Porters 5 Forces
PORTER’S FIVE FORCES 4 Power of Suppliers Criteria
Level
Effect on Power
Effect on Profit
Difference of Inputs
High
Increases
Decreases
Cost of Switching Suppliers
High
Increases
Decreases
Threat of Forward Integration
High
Increases
Decreases
Supplier Concentration
High
Increases
Decreases
Difference of Inputs Product differentiation within inputs in the tech industry is largely dependent on how recently the input has been developed (the extent of which it is considered cutting edge). In cases where component innovations are the property of the supplier prices increase to compensate. However, in cases where products are low tech, older innovations, product differentiation is minimal. In some cases the differentiation between products may be so extreme that companies are forced to buy components from a direct competitor, just as Apple purchased roughly $8 billion worth of parts from Samsung last year (Levine 2013). Since newer, more recent technology is where the vast majority of profits are in the tech sector the level of difference of inputs is going to be considered high.
This then increases the level of the bargaining power of suppliers put pressure on the company’s profit margin. Cost of Switching Suppliers Companies within the tech sector design their products around certain components, impacting size, shape, weight and function. If a company is to change their component supplier then the product will have to be reengineered, costing the company time and resources that could be allocated elsewhere. These then threatens the company’s ability to compete, stay relevant and develop newer products in a market with a high product turnover rate. Thus company’s have a high cost of switching suppliers, which in turn increases the bargaining power of suppliers which puts pressure on the buy’s margin and profitability. Threat of Forward Integration Forward integration, the ability of a supplier to enter a state of
Level
Effect on Power
Effect on Profit
Difference of Inputs
High
Increases
Decreases
Cost of Switching Suppliers
High
Increases
Decreases
Threat of Forward Integration
High
Increases
Decreases
Supplier Concentration
High
Increases
Decreases
Difference of Inputs Product differentiation within inputs in the tech industry is largely dependent on how recently the input has been developed (the extent of which it is considered cutting edge). In cases where component innovations are the property of the supplier prices increase to compensate. However, in cases where products are low tech, older innovations, product differentiation is minimal. In some cases the differentiation between products may be so extreme that companies are forced to buy components from a direct competitor, just as Apple purchased roughly $8 billion worth of parts from Samsung last year (Levine 2013). Since newer, more recent technology is where the vast majority of profits are in the tech sector the level of difference of inputs is going to be considered high.
This then increases the level of the bargaining power of suppliers put pressure on the company’s profit margin. Cost of Switching Suppliers Companies within the tech sector design their products around certain components, impacting size, shape, weight and function. If a company is to change their component supplier then the product will have to be reengineered, costing the company time and resources that could be allocated elsewhere. These then threatens the company’s ability to compete, stay relevant and develop newer products in a market with a high product turnover rate. Thus company’s have a high cost of switching suppliers, which in turn increases the bargaining power of suppliers which puts pressure on the buy’s margin and profitability. Threat of Forward Integration Forward integration, the ability of a supplier to enter a state of