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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

A listed Indian textile firm has high profit margins today, but its management notes that synthetic substitutes are gaining acceptance, new rivals can enter with little capital, and a few large buyers dictate prices. Applying Porter's five forces, what is the most accurate overall inference?

Industry attractiveness is likely to decline. Rising substitutes, easy entry and concentrated buyers each weaken long-run profitability under Porter's five forces. High current margins do not protect the firm and may even draw new entrants, while profitability depends on all five forces, not rivalry alone.

  1. AIndustry attractiveness is likely to decline because substitutes, entry and buyer power all intensifyCorrect
  2. BIndustry attractiveness will rise because current margins are high
  3. COnly supplier power matters, so the analysis is inconclusive
  4. DRivalry alone determines profitability, so these forces are irrelevant

Explanation

Threat of substitutes, low entry barriers and strong buyer power are each forces that squeeze long-run profitability. Current high margins do not offset these pressures; they may actually attract entrants. Therefore attractiveness is expected to decline. Supplier power was not mentioned, and rivalry is only one of five forces.

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