliers were supporting Tata
Motors for launch of Nano and there are overall thousands of
suppliers to TATA Motors.
TATA MOTORS STRENGTHS
• The internationalization strategy so far has been to keep local
managers in new acquisitions, and to only transplant a couple of
senior managers from India into the new market. The benefit is
that Tata has been able to exchange expertise. For example after
the Daewoo acquisition the Indian company leaned work
discipline and how to get the final product 'right first time.'

•Tata Motors Limited acquired Daewoo Motor's Commercial

vehicle business in 2004 for around USD $16 million.

• The Company has had a successful alliance with Italian mass

producer Fiat since 2006. This has enhanced the product portfolio
for Tata and Fiat in terms of production, knowledge exchange,
logistics and its infrastructure.

• In the summer of 2008 Tata Motor's successfully purchased the

Land Rover and Jaguar brands from Ford Motors for UK £2.3
million. Two of the World's luxury car brand have been added to
its portfolio of brands, and has undoubtedly off the company the
chance to market vehicles in the luxury segments.
• NANO is the cheapest car in the World. super-efficient, eco-
friendly engines.

TATA MOTORS WEAKNESS

- The company's passenger car products are based upon 3rd and 4th generation
platforms, which put Tata Motors Limited at a disadvantage with competing car
manufacturers.

- Despite buying the Jaguar and Land Rover brands Tata has not got a foothold in
the luxury car segment in its domestic, Indian market. The brand associated with
commercial vehicles and low-cost passenger cars to the extent that it has isolated
itself from lucrative segments in a more aspiring India.

- Other competing car manufacturers have been in the passenger car business for
40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of
quality and lean production.

- Sustainability and environmentalism could mean extra costs for this low-cost
producer. This could impact its underpinning competitive advantage. Obviously, as
Tata globalizes and buys into other brands this problem could be alleviated.
8. BIBLIOGRAPHY

WEBSITE:
www.tatamotar.com
www.google.com
www.wekipedia.com
www.timesofindia.com
www.thehindubusiness.com