Page 17 - CIMA May 18 - MCS Day 1 Suggested Solution

SUGGESTED SOLUTIONS

treatment of suppliers in low cost negotiations and the use of “greener” materials and
more fuel efficient materials in vehicle manufacture.

 legal influences – are another important factor that affects the profitability and
performance of the vehicle used by public transportation companies such as MENTA.
Vehicles used in the international market are subject to laws related to product quality
and safety. The pollution laws have grown stricter and vehicles have to pass strict
emission controls plus laws related to product safety have an important impact on the
utilisation of the vehicles with other cases in the past putting passenger safety under
question. Governments have made laws related to passenger safety stricter e.g. the
compulsory fitting and use of seat belts. Apart from this, there are environmental laws
that the public transportation companies have to deal with while operating in
the international market. Changes in laws and regulations, the damaging effects of
compensatory claims for failed, faulty or poor quality vehicles as well as intellectual
property, advertising legislation and employment law must be considered. Ignoring
such aspects can only serve to damage the MENTA brand.

Porters Five Forces:

 New entrants – (high threat) it is not difficult for new service providers to enter the
industry but it will be made difficult because of barriers to entry such as the large
investment required, cost advantages (economies of scale, economies of scope), the
distribution networks of the major players and to hire skilled staff. Another major barrier
is the level of competition from the existing brands. Unless a new provider brings an
innovative and differentiated service to the market, chances to gain a market share are
low with brand image and reputation major challenges for new players. Brand image is a
major competitive advantage for the existing brands. Moreover, penetrating new markets
is not easy either. Some governments have policies and taxation that discourage foreign
brands. So, there are several factors that minimize the threat from any new players

 Rivalry amongst competitors – (high threat) despite the fact that Dawlbus (MENTA’s single
largest competitor) “offering very similar services” have a “mutual respect” and “rarely
undercut one another’s prices” competition will be high between the two providers. The
other bus companies are relatively small operators and are not considered to be a major
threat. The number of recognized and influential brands is therefore low and exit barriers
will be very high with any brand trying to exit having to bear very large losses. The level of
brand loyalty is unstated but is likely to be low as the industry is large, mature, therefore
intensifying the competition for market share. Different brands tend to target different
market segments but this distinction is less defined in public transportation as they overlap.
Brands compete on the basis of price, design, quality, technology, customer safety and
several other points. Competition in the public transportation industry is therefore likely to
be high.

 Substitutes – (high threat) there are several substitutes and alternative modes of
transportation including taxis, buses, trains and planes. Car ownership while expensive
can provide the kind of accessibility and convenience that a tram or a bus does not.
Recent press coverage indicates that the level of service is so poor in certain areas of the

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