I am planning to open a new navigation equipment company with my friends. However, I am not sure if I can make profits in this market. As new entrant, I have to get to know of the current competitive condition of the navigation Industry. Thus I do the navigation Industry business environment analysis based on Porter’s Five Forces Model, and further try to effectively dodge and reduce entrepreneurial risks of failure. 1 . Threat from potential new entrants( High) Current, the navigation market exists some unfavorable conditions that definitely ender new entrants access to this industry.
First of all, starting a new navigation equipment company definitely requires much higher initial investments and fixed costs. In the meantime, the company needs many qualified and experienced staffs work for you, who are the core of the company. But, the problem is that what your advantages are and what benefits the employees can get from your company relative to other existing companies. Moreover, the existing companies have the cost advantages due to long term experience In operation of the company. They also have complete dilutions channels.
Those advantages will not be met easily or In a short span of time. That Is higher risky for me to enter the navigation market. The other issue I have to concern is that the US and European navigation market is saturated. No much more demands for the GAPS devices. Thus, it must be no much opportunity or profits in Navigation industry for new entrants enter this market. The another threat or barrier could be the legal and environment restrictions on the digital navigation industry. Currently, the number of accidents, due to the distraction caused by using the GAPS devices, are increasing.
This issue has already been focused by the government and the consumers. Thus, the possible results would be that all navigational equipments are legislatively banned to use in dashboard or the windshield. That will severely affect the sales of the navigation equipment. Moreover, the prices of the POND Is much higher. Some thieves started to damage the cars’ window and thief the GAPS devices. Thus many consumers are scared to be stolen, and have to quit to mount the Ponds into the car. On the other side, the GAPS devices are being used by the related agents as tracking devices.
Much ore individuals can not accept GAPS devices at all since their individual activities are controlled and monitored by the other people all the time. Another environment limit could be the aging satellites. Those are really too old to support the whole navigation industry any more. That affect the effectiveness and performance of these navigation devices. Finally, the navigation market is controlled by the three dominant companies, Gearing, Tom Tom, and Magellan, which account for almost 85% of the total market. They have already created credit and reputation on their consumers.
Most nonusers are familiar to their products. It Is really tough to change consumers’ brand loyalty. To sum up, It Is much higher risk for us to take market share from those established brands. Individual consumers, automobile manufactures, business enterprises, and aviation industry are the main buyers in the navigation industry, followed by air travel at affordable prices, pilots with personal plants and coast guards. As individual consumers, each of them can not impose any pressure on margins and volumes to the navigation industry.
By contrast, the automobile manufactures, aviation industry, ND business enterprises, such as Wall-mart and Targets, have significant influence to the navigation industry. Those manufactures and enterprises generally buy large volumes, so who are really significant on affecting the sales of the company. Plus, there are some popular and big competitors, which provide the high quality products and services. Thus the buyers could purchase the navigation equipments from these competitors. The switching to alternative product for these buyers is simple and the cost is not much higher.
Simply put, if I plan to set up new navigation company, I eve to make close links and get well along with the buyers. 3. Bargaining power of suppliers (High) In the Tom Tom case, we can see the most two biggest suppliers, Naiveté and Tell- Atlas. Have been acquired by other GAPS companies. That is the trend that navigation companies start to acquire the suppliers to ensure that they have the stable goods supplying. Acquisition would be a competitive advantage for the company. For the suppliers, they get the fixed sales channel, who do not need to take risk to work with new and small entrants.
The market now is controlled by a few large suppliers rather Han fragmented suppliers. As new entrant, I have to make close connection with suppliers, who promise to contract and work with my company at given time, at least to ensure that I have some stable goods supply. At the beginning, the bargaining power of suppliers much be higher for me as a new entrant due to the limits of suppliers. In addition, the issue how to lobby the suppliers to trust you and work with you would be my concern. 4. Substitute products. High) The existence and innovation of cell phones and Smartness are a strong competitive threat for the development of the GAPS devices. Today, our phones have the free navigation application. That is really portable. Consumers don’t need to cost extra money to purchase costly GAPS devices, and who have to face the risk of being stolen. Moreover, the development of ATT Navigator, online navigation Applications, built-in car navigation devices, and physical maps also threat the existing GAPS devices. By contrast, “online navigation applications are not portable and may have poor visualization designs”, while they are free for consumers to use.
Thus they are much popular for the consumers who are sensitive to price. Built-in car navigation devices are much more costly than the other navigation devices to most consumers. Therefore, they are not widely accepted and used by customers. Physical maps are good options for people to use for decades. But with improvements in technology, young people prefer to use the electric GAPS devices, rather than the physical maps. Plus, it is not convenient for drivers to look when driving the car. In conclusion, there are many close substitutes existing in the navigation industry.
It is consolidated industries for navigation business. It means most of make share is controlled by some bigger and popular companies. The case mentioned that Gearing, Tom Tom, and Magellan, which totally account for almost 85% of the navigation market. Only 15% of market share left for the other companies. There is higher rivalry among established companies. Thus as new entrant, we have many disadvantages in competing with them. First of all, these dominant companies have a lower cost through mass production relative to new entrants. In addition, they have long-term cooperation and commitment with their suppliers.
They may get the account on bulk purchases from their regular suppliers. The most important factor for a company to be successful and sustainable could be the fixed and loyalty consumer group. These dominant companies have already created good reputation and credit. They exactly know what the consumer preferences are, and they can improve their products and services to cater their consumers at lower cost relative to new entrants. On the other hand, the navigation industry is saturated. The supply of GAPS devices in this market exceeds the demand of them. It encourages among companies rivalry for market share and revenue.
Through the navigation industry environment analysis, we can see that this industry is facing fierce competition among the companies. The dominant companies controls the 85% of the market shares. There is no more room for the new entrants. Plus, this market has already been saturated. It makes the situation worse for the new entrants to make profits in the navigation industry. On the other hand, the government regulations and the environments limits also enlarge the difficulty in doing business in this market. Based on the above analysis, I’ll quit to start a new navigation equipment company.