Question

"The five forces model provides the rationale for increasing or decreasing Resources Commitment".

Answer 1

Answer:

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Answer 2

Answer:

Porter classifies five main competitive forces that affect any market and all industries. It is these forces that determine how much competition will exist in a market and consequently the profitability and attractiveness of this market for a company. Through sound corporate strategies, a company will aim to shape these forces to its advantage to strengthen the organizations position in the industry.

For the purpose of this model, industry attractiveness is the overall profitability potential of the industry. An attractive industry will be one where the combined power of the competitive forces will increase profitability potential. While an unattractive industry will be one where the collective impact of the forces will drive down profitability potential.

These forces, termed as the micro environment by Porter, influence how a company serves its target market and whether it is able to turn a profit. Any change in one of the forces might mean that a company has to re-evaluate its environment and realign its business practices and strategies.

Explanation:

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. Tesla Porter’s Five Forces Analysis below contains the application of these factors to analyse the competitive environment for the alternative fuel vehicles manufacturer.

Figure 1 Porter’s Five Forces

Threat of new entrants in Tesla Porter’s Five Forces Analysis

The threat of new entrants into alternative fuel vehicles manufacturing industry is moderate. The following factors play an instrumental role in the formation of threat of new entrants into electric vehicles industry:

1. Compromise between performance and cost of electric vehicles. One of the major challenges for electric vehicles is the bargain or compromise between their performance and cost. On one hand, almost all major automakers such as General Motors, Ford, Toyota, BMW and others have built electric cars that are not very expensive, but performance of these cars are compromised. Specifically, electric cars were known for being slower compared to traditional cars and their batteries did not last for long.

On the other hand, Tesla has been able to develop its Model S, Model X and Model 3 cars that are fully electric and boasts with advanced technical characteristics such as high speed and long milage in a single charge. However, such fully electric advanced vehicles are technically challenging and expensive to produce. Any potential new market entrant is going to face the same set of challenges as General Motors, Ford, Toyota, as well as, Tesla. Taking into account the fact that established market players are yet to find solutions to these challenges, it can be argued that unless they find innovative solutions, the new market entrants are going to be overwhelmed by the same set of issues as well.

2. Economies of scale. Established market players benefit from economies of scale to a great extent and this benefit is not available for new market entrants, at least for the first few years of their operations. Massive capital requirements can be mentioned as another significant barrier for new market entrants into electric vehicles industry. At the same time, it is important to note that the decision by Tesla to waive its patent rights and to make its processes and innovations an open source available to others increases the threat of new entrants.

3. Time of entry. Despite the challenges for new entrants discussed above, the time of entry into electric vehicles industry is a significant factor inviting current automakers, as well as, new companies to claim their piece of cake from the growing sector. As illustrated in Figure 2 below, the sales of electric vehicles in the US is expected to exceed 6,5 million and the sale of autonomous electric vehicles worldwide is forecasted to exceed 8,5 million units by 2040.

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