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Could you please help explain the answer from BPP Revision Kit – Question 49 on the bargaining power of the supplier:
“It seems unlikely that the supplier group poses a credible threat of forward integrationinto light bulb manufacture”
I don’t understand the term “forward integration” and why the supplier group would not be exposed to the threat of “forward integration”. Is it because that the light bulb industry does not constitute the significant market share of the glass suppliers?
For forward (and backward) integration see Chapter 15 of our notes. Basically iy means, for example, a component manufacturer starting to construct the final product itself or a manufacturer setting up a distribution chain. It means taking on the next step of the supply chain.
In the above, the supplier group is not exposed to a threat of forward integration: it is the company which buys from the supplier that is exposed to this. If the supplier company is going to start light bulb manufacturing itself, this would necessitate high investment in manufacturing and the acquisition of know-how and distribution channels for the finished bulbs. The answer is arguing that the suppliers is unlikely to take that risk.
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