Porters five-forces model is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is. The electric vehicle industry is a definite for applying this technique. These are my observations about the five forces affecting the EV industry: ¢ The rivalry among competing sellers in the EV industry is¦.. Zap Case Study Summary: Provides a case study of the Zap and the Electric Vehicle Industry. Describes how competition to develop and market electric vehicles has increased during the last year and is expected to continue to increase.
Provides marketing suggestions. 1. The competition to develop and market electric vehicles has increased during the last year and is expected to continue to increase. The electric bicycle industry has four major manufacturers and a large group of small companies. The major manufacturers are Honda, Suzuki, Sanyo and Yamaha. They mainly sell products to Japan and Europe. The other group of manufacturers is much smaller in size and sales volume. These manufacturers have products they sell into the U. S. , European and Asian markets.
Porters five-forces model is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is. The electric vehicle industry is a definite for applying this technique. These are my observations about the five forces affecting the EV industry: ¢ The rivalry among competing sellers in the EV industry is high, with new businesses popping up every year. ¢ The barriers to entry for new competitors at this time is low, which is why rivalry is becoming stronger among companies with new companies forming left and right.
¢ The threat of substitute products is also high because new technology combined with new and innovative companies has created many product options in the EV industry. ¢ The bargaining power of suppliers is the EV industry is low because so many companies exist that create the parts EV markers are looking for. This gives companies more options at finding the cheapest prices for the parts they need. ¢ Finally, the bargaining power of customers is high, because there are so many companies out there offering electric vehicles.
This allows consumers to pick and choose whom they want to deal with, thus lowering the bargaining power of the business itself. The major factors causing the EV industrys competitive structure to change is product innovation and regulatory influences. With product innovation, the key to success is capturing the imagination of the customers. Also, with the rising energy costs facing the world today, governments might require permits or licenses on the EV industry thus dampening the attractiveness of the market.
Before the energy problem, recharging an EV was cost-efficient, but with this rise in energy prices, a potential alteration of consumer perception about the cost of owning an EV might occur. In my opinion, these driving forces only dampen the industry thus allowing only early-movers to be the most likely to survive the competition of this industry. Is the industry attraction? Basing my decision on Porters five-forces model, I would have to say that the EV industry in unattractive. This is because anyone can enter into the industry thus creating too much competition which will drive prices down.
This driving of prices downward will cause new entrants into the business to see no real profit growth. Also, new products being created keeps giving consumers new ideas to buy. This also makes it harder for businesses in the EV industry to find ways to make buyers choose their business. Also, suppliers have strong bargaining power so industries have a difficult time trying to shop around for the best prices on the parts they need. However, Zap was an early mover and is a current market leader in the industry and with a good strategy can have a profitable future that new entries find they cant get.
Because Zap was an early mover into the EV industry, they have positioned themselves very high in the marketplace. This is a result of several acquisitions made including a major acquisition of EV Systems, CA. They also acquired several patents which helped keep other companies from copying their designs and what they put into their designs. They also conducted most of their business overseas which helped to save Zap money, which allowed them to focus on their distribution methods. Also, they are environmental friendly which allows consumers to look at them when deciding between electric and gas powered vehicles.
Their present strategy is to develop, acquire and commercialize electric vehicles and electric vehicle propulsion systems that have fundamental, practical and environmental advantages over available internal combustion modes of transportation, while also having the ability to be produced commercially on an economically competitive basis. Also, they have positioned themselves as the premier EV provider, have strong focus on aggressive sales activity and a strong emphasis on product R&D. 5. Sizing up a firms resource strengths and weaknesses and its external opportunities and threats, is commonly known as a SWOT analysis.
After reading the Zap analysis, I have determined these strengths, weaknesses, opportunities and threats: Strengths ¢ Important Patents Through internal development and acquisition, Zap had procured 14 patents associated with EV design implementation. ¢ Strong Global Distribution Increasing demand coupled with increasing competition prompted Starr to shift production of high-volume products to Taiwan (the leading country in sales of electric bikes) to trim costs and to allow the company to focus its efforts on improving distribution. ¢ Joint Ventures Zap formed a joint venture agreement with Nongbo Topp Industrial Company Ltd.
Of China to manufacture and distribute EVs in China. ¢ Strong Advertising Twelve electric bikes were used at the 2000 Olympics for regular patrols of the Olympic villages. Also, Actor Kevin Spacey drove a Zap scooter when appearing on the Tonight Show with David Letterman. Also, Zap scooters had found their way into four big screen movie productions in the summer of 2001. Weaknesses ¢ Higher overall unit costs relative to key competitors are a big problem facing Zap. ¢ Sub-par profitability ¢ Zap is short on financial resources to fund promising strategic initiatives.
Opportunities ¢ Serving additional customer groups or expanding into new geographic markets or product segments. ¢ Acquisition of rival firms or companies with attractive technological expertise. (Zap purchased Electric Motorbike Inc. , a firm that developed electric scooters, motorbikes and motorcycles. ) ¢ Expanding the companys product line to meet a broader range of customer needs. (In May 2000 Starr introduced a new generation of non-powered scooter called The Kick, that used inline skate technology. Threats ¢ Likely entry of potent new competitors.
