Case Study on Porsche

As a potential new entrant into the automotive industry, especially one that focuses on high-performance sports cars, entrance into this industry will prove to be arduous and difficult. In this high-performance sports cars space, with the likes of automakers such as Ferrari in the high-end market, followed by Mercedes and BMW, that already possess very established brands with strong following, a new entrant must not only be able to compete on price-to-performance ratio, but also brand value of the existing automakers competing within this space. (Exacted from Porter’s 5 forces Model: Author: Michael Porter)

1. Capital requirements

Thecapital requirements to enter the high-performance sports car market is extremely high and potential new entrant may find difficulty raising enough capital or to take a risk to enter this market. In the case of Porsche, its sizeable business allows it to ensure that it has the capital and funding to compete with the other automakers such as Ferrari, Mercedes, BMW, Aston Martin and others.

A new entrant has to ensure its ability to fund its operations by raising sufficient capital either through its other operations or other means of leveraging, or it will not be able to compete in this capital intensive market.

2. Economy of scale / Absolute cost advantage

In a capital-intensive industry, efficient international expansion of production yield greater economies of scale and increase market penetration, as both VW and GM employ a transnational strategy by modifying its current models according to the demands in international regions. In its earlier days, Porsche, however, employed a global strategy whereby it offers the same models for the whole world. This lower risk trade-off help protect the Porsche brand from international dilution and enables Porsche to remain consistent with regard to costs in its strategy forged in Germany.

A new entrant could potentially use the Porsche’s model of centralising its manufacturing plants so that resources can be easily shared across multiple product lines to achieve economy of scale.

3. Product differentiation

In China, Porsche had to delve into other areas of potential growth and encourage market activities by building race tracks for Porsche drivers in China. Therefore, Porsche had to allocate resources into its other non-core business. However, this is also a product differentiation strategy that allows for communities of Porsche drivers to be built.

In terms of its range of fleets, Porsche decided to extend its product line to include a SUV – the Cayenne. It then went to introduce the four-door Panamera sedan with a bid to introduce more unique and relevant products to the market.

A new entrant will need to understand and be sensitive to the market demands, and