Bargaining Power of Suppliers When analyzing the bargaining power of suppliers in the industry, it was fairly moderate compared to other industries, and it is expected to remain moderate on a large-scale forecast . As discussed previously, substitutes are very limited for the chemical industry . Therefore, the industries’ profits are directly correlated to the supplier . 7
This creates significant pressure for the suppliers to provide reasonable pricing in order to increase their own profitability . If not, the supplier’s own profitability would suffer from the high prices they charge to the chemical firms . BASF SE currently has the one of the most efficient supply chains in the chemical industry . Being that they are one of the largest chemical producers in the world, suppliers are always competing intensely to partner with BASF SE in order to maximize the profits of their large distribution channels . In addition, the inputs the suppliers produce are not differentiated which result in having a low switching cost . The incumbency value is very low since chemical companies can switch suppliers without jeopardizing their profitability . In another words, an economist would say that the supply of chemical inputs is high and the demand for these inputs is moderate . This creates a price ceiling within the market and also assures that reasonable pricing is provided within the industry . In order for the suppliers to have a stronger bargaining power, the chemical inputs and resources available must decrease which will then drive the level of supply down . In return, the demand will then increase which will allow the suppliers to negotiate better pricing . It is because of these market conditions that makes the suppliers unable to exert pressure on firms to control prices, quality, and availability . In contrast, the suppliers do have some advantages when it comes to bargaining power . For example, the industry only relies on a few specific large corporations to fulfill their inputs . Since competition is very low within these suppliers, pricing for these products can be somewhat aggressive since there are not many other resources that would drive the price down . In addition, the majority of these corporations are not dependent on the revenue they receive from supply chain . They receive a majority of their revenue from their own products and services they provide . Therefore, these suppliers have the ability to negotiate aggressive price points for materials since it is not a direct source for their revenue . Bargaining Power of Buyers There are a variety of buyers in the chemical industry . This includes groups such as automakers, manufacturers, agricultural companies, and the chemical industry itself is the largest purchaser of chemical products . The bargaining power of buyers in the chemical industry is considerably weak and is expected to remain weak . As stated previously, there is very high product differentiation and a very low threat of substitutes within the industry .
- Fall '16
- Chemical industry, On Competition