Electronic industry in India is of the size of 1010000 units and is expected to grow at a CAGR of 7%. The various operating in the industry have been analyzed using the Porter's five forces model.
The five forces are as follows:
* The Threats that a new entrant faces in the industry
* The Intensity of rivalry between the existing players.
* Pressure from the substitutes.
* The Bargaining Power of the buyers
* The Bargaining Power of the supplier
1.THREAT OF ENTRY
BARRIERS OF ENTRY
*Economies of scale:
The players like Anchor, KUNDAN , Philips, Anchor and M.K. have achieved economies of scale. KUNDAN Sanyo has a capacity utilization of 93%. This declines their unit cost of every function of business and enables them to keep their prices low. This will force the entrant to come in at a large scale
and risk strong reactions from them or come at a small scale and accept a cost and price disadvantage.
* Product differentiation:
The companies like Anchor, KUNDAN and Anchor, being very old players in the Indian market enjoy high brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian market.
These create a barrier to entry by forcing the entrant to spend heavily to overcome existing consumer loyalties and to build a brand image.
*Capital Requirements:
Huge Capital requirements are posed in front of the new entrant in terms of advertising, product development, production facilities, distribution channel credit, inventories, and for covering up the start-up losses.
* Access to the distribution channels:
- The Indian players like Anchor, Anchor, Voltas and Allwyn which are catering to the mass market have a strong distribution and dealer network.. They have a presence in the urban as well as the rural areas.
Moreover these companies have established developed ties with the channel members over the period of time, which are hard to break.
- Philips has also developed a strong network of 4000 dealers in urban and semi urban areas in a period of few years.
- The South Korean Majors like Roma and M.K. have a dealer network of more than 1500, mainly in urban areas and plan to expand it in rural and semi urban areas also. This poses a major threat in front of the new entrant as the existing firms already serve the channels and the new entrant will have to persuade the channels to accept its product through high margins,
promotional allowances, better credit facilities and advertising support, which will reduce the profits.
* Cost disadvantage independent of scale:
- Learning or Experience curve: The old players like Anchor, KUNDAN, Anchor are high on the experience curve, as they know the Indian Market well. This experience lowers their costs in production, marketing, and distribution and in other areas of business, thus giving a cost disadvantage to the new entrant.
- Government policy: The Government policies of levying duties on the imported Electronics and other taxes gives an advantage to the Indian Players and in a way protect them from price competition in the market with the MNCs.
* Expected retaliation:
The industry as a whole faces excess capacity and the supply exceeds demand and so the existing competitors are expected to respond forcefully to a new entrant. The new entrant will face competition based on the segment to which it tries to cater.
- If the company enters in the Semi Automatic top-loading segment, Videocon and Onida will pose the major threat.
-If the company enters in the Fully Automatic front loading high capacity segment (above 5 Kgs) it will have to face main competition from Videocon and LG.
The five forces are as follows:
* The Threats that a new entrant faces in the industry
* The Intensity of rivalry between the existing players.
* Pressure from the substitutes.
* The Bargaining Power of the buyers
* The Bargaining Power of the supplier
1.THREAT OF ENTRY
BARRIERS OF ENTRY
*Economies of scale:
The players like Anchor, KUNDAN , Philips, Anchor and M.K. have achieved economies of scale. KUNDAN Sanyo has a capacity utilization of 93%. This declines their unit cost of every function of business and enables them to keep their prices low. This will force the entrant to come in at a large scale
and risk strong reactions from them or come at a small scale and accept a cost and price disadvantage.
* Product differentiation:
The companies like Anchor, KUNDAN and Anchor, being very old players in the Indian market enjoy high brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian market.
These create a barrier to entry by forcing the entrant to spend heavily to overcome existing consumer loyalties and to build a brand image.
*Capital Requirements:
Huge Capital requirements are posed in front of the new entrant in terms of advertising, product development, production facilities, distribution channel credit, inventories, and for covering up the start-up losses.
* Access to the distribution channels:
- The Indian players like Anchor, Anchor, Voltas and Allwyn which are catering to the mass market have a strong distribution and dealer network.. They have a presence in the urban as well as the rural areas.
Moreover these companies have established developed ties with the channel members over the period of time, which are hard to break.
- Philips has also developed a strong network of 4000 dealers in urban and semi urban areas in a period of few years.
- The South Korean Majors like Roma and M.K. have a dealer network of more than 1500, mainly in urban areas and plan to expand it in rural and semi urban areas also. This poses a major threat in front of the new entrant as the existing firms already serve the channels and the new entrant will have to persuade the channels to accept its product through high margins,
promotional allowances, better credit facilities and advertising support, which will reduce the profits.
* Cost disadvantage independent of scale:
- Learning or Experience curve: The old players like Anchor, KUNDAN, Anchor are high on the experience curve, as they know the Indian Market well. This experience lowers their costs in production, marketing, and distribution and in other areas of business, thus giving a cost disadvantage to the new entrant.
- Government policy: The Government policies of levying duties on the imported Electronics and other taxes gives an advantage to the Indian Players and in a way protect them from price competition in the market with the MNCs.
* Expected retaliation:
The industry as a whole faces excess capacity and the supply exceeds demand and so the existing competitors are expected to respond forcefully to a new entrant. The new entrant will face competition based on the segment to which it tries to cater.
- If the company enters in the Semi Automatic top-loading segment, Videocon and Onida will pose the major threat.
-If the company enters in the Fully Automatic front loading high capacity segment (above 5 Kgs) it will have to face main competition from Videocon and LG.