Skip to content

CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A packaged snacks company in India finds that many small regional brands can enter the market with low capital, while large retail chains such as DMart negotiate hard on prices and can easily switch between suppliers. Using Porter's Five Forces, which two forces are the strongest in this situation?

Threat of new entrants and bargaining power of buyers are the strongest forces. Low capital requirements let regional brands enter easily, and big retail chains like DMart use their volume and switching ability to press prices down. Nothing in the scenario points to strong suppliers or substitutes.

  1. AThreat of new entrants and bargaining power of buyersCorrect
  2. BThreat of substitutes and bargaining power of suppliers
  3. CRivalry among existing firms and bargaining power of suppliers
  4. DThreat of substitutes and threat of new entrants

Explanation

Low capital needs mean entry barriers are low, so the threat of new entrants is high. Large retail chains that negotiate prices and switch suppliers are powerful buyers. Suppliers and substitutes are not mentioned in the scenario.

Did you get it right without looking?

One question tells you little. A timed set on Strategic Analysis: External Environment shows your real accuracy, how long you take and where you lose marks.

Practise Strategic Analysis: External EnvironmentFree diagnostic mock

More Strategic Analysis: External Environment questions