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M1 Assignment ISM: Bargaining Power of Suppliers

Porter's Five Forces analysis is used to analyze competition within an industry. It examines five competitive forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and rivalry among existing competitors. In the airline industry, all five forces are intense. Suppliers like fuel companies and aircraft manufacturers have strong bargaining power. Buyers can easily compare prices online and face low switching costs. There are many alternatives to air travel. Rivalry is also high since the industry has many similar competitors and low barriers to exit.

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Raj Kothari M
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64 views2 pages

M1 Assignment ISM: Bargaining Power of Suppliers

Porter's Five Forces analysis is used to analyze competition within an industry. It examines five competitive forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and rivalry among existing competitors. In the airline industry, all five forces are intense. Suppliers like fuel companies and aircraft manufacturers have strong bargaining power. Buyers can easily compare prices online and face low switching costs. There are many alternatives to air travel. Rivalry is also high since the industry has many similar competitors and low barriers to exit.

Uploaded by

Raj Kothari M
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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M1 assignment ISM

Roll No. K222


Name: Raj Kothari M

1A)
Porter's Five Forces Analysis is a framework that helps analyze the level of competition within a certain
industry. This is particularly useful when starting a new business or entering a new industry sector.
According to this framework, competition does not come only from competitors.
Rather, the state of competition in an industry depends on five basic forces: the threat of new entrants, the
bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or
services, and the prevailing industry rivalry.
The collective struggle of these forces determines the profit potential of an industry and thus its
attractiveness. If the five forces are intense (such as the airline industry), then almost no company in the
industry earns an attractive return on investment. If forces are lightened (such as the softdrink industry),
then there is room for higher returns. Each force will be detailed below with the help of examples from
the airline industry to illustrate the usage.

Bargaining power of suppliers


The bargaining power in the airline industry is very high. When looking at the inputs that airline
companies need, we see that they are especially dependent on fuel and aircrafts. These inputs are affected
by external market. As the global market for fuel changes the prices the airline also suffers loss/ profit
respectively. Since there are only 2 giants Boeing and Airbus in this industry, they can rule over the
market.

Bargaining power of buyers


Bargaining power of buyers in the airline industry is high. Customers are able to check prices of
different airline companies fast through the many online price comparisons websites such as
Skyscanner and Expedia. In addition, there aren’t any switching costs involved in the process.
Customers nowadays are likely to fly with different carriers to and from their destination if that
would lower the costs. Brand loyalty therefore doesn’t seem to be that high. Some airline companies
are trying to change this with frequent flyer programs aimed at rewarding customers that come back
to them from time to time.

Threat of substitute products


In terms of the airline industry, it can be said that the general need of its customers is traveling. It
may be clear that there are many alternatives for traveling besides going by airplane. Depending on
the urgency and distance, customers could take the train or go by car. Especially in Asia, more and
more people make use of highspeed trains such as Bullet Trains and Maglev Trains. Furthermore, the
airline industry might get some serious future competition from Elon Musk’s Hyperloop concept in
which passengers will be traveling in capsules through a vacuum tube reaching speed limits of 1200
km/h. Taken this altogether, the threat of substitutes in the airline industry can be considered at least
medium to high.

Rivalry among existing competitors


When looking at the airline industry in the United States, we see that the industry is extremely
competitive because of a number of reasons which include the entry of low cost carriers, the tight
regulation of the industry wherein safety become paramount leading to high fixed costs and high barriers
to exit, and the fact that the industry is very stagnant in terms of growth at the moment. The switching
costs for customers are also very low and many players in the industry are similar in size (see graph
below) leading to extra fierce competition between those firms. Taken altogether, it can be said that
rivalry among existing competitors in the airline industry is high.

2 A)
Organizations reside in environments from which they draw resources and to which they supply goods
and services. Organizations and environments have a reciprocal relationship. On the one hand,
organizations are open to, and dependent on, the social and physical environment that surrounds them.

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