“Five Force Analysis of Rolls Royce”

Subject: Business Policy Strategic Management - 2

Submitted By:

Nikolas Khristi(18F26)

Div- A

Submitted To:

Dr. K.S. Prasad

GH Patel Post Graduate Institute of Business Management

MBA Department, Sardar Patel University

 1) Analyzing the 5 Competitive forces for Rolls Royce cars.
How to do it?
About the Company:

Rolls-Royce Motor Cars Limited is a British luxury automobile maker. A wholly

owned subsidiary of German group BMW, it was established in 1998 after BMW
was licensed the rights to the Rolls-Royce brand name and logo from Rolls-
Royce plc and acquired the rights to the Spirit of Ecstasy and Rolls-Royce grill
shape trademarks from Volkswagen AG. Rolls-Royce Motor Cars Limited
operates from purpose-built administrative and production facilities opened in
2003 across from the historic Goodwood Circuit in Goodwood, West Sussex,
England, United Kingdom. Rolls-Royce Motors Cars Limited is the exclusive
manufacturer of Rolls-Royce branded motor cars since 2003.

Although the Rolls-Royce brand has been in use since 1906, the Rolls-Royce
Motor Cars subsidiary of BMW AG has no direct relationship to Rolls -Royce
branded vehicles produced prior to 2003. The Bentley Motors Limited subsidiary
of Volkswagen AG is the direct successor to Rolls-Royce Motors and various
other predecessor entities that produced Rolls-Royce and Bentley branded cars
between the foundation of each company and 2003, when the BMW-controlled
entity started producing cars under the Rolls-Royce brand.

The Rolls-Royce Phantom four-door sedan was the first product offered for sale
in 2003. Since then, the company has expanded its product line to include
extended wheelbase, two-door coupé, and convertible versions of the Phantom
sedan, as well as the smaller Ghost four-door sedan, Wraith two-door coupé,
Dawn convertible, and the Cullinan SUV.

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Step 1: Identify the specific competitive pressures associated with each
of the 5 forces.
Step 2: Evaluate the Strength of each competitive force: Fierce, strong,
moderate to normal, or weak?

A model was put forward by Michael. E. Porter in an article in the Harvard

Business Review in 1979. This model, known as Porter's Five Forces Model
is a strategic management tool that helps determine the competitive
landscape of an industry. Each of the five forces mentioned in the model and
their strengths help strategic planners understand the inherent profit potential
within an industry. The strengths of these forces vary across the industry to
industry, which means that every industry is different regarding the
profitability and attractiveness. The structure of an industry, even though it
is stable, can change over time. These Porter’s five forces are as follows:

1. Competitive rivalry or competition.

2. Bargaining power of buyers or customers.
3. Bargaining power of suppliers.
4. Threat of substitutes or substitution.
5. Threat of new entrants or new entry.

The Porter’s Five Forces model can be used to analyse the industry in which
Rolls Royce Holdings Plc operates, in terms of attractiveness through
inherent profit potential. The information analysed using the model can be
used by strategic planners for Rolls Royce Holdings Plc to make strategic
decisions.

1. The bargaining power of suppliers:

• The number of suppliers in the industry in which Rolls Royce Holdings Plc
operates is a lot more than the number of firms producing the products.
This means that the buyers have a few firms to choose from, and therefore,
do not have much control over prices. This makes the bargaining power of
buyers a weaker force within the industry.
• The product differentiation within the industry is high, which means that
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 the buyers are not able to find alternative firms producing a particular
product. This difficulty in switching makes the bargaining power of buyers
a weaker force within the industry.
• The income of the buyers within the industry is low. This means that there
is pressure to purchase at low prices, making the buyers more price
sensitive. This makes the buying power of buyers a weaker force within the
industry.
• The quality of the products is important to the buyers, and these buyers
make frequent purchases. This means that the buyers in the industry are
less price sensitive. This makes the bargaining power of buyers a weaker
force within the industry.
• There is no significant threat to the buyers to integrate backwards. This
makes the bargaining threat of buyers a weaker force within the industry.

How Rolls Royce Holdings Plc can tackle the Bargaining Power of
Suppliers?

• Rolls Royce Holdings Plc can purchase raw materials from its suppliers at
a low cost. If the costs or products are not suitable for Rolls Royce
Holdings Plc, it can then switch its suppliers because switching costs are
low.
• It can have multiple suppliers within its supply chain. For example, Rolls
Royce Holdings Plc can have different suppliers for its different
geographic locations. This way it can ensure efficiency within its supply
chain.
• As the industry is an important customer for its suppliers, Rolls Royce
Holdings Plc can benefit from developing close relationships with its
suppliers where both of them benefit.

