Industry attractiveness

core competence, since it lives up to the relevant criteria. The success of the digital services is further proof for the assumption that Daimler has the capacity to earn money with these services.

Daimler’s core competence in executing innovative business models contributes to the competitiveness of a wide range of their end products. For instance, the new E-Class can be considered as one of Daimler’s core products, since it is the physical embodiment of the established core competence. For developing the E-Class, Daimler had to combine their competencies in business model execution and technological innovation to create a close connection between hardware, software and connectivity services. The digital competencies and the automotive competencies had to be interwoven to create the autonomously driving E-Class.

The success of the E-Class demonstrates Daimler’s ability to take advantage of their competencies, which makes the executing of innovative business models their core competence.

Daimler manages to serve various segments through producing budget cars under the Smart brand.

For gaining market share in the mature industry, some competitors are offering discounts or reduce vehicle prices. These actions have a negative effect on Daimler's market share and operating results. This intensifies the degree of rivalry, which is assessed as strong.

Daimler’s digital services offer the opportunity to enter markets with less rivalry. For instance, the market for autonomous driving vehicles is expected to grow in the coming years. According to industry estimates, the market for self-driving cars is expected to have a value of approximately

$87 billion by 2030 (Marketline, 2016). By 2035 self-driving cars, will account for half of the vehicles sold in North America with sales worldwide reaching about 11.8 million (ibid.).

Nevertheless, there are also other producers, who offer intelligent solutions. “These can be completely new players like Uber and others, which try to get between Mercedes-Benz and their customers or service providers that manage great leasing fleets” (CB A2).

There are comparable digital services like connected drive from BMW and connect from Audi. Ford introduced their connectivity service at the mobile world congress 2016. Also car2go is facing relevant competitors. „There are also other free-floating concepts in the market like DriveNow from BMW, which is our most relevant competitor“ (AS A6). Concluding, the rivalry in the classical automotive industry is strong, but the competitive rivalry for the digital services is moderate.

Threats of new entrants

The large capital requirements to establish production facilities present a significant entry barrier for the automotive industry. Furthermore, the global tightening of emission standards is increasing costs further. Due to the high fixed costs in automotive design and manufacture, as well as the economies of scale gained from mass production, new start-up companies are rare. In addition, brand strength and reputation are highly important in the automotive industry. The strength of the current brands makes it difficult for new players to enter the market. Concluding, the threat of new entrants is assessed as weak.

However, car manufacturers need to be aware that digital competitors might cause the disruption of their business model. Disruptive business models are especially dangerous, when their value proposition centers on the satisfaction of a new set of needs, which can be satisfied through innovative technical solutions.

“We know that future competitors are not only car brands. Therefore, we analyze the market very carefully. We are interested in the activities of Google, Facebook and others. This is also the reason for our Mercedes me strategy. Knowing that not only Munich and Ingolstadt are

competitors, but that very strong competitors might come from totally different areas. Large companies might not even recognize these disruptive forces. Therefore, digital services are important to recognize these market developments” (AG A5).

Daimler is aware that the digitalization is pushing established companies and newly found start-ups in a severe competition. For instance, Uber is a main competitor of car2go, “not because the service is similar, but the use case for the customer is the same” (AS A6). Nevertheless, the market for mobility services has relatively high market entry barriers. Significant investments are required to start a car sharing company. It is very difficult to enter the market without the required funding capital and know-how about the specifics of the market. „I cannot imagine that a new company is really able to become a dominating force in the market“ (AS A6).

Also the VDA is convinced that newcomers to the industry cannot overrule the current market participants.

“Tesla is rather destroying the work of the industry, since functions that are not ready for series production have already been implemented. The German automotive industry could also offer the functions of Tesla, but we do not want that any harm is created with networked and automated driving“ (HK A8).

Since „these kinds of competitors are not relevant at the moment”, the threats of new entrants in the digital market segment is considered as moderate (kuhle).

Bargaining power of suppliers

The required key inputs by automotive manufacturers are typically commodity items, such as metals and fabricated components. These items are often outsourced to other companies.

Nevertheless, the low differentiation between raw materials, offers little space to distinguish between suppliers, which reduces supplier power. However, the importance of high quality components (particularly in relation to safety concerns) increases supplier power. Suppliers – like Bosch, Continental and ZF – are playing in the first division of digital technology. „These companies are able to think systematically and can deliver the relevant electronic control units“

(HK A8). Their research and development departments accompany the development of new automobiles, which increases the bargaining power of suppliers for the development of digital services. Concluding the overall supplier power is moderate.

Bargaining power of buyers

The main buyers within the industry are car dealerships, but the preferences by end-users are still important. Dealerships tend to have exclusive contractual agreements with manufacturers, which makes their switching costs very high.

Large international automotive companies dominate the industry. Hence, buyers have a low level of choice. Furthermore, there are a lot of car dealerships, which decreases buyer power. Dealers are forced to sell brands and models preferred by consumers, which also tends to reduce buyer power. Additionally, it is unlikely for dealers to integrate backwards into the manufacturers' operating area due to the different nature of the business. In addition, the digital services offer Daimler the opportunity for forward integration, since cars and services can be presented directly to the customers. Also in regard to the technological development, buyer power is assessed as weak.

Threats of substitutes

The main substitutes in the automotive industry are used vehicles, but alternative modes of transport also pose a threat of substitution. Consumers can use public transport instead of owning a vehicle; similarly, for businesses road or rail transport of goods is an alternative to owning a truck. However, the threat of alternative modes of transport is reduced due to Daimler’s increased service-orientation. The integration of different forms of transport – like car2go, Flinkster, mytaxi, Taxi-Ruf, Mietfahrräder, public transport operators and Deutsche Bahn (German Railways) – limits the relevance of substitutes for Daimler’s digital business models. Overall, the threat of substitutes has been reduced through digital services and is now moderate.