(Zap stayed busy with litigations protecting them from patent infringement by other copycat products. ) ¢ Slowdowns in market growth. (A shift in buyer needs and tastes away from the industrys product. There is a growing concern that the boost in sales of electronic scooters may just be a fad. ) ¢ Vulnerability to industry driving forces. (Advances in battery technology area driving force in the rise in interest and investment in the short-range EV market. Rapidly rising gasoline prices and an electric power crisis in California during 2000 has contributed to the growing concern about the external environment of EVs.)
Given the four lists above, I am able to draw the following conclusion about Zaps overall attractiveness. Zap has what appears to be a winning and competitively powerful strategy with a broader product line than most rivals. The companys early presence in the industry gives it important first-mover advantages and a competitive advantage over most other rivals. After reviewing case exhibits 2 and 3, I have determined that their operating expenses are too high. Zaps profit margins have increased over the last five year period from 22. 3% in 1997 to 36.
8% in 2000. However, they were still unable to cover their operating expenses that increased over the same period, resulting in losses from operations. Also, Zap was unable to provide a return on investments for its shareholders, which can have an impact on future investment opportunities. Zaps current ratios over the last five years have increased with a ratio of 5. 15 in 2000. This shows that Zap has been able to pay off its current debt when due without having to sell off its inventory. Finally, Zap has recorded a net loss for 6 consecutive years.
Since it is an emerging industry, it is expected that Zap would incur losses until the industry is consolidated and they are able to achieve greater market penetration. Overall, Zap is on track for most emerging businesses, and because it was an early-mover, will have to the advantage to grow into a profitable company. After reviewing case exhibits 12-17, I have come up with the following five year sales forecast with minimum, maximum and expected sales with regards to their global penetration and the sales of just electric bicycles and scooters. (Note: estimates are in the millions.)
Year 1Year 2Year 3Year 4Year 5 Scooters215. 0 minimum 0 maximum 58 expected226. 0 minimum 75 maximum 0 expected236. 0 minimum 0 maximum 7 expected241. 0 minimum 7 maximum 0 expected249. 0 minimum 0 maximum 75 expected Bicycles260. 0 minimum 7 maximum 0 expected269. 0 minimum 0 maximum 5 expected280. 0 minimum 0 maximum 7 expected290. 0 minimum 0 maximum 73 expected295. 0 minimum 5 maximum 7 expected The increasing population of China and the rapid increasing in the sale of EVs in this market will help Zap to continue its market growth over the next five years with increase in sales and distribution.
This trend might also take effect with the growing users of EVs in European markets as well. This trend might not affect U. S. markets because of our cultures need for gas powered vehicles. 8. The first challenge the company faces is trying to sell as many electric bikes as they do electric scooters. At the same time that Zap was transferring its manufacturing overseas, it was also trying to reposition itself as an overall provider of premier EV products with a primary focus on aggressive sales activity. However, in trying to accomplish both these tasks at the same time, Zaps market for electric bikes took a big dive.
In 2000, scooter sales were leading bike sales by a ratio of 7 to 1. Zap cannot call itself the overall provider of premier EV products with its electric bikes sales plummeting significantly. The next challenge facing the company is creating a forecast of the demand for electric bikes. Since Zap is lagging in its electric bike sales, they are in desperation to create a forecast for demand in order to have a numeric goal. Finally, the company wants to alter its current generic strategy for obtaining a significant position in an industry still in its infancy.
In order to accomplish this, Zap should be asking themselves; what is the best way to become the overall provider of premier EV products 9. The first problem was trying to accomplish two major ventures (one international venture and one market penetration venture) at the same time, thus causing electric bike sales to plummet. One alternative to this situation is to allow Hutchins, Rocklemwitz and Cronk (international gurus) to head the Taiwanese production venture and allow others who are strong in marketing to focus on ensuring that Zap becomes the overall provider of premier EV products.
A second alternative would be to focus first on transferring manufacturing to Taiwan then work on becoming the overall provider of premier EV products. The second issue was forecasting. One alternative is to center the forecast around similar recreational products. It is always good to benchmark your products; however, companies must be careful to benchmark according to product lines and not companies as a whole. Another alternative to this could also be to focus on market demographics and environmental variables.
Warning: Environmental variables, depending on location, may differ drastically. Finally, an alternative for their generic strategy should be a market penetration strategy, which could help create a higher volume of sales at lower prices. Lowering the prices of their products could help increase their demand and limit future opportunities for lower-priced competitors that were already driving down the average selling prices of EVs.
Another alternative to this could also be a skimming strategy, by restricting demand by maintaining a high price, which could create better results. Higher prices may provide higher profit margins and allow Zaps products to maintain a position of superiority in the EV industry. My final recommendations as far as forecasting would be to utilize both benchmarking and market demographics. When weighing the pros and cons, I find it strange for a company to use one forecasting tool without the other. Benchmarking will help Zap better understand the strategies of competitors.
Then they can take the information gathered here and use it in trying to study market demographics for their own industry. Also, I would recommend Zap use the skimming strategy. They dont want to make mistakes that might jeopardize their current superiority. If they were to go with a market penetration strategy, they would be sacrificing quality products to help gain market entry at lower prices, but they dont want their profits to suffer because consumers sense a lack of quality.