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 2. The bargaining power of buyers:

• The number of suppliers in the industry in which Rolls Royce Holdings Plc
operates is a lot more than the number of firms producing the products.
This means that the buyers have a few firms to choose from, and therefore,
do not have much control over prices. This makes the bargaining power of
buyers a weaker force within the industry.
• The product differentiation within the industry is high, which means that
the buyers are not able to find alternative firms producing a particular
product. This difficulty in switching makes the bargaining power of buyers
a weaker force within the industry.
• The income of the buyers within the industry is low. This means that there
is pressure to purchase at low prices, making the buyers more price
sensitive. This makes the buying power of buyers a weaker force within the
industry.
• The quality of the products is important to the buyers, and these buyers
make frequent purchases. This means that the buyers in the industry are
less price sensitive. This makes the bargaining power of buyers a weaker
force within the industry.
• There is no significant threat to the buyers to integrate backwards. This
makes the bargaining threat of buyers a weaker force within the industry.

How Rolls Royce Holdings Plc can tackle the Bargaining Power of Buyers?

• Rolls Royce Holdings Plc can focus on innovation and differentiation to

attract more buyers. Product differentiation and quality of products are
important to buyers within the industry, and Rolls Royce Holdings Plc can
attract a large number of customers by focusing on these.
• Rolls Royce Holdings Plc needs to build a large customer base, as the
bargaining power of buyers is weak. It can do this through marketing
efforts aimed at building brand loyalty.
• Rolls Royce Holdings Plc can take advantage of its economies of scale to
develop a cost advantage and sell at low prices to the low-income buyers of
the industry. This way it will be able to attract a large number of buyers.

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3. Competitive rivalry:

• The number of competitors in the industry in which Rolls Royce Holdings

Plc operates are very few. Most of these are also large in size. This means
that firms in the industry will not make moves without being unnoticed.
This makes the rivalry among existing firms a weaker force within the
industry.
• The very few competitors have a large market share. This means that these
will engage in competitive actions to gain position and become market
leaders. This makes the rivalry among existing firms a stronger force
within the industry.
• The industry in which Rolls Royce Holdings Plc is growing every year and
is expected to continue to do this for a few years ahead. A positive Industry
growth means that competitors are less likely to engage in completive
actions because they do not need to capture market share from each other.
This makes the rivalry among existing firms a weaker force within the
industry.
• The fixed costs are high within the industry in which Rolls Royce Holdings
Plc operates. This makes the companies within the industry to push to full
capacity. This also means these companies to reduce their prices when
demand slackens. This makes the rivalry among existing firms a stronger
force within the industry.
• The products produced within the industry in which Rolls Royce Holdings
Plc operates are highly differentiated. As a result, it is difficult for
competing firms to win the customers of each other because of each of
their products in unique. This makes the rivalry among existing firms a
weaker force within the industry.
• The production of products within the industry requires an increase in
capacity by large increments. This makes the industry prone to disruptions
in the supply-demand balance, often leading to overproduction.
Overproduction means that companies have to cut down prices to ensure
that its products sell. This makes the rivalry among existing firms a
stronger force within the industry.
• The exit barriers within the industry are particularly high due to high
investment required in capital and assets to operate. The exit barriers are
also high due to government regulations and restrictions. This makes firms
within the industry reluctant to leave the business, and these continue t o
produce even at low profits. This makes the rivalry among existing firms a
stronger force within the industry.
• The strategies of the firms within the industry are diverse, which means
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 they are unique to each other in terms of strategy. This results in them
running head-on into each other regarding strategy. This makes the rivalry
among existing firms a strong force within the industry.

How Rolls Royce Holdings Plc can tackle the Rivalry Among Existing
Firms?

• Rolls Royce Holdings Plc needs to focus on differentiating its products so

that the actions of competitors will have less effect on its customers that
seek its unique products.

• As the industry is growing, Rolls Royce Holdings Plc can focus on new
customers rather than winning the ones from existing companies.

• Rolls Royce Holdings Plc can conduct market research to understand the
supply-demand situation within the industry and prevent overproduction.

4. The threat of new entrants:

• The economy of scale is fairly difficult to achieve in the industry in which

Rolls Royce Holdings Plc operates. This makes it easier for those
producing large capacitates to have a cost advantage. It also makes
production costlier for new entrants. This makes the threats of new entra nts
a weaker force.
• The product differentiation is strong within the industry, where firms in the
industry sell differentiated products rather a standardised product.
Customers also look for differentiated products. There is a strong emphasis
on advertising and customer services as well. All of these factors make the
threat of new entrants a weak force within this industry.
• The capital requirements within the industry are high, therefore, making it
difficult for new entrants to set up businesses as high exp enditures need to
be incurred. Capital expenditure is also high because of high Research and
Development costs. All of these factors make the threat of new entrants a
weaker force within this industry.
• The access to distribution networks is easy for new entrants, which can
easily set up their distribution channels and come into the business. With
only a few retail outlets selling the product type, it is easy for any new
entrant to get its product on the shelves. All of these factors make the threat
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 of new entrants a strong force within this industry.
• The government policies within the industry require strict licensing and
legal requirements to be fulfilled before a company can start selling. This
makes it difficult for new entrants to join the industry, therefore, making
the threat of new entrants a weak force.

How Rolls Royce Holdings Plc can tackle the Threat of New Entrants?

