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Millennials

Cost advantage and Innovation

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Garmin creates high quality products which are easy to use by leveraging GPS technologies and in-house manufacturing. One of Garmin’s core competencies is its skilled workforce. It provides superior customer support and efficient after sales services in areas like repairs, technical support and warranties services.

The company owns its manufacturing facilities in Taiwan and receives tax incentives from the Taiwanese government. Low taxes and cheap labour allows Garmin to keep its operating costs low and therefore to benefıt from a cost advantage. Furthermore, the company strongly relies on innovation and hence massively invests in Research and Development. In 2014, R&D expenses reached nearly 15% of Garmin’s revenues.

Garmin takes part in a relatively new market. In fact, new technologies have taken over from the second half of the twentieth century. In this framework, GPS devices were literally launched by Garmin, enabling the company to exploit a first mover advantage.

Rivalry among existing competitors

After the first years of great success – when Garmin was one of the few companies developing digital maps – the market for navigation, communications and information products became highly competitive. This competition relied on design, quality and reliability, customer service, time-to-market and availability but also on price.

The main competitors are:

  • Google, Apple, Samsung, Motorola, for GPS service and smartphone applications
  • TomTom and MiTAC Digital Corporation for portable automotive products
  • Nike, Polar Electro for fitness products
  • Magellan (subsidiary of MiTAC), Lowrance and Delorme for the outdoor segment
  • Raymarine, Furuno Electronic Company and Lowrance for marine products
  • Honeywell, Avidyne Corporation, L3 Avionics Systems etc. for general aviation product lines

Indeed, Garmin faces a tough competition through all business divisions and product lines. Thus, the company tries to offset this competition thanks to diversification, valuable market shares, brand recognition,investments in R&D and global presence.

Threat of new entrants

The market in which Garmin operates is characterized by heterogeneous entry barriers. GPS technology is widespread and nowadays easier to replicate than in the past: this makes the threat of entry for the automotive segment high. However, it is not so for aviation and marine sectors where governments’ regulations and extremely performing products are needed, thus making entry barriers very high.

Moreover, distribution channels contribute to lowering entry barriers, especially if the firms are already experienced. For instance, Garmin sells its products through Wal-Mart, a retail corporation that is easily attainable by important electronic companies. That is why, all things considered, entering the market represents a small obstacle for potential new firms.

Threat of substitutes

The threat of substitutes is not very problematic as far as the navigation industry is concerned. Things are different for the automotive segment: empirical evidence shows that nowadays people are more and more substituting GPS devices with applications providing the same service on smartphones. Furthermore, the other main substitute for Garmin’s products is the built-in GPS system, which is already incorporated in the car. Garmin is trying to counterbalance this threat providing the same product itself.

Bargaining power of suppliers

The power of suppliers is present but not worrying: they provide most of the components Garmin relies on. Yet, by adopting the vertical integrated business model, the company manages to limit this power and better cooperate.

Bargaining power of customers

The power of buyers, on the contrary, is alarming. In order to attract consumers, producers of GPS technology devices have been forced to start competing on prices, in the attempt to narrow the expansion of substitutes, whose quality is constantly improving.

To conclude, according to the analysis of the Porter’s model, the GPS industry seems quite unattractive. The power of buyers and the level of competition in the industry are very high while the threat of new entrants, of substitutes and the power of suppliers are only moderately high.

However, Garmin remains profitable thanks to having built an efficient business model, sustainable over time.

@manu_scogna10

 

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