1. Five Forces Model
Value Chain Model
(AUTOMOTIVE INDUSTRY)
Prepared By:
Mohd Shahril Bin Mat Nordin
GP02684
National University of Malaysia
TTTU6414 | Information Technology Management
Porter’s|
Analyses

2. OUTLINE
1. Overview of Porter’s Five Forces Model
2. Porter’s Five Forces Model Analysis for TOYOTA
3. Overview of Porter’s Value Chain Model
4. Porter’s Value Chain Model Analysis for PERODUA
5. Conclusion
6. References

3. Porter’s Five Forces Model
Overview

4. Figure 1 : Porter’s Five Forces Model
• Also known as competitive forces model developed by Michael E. Porter in 1979 to understand how the
five competitive forces impacting an industry.
• An analysis tool to determine the profitability of an industry and develop a firm's competitive strategy.
• As a framework that classifies and analyses the most important forces that affect the intensity competition
in an industry and its profitability level.
Porter’s Five Forces Model | Overview

5. THREAT OF NEW ENTRANTS BARGAINING POWER OF BUYERS
Buyers or customers have the power to demand lower prices or
higher quality products from industry manufacturers when their
bargaining power is strong. Lower prices mean lower revenues
for the producers, while the high quality products typically
increase the cost of production resulting .
in lower profits for the
producers.
This force determines how easy (or not) to enter a particular
industry. If an industry is profitable and there are few barriers to
enter, competition soon intensifies. When more organizations
compete for the same market share, profits start to fall. It is
important for existing organizations to build high barriers to
enter in order to prevent new entrants.
Possible Factors :
• The existence of barriers to entry
• Government policy
• Capital requirements
• Absolute cost
• Cost disadvantages independent of size
• Economies of scale
• Product differentiation
• Brand equity
• Switching costs or sunk costs
• Expected retaliation
• Access to distribution
• Customer loyalty to established brands
• Industry profitability
RIVALRY AMONG EXISTING COMPETITORS
BARGAINING POWER OF SUPPLIERS THREAT OF SUBSTITUTES
Possible Factors :
• The Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of
distribution
• Bargaining leverage, particularly in industries with high
fixed costs
• Buyer switching costs relative to firm switching costs
• Buyer information availability
• Force down prices
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry
products
• The total amount of trading
This force is the main determinant on how competitive and
profitable of a particular industry. It is most likely to be high
when entry barriers are low, threat of substitute products is
high, and suppliers and buyers in the market attempt to
control.
Possible Factors :
• Sustainable competitive advantage through innovation
• Competition between online and offline companies
• Level of advertising expense
• Powerful competitive strategy
• Firm concentration ratio
• Degree of transparency
Strong bargaining power of suppliers will allow them to sell
higher priced or low quality raw materials to their buyers. This
directly affects the buying firms’ profits as it has to pay more for
materials.
This force is mainly threatening when buyers or customers can
easily find substitute products at attractive prices or better
quality and when they can switch fromone product or service to
others at low cost.
Possible Factors :
• Supplier switching costs relative to firm
switching costs
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration
ratio
• Employee solidarity (e.g. labour unions)
• Supplier competition: the ability to forward
vertically integrate and cut out the buyer.
Possible Factors :
• Buyer propensity to substitute
• Relative price performance of substitute
• Buyer switching costs
• Perceived level of product differentiation
• Number of substitute products available in the market
• Ease of substitution
• Substandard product
• Quality depreciation
Porter’s Five Forces Model | Overview

6. Porter’s Five Forces Model Analysis for
TOYOTA

7. The Company
Company Name Toyota Motor Corporation
President and Representative
Akio Toyoda
Director
Company Address
Head Office
1 Toyota-Cho, Toyota City, Aichi Prefecture 471-8571, Japan
Phone: (0565) 28-2121
Tokyo Head Office
1-4-18 Koraku, Bunkyo-ku, Tokyo 112-8701, Japan
Phone: (03) 3817-7111
Nagoya Office
4-7-1 Meieki, Nakamura-ku, Nagoya City, Aichi Prefecture 450-8711,
Japan
Phone: (052) 552-2111
Date founded August 28, 1937 (by Kiichiro Toyoda)
Capital 397.05 billion yen (as of May 2014)
Shareholders Shareholder Composition
Fiscal Year From April 1 to March 31 of the following year
Main Business Activities Motor Vehicle Production and Sales
Business Sites Information on Business Sites
Number of employees (consolidated) 338,875 (as of March 31, 2014)
Porter’s Five Forces Model Analysis

