Mercedes Benz India - Case Study Example

? Mercedes Benz India Table of Contents Table of Contents 2 Case Analysis 3 Overview of Porter’s 5 Forces Model 4 Bargaining Power of Suppliers 5 Bargaining Power of Buyers 6 Threat Emerging From the New Competitors 6 Threat Arising From Substitute Products 8 Rivalry by Established Companies in the Marketplace 8 Implementing Porter’s 5 Forces Model 9 Bargaining power of suppliers 9 Bargaining power of buyers 9 Threat emerging from new competitors 10 Threat arising from substitute products 10 Rivalry of companies existing in the marketplace 11 References 13 Case Analysis The case of Mercedes Benz India increasingly talk about the challenges and issues that are faced by the Information Technology department of the organization in the wake of the management decision taken by the top officials of Mercedes Benz India, who are increasingly serving in the higher ranking and belong to the top management cadre. The case bring into focus the issues that the Chief Information Officer of the global automobile company’s India subsidiary faces while catering to the decision of the top management officials of shifting the global automobile company’s India based manufacturing operations from the already existing site in Pune to the newly acquired sites at Chakan. The world’s twelfth largest car maker in terms of production volume was one of the first foreign automobile companies to enter the Indian market through the process of formation of a joint venture with Tata Engineering Locomotives Company (TELCO). The company focused on evolving growth in the company by the process of manufacturing of various models of automobiles falling mostly to the commercial segment over the next couple of years/. Around the year 1994, the company focused on the process of development of the E-class luxury sedans for the company’s Indian portfolio. Owing to the significant growth in the number of first generation entrepreneurs handling successful businesses in the Indian market as well as the significant growth in the number of Indian high net worth individuals over the recent years, the market of India belonging to the luxury automobile segment appeared highly appealing to the luxury carmakers all over the globe. Most of the luxury carmakers around the globe, felt that the luxury automobile market in India is ripe for investments due to the rising number of high net worth individuals market and will increasingly contribute to a significant amount of growth for the company. This led to a rise of investments in the Indian market by luxury car makers around the world thereby significantly increasing the competition that is already existing in the Indian market. The Mercedes Benz India, which is the Indian subsidiary of the world’s twelfth largest car maker in terms of production volume, Daimler AG undertook an internal survey. The internal survey that was undertaken by Mercedes Benz India forecasted a highly favorable rate of growth in terms of production and sales for the company’s luxury segment portfolio. This prompted the organization to focus on the acquiring of new production facilities within the Indian landmass in order to significantly augment and catalyze and capitalize on the growth opportunities and prospects with regards to the forecasted demand for the company’s portfolio belonging to the luxury vehicles. However, a series of uncertain macro economic factors which got initiated in the middle of the year 2007, due to the subprime crisis in the United States significantly created a shortage of cash flow for the highly capital and credit intensive automobile sector all over the world. The global crisis had a spillover effect on the organization’s various other product portfolios, thereby creating the scenario of non sustainability and uncertainty for the company’s predicted forecasted growth rates. Overview of Porter’s 5 Forces Model The Porter’s 5 forces model increasingly falls in the domain of strategic management, the processes, tools and tactics of which are increasingly employed by organizations around the globe in an attempt to develop significant strategies and methods to survive in the market of cut throat competition. The important factor in the case of analyzing a business in terms and angles of Porter’s 5 forces model, is that this particular tool is highly instrumental for identifying the various factors that are already existing and emerging in the organization’s business processes and prospects as well as understanding the power equations emerging from the position of the buyers, suppliers as well as competitors. The tool is also highly instrumental for the purpose of evaluating the level of competition that is emerging from the play of various macro economic factors that are affecting the concerned industry segment as a whole, as well as the availability of substitute products. Source: Strategic Management Theory: An Integrated Approach The Porter’s 5 Forces Model increasingly takes into account the five critical factors that shape up the company’s prospects in the marketplace. The Porter’s 5 Forces Model comprises of the bargaining power of suppliers, bargaining power of buyers, threat emerging from new competitors in the market place, threat arising from substitute products, and finally the rivalry of companies existing in the marketplace. Bargaining Power of Suppliers The bargaining power of supplier is a key contributor to the foundation and formation of Porter’s 5 