GSM Lecture 5

Management > Global Strategic Management > Conditions > Macro/microenvironment > Porter's 5 Forces > 5 Forces explained > 5 Forces continued

5 Forces continued

Bargaining power of buyers

The power of buyers, which can include manufacturers, retailers, distributors or consumers (depending where on the value the firm operates), depends upon:

The number of large and powerful buyers
Switching costs for customers
The threat of backward integration (HP, for example, produced their own parts for their technology, rather than buying its parts from other companies)
Negotiation skills of buyers
The ability for buyers to act collectively
The availability of information to buyers (See issues of information asymmetry in Understanding the Global Firm, technology transfer, lecture 7).

Bargaining power of suppliers

The power of suppliers of raw materials, labour, components, equipment (again, depending on where along the value chain the firm resides) depends upon:

The number of large and powerful suppliers
The importance to the industry of the suppliers' products
The importance of the industry to the suppliers
Switching costs for firms in the industry
The threat of forward integration

Competition

There is much rivalry between competitors in the industry, based upon aspects such as price, product development, advertising and product differentiation. Competition is related to:

The number of competitors in the industry
The relative size of those competitors
The rate of industry growth
The perception of product differentiation and the strength of brand loyalty among consumers
The size of costs of exiting the industry