ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Quillon plc assembles tablets and buys its processor from Arvex, the only maker of a compatible chip. Arvex has announced it may begin selling its own branded tablets. Quillon's customers are many consumers with low switching costs. Which analysis is most accurate?

Quillon is squeezed from both sides: Arvex is a sole supplier threatening forward integration, giving it strong power, while low-switching-cost consumers limit Quillon's ability to pass on increases. Both forces pressure margins, so profitability is at risk despite the many small buyers.

AQuillon is squeezed between strong supplier power, reinforced by the threat of forward integration, and strong buyer power, so its margins are at riskCorrect
BQuillon's position is secure because many buyers each have little individual power
CSupplier power is weak because Arvex is a single firm
DOnly the threat of substitutes is relevant because of the forward integration

Explanation

A sole supplier with a credible threat of forward integration has high power. Consumers with low switching costs limit Quillon's ability to pass on price rises, even though each is small, as they can easily choose rival brands. The result is a margin squeeze. A sole supplier increases, not reduces, power.

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