Bargaining Power of Suppliers

Bargaining Power of Suppliers Some companies are readily able to switch suppliers in order to get components or services, but others are not. Example: Clark Foam of Laguna Niguel, California, supplied nearly 90% of the foam cores used domestically to make custom surfboards. When it suddenly closed shop in late 2005, blaming government agencies for trying to shut it down, many independent board shapers and small retailers found they couldn’t afford to get foam from outside the country. On the other hand, Surftech in Santa Cruz, California, was one of the few board manufacturers to use resin instead of foam, and so it saw a spike in sales.74

3. Bargaining Power of Buyers Customers who buy a lot of products or services from an organization have more bargaining power than those who don’t. Customers who use the Internet to shop around are also better able to negotiate a better price. Example: Buying a car used to be pretty much a local activity, but now potential car buyers can use the Internet to scout a range of offerings within a 100-mile or larger radius, giving them the power to force down the asking price of any one particular seller.

4. Threats of Substitute Products or Services Again, particularly because of the Internet, an organization is in a better position to switch to other products or services when circumstances threaten their usual channels. Example: Oil companies worried when Brazil achieved energy self-sufficiency in 2006, able to meet its growing demand for vehicle fuel by substituting ethanol derived from sugar cane for petroleum—until 2007, when population and economic growth forced the country to start importing oil again.75

5. Rivalry among Competitors The preceding four forces influence the fifth force, rivalry among competitors. Think of the wild competition among makers and sellers of portable electronics, ranging from smartphones to tablets to videogame systems. Once again, the Internet has intensified rivalries among all kinds of organizations.

An organization should do a good SWOT analysis that examines these five competitive forces, Porter felt. Then it was in a position to formulate effective strategy, using what he identified as four competitive strategies, as we discuss in the next section.

To what extent do you think that a current or past employer was good at strategic thinking? Based on past research, firms that are better at strategic thinking should outperform those that are not. You can assess the strategic thinking of a current or past employer by taking Self-Assessment 6.1.