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The 5 competative forces that are taken into consideration are:

Competition in the Industry Potential of new entrant into Industry Power of Suppliers Power of Customers Threat to substitute products Lets discuss each of these points in detail:

Competition in the Industry: This describes the competition between the existing firms in an industry. Greater the competitive riverly (companies providing equally good products or services) lesser are the profit margin. The price of the product/services is the single most defining factor that influences the customer's buy decision. Hence to maintain low cost, companies consistently has to make manufacturing improvements to keep the business competitive. This requires additional capital expenditure which tends to eat up company's earning. On the other hand if no one else can provide products/ services the way you do you have a monopoly. Lets try to explore these points in more detail. Look at the current senario, the small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, Huyndai etc. which was preety much dominated by Maruti. But with launch of Nano the 1 lakh car the whole momentum of the market has shifted. Now to be competitive in market other companies have to either slash rates of their existing model or have to go back to the drawing board and build again. Now look it from Tata Motor's perspective what price they had to pay to gain such advantage. Building new production plant, raw material & equiptments, labor etc. which accounts to huge capital expenditure. And as mentioned earlier price is the most important thing, you have to offer lower price to the customers. Huge inital expenditure and lower price leave very less profit margin. The bottom line is a competitor's single innovation can change the whole senario of the industry. Lets take an example of a monopoly industry. Chocklate industry in India has just one big player Cadbury. Go to any Big Bazaar or a D-Mart outlet you will find 90% of chocklate by Cadbury. When you go to purchase chocklate what you look for ...Dairy Milk, Perk, Eclairs, Temptation, Celebration,Halls all are produced by Cadbury. As far as I remember I have seen Dairy Milk's ad on TV when I was 5 years old and its still there in market and in all probability it will be there for next 20 years.The current market share of Cadbury stands at impressive 71% even the 2003 worm were not able to eat its market share. What we can conclude a monopoly and a great business!!

Potential of new entrant into Industry: Its not only the existing players in an industry pose threat to each other, a new entrant can also affect the competition. The easier it is for a new firm to enter in a business, the more cut-throat competition there will be.The factors that can limit threat of new entrant are called as Barriers to Entry. Following are some some barriers to entry: Government Restrictions and legislations: Although government's job is to preserve free competitive market, it restricts competition through regualtions and restrictions. Oil sector in India is an example. Pre liberization era it was a dominated by Public sector. However after liberization the sector has opened up for

private players and FDI but it still remains highly regulated sector. Also the telecom sector, first to make an entry you need TRAI's approval and licensing also you have to compete for the finite radio spectrum available. Patents: Ideas and Knowledge that provides competitive advantage over others when patented, preventing others from using it and thus creates barrier to entry. Pharma and Software sectors sees maximum number of patents being filed making it difficult for new firms to replicate their products. High Entry Cost: If the initial cost to set up a new firm is difficult, then the chances of new entrants are very less. Once again coming back to oil sector, Exploration and Production of oil and gas involves a highly capital and technology intensive process of finding oil reserves, assessing its feasibility, drilling and extracting.Hence creating a very high entry cost Existing loyalty to major brands: If the existing brands are very well-established, then chances of a new firm giving them competition is minimal. Pepsi and Coca Cola dominate the soft drinks industry worldwide making it difficult for any new entrant to survive in front of them. On the other hand, if the industry uses common technology, there is little or no brand franchise and if the entry cost is low then it is very easy for a new entrant to enter into the industry.

Power of Suppliers: A company to manufacture its products requires raw material, labor etc.This creats a buyer-supplier relationship in an industry.If there are few suppliers providing material essential to make a product then they can set the price high to capture more profit. Take a look at the PC industry, it faces a monoplistic power of an operating system supplier. Yes you guessed it right Microsoft. Go to purchase a Dell, Toshiba or HP's laptop it will come with Windows Vista. PCs have to be compatible with Windows platform.On the other hand if there are lot of suppliers competing for few buyers, then the buyers take control of the price. Walmart has a monoploy over its suppliers. If your product is not in Walmart, then you are out of business. To give its customers a better buy, Walmart can control the prices of the suppliers.

