GM in China Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Threat of new entrants is low

The overall threat of new possible participants in the automobile industry of China is low. This is because in order to enter this market, a company needs significant initial capital for investment in technology and certain necessary facilities like processing, assembling, warehousing, transportation and meeting quality standards. New entrants will face difficulties in installing plants since they need a huge amount of capital. Furthermore, China has a lot of expertise in technical side, so entering in this market without the excellent and latest technological skills is of no use. In China, there are already many players present who are already doing a great job; so entering in such an industry is extremely difficult.

Bargaining power of buyers is high

The economy and the financial system of the country is departing towards betterment day by day. The lifestyle of people of China is also improving. This means that they are becoming economically stable. However, the population of China is well over a billion, which means that there are different market segments with different preferences. Most of the Chinese look for better prices before making a purchase. Due to greater competition from the local companies, which provide cars at lower prices and with a great deal of variety, the bargaining power of buyers is high. As mentioned in the case, China in the next few years may become the biggest automobile manufacturer of the world by pushing Japan at number two. Companies like GM in China are doing excellent job by expanding their production capacities, which result in an increase of the net profit.

Bargaining power of suppliers is medium

The bargaining power of suppliers is medium. The reason for the medium buying power is that these suppliers and companies both actually go for strategic alliances. Since the supplier is an important aspect to attain overall success, so a company always tries its level best not to lose that supplier so that the quality standards can be consistent. Similarly, a supplier always tries its level best that its strategic alliance with a certain company should be aligned and run smoothly without any hurdle because when a supplier looses a contract so he will for sure face some serious lose in market reputation. Since the raw material in the automobile industry is costly and quality oriented so getting alliance with any new partner is not easy at all. Keeping in mind all these factors, the suppliers’ bargaining power is medium. Here the positive aspect for a supplier is that in China the automobile sector is flourishing in a rapid pace therefore; he can look for more customers from which a strategic alliance can be created.

Degree of competitive rivalry is high

The competitive rivalry in the automobile industry is high. The Chinese automobile market consists of large domestic competitors. These competitors compete head to head in the national as well as international markets. The main competing aspects are price, variety and quality differentiation. In China, cost of labor is low and the government supports the automobile industry so the competitive rivalry is high.

Threat of substitution is high

The threat of substitution is high because there are so many other alternatives to the vehicles. People may consider traveling through the local trains and other passenger vehicles instead of cars and buses in order to save fuel and other maintenance cost. In China these local train system has a vast network, which is advantageous for the people and can be considered as an effective substitute. Excellent mass transit system provided by government of China makes the threat of substitute high for the automobile industry.

PEST Analysis

Political

In China, automobile companies play an important role in the efficiency and growth of the China’s economy. It is now one of the largest unit sellers of automotives in the world, the reason for the sustainable growth of the automotive industry and automobile companies consistently nurturing in China’s economy is the constant attention from the Chinese government. It is a known fact that the Chinese government favors local manufacturers to the extent that foreign companies find it difficult to compete in China’s market. Nevertheless, foreign automobile companies are dying to enter China due to its large population and higher demand of vehicles, as per capita income has increased and is rapidly growing. The socialist government of China does not favor foreign investors thus; the new policy released recently further restricts foreign investment in this sector.....................................

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