First, a lot of information shows us that Russia is growing sharply. Even though the year 2009 will be less profitable than 2008, we saw that the emersion of a new middle class is growing rapidly since few years but also their power buying.
Second, Russia has a lot of natural resources at its disposal. It is very interesting forRenault if it wants to increase its market shares there. Indeed, Renault will not have to import some raw materials indispensable to build a car. Then, the abundant oil at a low price (less than 50$ the barrel) will also maintain the demand of car.
Third, we saw that RENAULT has to adapt his self to the trends of the Russian people like the average time of 11 years to keep a car. Thus, to increasehis sales like his profitability, he will have to produce the cars at destination of the Russian market directly in Russia caused by the actual legislation which tax the import of foreign new cars.
a) Threat of new entrants
A segment’s attractiveness varies with the height of its entry and exit barriers. The most attractive segment is one in which entry barriers are high andexit barriers are low. With that, few new firms can enter the industry.
In the car industry, competition has already become rough. That’s why, it is necessary to keep barriers high. As we can see below, the industry has already several entry barriers.
First, a big brand awareness is needed to enter in the Russian country which has an area of 17,075,400 km2.
Secondly, the Russian consumershave the trend of high customer loyalty and to prefer homemade products rather than foreign products and also for the car, for example with the functions and the design of the car. The companies have to adapt their product to the Russian market.
Third, high capital, partnership or know-how about the Russian market are required to enter.
For all these reasons, it is difficult to have access tothe Russian market but the risk is very high.
But in an other way, all the conditions necessary to the success of a company in Russia are fulfilled: economy in huge growth, increase of the power buying, oil resources and the huge rate of growth about 6-7% these recent years.
b) Threat of substitutes
Our substitutes are train, bus, bicycle, foot, plane, etc. In short, all means of transportbut mainly public transports. The threat of substitutes is high. Therefore the firms in the market have to innovate in order to avoid that all these substitutes replace car.
c) Buyer power
Currently, in the automobile sector, the sales are decreasing. Therefore because there is a lower demand than the offer of the market, the prices are decreasing. Hence, the buyer power is increasing.Moreover, the concentration of the competitors is more and more important.
So, the buyer power in the automobile market is high. The cars firms are more and more dependent on buyers.
d) Supplier power
The major obstacle to successful development of foreign assembly projects in Russia is the lack of local component suppliers. But, RENAULT is using only body assembly in Russia and import hiscomponent from the western and East Europe whose a big party from China, Romania or France.
The suppliers of Renault have to be very flexible, provide quality product and meet its requirements. It means that their power of negotiation is very low.
Moreover, price of raw materials go up and objectives of production are decreased. There is less flexibility to go down in price.
In short, the supplierpower for RENAULT is low. It means it is good for Renault.
Conclusion five forces
The industry is attractive because the supplier power is low. Rather than the threat of new entrants and the buying power of the customer is high, we have to consider them like threats for the sales of RENAULT. To conclude, the threat of substitutes is low because the public transports are not so developed...