Power of Customers: This is the pressure a customer can place on a business. If there are few buyers then they are able to dictate the terms. For example, defence contractors have to approach Governments to sell their aircrafts, submarines, missiles and amunutions. Also if switching to another product is simple and cheap. An example can be telecommunication industry. The bargaining power of buyer is high as there are lot of choice available to the buyer and the service do not vary from one service provider to the other. Switching to another service provider is also simple and cheap. Some industries such as retail industry has very weak or almost no power. It is very difficult to bargain for the rate of potatoes at say Reliance fresh store.

Threat to substitute products : Substitute products refer to to products in other industry. The threat that consumer will switch to a substitute product if there has been an increase in price of the product or there has been a decrease in price of the substitute product. Suppose if the price of coffee increases substantially then consumers may switch to other beverages like tea. In early times print media was the only way of advertisement. But the advent of electronic media and internet provides alternative medium to advertise and market products. The strong 2 wheeler market in India can face a stiff competition from a substitute Tata Nano which is providing a car which is just shade costlier than the bikes. Travelling by airlines or by railway AC -II tier can be a substitute for each other depending on the factors like time, money, personal prefrence etc. Porters Five Forces Analysis of Indian Automobile Sector1. Industry Rivalry Industry Concentration: The Concentration Ratio (CR) indicates the percent of market share held by a company.A high concentration ratio indicates that a high concentration of market share is held bythe largest firms - the industry is concentrated. With only a few firms holding a largemarket share, the market is less competitive (closer to a monopoly). A low concentrationratio indicates that the industry is characterized by many rivals, none of which has asignificant market share. These fragmented markets are said to be competitive. If rivalryamong firms in an industry is low, the industry is considered to be disciplined High Fixed costs When total costs are mostly fixed costs, the firm must produce capacity to attain thelowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry. The industry istypically capital intensive and thus involves high fixed costs Slow market growth In growing market, firms can improve their economies. Though the market growth has been impressive in the last few years (about 8 to 15%), it takes a beat in even slighteconomic disturbances as it involves a luxury good. Aggressive pricing is needed tosustain growth in such situations Diversity of rivals: Industry becomes unstable as the diversification increases. In this case the diversity of rivals is moderate as most offer products which are close to standard versions and thecompetitors are also mostly similar in strength IndustryRivalryBargaining Powerof CustomersBargaining Powerof SuppliersThreat of NewEntrantsThreat of Substitutes Highly competitive industry: The presence of many players of about the same size little differentiation between competitors, and a very mature industry with very little growth were the features of ahighly competitive industry. Higher the

competition in the industry lower would be the profit margin. To remain ahead in competition, auto-makers were tempted to offer value added services to the customers incurring more costs 2. Threat of New Entrants These are the characteristics that inhibit the entrance of new rivals into the market and inturn protect the profits of the existing firms. Based on the present profit levels in the market, one can expect the entrance of new firms into the market or not. The entrance is however also affected by the start-up costs Economies of scale: The Minimum Efficient Scale (MES) is the point at which unit costs are minimized. Thegreater the difference between the MES and the entry unit cost, greater is the barrier.Economies of scale are becoming increasingly important as competition is driving the profit margins to lower levels. Also being a capital intensive industry economies of scalehave important consequence Government policies: Automobile Industry was de-licensed in July 1991 with the announcement of the New Industrial Policy The passenger car industry was de-licensed in 1993. No industrial license is required for setting up of any unit for manufacture of automobiles except in some special cases The norms for Foreign Investment and import of technology have been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological up gradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is allowed under automatic route in this sector The automotive industry comprising of the automobile and the auto component sectors has made rapid strides since de-licensing and opening up of the sector to FDI in 1991 The industry had an investment of about Rs. 50,000 crore in 2002-03 which has gone up to Rs. 80,000 crore by the year 2007. The automotive industry has already attained a turnover of Rs. 1, 65,000 crore (34 billion USD) The industry provides direct and indirect employment to 1.31 crore people. The contribution of the automotive industry to GDP has risen from 2.77% in 1992-93to 5% in 2006-07. The industry is making a contribution of 17% to the kitty of indirect taxes of the Government With all the policies regarding the FDI and Tariff barriers as mentioned above, it has become easier for the foreign players to enter the Indian automobile industry. 3. Threat of Substitutes

