The auto industry ranks as one of the most competitive and among the most concentrated industry around the world. This high level of competitiveness has seen to it that there are few players who continuously dominate different sections of the market. The uniqueness of the industry is also dominated by other factors that influence how companies will adapt to their customers market needs. For instance, the need for the companies to accommodate economies is one of the most significant factors. Usually companies have to factor into consideration that as they venture in the new markets, they will have the capacity to invest and reap the benefit out of the existing market. Usually, such investments come at a heavy cost that can only be arrived at by highly wealthy individuals. As Barnett (2016) explains access resources such capital is a huge factor that comes at a cost for these car makers
For those companies that succeed to entry certain markets and fail, there are high sunk costs associated with making such exits. For example, in the past, Ford has had to pay around $750 Million as severity costs aligned with shutting down its Genk Belgium Plant. Such high costs affect the company negatively often trickling down to the company’s reputation. In essence, not only is the company facing the pressure of entry, they usually face the challenge of exiting the markets. This challenge arises from a variety of areas among them pressure from the government and union from shutting down such facilities. Also, shutting down such facilities comes at the cost of brand image in such a market creating a negative reputation that such companies are not willing to stand the test of time. Other competitive factors that influence the auto industry are technology, access to other resources such human skills and brand choice.
How Barriers to Entry into the Industry May Influence Your Company’s Long-Run Profitability
The high-risk barriers that are likely to influence companies hoping to venture into the auto industry in a variety of ways. As Müller, Kiel & Voigt (2018) explains, this is likely to affect the ability of such companies to gain profitability eventually. As Barnett (2016) highlights, access to the high capital demands that the company must find a way to develop products that will have a positive and immediate acceptance to their potential customers. At the same time, companies must prove to their potential customers that their brand can withstand the test of time. Usually, most people tend to avoid products that may not have after maintenance or lack of essential accompanying service. As Müller, Kiel & Voigt (2018) explains this is the factor that affects the brand choice and translates to the opportunity that a company may have to reach any positive reception in a market.
Other factors such as technology directly influence the ability of companies to make any profit in the long run. Majority of the existing players in the auto industry have accumulated their knowhow over several generations. This knowhow guides their mission, their product model, and their approach to the market. New market entrants would require several years for them to learn this and to put it in practices. In essence, these companies take a longer time to make any profits as they take the time to learn the changes in the market. This idea of knowhow also transcends the human skill that will be required to achieve such market entry and sustain it profitably.
Barnett, W. P. (2016). The red queen among organizations: How competitiveness evolves. Princeton University Press.
Müller, J. M., Kiel, D., & Voigt, K. I. (2018). What drives the implementation of Industry 4.0? The role of opportunities and challenges in the context of sustainability. Sustainability, 10(1), 247.