GM: The Opel Decision Harvard Case Solution & Analysis

ANALYSIS

PORTER’S FIVE FORCES

Porter’s five forces are the most effective way to analyze the competitive position of any organization. These five forces or elements are:

1. Rivalry among existing competitors,
2. Barriers to entry,
3. Pressure of price from substitutes/ complements,
4. Bargaining power of buyers,
5. Bargaining power of suppliers.

RIVALRY AMONG EXISTING FIRMS 

• In most industries corporations are mutually dependent
• A competitive move by one firm can be expected to have a noticeable effect on the competitors and cause retaliation or counter efforts
• Intense rivalry is related to several factors that are as follows:

1. Number of competitors of equal size
2. Rate of industry growth
3. Product or service characteristics (Specialty vs. commodity)
4. Amount of fixed cost
5. Capacity increase by one firm
6. Height of exit barriers

THREAT OF NEW ENTRANTS 

• New entrants to an industry bring new capacity, a desire to gain market share, and substantial resources. They are threat to an established firm.
• The threat of an entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors.
• An entry barrier is an obstruction that makes it difficult for a company to enter an industry.
• Possible barriers to entry are:

1. Economies of scale: ( Entry barriers high if existing firms have cost advantage because of economy of scales)
2. Product differentiation: ( Products of firms sold on the basis of differentiation or as commodity, if commodity entry barriers are low)
3. Capital Requirement:
4. Switching Cost ( the ease with which the new product can easily replace the existing firms products)
5. Accesstodistributionchannels: ease with which a new firm can obtain distribution and proper shelf space):
6. Government Policy:

EXIT BARRIERS 

• Specialized assets
• Fixed cost of exit
• Strategic interrelationship
• Government barriers

BARGAINING POWER OF BUYERS 

• Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other.
• A buyer or group of buyers are powerful if:

1. A buyer purchases a large proportion of seller’s product or service.
2. A buyer has the potential to integrate backward by producing the product itself.
3. Alternate suppliers are plentiful because product is standard or undifferentiated.
4. Switching cost of changing supplier is low.
5. The purchased product represents a high percentage of buyer’s cost, thus, providing an incentive to shop around.
6. A buyer earns low profits; thus, it is very sensitive to costs and service differences.
7. The purchased product is unimportant to the final quality or price of a buyer’s product or services and thus it can be easily substituted without affecting the final product adversely.

BARGAINING POWER OF SUPPLIERS 

• Suppliers can affect an industry through their ability to raise prices, or reduce the quality of purchased goods and services.
• Supplier group is powerful if some of the following factors apply:

1. The supplier industry is dominated by a few companies.
2. The product or service is unique or has a built in switching costs (word processing software).
3. Substitutes are not available (electricity).
4. Suppliers are able to integrate forward and compete directly with their present customers.
5. A purchasing industry buys a small portion of the suppliers group’s goods and services and thus it is unimportant to the supplier.

THREAT OF SUBSTITUTES 

• Threat of obsolescence of industry’s product.
• Aggressiveness of substitute products in promotion.
• Switching cost.
• Perceived price/ value.

1.      RIVALRY BETWEEN EXISTING COMPETITORS:

There is a strong competition among automobile firms as the potential of the automobile industry is high as reported by (S&P) that the future growth of the automobile industry would increase after 2010. Being the second largest automobile company, pressure of competition is high at the end of GM. According to the given scenario, GM’s financial position is weak and it is trying to improve its financial position through different options. Weak financial position of GM means that GM’s market share is in danger. Toyota is already leading the industry and other competitors like Ford, and Honda are giving tough time. It will be difficult for GM to maintain its market share in North American and European market in case Opel is sold out..........................

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