Over the past 15 years, the numbers of car accessories shops in Klang has tripled, thanks to the attractiveness of the industry and weak entry barriers. Competitors are flourishing and stepping up on their games to become the leader of auto accessories industry. Hence it increases the threat and lower the opportunity Law Brothers has on the business. Besides that, advancement in technology is a great threat when dealing with something that keep on changing proactively. Not just the product itself, but the way competitors conduct their business, connect with their customers by using internet technology has contribute further to the threat of doing business.
Other than that, it is costlier to buy from international market than locally with the government policies on taxes and import tariff. Hence, the changes in the government policies may give a treat to the business if the changes will increase the cost of doing business. On top of that, new distribution channel introduced by Sony in other parts of Malaysia has reduce the sales of Law Brothers, who once a sole authorised reseller of Sony.
Porters' Five Forces Competitive Model
From our point of view, the main problem of Law Brothers is their competitors. The number of competitors in the area keep on growing and they have somehow outrun Law Brothers and became the leader in the industry. Law Brothers' lack in skills and their high cost of running business contribute further to the situation. Five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. According to Porters, analysing all five competitive forces can help the business gain a complete picture of what's influencing profitability in the industry.
Threat of new entrants
There is a high entry barrier for automotive industry, but absolute low entry barrier for its accessories in Klang, Malaysia. Hence, the threat of new entrants is very high. Many new players or entrepreneurs are capable of venturing into the industry might be because of the low start up capital and high demand.
Threat of substitute products and services
The threat of substitutes exists in the case of Law Brothers. Because of the alliances between Sony and car manufacturers, the channel has been cut short and people who favour Sony accessories would not have to go to the auto accessories shop to change their stereos or speakers. Not only that, substitutes for this service already existed in the market from small players to big players. From a customer perspective, if Law Brothers is fully booked, do not have the accessories the want or too expensive, the alternative option will be to go for nearby auto accessories service who provide the same thing but at cheaper price. Other substitutes include genuine auto accessories. Mostly people prefer the same brand for their accessories with their car and not worry about compatibility and design fit. Besides that, increasing in fuel prices have been forcing some drivers to use public transportation. It can make an impact on the car accessories because if there are less car driven, it would be less demand for car accessories. As a result, threat of substitutes is high hence the industry attractiveness is low.
Bargaining power of suppliers
Big players and established companies' bargaining power of suppliers is less as it can get constant supply of auto accessories including OEM (Original Equipment Manufacturers) and accessories from local and international distributor. Thus, the supplier usually will try to retain the big players from going to other suppliers. However, for other medium and small size players, the bargaining power of supplier is moderate. When there are many suppliers in the industry, they do not have much power due to that industry manufactures can easily switch to another supplier if necessary. However, for auto accessories industry, the suppliersa are limited and usually the products are directly taken from the manufacturers resulting in high bargaining power.
Bargaining power of buyers
The bargaining power of buyers affects industry profitability by their ability to demand for higher quality at better price. In automobile and auto accessories industry, the bargaining power of the buyers is reasonably high. There are various shops and brands to choose from and the buyers have low switching cost due to the various brands with similar specifications and price with competitive marketing. Hence the bargaining power of buyers is high.
Rivalry among existing competitors
Auto accessories industry in Klang is highly competitive and high competitive industries generally earn low returns because the cost of competition is high. If your price is higher than neighbouring competitors, they will understandably choose the other than yours. Auto accessories industry in Malaysia is growing rapidly with all major players having many lines of branded accessories, their own products line together with the OEM products. This is a major threat to small and medium size players because big players have the advantages of buying in bulk and providing similar products and services to their customers with cheaper price and gain bigger profit margin. The industry rivalry is very strong from competitors like Super Star and Max Audio Online having a good dominance in their service ability. As a result, threat from rivals is high hence, industry attractiveness is low.
Stop unprofitable and time-consuming activities is one of the ways to improve profitability.
Law Brothers has been in the industry for decades but they did not manage to move hand in hand with the development of the technology thus, making them fall behind in the auto accessories industry. They did not have the expertise in the advanced, modern car nor they have the best price in the market. Even the demand for car accessories have been decreasing because of the increase in quality accessories produce by car manufacturers and strategic alliances between OEM and car manufacturers.
It is recommended for Law Brother to diversify, remove unprofitable products or services and replace with services or products with higher demand.
We also suggested for Law Brother to find new market with less competition and develop good marketing strategy, incentives to the customers
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