Factors determining the bargaining power of suppliers
Posted: Mon Jan 06, 2025 8:47 am
Few suppliers : when the sector is dominated by a few companies or businesses that provide a product or input, the bargaining power of suppliers increases.
Fragmented buyers : In a market where there are many competitors with many buyers, bargaining power decreases because suppliers do not have the ability to affect price and must focus on quality and variety.
Lack of substitute products : When there is no substitute product in the industry for the one a company offers and demand is also high, the influence of suppliers increases.
Industry importance : If a supplier sells to phone library companies in different industries, the less important one will have less opportunity to negotiate and will be dependent on the supplier.
Industry-critical product : If the product is key to a market, companies cannot do much about it other than adapt to suppliers' conditions and prices.
Differentiated products : There is the possibility of competing with rivals who offer what another supplier does, if the products do not compete against those of other suppliers for a characteristic that makes them different from the others.
Bargaining power of suppliers: examples
We come to the most revealing part of this topic, the examples of the bargaining power of suppliers , both high and low. Let's review them in detail!
Example of low bargaining power of suppliers
In a master class given by Porter himself at the IEB Spain, the author gives the example of Apple's suppliers, who have little bargaining power against the giant that this technology company represents.
Because “ what they do is postpone payment to their suppliers, beyond the time it takes for the money from their consumers to reach them .” In this way, suppliers absorb Apple’s expenses and the company operates with negative capital, giving it more value on the stock market.
Example of high bargaining power of suppliers
Intel processors are used by many computer companies. Intel's bargaining power as a hardware supplier has a lot of influence on the companies it supplies, since developing the product requires technology, knowledge and investment that is often difficult to sustain.
Fragmented buyers : In a market where there are many competitors with many buyers, bargaining power decreases because suppliers do not have the ability to affect price and must focus on quality and variety.
Lack of substitute products : When there is no substitute product in the industry for the one a company offers and demand is also high, the influence of suppliers increases.
Industry importance : If a supplier sells to phone library companies in different industries, the less important one will have less opportunity to negotiate and will be dependent on the supplier.
Industry-critical product : If the product is key to a market, companies cannot do much about it other than adapt to suppliers' conditions and prices.
Differentiated products : There is the possibility of competing with rivals who offer what another supplier does, if the products do not compete against those of other suppliers for a characteristic that makes them different from the others.
Bargaining power of suppliers: examples
We come to the most revealing part of this topic, the examples of the bargaining power of suppliers , both high and low. Let's review them in detail!
Example of low bargaining power of suppliers
In a master class given by Porter himself at the IEB Spain, the author gives the example of Apple's suppliers, who have little bargaining power against the giant that this technology company represents.
Because “ what they do is postpone payment to their suppliers, beyond the time it takes for the money from their consumers to reach them .” In this way, suppliers absorb Apple’s expenses and the company operates with negative capital, giving it more value on the stock market.
Example of high bargaining power of suppliers
Intel processors are used by many computer companies. Intel's bargaining power as a hardware supplier has a lot of influence on the companies it supplies, since developing the product requires technology, knowledge and investment that is often difficult to sustain.