Kia Motors Porter Five Forces Analysis
Five Forces analysis of Kia Motors covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Kia Motors is one of the leading car manufacturers having a strong global presence. Heavy capital expenditure is required to enter the automobile industry in which Kia Motors is operating currently. Not just raw material cost, but huge investment towards research and development is required to come up with new and interesting features that can attract the customers. There are highly differentiated products in this market and customers look forward to buying updated and new models, hence the new company has to struggle a lot to firstly set up operations and then understand and fulfil customer demands. There is high benefit of economies of scale that Kia Motors is taking advantage of currently. Apart from the cost involved, a lot of legal requirements need to be fulfilled and licenses need to be obtained before the company can launch their product in the market. Also, the advertisement costs are high, and customers usually look forward to not only the product but also the after sales services and generally. All these factors make it difficult for any new company to enter the market and hence the threat of new entrants is low.
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This concludes the threat of new entrants in the Kia Motors Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Kia Motors:
There are great variety of 4 wheelers available in the market and any of them can be a substitute to Kia Motor’s products but Kia has tried to gain a market share and a brand name by delivering an equally efficient car at a much affordable price. They are competing with a lot of brands like Honda, Hyundai, Suzuki etc., but the company has gained a name in the market and people look forward to their products.
There is always an option to substitute their products by more luxury cars but that is highly unlikely for most of their customers. There is high differentiation in the products and customers are aware of the benefits of buying from Kia Motor’s. other substitutes like 2 wheelers and public transport does not count as people who want to buy their own conveyance will not consider their products as an option. Hence the threat of substitutes is low in this market.
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Bargaining Power of Customers:
In the Kia Motors Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Firstly, there are other options available in the market but because the products or services offered by them differ at every stage, the buyer has limited options. Kia motors is in a very price competitive market. Price is a big factor in the automobile market too and the customer has limited income and hence the buying options also reduce. Because the customer is making a bug purchase, they take a lot of time on the decision and might end up finding a better option at a cheaper rate but that is not happen every time. There are also very less chances of backward integration from the customer’s side as the product is complex. all these factors report that the bargaining power of suppliers is towards the lower end, but it does not mean that the company should not pay attention to its customers and evolve according to their demand.
Even with limited options, the customers have zero to negligible switching cost and probably won’t mind paying a bit extra for better services.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Kia Motors:
The number of suppliers in this industry is very large and most of them sell the same kind of base product to all these automobile companies and hence the options available to Kia motors to switch suppliers is good. They switching costs are low and the company cannot afford to get low quality products so the suppliers must adhere to the company policy and procedures. The product offered by suppliers does not have any other alternative use, thus further decreasing their bargaining power. All these factors indicate that the bargaining power of suppliers is a weak force. Also, there are very limited chances of forward integration by them and having ties with a huge company like Kia Motors, not only helps them sustain business in this competitive market, but also maintain an edge over other suppliers.
Competitive Rivalry:
The impact of key competitors in the Kia Motors Porter Five Forces Analysis is as follows:
There are few competitors in the industry in which Kia operates but most of them have significant amount of market share. All of them are big players and that makes them equally competitive, if not more. There is high product differentiation which helps in reducing the competition but as the switching costs are low, that does not help a lot. The size of this market has been growing on a continuous rate due to increase in the disposable income and the urge to improve the standard of living of oneself. This means that there will be less fight over market share but still everyone will try to capture the new customers. There is heavy influence from marketing tactics and after sales services and all the companies try their best to fulfil the customer’s demands. Because the exit barriers are high, instead of shutting their operations, if a company is running losses, they try to build a collaboration with other company so that both can benefit from each other’s research.
All these factors indicate that the competitive rivalry is high in the industry and Kia should be on its toes to get an edge over the other players.
To conclude, the above Kia Motors Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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