Hi Ken,
I came across the following question. Could you give a bit more of an explanation as the book only gives the answers and I'm still a bit confused....
MBV is a manufacturer of fine furniture based in country G. MBV’s managers have identified
that the company’s results for the past three years have been declining. They feel that this is
due to changes in the external environment – in particular within MBV’s industry.
The managers wish to use Porter’s five forces model to understand the problems the
company is facing, but are uncertain of its proper use. They have undertaken some analysis
and identified a number of key issues (summarised below) but cannot decide which of the
five forces each issue relates to.
Level
High Low
Force
New entrants A B
Power of buyers C D
Power of suppliers E F
Power of rivals G H
Substitutes I J
For EACH of the following issues, identify which force they relate to and whether the
strength of the force is high or low, by choosing ONE letter from A to J.
Issue 1 - MBV’s employees are heavily unionised, making it difficult for the company to
change their terms and conditions. (answer is E but I can't see how this links to power of suppliers)
Issue 2 - MBV’s products are sold through two main retail chains in country G. Each
retailer sells approximately equal amounts of MBV’s furniture.(answer is C but unclear why)
Issue 3 - MBV is much larger than any other fine furniture manufacturers in country G, which has given it an advantage due to significant economies of scale. MBV still retails its products at a similar price to its rivals (answer H but unclear why)
Issue 4 - The market for fine furniture in country G is growing very slowly. (answer B - I think this is because its growing slowly new entrants would be less likely to be attracted into the market?)