Hybrid Car Porter's 5 Forces

1. Porter’s Five Forces Framework

Porter’s five forces model is the starting point for strategic analysis that is used for assessing the attractiveness of an industry (Johnson, et al, 2008).

1.1. Threat of new entrants

First, we define the new entrants as existing automobile companies that are producing gasoline cars and have yet to enter the hybrid car industry. For these new players to enter into the industry, they must be able to achieve economies of scale in order to compete in price. Production differentiation is also important as the hybrid car industry is already dominated by major players like Toyota and General Motors. Another barrier to entry is that it takes a huge amount of capital not only to be able to manufacture the hybrid cars, but also to keep up with the Research & Development that is necessary for consistent innovation. Also, existing companies in the hybrid industry have proprietary hybrid technology and tacit knowledge required to produce the hybrid cars, thus posing cost disadvantages and high barrier to entry. Nevertheless, access to distribution channels is easy for these existing automobile companies as they already have their own existing dealership or the networks to find a dealership. Moreover, there are few legal barriers which protect existing companies from new entrants. Governments across the world are pouring huge sums of money into the development of technologies for green cars with the aim of making automobiles more energy efficient.

High retaliation is expected from existing companies if new entrants would bring innovative products and ideas to the industry. Toyota has a major stake in the hybrid car industry and seems to remain resolutely fixed on hybrid technology for the future. Their product mix (Prius branded compact hybrid cars, hybrid sedans, and premium Lexus brand hybrid vehicles) is extensive compared to other manufacturers’ offerings, and the company has invested heavily in fuel cell technology in order to...