2. NISSAN
The model of pure competition implies that risk –
adjusted rate of return should be constant across firms NISSAN (Nissan motor company ltd) is a
and industries. However, numerous economic studies multinational automaker headquartered in Japan. It was
have affirmed that different industries can sustain a core member of the Nissan Group, but has become
different profitability and part of that difference can be more independent after its restructuring under Carlos
explained by industry structure. Ghosn (CEO).
Michael Porter in 1979 provided a framework for Nissan is the sixth largest automaker in the world
industry analysis and business strategy. It draws behind ford, General Motors, Volkswagen
upon industrial organization (IO) economics to derive AG, Hyundai Motor Group, and Toyota . It formerly
five forces that determine the competitive intensity and marketed vehicles under the "Datsun" brand name. As
therefore attractiveness of a market. These forces are of 2012, the company's global H.Q is located in Nishi-
the threat of new entrants, the threat of substitution, the ku, Yokohama. In 1999, Nissan entered a two way
bargaining power of buyers, the bargaining power of alliance with Renault S.A. of France, which owns
suppliers, and the rivalry amongst existing competition 43.4% of Nissan while Nissan holds 15% of Renault
in the industry. The paper, instead of taking 5 forces shares, as of 2008. Along with its normal range of
straight away, uncover the drivers of each of the force models, Nissan also produces a range of luxury models
separately, analyze their impact and then conclude the branded as Infiniti.
actual strength of the force. KEYWORDS- bargaining;
competition; encapsulation ; economic ;organization 3. PORTER’S 5 FORCE MODEL
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are considering moving into,and of your current power in the situation, because suppliers and buyers
competitive position. will go elsewhere if they don't get a good deal from
you. On the other hand, if no-one else can do what you
With a clear understanding of where power lies, you
do, then you can often have tremendous strength.
can take fair advantage of a situation of strength,
improve a situation of weakness, and avoid taking Threat of Substitution: This is affected by the ability
wrong steps. This makes it an important part of your of your customers to find a different way of doing what
planning toolkit. you do – for example, if you supply a unique software
product that automates an important process, people
Conventionally, the tool is used to identify whether new
may substitute by doing the process manually or by
products, services or businesses have the potential to be
outsourcing it. If substitution is easy and substitution is
profitable. However it can be very illuminating when
viable, then this weakens your power.
used to understand the balance of power in other
situations. Threat of New Entry: Power is also affected by the
ability of people to enter your market. If it costs little in
There are five important forces that determine
time or money to enter your market and compete
competitive power in a business situation. These are:
effectively, if there are few economies of scale in place,
Supplier Power: Here you assess how easy it is for or if you have little protection for your key
suppliers to drive up prices. This is driven by the technologies, then new competitors can quickly enter
number of suppliers of each key input, the uniqueness your market and weaken your position. If you have
of their product or service, their strength and control strong and durable barriers to entry, then you can
over you, the cost of switching from one to another, and preserve a favorable position and take fair advantage of
so on. The fewer the supplier choices you have, and the it.
more you need suppliers' help, the more powerful your
4. BEYOND PORTER’S 5 FORCE
suppliers are.
MODEL
Buyer Power: Here you ask yourself how easy it is for
buyers to drive prices down. Again, this is driven by the
The Porter's Five Forces tool is a simple tool for
number of buyers, the importance of each individual
understanding where power lies in a business situation
buyer to your business, the cost to them of switching
from your products and services to those of someone but with period of time there are many new moves to
else, and so on. If you deal with few, powerful buyers,
these 5 forces. This section will consider each force
then they are often able to dictate terms to you.
individually to go beyond porter’s 5 force model.
Competitive Rivalry: What is important here is the
number and capability of your competitors. If you have 4.1 THREATS OF NEW ENTRANTS
many competitors, and they offer equally attractive A threat of New Entrants is the possibility of new firms
products and services, then you'll most likely have little to enter the industry which can affect profitability.
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This force is majorly driven by following drivers:- In this case, Indian consumers are quite homogeneous
towards small car segment. In 2009, India surpassed
Japan to become the largest small-car market in the
world, accounting for the sale of around 900,000 small-
cars, as compared to 700,000 sold in Japan. Moreover,
passenger cars and utility vehicles are the main
4.1.1 INCREASE OR DECREASE IN SCALE segments of the Indian passenger vehicle industry with
the former accounting for 78% of total volumes. India
IN AUTOMOBILE INDUSTRY, THE has primarily been a small-car market, mainly due to
CAPITAL AND EXPERTISE TO SETUP the high demand for a cost-effective mode of
AN AUTO OR PARTS transportation. Within the passenger car segment, small
MANUFACTURING FACILITY IS A cars comprising A1 and A2 segment account for almost
80% of total volumes.
GREAT ENOUGH BARRIER TO ENTRY
TO PREVENT MANY NEW ENTRANTS Nissan judged this requirement of Indian customer well
TO SET UP. before paving its way to India and consequently started
its production with their India made small car “Micra”.
Nissan setup its manufacturing plant at Oragdam near Also the launch of Nissan Sunny an entry level sedan
Chennai with capacity of 2,00,000 units per year which strengthens the positioning of Nissan in small car
can be reached to 4,00,000 units per year in future. segment of India.
Moreover, plant also posses 650 acres of unused land Actual Force: Indian customer is homogeneous
where a two more assemble lines can be setup once the towards the small segment of cars mainly because of
capacity of 4,00,000 units gets saturated. following reasons:-
However, given India’s incredible growth forecasts, • Narrower road
infrastructure progress (especially better and new roads)
and ever expanding financing options to rural residents, • Parking Space
the market is still very attractive. As such we expect the
threat to new entrant is medium. • Low per capita Income.