The replacement market is characterized by the presence of several small-scale suppliers who score over the organized players in terms of excise duty exemptions and lower overheads. A products price elasticity is affected by the presence of substitutes as its demand is affected by the change in the substitutes prices The cost of the automobiles along with their operating costs was driving customers to look for alternative transportation options The new technologies available also affect the demand of the product e.g. : In case of Marutis products, the threat of substitutes is high. The competition is intense as several players have products in the categories given by Maruti. However, in the 800ccrange it is the market leader and the threat of substitute products is low. Price performance comparison favors heavily towards Maruti in most product categories. Also the high availability and quality of services offered by Maruti gives the customer a better trade-off 4. Bargaining Power of Suppliers Suppliers can influence the industry by deciding on the price at which the raw materials can be sold. This is done in order to capture profits from the market. Steel is a major input in this industry and so steel prices have a sharp and immediate impact on the product price The industry being capital intensive switching costs of suppliers is high, other thansteel as raw material which is highly price sensitive and the firm may easily move towards a supplier with lower cost 5. Bargaining Power of Buyers It specifies the impact of customers on the product When buyer power is strong, the buyer is the one who sets the price in the market. Here there is purchases of large volumes There is prevalence of alternative options

Price sensitive customers were some of the factors that determined the extent of influence of the buyers in this industry e.g. : In the case of Maruti, the sales volumes have shown increasing trend over past so many years. The customers are more or less concentrated in metros or other tier two cities. The industry is also concentrated in these regions mostly. Most of them are havegood amount of knowledge about the product. Except the 800cc range in other categories brand loyalty is only moderate. Also it is difficult to measure since repurchases are rare. Product differentiation is high as there are many categories in the passenger vehicle segment. Buyers get incentives in the form of cost discounts and better after sales services At home in the world Anchored in India and committed to its traditional values of leadership with trust, the Tata group is spreading its footprint globally through excellence and innovation The Tata groups revenues for 2007-08 from its international operations were $38.3 billion, which constitutes 61 per cent of its total revenues. Each operating company in the group develops its international business as an integral element in an overall strategy, depending on the competitive dynamics of the industry in which it operates. Exports from India remain the cornerstone of the Tata groups international business, but different Tata companies are increasingly investing in assets overseas through Greenfield projects(such as in South Africa, Bangladesh and Iran), joint ventures (in South Africa, Morocco and China) and acquisitions. Acquisitions are a crucial component of the global expansion of Tata enterprises. Over the past eight years the group has made overseas acquisitions of $18 billion. Among the bigger deals on this front have been Tetley, Brunner Mond, Corus, Jaguar and Land Rover in the UK, Daewoo Commercial Vehicles in South Korea, NatSteel in Singapore, and Tyco Global Network and General Chemical in the US. Priority markets While individual Tata companies have differing geographical imperatives, the Tata group is focusing on a clutch of priority countries, which are expected to be of strategic importance in the years ahead. The regions are North America, UK, China, the Netherlands, Germany, South Africa, members of the Gulf Cooperation Council, Brazil, Vietnam, Thailand and Sri Lanka. Ratan Tata, Chairman, Tata Sons, sums up the Tata groups efforts to internationalize its operations thus: I hope that a hundred years from now we will spread our wings far beyond India, that we become a global group, operating in many countries, an Indian business conglomerate that is at home in the world, carrying the same sense of trust that we do today. Business Policy & Competitive Strategy The company that I have taken into account to analysis the Porters Five Forces is the Tata motors The Specific product taken into analysis is the NANO CAR . This segment has a great growth potential in developing countries , especially in a country like India. A brief Information about the product : T h e T a t a N a n o i s a rear-engine, fourpassengerc i t y c a r b u i l t b y Tt Motors, a i m e d p r i m a r i l y a t t h e Indian market. T h e a a c a r i s v e r y f u e l efficient, achieving around 78mpgon the highway and around 92 in thecity. It was first presented at the 9th annual Auto Expoon 10 January2 0 0 8 , a t Pragati MaidaninN e w D e l h i ,India. N a n o h a d a c o m m e r c i a l l a u n c h o n M a r c h 2 3 , 2 0 0 9 a n d , a b o o k i n g p e r i o d f r o m A p r i l 9 t o A p r i l 25, generating more than 200,000 bookings for the car. The sales of t h e c a r w i l l b e g i n i n J u l y 2 0 0 9 , w i t h a s t a r t i n g p r i c e o f R s 1 1 5 , 0 0 0 (rupees), which is approximately equal to UK1,467 orUS$2,421 as of J u n e 2 0 0 9 . T h i s i s c h e a p e r t h a n t h e Maruti 800, i t s m a i n competitora n d n e x t c h e a p e s t I n d i a n c a r p r i c e d a t 1 8 4 , 6 4 1 R u p e e s . T a t a h a d s o u g h t t o p r o d u c e t h e l e a s t e x p e n s i v e production i n t h e w o r l d a i m i n g f o r a s t a r t i n g p r i c e o f Rs.100,000 (approximatelyUS$2 , 0 0 0 i n June 2009).

