Arabic American University Jenin (AAUJ)

Competitive Strategy course.

30th of March 2016

Competitive Strategy

Presented to Aysar P. Sussan, Phd

Made by:

Loay nzar sissan

&
Sameh F. A. Sheikh Abdullah

Assignment description

Practical exercise
Identify an industry in which the suppliers have storng bargaining power and anther
industry in which the buyers have mostof the bargaining power how dose this affect
potential profitability in the industries.

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Competitive Strategy course.

An important force within the Five Forces model is the bargaining

power of suppliers. All industries need raw materials as inputs to their
process. This includes labor for some, and parts and components for others.
This is an essential function that requires strong buyer and seller
relationships. If there are fewer suppliers or if they have certain strengths
and knowledge, then they may wield significant power over the industry.
Business Strategy (2014, Aug 21). cleverism.
Accourding to (Kim Alaniz and Joey, 2014 ) we have four main types of
Suppliers
Manufacturers: Manufacturers are producers of either the entire product or
components that feed into the end product manufacturing process. If the
parts supplied are generic and have easily available alternates, the
manufacturer will have less power.
Distributors & Wholesalers: These types of suppliers purchase products
in large quantities from different companies, store these goods and
eventually sell to retailers. These products may be made available at higher
prices than if bought directly from the manufacturers, but this allows
purchases to be made in smaller quantities than a manufacturer will be
willing to supply.

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Competitive Strategy course.
Independent

Suppliers/Craftspeople: These

people manufacture unique items in small quantities and provide them

exclusively through representatives or trade shows.
Importer: These suppliers will purchase from international sources and sell
to local retailers.
POWERFUL SUPPLIERS AND THE TARGET MARKET
When a companys suppliers have significant power over the value chain, it can directly
impact how the company serves its own customers. Depending on what power the supplier

chooses to exert, a company may have to reflect this through product prices, product quality and
quantity available. Too much disruption in any of these areas may even mean that a company is
no longer able to stay in business. A company may need to end operations or shift to another
industry to avoid being dictated by the whims of a supplier.
THE DIAMOND INDUSTRY example on POWERFUL SUPPLIERS
accourding to (Kim Alaniz,2014) The diamond industry worldwide has
historically been controlled by De Beers, a world famous and cartel like
company. In addition the industry is global in nature making a regional
analysis irrelevant. The supply chain moves from one country to the next.
Over the years, this power has moved from De Beers to a more widespread
competitive marketplace with a few major competitors and some second tier
ones. The modern diamond industry started in 1867 when diamonds were

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Competitive Strategy course.
discovered in South Africa. Prior

to this, limited quantities were

extracted from India and Brazil.

Five Forces Analysis
Bargaining Power of Suppliers
There is increasingly larger number of competitors in the market which
has meant a larger supply of diamonds in the market. In the past, De Beers
solved oversupply problems by collecting and storing them to be sold when
deemed appropriate by them. This meant enormous power of the supplier
over the industry. With the change in market structure and pressure by anticartel laws, this power has diminished somewhat. De Beers now focuses
more on repositioning itself as the supplier of choice and not the only
supplier.
Threat of New Entrants: Before the breakup of the De Beers monopoly, it
was virtually impossible for new entrants to jump into the industry. With
forced change in business practices, stronger implementation of laws and
discovery of diamonds in areas outside of the De Beers scope of control,
competition has now increased in the market. There is now room for about 3
more major players and several smaller niche operators who often
consolidate and manage to compete in smaller segments.
Bargaining Power of Buyers: Historically, consumers had no control over
the diamond industry, its pricing and supply. With an economic downturn in

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Competitive Strategy course.
the industry, there was

reduction in demand which lead to

an oversupply problem and reduced prices.

Threat of Substitutes: The biggest threat to the diamond industry are
from high quality high tech synthetic diamonds.
Competitive Rivalry: In a change from previous industry structures, the
broken cartel now means that there is some competitive pressure from the
industry. There are still limited players.
BARGAINING POWER OF BUYERS
When a strong group of buyers is present in the market, it can
significantly impact a companys product and selling decisions. The strongest
power that buyers can exert is to lower prices, which in turn impacts the
profit potential. Buyers can also demand higher quality of services or
products, and increase competitiveness by forcing different companies into
price wars. All of these factors end up decreasing the attractiveness of the
industry by lowering its profitability.

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Competitive Strategy course.
EXAMPLE OF BARGAINING POWER OF BUYERS WALMART
An American multinational retail store, Walmart operates large discount departmental and
warehouse stores. The company was founded in 1963 and have over 11,000 stores in 27
countries operating under as many as 55 different brand names.
Walmarts Power as a Buyer
Walmart is an extremely powerful as a buyer. It has enormous reach
and reaches thousands of end users. It also buys in large quantities and
controls how a customer accesses the brands and products that it stocks.
This means that Walmart can dictate prices, delivery times and product
quality from its suppliers. Walmart can easily switch suppliers which gives
the company additional power to dictate terms. In certain cases, Walmart
can also integrate vertically.
There are instances when Walmart will have less power and this
usually happens in interactions with sellers large enough to wield significant
influence of their own. Companies such as Coca Cola, Procter and Gamble
and Unilever have products that are directly demanded by end users and
cannot be easily substituted.
The Power of Walmarts Buyers
In comparison, Walmart buyers have moderate influence over the
companys decisions. The convenience and lower costs offered by the store

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Competitive Strategy course.
means that buyers will not easily

switch to an alternate. This means

that pricing techniques are decided by the company with little input from the
final consumer. Consumers may demand certain popular brands or products
which will reduce Walmarts power over those suppliers.

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Competitive Strategy course.
References :