Question

In the context of Porter's Five Forces, how can suppliers impact industry profitability?

a) Increase competition
b) Reduce bargaining power
c) Increase production costs
d) Enhance product quality

Answer 1

Suppliers can primarily impact industry profitability by increasing production costs, which may reduce the profitability of firms in the industry if these costs cannot be passed on to consumers.

Step-by-step explanation:

In the context of Porter's Five Forces, suppliers can impact industry profitability primarily by increasing production costs. When suppliers have significant power, they can command higher prices for their goods or services, which in turn raises the cost of production for firms in the industry. This can erode the profitability of these firms if they are unable to pass these costs on to consumers in the form of higher prices. Conversely, if suppliers enhance product quality, this could potentially lead to a competitive advantage for firms in the industry, positively impacting profitability. However, the direct effect of suppliers on industry profitability is more commonly associated with their ability to influence production costs.