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

A regional Indian airline finds that in its industry there are a few large aircraft lessors, aircraft are not easily interchangeable between lessors, and the airline contributes only a small share of any lessor's business. Which conclusion follows under Porter's model?

Supplier power is high. Lessors are few and concentrated, aircraft are not easily swapped between them, and the airline is a minor customer for each lessor. All these conditions let suppliers dictate price and terms, which is how Porter's model defines strong supplier bargaining power.

  1. ASupplier power is highCorrect
  2. BBuyer power is high
  3. CRivalry among existing firms is low
  4. DThreat of new entrants is high

Explanation

Few concentrated suppliers, high switching costs for the buyer and the buyer being unimportant to the suppliers all increase supplier power. Buyer power would rise only in the opposite conditions. The facts given say nothing directly about rivalry or entry barriers.

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