Page 18 - DMGT401Business Environment

Unit 1: Indian Business Environment

and the supplier has an expertise, or if the supplier is working at economies of scale. The Notes
supplier has high bargaining power if he has significant cost advantage or constantly
improves the product in the interest of the consumer, or finances the buyer. what's the
'relationship' of buyers to sellers? this is important if there are relatively few suppliers
compared to buyers since it will give them lots of say on cost and form of supply e.g.
directory enquiries before deregulation to 118 numbers meant it was more or less a
monopoly. Equally if the suppliers don't need to use you as a channel then this can create
problems e.g. when companies like Dell decide to sell direct this causes challenges for
computer resellers. For our childcare charity they could consider whether many other
organisations are actually in competition for this contract. If not they have a better position.
Also do they need the authority to provide this service? Could they instead 'sell' direct to
parents or could they persuade private donors to pay for this service?

5. Bargaining Power of Buyers: Today we are living in a market-oriented economy, where
consumer is king. The buyer enjoys significant bargaining power when there are many
sellers, few buyers or when production capacity exceeds the demand.
The buyer can bargain for reduction of prices, quantity discount, better quality at same
price, better after sales service, or even credit or finance facility. Boeing, for instance,
arranges finances for its buyers. Today the consumer durables industry and the two wheelers
and automobile industry arranges finances for customers in collaboration with banks.
(a) is scale or volume important in this transaction?

Example: Wall mart can buy in bulk more cheaply than your local corner store and so
has a massive advantage. In our charity example NSC - the current provider - may be able to
provide a very good deal if it is providing many places for many local authorities. Or the
authority itself may be seen as the buyer and able to demand large discounts or conditions in
exchange for providing a large contact.
(b) how is the cost of supplying the service made up? If a large part of the cost is profit then
a buyer who knows this will bargain hard. Some fundraising consultants often
discount heavily to secure work since much of their fee is profit. Is our charity using
local authority contracts as 'cash cow' to fund other work that isn't available to
contract? If so this might lead the LA to want negotiate on price.
(c) Is there the potential for the buyer to become a provider themselves? this technically known
as 'backwards integration'. In this case a mobile phone manufacturer might set up
their own phone network. Or in our care example, the local authority might decide
to set up their own provision and create an in-house bid through the social work
department.

Notes The Indian steel industry comprises of the producers of finished steel, semi-finished
steel, stainless steel and pig iron. Indian steel industry, having participation from both
public sector and private sector enterprises, is one of the fastest growing markets for steel
and is also increasingly looking towards exports as driving the growth of the industry.
Aruvian's R'search analyzes the Indian Steel Industry in Michael Porter's Five Forces Analysis.
It uses concepts developed in Industrial Organization (IO) economics to derive five forces that
determine the competitive intensity and therefore attractiveness of a market. Porter referred to
these forces as the microenvironment, to contrast it with the more general term macro-
environment. They consist of those forces close to a company that affect its ability to serve its

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