Russell Hotten, in his book titled ‘Formula One’1, quite aptly starts with the following line, ‘Formula One is where sport meets technology for the business of entertainment’. The core concept behind this industry is most definitely ‘motorsport racing’. By definition, Formula One is a set of technical regulations for single-seater racing cars, which is published annually by the FIA (Fration Internationale de l’Automobile). Motorcar racing started in the late 1800s and in those days existing cars were simply raced on a track. The sport was formalised by the early 1900s and restrictions were made on weight, cylinder capacity and seats to give rise to the name ‘Formula One’ by 19482. The motorsport industry contains various types of car racing from F1, F3, Grand Prix, and so forth. This report will concentrate on a brief industry analysis of the F1 industry as to where it is today and where it is likely to go in the future.
What started out in 1950 as seven Grand Prix races with barely four constructor teams, gradually peaked to host, as of today, 17 races in a year with a total of 12 constructors participating with two teams each representing them. Although primarily categorised as being a part of the motorsport industry, F1 most definitely has links to more than just this environment. Industries directly linked to F1 are those with technical concerns related to the field such as engine manufacturers, chassis manufacturers, tyre industry, lubricants and fuel industry and so forth.
Companies such as Bridgestone, Honda, Cosworth and Mobil all have their incomes largely dependent on outcomes of decisions that take place within the F1 industry. Due to the sport having moved from simply being targeted at serious racing professionals to any racing enthusiast, has led the industry to be directly linked to other unrelated industries such as the entertainment industry. F1 was initially meant for viewing pleasure of those people who would be present live at the race circuits to watch the event. However, the advancing entertainment industry through various media such as television, newspapers, magazines and so forth has helped bring this motorsport to the homes of nearly 57 billion people worldwide.
The key players in the industry can be divided into five different segments. All these players hold fairly large amounts of influence on the happenings in this industry, some more than others. A F1 constructor is basically the chassis manufacturer. This is often not the same as the engine manufacturer. Ferrari, Renault, Sauber, Toyota, Jaguar, Honda, Minardi, Jordan, Williams and McLaren are all examples of constructors. A constructor who wishes to enter F1 must submit his entry to the FIA and provide evidence that he both designs and makes the chassis of his car and he has the sufficient technical and financial resources to take part in the Championship.
The constructors can be very influential in the race as it provides the actual car for the race. Without excellent management expertise and a highly trained technical team, cars just cannot race. Decisions made by team managers can quite easily make or break a team’s performance in the Championships. Take, for example, the case of Ferrari, where the management style and leadership of Enzo Ferrari led to Ferrari being the undefeated racecar champion for many years due to his heavy investment in getting skilled technicians and designers to continuously improve the speed and efficiency of the racecar3. In case of F1, racing drivers and engineering technicians may also be considered as suppliers as they provide the constructor with their talent and expertise. They too, like the suppliers of components, have considerable power as they can easily switch from one team to another as competitors are always working towards attracting the best engineers and drivers in the circuit.
Therefore the bargaining power of the suppliers is relatively higher, once again implying a high competitive force rising from there. Bargaining power of buyers Buyers, or as mentioned earlier, the customers in this industry are the spectators or the TV audience that watch and enjoy the sport. The bargaining power of buyers can be considered relatively high as they can easily move from one form of motor racing to another or from one sort of entertainment, sports or recreational activity to another without the involvement of a great deal of switching costs. In today’s age of satellite TV, the mass market has a wide variety of choice in not just the type of channels but even in those dedicated solely to sport. For example, sport channels range from BBC Sport, Fox Sports, Dubai Sports Channel, AD Sports, Orbit ESPN Sports, DD Sport and so on.
This lack of consumer loyalty implies that the rivals within the industry have to be highly competitive in order to create, maintain and enhance their buyer’s interest within the sport in order for them to thrive. Therefore making it essential for them to follow closely consumer demographics, culture, lifestyle, values, and so on. F1 constructors have understood this and have tried to build loyal customers by offering them a chance to be a part of their F1 team by selling them F1 memorabilia such as T-shirts, mgs, sunglasses and even lighters. Threat of substitutes.
As mentioned above the consumer’s switching costs are low and there is lack of customer loyalty, hence implying that the threat of substitutes is relatively high. Direct competition would result from other high-powered sporting entertainment whether it be cross-country racing, motorbike racing or even high adventure sports such as white water rafting, dirt bikes and so forth. Indirect competition, on the other hand, is probably most difficult to categorise as it could rise for any other form of entertainment whether it be going to the movies, shopping, travelling and so on.