• Rolls Royce Holdings Plc can take advantage of the economies of scale it
has within the industry, fighting off new entrants through its cost
advantage.
• Rolls Royce Holdings Plc can focus on innovation to differentiate its
products from that of new entrants. It can spend on marketing to build
strong brand identification. This will help it retain its customers rather than
losing them to new entrants.

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 5. The threat of substitute products or services:

• There are very few substitutes available for the products that are produced
in the industry in which Rolls Royce Holdings Plc operates. The very few
substitutes that are available are also produced by low profit earning
industries. This means that there is no ceiling on the maximum profit that
firms can earn in the industry in which Rolls Royce Holdings Plc operates.
All of these factors make the threat of substitute products a weaker force
within the industry.
• The very few substitutes available are of high quality but are way more
expensive. Comparatively, firms producing within the industry in which
Rolls Royce Holdings Plc operates sell at a lower price than substitutes,
with adequate quality. This means that buyers are less likely to switch to
substitute products. This means that the threat of substitute products is
weak within the industry.

How Rolls Royce Holdings Plc can tackle the Threat of Substitute
Products?

• Rolls Royce Holdings Plc can focus on providing greater quality in its
products. As a result, buyers would choose its products, which provide
greater quality at a lower price as compared to substitute products that
provide greater quality but at a higher price.
• Rolls Royce Holdings Plc can focus on differentiating its products. This
will ensure that buyers see its products as unique and do not shift easily to
substitute products that do not provide these unique benefits. It can provide
such unique benefits to its customers by better understanding their needs
through market research, and providing what the customer wants.

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Step 3: Determine whether the collective strength of the five competitive
forces is conductive to earning attractive profits.

For Rolls Royce cars collective strength of the five competitive forces is
conductive to earning attractive profits because of competitive rivalry within
the aviation industry is very high due to the presence of General Electric
(GE) and Pratt & Whitney (PW), rapid technological change and intense
products and services competition. ROLLS ROYCE operates in four global
markets namely civil aerospace, defense aerospace, marine and energy-in
each of which it is among the world’s top three competitors. The company
has manufacturing sites or service centers located in 50 countries around the
world.

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2) What causes rivalry to be weaker?
Or
Rivalry within the competitors is generally weak? When?

The intensity of rivalry among competitors in an industry refers to the extent

to which firms within an industry put pressure on one another and limit each
other’s profit potential. If rivalry is fierce, then competitors are trying to
steal profit and market share from one another. As a result, this
reduces profit potential for all firms within the industry.

If any of the following occurs, then it may indicate that the rivalry within the
competitors is become weaker:

o Competitors are few

o Unequal size among competitors
o Competitors have unequal market share
o Industry growth is fast
o Fixed costs are low
o Products are differentiated
o Brand loyalty is significant
o Consumer switching costs are high
o Competitors are not strategically diverse
o There is no excess production capacity
o Exit barriers are low

Top Competitors of Rolls Royce Brand:

1) Bentley

Bentley is a top competitor of Rolls-Royce. Bentley was founded in 1919,

and is headquartered in Cheshire, England. Like Rolls-Royce, Bentley also
competes in the Automobile Manufacturers field. Bentley generates $1.6B
more revenue vs. Rolls-Royce.

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2) Audi
Audi is seen as one of Rolls-Royce's top competitors. Audi is headquartered
in Ingolstadt, Bavaria, and was founded in 1909. Like Rolls-Royce, Audi also
operates in the Automobile Manufacturers field. Audi generates 12,470% the
revenue of Rolls-Royce.

3) Jaguar
Jaguar has been one of Rolls-Royce's top competitors. Jaguar's headquarters
is in Coventry, Other, and was founded in 1922. Like Rolls-Royce, Jaguar
also works within the Automobile Manufacturers industry. Jaguar generates
6,351% of Rolls-Royce's revenue.

Following factors that cause the rivalry among competing sellers to be

weaker:

1. Low buyer switching costs and rivals sellers that are relatively equal in
size and capability.
2. Rapid growth in buyer demand and high buyer switching costs.
3. Few industry rivals, causing any one company’s action to be easily
anticipated and countered by its rivals.
4. Low barriers to entry and weakly differentiated products among rival
sellers.
5. Slow growth in buyer demand and strongly differentiated products.

The level of competition in the automobile industry is strong. Some of

the major competitors of Rolls Royce are Bentley, Audi and Jaguar.The
industry has grown saturated and the existing players are engaged in
tough competition for deeper market penetration and to snatch away
market share from each other. Brands invest a lot in marketing and other

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things. The number of top players and direct competitors of Rolls Royce is low,
however that makes the competition even intense. Overall, the level of
competition in the industry is strong.

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 Bibliography:

https://www.owler.com/company/rolls-roycemotorcars

https://www.bartleby.com/essay/rolls-royce-porter-5-forces-framework-and-
PKGC6JZDKDRVS

https://www.ukessays.com/essays/management/rolls-royces-strategic-and-
business-management-management-essay.php

https://en.wikipedia.org/wiki/Rolls-Royce_Motor_Cars

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