Porter’s Five Factors Model is a framework for identifying and analyzing the five competitive elements that shape any sector and assisting in determining a corporation’s flaws and capabilities. Five Forces assessment is generally used to evaluate the position of the organization and thus company strategy. The five dimensions are widely used to assess a corporation’s market competitiveness, desirability, and viability (Son et al. 2). They encompass competitive rivalry, the possibility of new competitors, vendor and consumer power, and the danger of replacement products.
The Threat of Substitute Products
When close substitutes are accessible, buyers can opt-out of purchasing a business brand, eroding the industry’s influence. BYD Company operates by manufacturing high-quality batteries necessary for the running of automobiles in the electrical, industrial railways corporations, and conservable power industries. As a result, BYD faces competition from other institutions that manufacture close substitutes that match their battery products. The risk posed by such products is discussed under the following subheading to assess competitive attractiveness in the industry.
These vehicles account for the largest market share of automotive, and the industry for diesel cars has been developing for an extended time. As a result, the diesel automobile is a pivotal close substitute, and regarding the beneficial performance and functionality, diesel vehicles are becoming the customer’s first preference. Furthermore, the life of a petrol engine is approximately 50 years, making it a more appealing remedy for an electric car (Platt et al. 3). The distribution network for diesel vehicles has been well established, and petrol automobiles are now accessible in almost every country, making it a genuinely worldwide commodity. Thus, the petrol car is a massive alternative to BYD’s rechargeable batteries cars, impacting its sales reducing its economic power.
BYD is the globe’s leading manufacturer of all-electric automobiles and, additionally, it produces plug-in hybrid electric cars (PHEVs) and its second generation of dual hybrid cars, dubbed Dual Mode (Li et al. 3). The institution’s Qin system is the best-selling in China and the third best-selling globally. The enterprise is a leading producer of iron phosphate batteries, which are utilized in their electric vehicles and a variety of other backup power for various uses. The e6, an all-electric, zero-emission, low-noise multipurpose car, is now BYD’s best-selling vehicle (Li et al. 3). Sales commenced in May 2010 in Shenzhen, China, where the planet’s first rechargeable taxi fleet was launched (Li et al. 3).
The framework’s battery pack provides it with a 300-kilometer range (Li et al. 3). The battery’s primary feature is its ability to charge to 80% in 30 minutes when used with a fast charger (Li et al. 3). However, BYD EV vehicles have made it difficult for rival companies due to the higher cost of innovations used in rechargeable batteries. Today, the Chinese corporation employs over 190,000 people worldwide and generates approximately US$ 9.1 billion in revenue (Li et al. 3). Therefore, the less the number of competitors in the industry has boosted its economic position worldwide through the record sales made by BYD.
The Possibilities of New Competitors
By focusing on client relations engagement, BYD Company Ltd has enhanced its brand loyalty, thus, increasing the cognitive cost of shifting. BYD’s F5 Surui Family Sedan was sold internationally under the Suri brand and earned a five-star quality rating from the China New Car Assessment Program (Jin et al. 180). In addition, BYD’s collision test score of 56.5 set a new record for Chinese manufacturers and outscored numerous transnational brands’ automobiles (Jin et al. 180).
Bargaining Power of Vendors
BYD Company Ltd has enhanced its reputation versus suppliers by reducing its reliance on a single or a few vendors. BYD has numerous suppliers that provide it with various equipment that they deal with hence reducing effects related to dependency such as disruption of production processes and exacerbating its pricing vulnerability. Moreover, BYD business Ltd has reduced its negotiating strength and increased distribution network efficiency by establishing long-term commercial connections with suppliers from various locations (He et al. 11013). Finally, the demand for the EV’s across the USA and the Chinese market has enabled the firm to identify alternate production methods and the necessary abilities and knowledge (He et al. 11013).
To reduce customer negotiation power, BYD has enhanced the launch of innovative products, the engagement of emerging markets, and brand differentiation initiatives. For instance, BYD joined the vehicle industry in 2003, and after five years, in 2008, it introduced the first-ever PHEV, the F3DM automobile, and in 2010, their first BEVs, the hybrid sedan e6 and the 12-m K9 bus. The vehicles were intended for public transit (Wu et al. 5). By expanding and broadening their user base, BYD Company has, over the years, regulated buyers’ negotiating leverage, hence increasing their economic performance.
Assessment of the Five Forces and Environmental Trends
The primary external environmental trend posing a threat to BYD is advancement in technological innovations. Various companies have adopted technological inputs towards producing such cars, thus providing extreme competition to BYD. According to figures given by the China Association of Automobile Manufacturers (2015), EV sales grew 324 percent in 2014 over 2013. Manufacturing totaled 78,499 units, more than 4.5 times the number for that year. The nation’s automakers generated a total of 48,000 pure electric vehicles and 30,000 plug-in hybrid vehicles. In 2013, 71% of all EVs bought were sedans, 27% were buses, and 1% were trucks.
Amid the COVID-19 pandemic, BYD’s supply chain has been dramatically affected, reducing its suppliers. However, its reliability in many vendors has enabled it to cope, thus reducing the negotiation power of suppliers. The broad supply network of vendors has increased its overall production cost, leading to higher EV prices, impacting consumers’ purchase ability, thus lowering its total anticipated income. Moreover, its collision test score of 56 makes it safe and reliable to use, thus beating competition from other similar EV manufacturers. Therefore, this increases the likelihood of local purchasing and increased overseas demand leading to higher sales thus improved profitability.
Porter’s five determinants framework is a paradigm for appraising the five competitive forces that shape any business, as well as for defining an organization’s strengths and weaknesses. The forces have provided a basis through which BYD’s external environment can be analyzed to evaluate its performance. With the ever ongoing technological innovations in the automotive industry, BYD has proven to cope by producing even more powerful EVs to ensure its dominance and survival in the sector. The current global pandemic has also provided BYD with an advantage over its rival who depend on specific suppliers. BYD’s vast vendors have enabled it to survive and carry out its operations amid the COVID-19 pandemic.
He, Xiaoyi, et al. “Economic and Climate Benefits of Electric Vehicles in China, the United States, and Germany.” Environmental Science & Technology, vol. 53, no. 18, 2019, pp. 11013-11022.
Jin, Haifeng, et al. “Research on Consumer purchasing Preference and Marketing Strategy of Electric vehicle industry in China.” BCP Business & Management, vol. 14, 2021, pp. 177-186.
Li, Xinzhou, et al. “A Cost-Benefit Analysis of V2G Electric Vehicles Supporting Peak Shaving in Shanghai.” Electric Power Systems Research, vol. 179, 2020, pp. 1-9.
Platt, Stephen Matthew, et al. “Gasoline Cars Produce more Carbonaceous Particulate Matter than Modern Filter-Equipped Diesel Cars.” Scientific Reports, vol. 7, no. 1, 2017, pp. 1-9.