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Industry fragmentation refers to the concentration of the supplier industry relative to the focal industry. When the supplier industry is less fragmented (more concentrated), a few suppliers serve many buyers, increasing supplier power. When it is more fragmented, buyers can switch among many suppliers, reducing supplier power.

• Bargaining Power of Suppliers

• Market Share of Suppliers

• Supplier Industry Growth

• Buyer Power Dynamics

Threat of New Entrants

• The ease with which new competitors can enter an industry and challenge existing firms.

• The ability of existing firms to maintain their market position against new entrants.

• The level of competition among existing firms in the industry.

• The impact of government regulations on new businesses entering the market.

Threat of New Entrants:

High Strategic Stakes or Exit Barriers

• Firms can easily exit the industry without consequences.

• Firms heavily invested in an industry or facing high exit barriers are compelled to stay and compete aggressively, even when profitability declines.

• New entrants face minimal competition from established firms.

• High exit barriers encourage firms to reduce their market presence.

Bargaining Power of Suppliers:

• The degree to which the supplier's product or service is essential to the focal industry's operations significantly influences bargaining power.

• Supplier's industry is not critical to the focal industry's operations.

• Suppliers have no influence over the pricing of their products.

• The supplier's product is easily replaceable by alternatives.

Threat of New Entrants:

Distribution Channels Are Easy to Access

• New entrants can easily access distribution channels without exclusive partnerships.

• New entrants must secure long-term contracts to access distribution channels.

• New entrants face no challenges in establishing dealership networks.

• New entrants are always welcomed by established networks.

Threat of Substitutes: Profitability Is High for Potential Substitutes

• When substitute industries are highly profitable, they attract increased innovation, investment, and competition.

• Substitutes have no impact on the profitability of the focal industry.

• High profitability in substitutes leads to decreased competition in the focal industry.

• Substitutes are always less appealing to buyers than the focal industry.

Bargaining Power of Buyers: Backward Integration is Feasible

• If buyers can produce the good themselves, they gain leverage.

• If buyers have no alternative, they lose leverage.

• If buyers can only purchase from one supplier, they gain leverage.

• If buyers are unaware of production methods, they gain leverage.

Bargaining Power of Suppliers:

• High Supplier Power (Focal Industry Not Critical): When the focal industry constitutes only a small portion of the supplier's total revenue, the supplier can act independently.

• Low Supplier Power (Focal Industry is Critical): If the supplier depends heavily on the focal industry for its survival, buyers gain bargaining power.

• Suppliers have equal power regardless of the focal industry's importance.

• Suppliers always have high power over buyers in any industry.

Threat of New Entrants:

Many Existing Firms or Equal/Similar Sizes

• Competition becomes fragmented due to many firms of similar size and capability.

• A dominant leader emerges, reducing competition among firms.

• Firms focus solely on product quality, ignoring pricing strategies.

• Market share is easily captured by new entrants without resistance.

Bargaining Power of Buyers:

• When buyers can easily switch between firms due to product interchangeability.

• When buyers have no alternatives and must purchase from a specific firm.

• When the products are highly differentiated and unique to each firm.

• When buyers are willing to pay any price for the product.