Automobile Industry Analysis

Automobile Industry Analysis - Mike Marcinek Case Analysis...

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Mike Marcinek Case Analysis 1 Professor Steffy Industry Structure Analysis: Automobile Industry Backward Channel / Suppliers - The industry began with the dominant firms controlling the flow of even the most raw materials. Today, however, firms have found that outsourcing is more cost effective due to the high rate of technological change in areas such as stereos, tires, computer chips, etc. By working closely with the separate manufacturers, automobile firms can keep their focus less on innovation of each part of the automobile and keep their focus on other pressing issues. - The automobile firms’ reliance on these manufacturers, however, leaves the manufacturers with considerable leverage over the firms. Due to the moderate number of high quality suppliers, prices are able to remain high which has a direct affect on the price of the automobiles themselves. This has also resulted in many mergers and acquisitions because the firms are buying the same parts from the same manufacturing firms. Potential Entrants - The threat of potential entrants is very low in this industry for a multitude of reasons. Due to the hold on the industry by a few select firms, success in the industry is highly unlikely. - Unless the product being sold by a potential new firm is drastically more desirable than the existing products (major advancement in technology) it would be near impossible for a new firm to find the funds to successfully establish and internationalize itself and find buyers. - The only smaller firms who have survived and will survive are those protected by their country through trade agreements and product differentiation. For example, micro cars are in much higher demand in Europe than anywhere else, but even the firms who produce these have a hold on that segment of the industry because they could force new entrants out of the industry through a short-term price lowering. - Due to the well established and close cooperation between the existing firms and the higher quality producers of key parts (stereo, tires, etc.) it would be difficult for a new firm to successfully acquire these parts because of price, and because
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