Actual Force: Demand of customer is the major force These factors consequently made the Indian automobile
which drives the increase or decrease in scale of an market a hub for small car segment.
organization. An organization will try to reach MES
when there is demand of the standardized product in the Impact: Low
market.
4.1.3 CONCENTRATION
Impact: Medium
Concentration of a firm in any sector play a very vital
4.1.2 HETEROGENEITY OF CUSTOMERS entry barrier for new entrants and Indian automobile
sector is highly concentrated with apprx 78% of share is
Heterogeneity of customers directly affect the scale of in hand of top three OEM i.e. Maruti Suzuki, Hyundai
an organization i.e. homogeneous group of customer and Tata Motors. These players with their strong
will demand for a similar product which in turn would product portfolio, particularly in the small car segment,
be suitable for a firm to produce with high economies extensive distribution and servicing reach and strong
of scale however a heterogeneous group of customer brand franchise (created over several years) have
demand for different products which would not be maintained their market position for years together.
possible for a firm to produce on MES. However, Indian market industry has been highly
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integration and impact Nissan India profitability. • Basic luxury like ikey, power
steering, windows etc.
Thrust: Threat of New Entrants
Actual Force: Efficient Forward Integration.
Impact: Low.
Impact: Low, though now a day’s buyer information
4.2.3 IMPROVEMENT IN BUYER has been enriched as compared to past but buyer taste is
INFORMATION not constant and changes rapidly so it is very important
for a firm to keep their buyer information updated.
Buyer Information has improved significantly from past
few years with advent of Information & Technology. 4.2.4 NEW DISTRIBUTION CHANNEL
By using the same, firms have innovatively developed
various mean to gather information on buyers like:- Distribution is one of the key to success in a
competitive market. In automobile industry the most
• Free trial of any new launch to check prevailing ways of distribution are:-
the like of new car.
• Companies own outlet.
• Providing Gifts on the feedback of
purchase of new car. • Franchise dealership.
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goods. However in case of car industry this threat is Nissan is quite innovative in maintaining its supplier
quite low due to following factors:- relationship and in same line they have developed a
new process which has been explained below.
• High Entry Barriers i.e.
A ‘Panel Committee’ selects candidate suppliers for
• High capital cost business with Renault and Nissan, based on their
QCDDM performance (Quality, Cost, Delivery,
• Competitive Pricing Development and Management).
• Distribution Strategy etc. A “Sourcing Committee” then selects suppliers for each
project, using a transparent process to manage the
• Small suppliers
Request For Quotation (RFQ).
• Technology Requirement.
Supplier’s performance is continuously reviewed and
Actual Force: Supernormal Profits of Automobile shared with suppliers throughout this process.
Industry.
Actual Force: Efficient Backward Integration
Impact: Low
Impact: Low
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the design dominates the market as they launch. 4.7.1 CORPORATE LEVEL
However looking at the stable of Nissan with its plan to
launch with Nissan Teana, X-Trail & 370Z it will At corporate level NISSAN GLOBAL should focus on
always remain a tough game for any player. its Indian subsidiary because location of India can be
proved a best place for a company’s global strategy.
Actual Force: Change in Customer Taste Considering, starting R&D base here, redirecting
component suppliers, exporting components to other
Impact: Low
countries etc. is much more economical in Indian
subcontinent which NISSAN can use for its benefit
4.5.3 POLICY CHANGES with slight change in corporate strategy. In short,
NISSAN along with its alliances and partner
Any policy change by government of India will RENAULT can use the potential of India in a holistic
have direct impact on NMIPL. way to become a major market holder in Indian
Automobile industry.
Impact: Very High At business unit level, NMIPL should focus on two
heading:-
4.5.4 OVERALL IMPACT: VERY HIGH
1. Cost Advantage
Despite the high concentration ratio seen in the
automotive sector, rivalry in the Indian auto sector is 2. Differentiation
intense due many factors listed along. The industry
rivalry is extremely high with any being product being By applying these strategies in Narrow and Broad way
matched in a few months by the competitors. This it will lead to three different strategies:-
instinct of the industry is primarily driven by technical
capabilities acquired over years of gestation under the 1. Cost Leadership
technical collaboration with international players.
2. Differentiation
4.6 ACTUAL FORCES BEYOND PORTER’S 5
FORCES 3. Focus
Nissan India looking at the competition should develop ¾ Providing substitutes within in its product line
its strategy at three levels. so that customer can stick to same brand.
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¾ To devise new distribution channel matching ¾ Increase the forward integration as a company
with requirement of customer and pace of in itself would be directly dealing with the
industry customers.
¾ Reduce the buying power of Customers upto a 5.3 CAR WHICH CAN REPAIR ITSELF
greater extent as now every car is very A car which can repair its part itself and never required
specific to customer. a service. Such cars can handle any impact on its body
& parts and even on getting an impact on same it can
¾ Completely Remove the Problem of handle them individually without any need of manual
Distribution Channel since neither any labor.
Distributor required nor any showroom.
IMPACT
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¾ Complete Automobile Service industry will Indian Automotive Industry: At the Crossroads
simply shutdown which is dependent on the by EXIM BANK
servicing of a car after sales.
The Indian Automotive Industry Evolving
Dynamics by KPMG INDIA
6.3 BOOKS
6.1 ONLINE RESOURCES
Strategy and business landscape by Pankaj
Nissan India: www.nissan.in Ghemawat.
Nissan Global: www.nissan-global.com
Live Mint:
http://www.livemint.com/2012/07/05170512/Rena
ultNissan-India-plans-to.html
Times Of India:
http://articles.timesofindia.indiatimes.com/2011-
11-18/india/30414640_1_metro-projects-dmrc-
model-project-report
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