8. 1 | Threat of New Entrants
Porter’s Five Forces Model Analysis
Threat of new entrants to the Toyota and the automotive industry isWeak.
Toyota is not only a company that established in Japan but has been operating around the world and standards
for cars have been universally accepted.
It epitomizes the global market and very experienced and knowledgeable in automotive industry.
It is almost impossible that a new company would appear to be a new threat to Toyota and its target markets
around the globe according to research conducted.
Toyota has been around and well established for many years, strengthen its reputation, experience and
knowledge.
There are many barriers to enter in this industry as stated below :
Large amount of capital required
High retaliation possible fromexisting companies, if new entrants would bring innovative products and ideas to the industry
Few legal barriers protect existing companies fromnew entrants
All automotive companies have established brand image and reputation
Products are mainly differentiated by design and engineering quality
A firm has to produce at least 5 million (by some estimations) vehicles to be cost competitive, therefore it is very hard to achieve economies of
scale
Governments often protect their home markets by introducing high import taxes

9. 2 | Bargaining Power of Suppliers
Porter’s Five Forces Model Analysis
The bargaining power of Toyota’s suppliers isWeak.
Toyota has many suppliers in its automotive manufacturing sector. Resources like metal,
raw materials, leather, plastic, computers, cooling system, electrical system, braking
system and fuel supply system are all bought from hundreds of different suppliers and
different bargaining prices distributed across the globe..
One of the competitive advantages of Toyota is its strong relationship with the suppliers
and its efficient manner of monitoring supply chain places low bargaining power on the
suppliers.
In addition, most vehicle manufactures own many interchangeable suppliers, and also
have the ability to produce the components by their own in the short time. Thus, the
suppliers do not own the power to change the price.

10. 3 | Bargaining Power of Buyers
Porter’s Five Forces Model Analysis
The bargaining power ofToyota buyers isModerately Strong.
Toyota has fierce competition because there are quite a few companies that have similar cars
that can target similar markets (Eg. : Honda, Nissan, Ford,Volkswagen, etc.).
There are many buyers andmost of the buyers are individuals that buy one car, but corporates
or governments usually buy large fleets and can bargain for lower prices.
Since the choices in the car market are abundant, it doesn’t cost much for buyers to switch to
another brand of vehicle or to start using other type of transportation.
The recent trends indicate that the customers are prone to seek out more fuel-efficient cars
due to the rising oil prices. This also results in the increasing demand for the hybrid cars that
offer cheaper alternatives for operating the vehicle coupled with higher expectations of
product quality.
However, the cost cutting practices implemented by Toyota in its operations lowers the buyer
power and puts its cars into a more advantages position compared to its competitors.

11. 4 | Threat of Substitutes
Porter’s Five Forces Model Analysis
There is aModerate threat fromsubstitutes forToyota.
Cars or automobiles are still the most convenient way of transport for the majority of the market who
lives in suburban areas.
Numerous other forms of transportation are available, but none offer the utility, convenience, flexibility,
independence, and value afforded by automobiles.
Although the public transport vehicles are possible substitute of automobiles like trains, taxi, busses and
airplanes, these substitutes have disadvantages as they mostly only practical in cities and have fixed
routes and timetables. The motorbikes and bicycles are also not relevant substitutes as they do not
assure the comfort of a car.
The switching costs associated with using a different kinds of transportation may be high in terms of
personal time and comfort.
High fuel cost may push more people to public transport but it will not create a real substitute for cars. To
solve this problem,Toyota always being innovative to produce fuel-efficient cars for their customers.
Toyota’s competitors are constantly developing themselves in terms technology, design, supply and
quality.Toyota has to be on the top of their game to make sure the threat of substitutes is minimum.
The marketing arms of the global automotive manufacturers like Toyota are certainly working very hard
and with extraordinary production volumes worldwide, all signs indicate that they are succeeding.

12. Porter’s Five Forces Model Analysis
5 | Rivalry Among Existing Competitors
The rivalry among existing competitors ofToyota is Strong.
There are several competitors of Toyota in the automotive industry like Honda, Suzuki, Ford,
Nissan, Proton, Perodua and so on. These major competitors are so closely balanced that it
increases the rivalry.
The competition also exist between the governments because the government will establish
protection laws to protect the products of each own production. Product differentiation
Constantly increasing competition is powered by the higher consumer expectations and
anticipation for the lower prices.
Lack of differentiation opportunities also will cause high rivalry and the companies will
compare to each other constantly.
However, Toyota always try to differentiate their products and services to increase the
customer’s awareness and loyal to their brands.
A focus on innovation and forward intelligent has brought Toyota into the lead in areas such as
hybrid technology and automation of manufacturing facilities.
Toyota remains a frontrunner in the low cost manufacturing, while its production system
caused other car-manufacturers to change their operating approach.

