Brilliance Auto, China
Auto manufacturing industry is not a very profitable industry, with its profit margin averaging at 4.9%; it is 9 times less profitable than the top of the list at 38.30%. Interestingly there is one company in this industry that is reaching 58.81% net profit margin: Brilliance Auto, China. (Exhibit 1) (Exhibit 2)
Auto manufacturing industry has a high entry barrier. The capital requirement is huge for setting up plants, R&D and marketing. Although economies of scale do exist, it is very hard to achieve because it requires more capital compares to other manufacturing industries due to the size and price of the machinery. Government restrictions about environmental are also strict. The power of suppliers is relatively high: the suppliers industry is highly concentrated, there are very limited amount of companies that can produce the steel, aluminum required for car chassis, rubbers for tires etc. The power of buyers is medium, although they face a high switching cost, the fact that car models and features are so similar make customers tend to be very price sensitive within a same class of vehicles. Motorcycles, public transportations, etc. are substitutes for cars. Many people that living in big cities tend to choose motorcycles or subway to avoid traffic jam. The rivalry is high in this industry, as cars are divided into different classes, and all major manufacturers provide most of these classes with not too differentiated features.
I think the reason Brilliance Auto became successful is being a master of integration. Brilliance Auto is a Chinese company in alliance with BMW. As a protective term for local car companies, Chinese government established a policy: any foreign car manufacturers need to form an alliance with a local company if they want to produce cars in China. I think Brilliance Auto made the right choice by choosing BMW.