Which statement about industry risk is least accurate? A) Vertical integration may mitigate some risk of value chain competition. B) As the number of suppliers increases, the value of the producer decreases. C) Higher product standardization increases investment risk. Your answer: C was incorrect. The correct answer was B) As the number of suppliers increases, the value of the producer decreases. As the number of suppliers increases, suppliers have less pricing power and thus less ability reduce return to the producer. The value of the producer increases, not decreases. Higher product standardization increases buyer power and thus investment risk. Vertical integration along the value chain may mitigate competition for a firm. — question…if # of suppliers INCREASES, and their power DECREASES, doesnt the value of the producer DECREASE? i follow their logic in the first sentence but not the second. unless producers are not the same thing as suppliers??
there not the same, supplier ----producer—end user, think of suppliers as raw material providers, hence the value to the producer decreases as supplier power diminishes
I guess the context of the question is integration . The producer is of less value and integration is of more value if there are so few of them that the producer’s risk is high. If there are many suppliers , risk from suppliers is lower and integration is lower priority and lesser value as far as risk mitigation. The value is relative to the risks the supplier impose.
Northern, If you are indeed correct about the supplier --> producer --> buyers relationship, then the question is easy. Number of suppliers increases, power of each supplier decreases, and producers (those who buy from suppliers and have more choices now) now have more power/value. So choice B is incorrect (i.e. the correct answer). However, your relationship makes it appear that the producer is always a middle man between supplier and buyer. In all of the Porter’s questions, we assume that it is suppliers and buyers who interact and there’s no mention of a producer. Is it possible that in the Porter’s questions, we assume that the producer is the supplier? In other words, the producer’s role becomes one of a supplier in his relationship with the buyer, and we answer questions based on this?
Buyer power (can be the producer exerting influence on the supplier OR people exerting influence on the producer), your correct that the producer (a company) becomes the peoples supplier, i would have to look at my notes again
thanks. but i think we are on the same page with this as i agree with what you wrote above