Threat of suppliers when do suppliers have bargaining

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Unformatted text preview: ational Strategic Management 2012 47 3. Threat of Suppliers •  HOW? •  by increasing the price of their supplies •  by reducing the quality of those supplies •  Example: •  The above-normal performance of General Motors in the 1950s and 1960s was captured by labor unions (as suppliers of labor) in the form of high hourly wages UPF - International Strategic Management 2012 48 3. Threat of Suppliers When do suppliers have “bargaining power”? •  Suppliers industry is dominated by small number of firms •  E.g. Microsoft as the dominant operating system •  Suppliers sell unique or highly differentiated products •  E.g. Intel’s microprocessors •  Suppliers are not threatened by substitutes •  Suppliers threaten “forward vertical integration” •  Firms are not important customers for suppliers •  E.g. Steel producers: small construction company vs. car manufacturers / white good producers 24 28/04/12 49 UPF - International Strategic Management 2012 Porter’s Five Forces suppliers Industry rivalry Entry Substitutes THREAT OF BUYERS * Price sensitivity * Bargaining power UPF - International Strategic Management 2012 50 4. Threat of Buyers Price sensitivity: •  cost of product relative to total cost •  E.g. Metal can is approximately 40% of the final cost of a can of Campbell’s soup! •  product differentiation •  E.g. Farmers  Cooperatives 25 28/04/12 51 UPF - International Strategic Management 2012 4. Threat of buyers Bargaining power: •  size & concentration of buyers •  E.g. Wal-Mart as “the” buyer! •  buyers’ switching costs •  buyers’ information •  backward integration •  E.g. Car manufacturers 52 UPF - International Strategic Management 2012 Porter’s Five Forces Suppliers THREAT OF RIVALRY * Concentration * Diversity of competitors * Product differentiation * Excess capacity and exit barriers * Cost conditions Entrants Substitutes Buyers 26 28/04/12 53 UPF - International Strategic Management 2012 5. Threat of Rivalry •  Level of rivalry depends on intensity of competition among a firm’s direct competitors •  High levels or rivalry are indicated by actions as: •  Rapid competitive actions and reaction in an industry •  Frequent price cutting •  Intense advertising campaigns 54 UPF - International Strategic Management 2012 ILLUSTRATION: Airliners - Sales channels = = Hours of Business Responsiveness = = Integrity Expertise Attitude of Staff = + + = Punctuality Fulfillment Accessibility - Customer Care = Safety Price ++ Low cost carrier’s attractive service/price value proposition is a major threat to traditional carriers!!! Source: Customer Satisfaction Survey – Airline Sector; SGS, London, September 2001; American Customer Satisfaction Index (ACSI) 27 28/04/12 UPF - International Strategic Management 2012 55 Carrier Market Shares In Europe 2003 a ns ha ft Lu 2002 A ir Fr an ce ai r Ry an BA er ia Ib yJ et ea s ia al A A lit KL ia us tr M 30 25 20 15 10 5 0 n PAX millions 35 Source: AEA, Company Reports UPF - International Strategic Management 2012 56 LCC in Europe 1998 1998 Ryanair EasyJet Ryanair easyJet Virgin Express Virgin Express 28 28/04/12 57 UPF - International Strategic Management 2012 LCC in Europe 2004 Flying Finn 2004 Ryanair EasyJet Virgin Express Bmi baby FlyBe Germanwings Hapag Lloyd Express Sky Europe Basiqair Air Berlin City Shuttle Snowflake Air Luxor light Air Polo...
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This note was uploaded on 10/18/2012 for the course BUSI 102 taught by Professor X during the Spring '12 term at Universitat Pompeu Fabra.

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