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11- Porter’s Five Forces
Model of Competition
4- Bargaining Power of Suppliers:
Suppliers refer to the firms that provide inputs to the industry. Bargaining
power of the suppliers refer to the potential of the suppliers to increase the
prices of inputs or the costs of industry in other ways. Strong suppliers can
reduce profits of an industry by increasing costs of firms in the industry. They
are regarded as a threat because:
• Suppliers’ products have a few substitutes.
• Strong suppliers’ products are unique.
• They have high switching cost.
• Their is an important input to the buyer’s product.
• They pose credible threat of forward integration.
• Buyers are not significant to strong suppliers.
5- Threat of Substitute Products/Services
Substitute products refer to the products having the ability of satisfying
customers’ needs effectively. Substitutes pose a ceiling (upper limit) on the
potential returns of an industry by setting a limit on the price that the firms
can charge for their product in an industry. The lesser number of close
substitutes a product has, greater is the opportunity for the firms in the
industry to raise the prices of their product and earn greater profits (other
things being equal
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