Breaking Down Entry Barriers

The entrant barriers for the automotive business can be perceived as lower. Ashish Bhatia wears the startup lens to study the dynamics involved.

- Ashish Bhatia

With the transition to sustainable mobility and the increasing electronic content per vehicle, the traditional composition of the automotive industry has a new DNA. Here tech companies or startups with a faster go-to-market strategy and risk-taking ability have forced a rethink! It has resulted in more established players sticking true to their core DNA yet exploring newer avenues for growth. Many have succeeded with this exploration amounting to handsome returns up from nil. Let's take a look at the factors that have influenced competition. Apt to lean on Porter's Five Forces framework known to mankind as a useful tool for understanding industry dynamics.

Threat of new entrants

Arguably, the established brands in the automotive industry have a loyal customer base. This requires new entrants to invest significantly in marketing and promotion to build trust and loyalty. While existing companies often benefit from economies of scale, enjoying cost advantages that new entrants find hard to match. This is also a capital-intensive industry. The automotive industry is known to require substantial capital for Research and Development (R&D) and manufacturing. The high initial investment acts as a barrier for new entrants.

Bargaining Power of Buyers

It is understood that to reduce the power of buyers, companies must focus on higher product differentiation. Made up of unique features, quality, and brand image, it is believed to make customers less price-sensitive. Opening the channels of communication and letting it trickle down means that customers get a sense of empowerment. Empowering consumers with more information can reduce their dependence on a specific supplier, giving them more bargaining power. In the age of Google reviews, transparency and online reviews are known to play a crucial role here.

Bargaining power of suppliers