forces model. It can be always said that a strong power of negotiation belonging to the suppliers in the absence of alternative sourcing of raw materials as well as scarcity of availability of raw materials will significantly decrease the organization’s power to maintain and achieve a reduction in costs. Failure to negotiate with the suppliers for the prices of essential raw material will significantly increase the cost of production for the company1. This will obviously play a direct role in the process of impacting the company’s balance sheet and thereby can be treated as an important risk factor which can impact the company’s business performance. Bargaining Power of Buyers The bargaining power of buyers is one of the critical factors that has to be taken into consideration while evaluating a organization’s prospects in the marketplace with regards to the application of Porter’s 5 Forces Model. It can be increasingly said that the bargaining power of buyers plays a key role for the purpose of identifying the level of competition faced by the company’s product offerings in the marketplace. It has been often found that a high bargaining power of the buyers often provides a low profit margin. The characteristics of brand, quality, innovative features and pricing of a product as well as the availability of substitutes play a key role in influencing the bargaining power of the buyers. Threat Emerging From the New Competitors The new competitors comprises mostly of companies that are not currently operating in a particular market segment2. Most of these companies who comprise of the potential list of competitors and thereby pose significant threats to an existing business organization involved in a particular sector or industry are mostly a group of companies or companies with a highly diverse product portfolio, that are currently catering to various diverse market sectors and segments. As a matter of fact, these new entrants in most cases have a significant amount of financial backup, which they will invest in an attempt to gain a foothold in the new market segment. This simply leads to an alteration in the dynamics that is being currently present in terms of market competition, thereby intensifying the level of competition in the market place. Also, some of these companies comprise of the new startup companies that are trying to make an entry in the open market by catering to a specific or same group of target audience, while bringing in products, with new features designed on the borderlines of innovation and new technological platforms. A very key factor that is highly responsible for the purpose of determining the threat emerging from potential new entrants in a particular sector or industry is by analyzing and estimating the level of barriers to entry that is already in that particular sector or industry. However, a very common tactic that is often employed by already existing companies is to significantly try to collaborate with each other, and thereby increasing the barriers to entry for new companies and organizations. Though, this situation is high dependent on the market scenario, nature of the market and the number of established players in the market, yet it can be said that the formation of collaboration and joint ventures by the established firms and organizations plays an influencing role in maintain a balance for competition in the market place. Threat Arising From Substitute Products A very important factor in the case of Porter’s 5 Forces Model is the threat arising from substitute products. It can be increasingly said that the availability of substitute products for a particular market will essentially play a critical role in determining the equation of supply and demand in a particular market for the organization’s products offerings. It is important to note in this regards that the threat from the availability of substitute product is highest when the market has large number of players in the market, who are increasingly catering to the same group of target audience with more or less similar group of product offerings. It can also be said that the threat of substitute products is highest in the cases where the prices of the products are comparatively low and the customers and the target audience has a comparatively lower degree of involvement with the product. Rivalry by Established Companies in the Marketplace It is often quite natural for companies and organization trying to outperform each other in the marketplace. The established companies often try to engage in product competition by employing various kinds of strategies and techniques in terms of product development and pricing. This plays a critical role in the process of intensifying the competition in the marketplace and thereby triggering a highly intensified inter firm rivalry in the open market. It is also to be taken into account that the process of inter firm rivalry exists in the cases, where there are a large number of firms that are present in the market place while a fewer number of bigger firms and organization have a strong dominance in terms of market share. Implementing Porter’s 5 Forces Model It can be said that the Porter’s 5 Forces Model can be easily implemented for the purpose of analyzing the position of Mercedes Benz India in the marketplace. Bargaining power of suppliers The bargaining power of suppliers is an extremely important factor while implementing the Porter’s 5 Forces model. It can be said that for