With the recent news of the chain of SMRT trains breaking down in Singapore and the scrutiny that the SMRT's top management has been put through, which led to the resignation of their then current CEO, Saw Phaik Hwa, having to indadvertedly step down.
Plus just a couple of days ago, it was announced by SMRT that it will put the current train systems under a $ 600 million dollar boost to improve all its systems.
This current hiccup of SMRT, could possibly pave the wave for other competitors, making it easier for them to challenge SMRT in bidding for future constructions of train lines. Hence this lead me to do up a Porter's Five Industry Analysis for the industry SMRT is in. Not limiting myself to the train service alone but, an analysis on a whole, looking at the entire public transport industry.
The Porter’s Five-Forces is an analytical tool used for examining the competitive environment and forces, which affects the Public Transport Sector within Singapore.
Threat of New Entrances
In the case of SMRT, we look at the public transport industry as a whole within Singapore. Firstly having been established and a recognised brand, SMRT has a competitive advantage over new entrants coming into the industry. Looking at Economies of Scale, referring to the spreading of costs of production over number of units produced, deters entry by forcing to come in at large cost (Dess at el, 2010).
We see from Rajan (2006), The Straits Times, “MRT Trains get $145 million overhaul” stating that $145 million was spend just on the refurbishment of trains interior alone. Thus we can see that Economies of Scale and Capital Requirements in this industry is very high. From Land Transport Masterplan (2008), requirements for start-up and prices of fare are all government regulated and require approvals, from the government and Land Transport Authority (LTA), making threats low.
The Bargaining Power of Buyers
Buyer’s bargaining power is high as minimum switching cost is incurred, as public transport industry is similar and undifferentiated. Buyers have other alternatives of transport via buses and taxies, making their bargaining power higher. There is hardly a threat of backward integration by buyers as it requires massive amount of capital. As a regulated industry, prices are fixed and determined by the government. Hence shifting the bargaining powers of buyers moderately.
The Bargaining Power of Suppliers
SMRT has a choice of suppliers to choose from, in the example of taxies if Mazda offers a better package as compared to Toyota they can have a variety of choices as well as substitutes. From SMRT’s fleet of buses, taxies and trains they have number of suppliers. Being the market leader in the Mass Rapid Transit industry and second for taxies, they have a stronger leverage and purchasing power, reducing bargaining power of suppliers. Forward integration is highly unlikely by suppliers due to the establishment of SMRT, making suppliers have a low bargaining power.
For SMRT, there are only limited substitutes such as walking, cycling, taking private or chauffeured transport. Other than car ownerships we do not see much other threats of substitutes. With recent interventions by the government to increase ridership on public transport, the Certificate of Entitlement (COE) for private motorcar ownerships has increased dramatically. Which has resulted in overall sales of private vehicles declining, as seen from an article in Singapore Business Review (2010) titled “Car sales in Singapore on a downhill” show that sales has reduced by 17.4% in September 2010. Differentiation of substitute product is low and rate of improvement in price-performance relationship of substitute is low, leading to a low threat of substitutes.
The Intensity of Rivalry among Competitors in an Industry
To have a clearer picture of the rivalry levels within the public transport industry faced by SMRT we have to take a three-tier approach looking at each individually.
Lastly, for the taxi industry is not SMRT the market leader and trailing behind to Comfort DelGro who owns 15,000 taxies and a handful of smaller players. SMRT has to fight intensely for a bigger share of the market (Taxi Singapore, 2011).
These lead to intense levels of rivalry, especially among the two market leaders SMRT and Comfort DelGro who are owners of SBS Transit as well. With the type of services being almost equal on all grounds it leads to little differentiation among products and services. SMRT would have to rely on its core competencies to overcome stronger threats such as being voted Most Eco-Friendly Transport Partner Land Transport Excellence Awards 2010 (SMRT, 2011).
The level of intensity is high due to such high start up costs, excess revenue for maintenances and construction of depots, creating a high barrier to exit due to big investments. It adds even more intensity from as competitors are all fighting for the same pool of customers.
Final Deductions
As identified from above:
· Threat of new entrants is low
· The Bargaining Power of Buyers is moderate
· The Bargaining Power of Suppliers is low
· The Threat of Substitute Products is low
· The Intensity of Rivalry among Competitors in an Industry is high.
From the above information, we can see that the industry is in its maturity stage being a consolidated industry, where few large firms, who find it hard to differentiate their products, dominate it. Overall with Porter’s analysis done, it would be an attractive industry to invest in but high start up costs, government regulating and high barriers to exit all hinder many from entering this industry.
that's support to my understanding. Thanks for sharing Knowledge.
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