Developing Strategy through External Analysis
Read this section to learn the difference between internal and external forces and how they affect organizations. Attempt the exercises at the end of the section.
Porter's Five-Forces Analysis of Market Structure
Supplier Power
The stronger the power of suppliers in an industry, the more difficult it is for firms within that sector to make a profit because suppliers can determine the terms and conditions on which business is conducted. Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its pricing structure, its profitability is reduced by its suppliers' actions.