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NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

A research analyst is assessing a company's competitive position using Porter's five forces. A sector where customers can easily switch to substitutes at low cost and where many suppliers are available would most likely show which combination?

Easy low-cost switching to substitutes means the threat of substitutes is high, while the presence of many suppliers means individual suppliers have low bargaining power. So the combination of high substitute threat and low supplier power fits the described sector under Porter's five forces.

  1. AHigh threat of substitutes and low bargaining power of suppliersCorrect
  2. BLow threat of substitutes and high bargaining power of suppliers
  3. CHigh threat of substitutes and high bargaining power of suppliers
  4. DLow threat of new entrants and high threat of substitutes

Explanation

Easy switching to substitutes at low cost means the threat of substitutes is high. Many available suppliers means any single supplier has little bargaining power. Options B and C contradict one of these facts, and D adds an unsupported claim about entrants.

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