Need help with some Alevel business multiple choice question

A business wants to adopt a strategy to limit the adverse impact arising from one of Porter's five forces. A strategy of forward vertical integration would be most relevant if the adverse impact was the result of
A buyer power.
B entry threat.
C rivalry.
D substitute Threat
Any help would be greatly appreciated :smile:

Reply 1

MindMax2000

Universities Forum Helper

Original post by H1244

vertical integration means the business is buying or merging businesses that are above or below the supply chain.

buyer power means that the person buying the goods has the most leverage in the situation
entry threat means the business is exposed to risks of new businesses entering the field
rivalry is likely in terms of competition from other businesses on the same level of the supply chain
substitute threat implies there is an alternative good in the industry that does the same thing (if not better) than the good the company sells

Vertical integration wouldn't help with substition threats (no matter how much you integrate with other companies in your supply chain, the substitute is likely to be unaffected). Entry threat might well be unaffected by vertical integration in a competitive market (if by vertical integration you attain a monopoly or oligopoly, then it might be a different story).

This leaves buyer power and rivalry. On first impressions, I would have gone with buyer power, but it would make little sense for a supplier to buy a client company just because the client company has the option of choice. If it was the other way round where the supplier has the power, the client company will be tempted to buy out the supplier.
Rivalry is the most likely answer, since it would stop other competitors from getting access to the same supplier they all would be buying from, especially if the supplier is the key supplier for a large range of supplies that the competitors need to compete well in the industry.

Reply 2

999MuchLuv999

The strategy of forward vertical integration would be most relevant if the adverse impact was the result of a substitute threat.

Forward vertical integration involves a company expanding its operations towards the end-user or consumer by acquiring or controlling distribution channels or retail outlets. By doing so, the company aims to eliminate or reduce the influence of substitute products or services in the market.

Substitute threats arise when customers have alternative products or services that can fulfill the same need or function as the company's offerings. These substitutes can pose a significant threat to a company's market share and profitability.

By implementing forward vertical integration, the company can control the distribution channels and retail outlets, making it more difficult for substitute products or services to reach the customers effectively. This strategy allows the company to strengthen its position in the market by limiting the adverse impact resulting from substitute threats.