the purpose of manufacturing luxury automobiles for the Indian target audience, the Indian subsidiary of the world’s twelfth largest automobile manufacturer increasingly needs to ensure the fact of maintaining of quality of the automobiles produced in India. Since Mercedes Benz India is going for setting up of local production plants around the country, so it is quite natural for them to go for local sourcing of the most essential raw materials that are needed for the manufacturing of the luxury automobiles. The important factor in this case is that the company needs to properly identify and shortlist the resources from suppliers who can maintain quality that is highly important for the maintaining of the world class standards of Mercedes brand. So naturally, it can be assumed that the numbers of suppliers who will be in a position to supply the necessary resources for manufacturing are few. Hence, collectively they tend to have a higher bargaining power for their products. But since, Mercedes Benz is a global brand and being a preferred supplier for the company’s product lines means a significant amount of growth prospects for the business in the future, so bargaining power of suppliers is comparatively low. Bargaining power of buyers With the rise in number of the high net worth individuals in the Indian market, the Indian market has already started to become extremely attractive for foreign luxury automobile brands, who are increasingly focusing on capitalizing of growth opportunities in the Indian marketplace for the purpose of attaining sustainable growth rate for their companies. This has automatically triggered the incoming of various global luxury automobile brands in the Indian market, which has automatically increased the level of competition in the automobile market. The pouring up of luxury automobile brands in the Indian market has also contributed to the availability of a number of alternative choices available to the consumers. The fact that there are a large number of customers, belonging to the high net worth category along with the fact of the large number of multiple luxury automobile brands available in the Indian market place has significantly transferred the power of bargaining to the consumers. Threat emerging from new competitors The automobile sector all around the world is a highly capital intensive industry in nature. The entire industry segment that is catering to the automobile sector around the globe is highly dependent on the availability of credit. Owing to the high requirements of finance and credit for the purpose of entering and setting up of business in this particular sector, the barriers to entry for the emergence of new competitors for the automobile sector is extensively high. Threat arising from substitute products The overall share of luxury automobile market in the Indian region is only 0.4 % of the entire automobile market of India. Hence, it can be easily said that India as a whole has the ability to provide tremendous and immense growth opportunities for the luxury automobile market. Focusing on this particular factor of growth, various luxury globally popular luxury automobile brands have already entered the Indian market in an attempt to capitalize on the significant growth opportunities. The luxury automobile sector in this particular case is focusing on the target audience who mainly fall in the class and category of high net worth individuals. The target audience for the various brands of the luxury automobiles is increasingly focusing on the prospect that is emerging by targeting the young, first generation successful entrepreneurs and business personalities, who has an asset of 1 million in USD3. As a result, due to the significant rise of the competition in the luxury automobile market, the various luxury brands are trying to engage their target audience by providing them with a lot of options, and thereby leaving the customers spoilt for choice. The luxury automobile manufacturers in India in an attempt to increase their foothold in the Indian market are significantly focusing on the introducing multiple variants of the popular luxury brands at various price bands. Hence, it can be easily said that the intended target audience has an increasingly high number of alternative choices and substitute products available at their disposal at high prices while focusing and concentrating on their desire to satisfy their egos of owning and maintaining a luxury automobile which is the ultimate sign relating to the status symbol for an Indian consumer. Rivalry of companies existing in the marketplace The Indian marketplace, as mentioned in the case, significantly provide ample amount of growth opportunities due to a significant rise in the number of high net worth individuals in this particular market. So naturally, other than Mercedes Benz, a lot of popular luxury automobile brands like BMW, Volvo are increasingly focusing on catering to the opportunities in the Indian market with their diversified set of product portfolio. This has significantly led a positive impact in the process of increasing rivalry among the popular automobile brands in the Indian market. References Hill, C., Jones, G. (2010). Strategic Management Theory: An Integrated Approach. Cengage Learning. ACCA. (2008) P5 Advanced Performance Management. Business Standard. (2008) India's high networth individuals grow faster than global peers. 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