Page | 2 A T Business Policy & Competitive Strategy BARRIERS TO ENTRY Time and cost of entry T Time is most essential thing while launching a product in any market. The launch o f t h e N A N O i s quite viable as the demand of the small car is on the rise in the market. By the cost of the entry we meant t h e i n i t i a l c a p i t a l r e q u i r e d t o s e t u p a n e w f i r m i s v e r y h i g h , i t makes the chances of the chances of new entrants are very less. Knowledge and Technology Ideas and Knowledge that provides competitive advantage over o t h e r s w h e n p a t e n t e d preventing others from using it and thus creates barrier to entry. T h e T A T A m o t o r s h a v e g r e a t k n o w l e d g e / e x p e r i e n c e i n t h e automobile industry and have renowned technological advantage because of the recent acquisition and mergers. Product Differentiation and Cost Advantage T h e n e w product has to be different and attractive to be accepted by the customers. Attractiveness can be measured in the terms of the f e a t u r e s , p r i c e e t c . A t t h i s l e v e l t h e price of the NANO car was o n e t h i n g t h a t i s a t t r a c t i n g c u s t o m e r s . A n d a b o v e a l l t h i s t h e image, trust the name TATA carries with it. Government Policy and Expected Retaliation Althoughg o v e r n m e n t ' s j o b i s t o p r e s e r v e f r e e c o m p e t i t i v e m a r k e t , i t restricts competition through regulations and restrictions. Thegovernment tried to promote the TATA Motors to start a plant by providing land and tax rebates. But the unexpected retaliation by t h e l o c a l p e o p l e s u r f a c e i n t h e s e t t i n g u p o f t h e p l a n t w h i c h costed the company a lot. Access to Distribution Channels W h e n a n e w p r o d u c t a launched a well developed distribution is must for its s u c c e s s . The TATA motors had an advantage of well established distribution channel across the world. BUYERS \Business Policy & Competitive Strategy Switching Costs If switching to another product is simple and cheap the customers does not think much before doing it. In case of NANO car the switching cost from bike to car is too high. Thus increasing the demand of the car many fold Number of customers/ Volume of sales I f t h e r e a r e f e w buyers then they are able to dictate the terms. They pull down the cost by Bargaining. The bargaining power of buyer is high as there are lot of choice available to the buyer and the service do not vary from one manufacturer to the other. They force the manufactures to improve the quality. All this c a n b e c l e a r l y s e e n i n t h e c a s e o f N A N O car the price tag at w h i c h i t h a s b e e n o f f e r e d o r t h e q u a l i t y o f t h e N A N O c a r n o compromise has been done at any front. Brand Image -

