NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Using Michael Porter's five forces framework, a research analyst finds that an industry has very few suppliers of a critical raw material, no substitutes for that input, and high switching costs for manufacturers. Which force is most directly strong here?
Bargaining power of suppliers is strong in this case. When a few suppliers control a critical input with no substitutes and switching is costly, they can dictate prices and terms, which erodes the profitability of the manufacturers buying from them.
- AThreat of new entrants
- BBargaining power of suppliersCorrect
- CBargaining power of buyers
- DRivalry among existing competitors
Explanation
Few suppliers, no substitute inputs and high switching costs give suppliers the power to raise prices or reduce quality, squeezing industry margins. The facts describe the input side, not buyers, entry barriers or competitor rivalry.
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