4.

0 Michael Porter 5 Forces

4.1 Introduction
Michael Porter has develop a model call the five forces model which is indeed the most effective
ways in measuring the level of competition in an industry. The model determines the level of
competition between competitors, new entrants, buyers, substitute products, and suppliers in a
given industry (Balon n.d).

4.2 Barriers to entry
The threat of new entrants will depends on the barriers of entry such as the economics of scale,
government intervention and laws, high initial investments and fixed costs, and the protection of
intellectual property for example patent or licenses etc (Recklies 2001).
The barrier to enter is high in the China market due to the lack of set regulations, government
policies and poor central planning. The worst part is, there are no protections on intellectual
property rights and this could be harmful to PROTON as Chinese firms could steal PROTONs
property. This is due to the lack of transparent laws. PROTON need to be very careful in
protecting its intellectual property and be aware of trademark squatting (Long 2009).
To enter into China market, PROTON require high amount of capital which is about 2 billion
yuan. This is amount of money is used to manufacture the product and maintain its R & D that is
importance for innovation (Highfill, et al. 2004).

4.3 Threat substitute products
There are not many substitute products in the automotive industry. Some substitute could be cars,
or train. Based on the geographic location of Chongqing, there are many highways now and
steep road and also good train service. With many key projects from the municipal government
of Chongqing such as the Shanghai-Chengdu expressway, Yuberi-Wanzhou intercity railway and
Transit Line 1 project that promote using public transport instead of having to buy their own.
However, many people still prefer to own their own transportation especially motorbikes due to
the size and easy excess smaller roads (Highfill, et al. 2004).

4.4 Intensity of internal rivalry
In Chongqing, the city of China has high intensity of internal rivalry for motorbikes because
Chongqing is the largest motorbike production and account 35% of market share in China. There
are 30 existing enterprises in the production of complete motorbikes (Shirong 2008). JiaLing,
JianShe, ZongShen, Lifan, LONCIN and Bashan are one of the top 10 motorbikes in China.
The worse are yet to come as China begins to ban motorbikes especially electric bikes because
motorbikes are prone to accident and some use it as a mean of committing crimes. Therefore,
many motorbike companies are trying their best to sell their bikes in province/city that allows
motorbikes. The industry growth for motorbikes industry is growing in China which means less
incentive for firms to aggressively compete with each other (Lima 2006).

4.5 Bargaining power of suppliers
Suppliers are the sources for all input that are needed for a company to produce goods or
services. Since there are not many product substitute in Chongqing in the automotive industry,
suppliers of components, labor and expertise would be an added source of power for PROTON.
This is due to the fact that quiet a number of parts are needed to produce an automotive vehicle.
There are about 1558 automobile and motorcycle parts and component suppliers overall in China
(Zhao Min, 2005). The bargaining power of supplier is low in China due to the existence of other
automotive competitors who are strongly established.
The corporations are not big as well since there are only 425 enterprises that produce motorbike
parts. There are only a few automotive supplier found in Chongqing who is rich in resources of
motorcycle parts, high tech, skillful workers and lower labor cost in the motorcycle-capital city,
Chongqing. For example Bashan Company is not as good as Lifan Company in the term of
production of automotive components.
4.6 Bargaining power of buyers
If the suppliers are known as the source of inputs, then buyers are the source of outputs. Buyers
are the people who make way for the availability of demand in an industry. In order to stay in
business, manufacturer needs to keep the buyers happy and also so that they dont lose their
customers to other competitor. Buyers have many choices of substitute products since there is
availability of other mode of transportation such as train and personal cars. Buyers have much
choice to make and it is also cheap as the government is helping them and the government of
China also banned motorbike in the country. Therefore, the bargaining power of buyers is high.
Buyers also have easy access to information on the products such as the 14th China Chongqing
International Auto Industry Fair 2012, which successfully captured 400 000 visitors. It represents
that people of Chongqing are known ledged of such fairs where they could learn about product
diversification. Chongqing was ranked as top 5 for its intensive infrastructure construction by the
construction of the Three Gorges Dam Project which shows how developed the province is
(Chongqing Municipal Government, 2011).

4.7 Recommendation
To overcome the barriers to entry, PROTON needs to have strong R&D and take into
consideration standards of quality and potential business partners, and keep track and understand
all the regulations. PROTON need to joint venture with Bashan Motorcycle industry to overcome
the barriers to entry as well and have a guanxi because it plays a part in strengthening the
relationship and to overcome problem face when penetrating into the China market.
Although there are less substitute product, but the government of Chongqing is promoting public
transport, to solve this, PROTON need to come up with its latest and new design of motorbikes
that change the way people thought of motorbikes as well as promoting green technology
(hybrid) motorbikes.
It is indeed the intensity of internal rivalry of China is very high due to the large scale of
motorbikes industry in the country especially Chongqing. Therefore, PROTON and Bashan need
to come up with a technology that can add value to the motorbikes and can be differentiated with
the rest of their competitor. PROTON can come up with motorbikes that looks like a car that can
improve the safety of the motorbikes and argue with the government that these motorbikes are
not under the category of ban motorbikes.
Although the bargaining power of supplier is not high but, they could also delay the goods to the
company and it also takes time for the company to find other supplier. Therefore, PROTON and
Bashan need to maintain a good relationship with their supplier through guanxi. In fact, the
supplier might give tips or advice to PROTON or Bashan when coming out a motorbike because
the suppliers have vast knowledge in this field.
The bargaining powers of buyers are high and if PROTON were to influence the buyers,
PROTON could increase the market share. PROTON could improve its service, design of the
motorbikes to make it more appealing to the buyers. Satisfied customer needs could help
PROTON to increase its market share.