13. Porter’s Value Chain Model
Overview

14. Figure 2 : Porter’s Value Chain Model
• Introduced by Michael E. Porter in his influential book “Competitive Advantage” in 1985.
• Can be used by companies to examine all of their activities in the process of converting inputs to outputs.
• How value chain activities are carried out determines costs and affects profits.
• The value that's created and captured by a company is the profit margin (Value Created and Captured –
Cost of Creating that Value = Margin).
• The activities conducted can be divided into primary activities and support activities.
Porter’s Value Chain Model | Overview

15. Inbound Logistics : Involve relationships with suppliers and include all the
activities required to receive, store, and disseminate inputs
Operations : All the activities required to transform inputs into outputs
(products and services)
Outbound Logistics : Include all the activities required to collect, store,
and distribute the output
Marketing and Sales : Activities inform buyers about products and
services, induce buyers to purchase them, and facilitate their purchase
Services : Includes all the activities required to keep the product or service
working effectively for the buyer after it is sold and delivered
1
2
3
4
5
Primary
Activities
Porter’s Value Chain Model | Overview
involve the purchase
of materials, the
processing of
materials into
products, and
delivery of products
to customers.

16. Support
Activities
Procurement : This is what the company does to get the resources it
needs to operate. This includes finding vendors and negotiating best
prices
Technology Development : These activities relate to managing and
processing information, as well as protecting a company's knowledge
base. Minimizing information technology costs, staying current with
technological advances, and maintaining technical excellence are
sources of value creation
Human Resource Management : This is how well a company recruits,
hires, trains, motivates, rewards, and retains its workers. People are a
significant source of value, so businesses can create a clear advantage
with good HR practices
Firm’s Infrastructure : These are a company's support systems, and
the functions that allow it to maintain daily operations. Accounting,
legal, administrative, and general management are examples of
necessary infrastructure that businesses can use to their advantage
Porter’s Value Chain Model | Overview
support primary
activities and can play
a role in each primary
activity.
It may also support
each other within
support activities.

17. Porter’s Value Chain Model Analysis for
PERODUA

18. Company Profile Porter’s Value Chain Model Analysis
Company Name Perusahaan Otomobil Kedua Sdn Bhd, PERODUA
President and CEO Datuk Aminar Rashid Salleh
Company Address (Head Office) Perodua headquarters is located on an 138-hectare site in Sungai Choh,
Rawang, Selangor Darul Ehsan
Date Founded Established in 1993; Perodua’s plant opening ceremony : 1 August 1994
Shareholders
UMW Corporation Sdn Bhd 38%, MBM Resources Berhad 20%, Daihatsu
Motor Co. Ltd 20%, PNB Equity Resource Corporation Sdn Berhad 10%,
Daihatsu (Malaysia) Sdn Bhd 5%, Mitsui & Co. Ltd 4.2% and Mitsui & Co,
(Asia Pacific) Pte Ltd 2.8%
Group
Perodua Auto Corporation Sdn Bhd (PCSB), Perodua Sales Sdn Bhd
(PSSB), Perodua Manufacturing Sdn Bhd (PMSB) and Perodua Engine
Manufacturing Sdn Bhd (PEMSB).
Main Business Activities Motor Vehicle Production (Compact Car & Mini Car) and Sales
Overseas
Sold in countries such as the UK, Singapore, Brunei, Fiji, Nepal, Mauritius
and Sri Lanka
Factory Area 64,000 square meters
Production Capacity 250,000 units per annum on 2-shift cycle
Fiscal Year From January to December
Total Number of Manpower ~ 9,000 staff (as of June 2014)

19. Porter’s Value Chain Model Analysis
| Inbound Logistics Primary
Activities
Perodua has good relationships with suppliers and the company provide the Electronic
Supplier Information & Management System (e-SIMS) to reach its suppliers.
The activities required to receive, store, and disseminate inputs done smoothly with good
facilities provided at the Perodua plant.
Personnel are well trained for overseeing the smooth transit of goods.
Transparency and monitoring through deployment of IT.
Efficient storage facilities to ease storage and retrieval.

20. Porter’s Value Chain Model Analysis
| Operations Primary
Activities
The plant currently has the capacity to produce 250,000 units per annum on 2-shift cycle with Factory area of
64,000 square metres.
Professionalism implemented in all operations.
The manufacturing capabilities of Perodua and local Malaysian component manufacturers have resulted in
achieving 75 LMCP (Local material component points).
The manufacturing operations of the Perodua Group are being managed by the PCSB.
Perodua Manufacturing Sdn Bhd is the company responsible for the manufacturing of Perodua vehicles.
Perodua Engine Manufacturing Sdn Bhd undertakes the assembly of the vehicle engines and also manufacturing
of selected engine component parts.
Adequate training ensuring stable source of skilled manpower.
Kanban and Kaizen system for continuous drive to improve efficiencies.
Automated manufacturing processes.
Maintenance for technical competence.
Capacity Utilization – In 2004 Perodua started assembling the Toyota Avanza at their plant in Rawang, for sale in
Malaysia.

