There were two key issues raised by this example question: (a) why hybrid
vehicles were becoming important and (b) why the automakers were making the
quite different choices noted in the article.
Here, it was important to recognise the significant external pressures facing the
auto industry. One means of comprehensively addressing these issues was
through an application of Porter’s five forces framework. This identified intense
competition, rising oil and steel prices and growing environmental concerns as all
placing great pressure on automakers. These pressures had been evidenced in
poor profitability and through the ongoing rationalisation of the industry, with many
players being acquired or merging with other automakers. Hybrid vehicles are a
natural response to current pressures, in that they improve fuel efficiency and also
appease environmentally conscious consumers. However, it is important to
recognise that this is only a partial solution, as petrol remains the core power
source such that its suppliers are likely to be able to extract much value from
automakers and their customers. There are also significant cost-benefit tradeoffs
around the technology. Potentially even more efficient and environmentally
friendly technologies, such as hydrogen fuel cells and high percentage ethanol
fuel could become strong substitutes.
The move to hybrid vehicles seemed to offer the potential for first-mover
advantages. Toyota’s early lead through the development of the technology used
in the Prius suggested that it might have developed a resource that could provide
competitive advantage through learning curve effects. Movi ...