Strategic Management Accounting

Question 1

Threat of New Entrants - barriers to entry (6)

Answer 1

Investment cost
Economies of scale available to existing firms
Regulatory and legal restrictions
Product differentiation (including branding)
Access to suppliers and distribution channels
Retaliation by established products

Question 2

Bargaining Power of Suppliers (7)

Answer 2

• There are only a few large suppliers
• The resource they supply is scarce
• The cost of switching to an alternative supplier is high
• The product is easy to distinguish and loyal customers are reluctant to switch
• The supplier can threaten to integrate vertically
• The customer is small and unimportant
• There are no or few substitute resources available

Question 3

Bargaining power of customers (5)

Answer 3

Number of customers
Their size of their orders
Number of firms supplying the product
The threat of integrating backwards
The cost of switching

Question 4

Threat of substitute products (3)

Answer 4

• The extent to which the price and performance of the substitute can match the industry’s product
• The willingness of customers to switch
• Customer loyalty and switching costs

Question 5

Degree of competitive rivalry (7)

Answer 5

Number of competitors in the market
Market size and growth prospects
Product differentiation and brand loyalty
The power of buyers and the availability of substitutes
Capacity utilization
The cost structure of the industry
Exit barriers