Porter’s Five Forces model helps an organization identify the weaknesses and
strengths of their industry, in which they adjust their strategy to these
outcomes to obtain maximum profitability.
The model consists of 5 factors: competitive rivalry, supplier power,
buyer power, threat of substitution and threat of new entry. This model will be
use for the German automotive industry to see the steps Mercedes-Benz should
take to improve.
mentioned before, the automotive industry makes up 20% of Germany revenue. With
13.3 million euros investments in 2015, there is a huge competitive market with
many car brands aiming for improvement and innovation (GTAI, 2017,p. 3).
Additionally, the German automotive industry accounts for 21 of the world’s top
100 automotive suppliers. Competitive brands include BMW, Porsche, Audi,
Volkswagen and Volvo, which are all actively innovating their products. Hence,
there is limited market share for Mercedes. The competitiveness in the industry
is fairly high, making it challenging for brands to maintain and increase their
market share and growth. The competitive rivalry in the automotive industry is
strong and will remain so, especially with the “scandal” climate.
Power of Suppliers
is a continuous global demand and increase for vehicles, which are manufactured
in Germany, with exports accounting for three quarters of the vehicle
production (GTAI, 2016, p. 3). As previously
mentioned, Germany’s auto industry is immense and filled with many huge
the automotive industry in Germany accounts for 19% of total global production,
the car manufacturers are forced to have a big pool of suppliers (GTAI, 2016, p. 3). Over
the last couple of years, Mercedes-Benz has obtained a big and growing network
of suppliers domestically and internationally. The organization has several suppliers, and hence, the
bargaining power of supplies is low and will remain so; they are constantly improving
their products and searching for future, new innovative suppliers.
power of buyers
excels in product innovation and R. Despite the numerous manufacturers
and automotive brands domestically, customers have a strong influence on the
industry. Car manufacturers continuously try to differentiate their products in
response to the intense competition.
“diesel fear” due to the diesel scandals and politicians’ criticism reflect the
high bargaining power of the buyers. A leading forecasting group predicted a
decline on sales of diesel cars in Western Europe below 50% in the year of 2016
(Campbell, 2016). Furthermore, the consumers’ reaction to
the Volkswagen scandal pushes their diesel market share to its lowest level in
7 years (Campbell, 2016). Consequently, many brands are
focusing on product innovation to meet the new customers’ needs of the electric
of new entrants
The entry barriers of this
market segment are incredibly high due to intense competition. With the type of
existing players, a new entrant first must obtain a huge investment capital to
enter the market and compete. To
enter and obtain a moderate share in this German market, the new manufacturer
has to consider the carrying cost. Due to the high marketing expenses
and government regulations, becoming a profitable company in a short time frame
is very unlikely. The threat of new entrants is relativity low (Daimler Statistic, 2018).
of new substitutes
are many substitutes for an automotive vehicle, such as buses, trains and
trams. However, owning a car provides many benefits ranging from practicality
to obtaining status. As the market is changing and demand for electric cars are
increasing, upcoming companies like Tesla will remain as one of the biggest
threats for Mercedes. Mercedes
has yet to release their product line of electric cars into the market, and
this caused them to be one step behind the market’s demands and trends (Tesla
the entrance of new substitutes, namely the electric automotive passenger
vehicles, the threat of substitutes is between low and moderate as demands for
automotive vehicles increases. This is due to the significance of the
automotive industry as well as its impact on the economy.