The brand image of the TATA and the segment i n w h i c h t h e N A N O h a s b e e n t h e m o s t a t t r a c t i v e t h i n g i n t h e entire package. SUPPLIERS Number and Size of Suppliers A company to manufacture itsp r o d u c t s r e q u i r e s r a w m a t e r i a l , l a b o r e t c . I f t h e r e a r e f e w s u p p l i ers providing materials essential to make a product thent h e y c a n s e t t h e p r i c e h i g h t o c a p t u r e m o r e p r o f i t . P o w e r f u l suppliers can squeeze industry profitability to great extend. Inc a s e o f N A N O t h e s u p p l i e r a r e l i m i t e d a n d t h e s i z e o f t h e suppliers are big enough to bring about the controlling power in the price of the car. The NANO car has more than 128 suppliers in a l l a n d t h e m a j o r p o r t i o n o f t h e b u i l d i n g c o s t o f t h e c a r i s t h e parts supplied by the suppliers. Unique Service / Product - S u p p l i e r s p r o d u c t s h a v e f e w substitutes. Supplier industry is dominated by a few firms. The s o m e p a r t s o f t h e N A N O c a r a r e o b t a i n e d f r o m t h e s u p p l i e r w h o them are big enough and limited substitutes are available against them. So the entire production line depends upon them only. Business Policy & Competitive Strategy Ability to substitute - Suppliers products have high switching c o s t s . I n m a n y c a s e e v e n w h e n s u b s t i t u t e a r e available its nott h a t e a s y t o o p t f o r s u b s t i t u t e a s t h e n e x t p r o d u c t i n t h e assembly line depends upon it. If the change in the any part is brought about t h e l o n g l i s t o f d e p e n d e d p a r t s a l s o h a v e t o b e changed, which in most cases is not feasible to do. SUBSTITUTES Price band The threat that consumer will switch to a substitute product if there has been an increase in price of the product or there has been a decrease in priceo f t h e s u b s t i t u t e p r o d u c t . I f t h e p r i c e o f t h e N A N O c a r w i l l in crease the main expected customers ie the one switching from bike to car will not move to car and will remain in the bike only. Thus the price is kept checked in this manner. Substitutes performance The performance of the substitute sector will also play a important role in the success of the NANO car. If the price of the Bike segments increases or the price band of t h e s m a l l s e g m e n t f a l l , i t w i l l h a v e e f f e c t o n t h e q u a n t i t y required in the market. Its just on the price but also the features and the other services associated or it may be the status symbols t o r y . T h e s u c c e s s o f t h e e l e c t r i c c a r s e g m e n t w i t h p l a y e r l i k e REVA can also affect the demand of the NANO. B u y e r s w i l l i n g n e s s P r o d u c t s w i t h i m p r o v i n g price/performance tradeoffs relative to present industry products. I t w i l l d e t e r m i n e t h e w i l l i n g n e s s o f t h e b u y e r t o b u t t h e

