CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment
Using Porter's Five Forces, a regional Indian cement company finds that cement is a standardised product, buyers are many and small, but a handful of large power and coal suppliers control essential inputs with no substitutes. Which force is most clearly strong in this situation?
Supplier bargaining power is the strong force. A few large suppliers control essential coal and power with no alternatives, so they can dictate prices and terms. Buyers are numerous and small, so their power is weak, and nothing suggests substitutes or new entrants are the dominant pressure.
- ABargaining power of suppliersCorrect
- BBargaining power of buyers
- CThreat of substitutes
- DThreat of new entrants
Explanation
Few suppliers of essential inputs with no substitute inputs gives suppliers strong bargaining power. Buyers are many and small, so their power is weak. The question gives no information indicating strong substitutes or easy entry.
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