January 20, 2017

Porters five force analysis for Tata Nano

Threat of New entrants

The threat of new entrants is very high for the small car industry. The growing economy and the increasing buying power of the customers has made every automobile player to grab the opportunity in small car segment. There are around five new players coming in to the small car market; H800 from Hyundai priced around 1.6 lack, Maruti Cervo 600 priced 1.6 lacks, Bajaj-Nissan’s new electric car etc. Non automobile players also have their focus in this segment like Ajanta Manufacturing limited has launched electric car ‘Orevo’. Barriers for entering would include economies of scale, competition from existing players, customer switching costs and the investment decisions.

Result: Threat of new entrants is HIGH, hence Industry attractiveness is LOW

Porters five force for tata nano

Threat of substitutes

Substitutes for this Tata ‘Nano’ already existed in the market from players like Maruti 800, Chevy Spark, Alto, Estilo, Wagon R, Reva electric car etc. Most of the car manufacturer has a product in this segment to defend their market share in terms of volume. From a customer perspective, the alternative vehicle for a Nano will be either purchase of a new car in small car segment or going for second-hand vehicle of same Nano’s cost. Other substitutes include LPG/Diesel/Petrol auto rickshaws which can be used for both personal and commercial use. Bajaj introduced TVS King, in auto rickshaw segment which had a good response not only for commercial use, but some preferred for personal use as an alternative to small car with fuel efficiency.  The customer rational thinking in this buying process will be based on three costs, i.e.

  • Cost of the buying the vehicle
  • Maintenance cost  ( spares, Fuel )
  • Resale value of the vehicle ( Depreciation value should be less )

Result: Threat of substitutes is HIGH, hence Industry attractiveness is LOW

Bargaining power of suppliers

The suppliers for this industry include the supply of raw materials like steel and a lot of components are involved in the Value chain process. Steel which is a major raw material for this industry is constantly increasing in price due to excess demand and availability. For a player like Tata the bargaining power of suppliers is less as it can get constant supply of steel and ancillary parts from its own units like Tata steel, subsidiary of Tata. For other players the bargaining power of suppliers is moderate. Many ancillary industries are opening up near automobile manufacturers realizing that there are lot of opportunities in automobile industry; hence there are lot of suppliers in this industry.

Result: Bargaining power of suppliers is medium, hence Industry attractiveness is moderate

Bargaining power of buyers

The bargaining power doesn’t have major influence in current scenario as Nano doesn’t have direct alternative in its 600CC product category. But there is availability of substitutes for buyers in terms of vehicle utility. Hence the bargaining power of buyers is medium.

Result: Bargaining power of buyers is medium, hence Industry attractiveness is moderate

Industry Rivalry

Automobile industry in India is growing very rapidly with all major players having their manufacturing base and sales in India. This is a major threat to existing Indian automobile players. With 100% FDI allowed in Indian automobile sector, it is expected there will be more than 20% increase in export sales market. The industry rivalry is very intense from competitors like Maruti, Hyundai and Chevy having a good dominance in their small car segments.

Result: Threat from rivals is high, hence Industry attractiveness is low.

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  1. Nano, the micro priced car is said to have the capability to achieve a fuel economy of around 25 kilometer per liter on highway roads, which is very impressive for a vehicle in its class. It’s truly a middle class dream car in India.

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