Case Study Entry Into The Car Manufacturing Industry

Entry into the car manufacturing industry involves overcoming high barriers; car manufacturing is a highly capital-intensive market, thus forcing new entrants to acquire large sums of capital simply to enter. This capital goes into purchasing a manufacturing plant, sophisticated equipment, raw materials and supplies, and the development of extensive supply chains. Additionally, they must invest in research and development. In economic terms, this last item is deemed a sunk cost because the firm must undergo the research and development/engineering expense prior to even selling a vehicle. Other significant sunk costs come in the form of marketing campaigns. On the other hand, technological innovations through research and development allow for automotive firms to lower costs and achieve economies of scale. In addition to requiring large amounts of capital to enter the car manufacturing industry, entrants must comply to government regulations regarding environment and safety standards, including fuel efficiency. Customers are also often loyal to established brands, and therefore it is vital newcomers establish brand

The power of suppliers is mitigated because various limitations exist. For instance, there is a large presence of suppliers in the market, which comes as a result of foreign entities entering the market through forces of globalization. Another obstacle that decreases the bargaining power of suppliers is the lack of differentiation – in most cases - with regards to raw materials. Thus, the lack of differentiation and abundance of foreign competitors results in subsequent threats of substitution by automotive manufacturers, and high competition among suppliers. However, suppliers do gain relative power over car manufacturers if they have differentiated their product, presumably on quality and based on the importance of raw materials like steel in the production