21. Porter’s Value Chain Model Analysis
| Outbound Logistics Primary
Activities
PSSB has 41 sales branches and 139 sales dealers nationwide to serve its customers
efficiently and easily assessable.
Efficient transportation and trained personnel.
Efficient security system for prevention of any kind of pilferage.

22. Porter’s Value Chain Model Analysis
| Marketing & Sales Primary
Activities
Conduct various campaign and promotions activities.
Advertisement in all media.
Provide panel of finance and insurance for customers.
Structured approach to understanding the requirements of individual customers.
Showrooms available nationwide.
Overseas network and showrooms : UK, Singapore, Brunei and Fiji Island.

23. Porter’s Value Chain Model Analysis
| Services Primary
Activities
Perodua keep the product or service working effectively for the customers after it is sold
and delivered.
The company has 46 service branches and 117 service outlets throughout Malaysia for
customers’ convenience.
Body Repair & Paint Centres available nationwide.
Service information and service package provided for the customer.
Easy availability of spare parts.
Customer complaints handling.

24. Porter’s Value Chain Model Analysis
Support Activities
|Procurement
Perodua use the Electronic Supplier Information & Management System (e-SIMs) to
enable e-business and to reach out to their vendors and negotiating best prices.
e-SIMs aim to establish smart business partnerships and develop more opportunities
locally and globally by being able to response effectively and efficiently through supply
chain technology.
e-SIMs objectives & imperatives :
To improve communication between Perodua and suppliers in a collaborative environment.
To improve planning and scheduling capabilities.
To ensure accurate and faster processing of transactions.
Improve communication with internal employees.
Increase operating efficiencies.

25. Porter’s Value Chain Model Analysis
Support Activities
|Technology Development
Perodua has invested substantially amount in manpower and IT sofware for its R&D
activities.
Perodua’s R&D focuses on developing our capabilities in automotive technologies ranging
from basic testing, design and styling engineering to manufacturing engineering skills.
The activities include styling / modelling, concept car development and the ability to
undertake major facelifts.
The main activities of the R&D are localisation of car parts and components, styling and
modeling of future models and facelifts of current product range.
Other R&D facilities are the chamber, engine test lab and test course.

26. Porter’s Value Chain Model Analysis
Support Activities
|Human Resource Management
Perodua believe that efficient human resource is vital in achieving the company mission.
Encourage in teamwork and employees to put forth and develop ideas for greater
efficiency and productivity.
Focus on the development of our human resources by ensuring that regular specialised
training is provided for success through quality human resource. Training provided
include:
Perodua Technical Education System (PTES)
Perodua Technical Education System (Advance)
Reward staff performance by constantly reviewing and upgrading the company benefits.
Provide a conducive working environment and ensure staff who has displayed
potential be given opportunities for career advancement.

27. Porter’s Value Chain Model Analysis
Support Activities
|Firm’s Infrastructure
Perodua headquarters houses among others Perodua corporate building (with
accounting, administrative, and general management department), R&D testing
laboratories and styling studio, vehicle test track, manufacturing plant, engine plant, pre-delivery
inspection area, vehicle distribution stockyard and parts warehouse.
Factory area 64,000 square metres.
Multi location facilities (showrooms and service centres).
Strong leadership.
Accounting, legal, administrative, and general management department

28. CONCLUSION
• All in all, both Porter’s Five Forces and Porter’s Value Chain models are very useful for
automotive industry and other company or an organisation to evaluate their competitive
advantage and to gain more profits.
• Currently, Toyota is world’s largest manufacturing companies by revenue. Net revenues of
Toyota increased by 16.5% in FY2014 compared with FY2013, and operating income
increased by 105.2%, in FY2014 compared with FY2013. The increase in operating income
was mainly due to effects of changes in exchange rates and cost reduction efforts.
• With good value chain management, Perodua has been quite successful in its business
ventures. Itsminicars and superminis remains popular among Malaysians customers.

29. REFERENCES
1. Turban, Volonino, Sipior & Wood. (2011). Information Technology for Management, 8th Edition. John Wiley & Sons, Inc.
2. http://www.strategicmanagementinsight.com/tools/porters-five-forces.html
3. http://en.wikipedia.org/wiki/Porter_five_forces_analysis
4. http://www.mindtools.com/pages/article/newSTR_66.htm
5. http://en.wikipedia.org/wiki/Value_chain
6. http://www.ifm.eng.cam.ac.uk/research/dstools/value-chain-/
7. http://www.ukessays.com/essays/marketing/the-information-system-of-toyota-company-marketing-essay.php
8. http://www.toyota-global.com/
9. http://www.toyota.com.my/
10. http://www.perodua.com.my/
11. http://en.wikipedia.org/wiki/Perodua

30. THANK YOU…