N A N O car.The willingness of the customers to go forward try the new product in the market i.e. NANO. They might be willing to go for the test products like Maruti 800, Santro etc. COMPETITIVE RIVALRY Number and Diversity of Competitor T h i s d e s c r i b e s t h e competition between the existing firms in an industry. The current Business Policy & Competitive Strategy scenario, the small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, Hyundai etc. which waspretty much dominated by Maruti. But with launch of Nano the 1lakh car the whole momentum of the market has shifted. Now to b e competitive in market other companies have to either slash rates of their existing m o d e l o r h a v e t o g o b a c k t o t h e d r a w i n g board and build again. Price Competition Advertising battles may increase totali n d u s t r y d e m a n d , b u t m a y b e c o s t l y t o smaller competitors . Products with similar function limit the prices firms can charge.P r i c e c o m p e t i t i o n o f t e n l e a v e s t h e e n t i r e i n d u s t r y w o r s e o f f . N A N O is the only player so it has the price freedom but as t h e M a r u t i a n d H o n d a a r e a l s o p l a n n i n g t o l a u n c h t h e c a r i n t h e same segment the price competition will start. Exit Barriers Even if the product fails in the market its not that easy for the company to exit the market just like that because of the heavy investment it has made in the initial stage. If the NANO f a i l s o r f a l l s f l a t t h e T A T A m o t o r s w i l l n o t b e i n a s t a t e t o s l o w down the product even when NANO production line can be usedby the other products after few modification as for NANO only the new product line were setup and huge cost were incurred. Product Quality Increasing consumer warranties or service isvery common these days. To maintain low cost, companiesconsistently has to make manufacturing improvements to keept h e b u s i n e s s c o m p e t i t i v e . T h i s r e q u i r e s a d d i t i o n a l c a p i t a l e x p e n d i t u r e w h i c h t e n d s t o e a t u p c o m p a n y ' s e a r n i n g . O n t h e other hand if no one else can provide products/ services the way y o u d o y o u h a v e a m o n o p o l y . N A N O e n j o y s t h e m o n o p o l y a r e there are no competitors in this segment. TATAMOTORSSTRENGTHS The Internationalization strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example aftert h e D a e w o o a c q u i s i t i o n t h e I n d i a n c o m p a n y l e a n e d w o r k d iscipline and how to get the final product 'right first time.' Tata Motors Limited acquired Daewoo Motor's

Commercialvehicle business in 2004 for around USD $16 million. T h e c o m p a n y h a s h a d a s u c c e s s f u l a l l i a n c e w i t h I t a l i a n m a s s producer Fiat s i n c e 2 0 0 6 . T h i s h a s e n h a n c e d t h e p r o d u c t portfolio for Tata and Fiat i n t e r m s o f p r o d u c t i o n , k n o w l e d g e exchange , logistics and its infrastructure. In the summer of 2008 Tata Motor's successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK 2.3million. Two of the World's luxury car brand have been added toits portfolio of brands, and has undoubtedly off the company the chance to market vehicles in the luxury segments. NANO is the cheapest car in the World. Page | 8 Business Policy & Competitive Strategy The range of Super Milo fuel efficient buses are powered bysuper-efficient, eco-friendly engines. TATAMOTORSWEAKNESS The company's passenger car products are based upon 3 r d a n d 4th generation platforms , w h i c h p u t T a t a M o t o r s L i m i t e d a t a disadvantage with competing car manufacturers. Despite buying the Jaguar and Land Rover brands Tata has not got afoothold in the luxury car segment in its domestic, Indian market. T h e b r a n d a s s o c i a t e d w i t h c o m m e r c i a l v e h i c l e s a n d l o w c o s t passenger cars to the extent that it has isolated itself from lucrativesegments in a more aspiring India . Other competing car manufacturers have been in the passenger carbusiness for 40, 50 or more years. Therefore Tata Motors Limitedhas to catch up in terms of quality and lean production. Sustainability and environmentalism Could mean extra costs f o r t h i s l o w c o s t p r o d u c e r . T h i s c o u l d i m p a c t i t s u n d e r p i n n i n g competitive advantage. Obviously, as Tata globalises and buys intoother brands this problem could be alleviated.

Business Policy & Competitive Strategy Porter's 5 Forces Model of the NANO car There is continuing interest in the study of the forces that impact on ano r g a n i s a t i o n , p a r t i c u l a r l y t h o s e t h a t c a n b e h a r n e s s e d t o p r o v i d e competi tive advantage. The ideas and models which emerged during t h e p e r i o d f r o m 1 9 7 9 t o t h e mid-1980s were based on the idea

t h a t c o m p e t i t i v e a d v a n t a g e c a m e f r o m t h e a b i l i t y t o e a r n a r e t u r n o n invest ment that was better than the average for the industry sector. AsPorter's 5 Forces analysis deals with factors outside an industry thati n f l u e n c e t h e n a t u r e o f c o m p e t i t i o n w i t h i n i t , t h e f o r c e s i n s i d e t h e i n dustry (microenvironment) that influence the way in which firmsc o m p e t e , a n d s o t h e i n d u s t r y s l i k e l y p r o f i t a b i l i t y i s c o n d u c t e d i n Porters five forces model. Page | 3