The bargaining power of suppliers can affects the intensity of rivalry among competitors in an industry by increase the prices or decrease the quality of the goods and services.
The bargaining power of suppliers is consider high when the market only have a few product substitute raw materials, then the buyers will have lower bargaining power because the control over the prices and the quality of goods and services is with the suppliers. When the goods and services offered by the suppliers are unique and hard to be imitate, cost of switching the raw material from one supplier to another supplier is very expensive to the buyers. Thus, the bargaining power of the suppliers is very powerful. Historically, the bargaining power of suppliers is low in the automobile industry in Malaysia. Malaysia’s automobile industry is an oligopoly market which dominated by Proton and Perodua which are the two main national car manufacturers that capturing the majority of the market share in the industry. The suppliers in this industry have lower bargaining power because the number of suppliers who produce the component of the car is large. Majority of the suppliers were the vendors of the Proton and Perodua.
Proton and Perodua can easily switch their suppliers to another suppliers who can provide high quality of goods and services at cheaper prices. Nowadays, the bargaining power of suppliers for Perodua is considered moderate. In the car manufacturing industry, the resources includes the components, metals, tires, plastic, electrical system, parts, cooling system, steel, rubber and other raw materials are used in the process of car manufacturing. Perodua has more than 100 local vendors in its automobile industry which involved in manufacturing of car parts and components in order to satisfy its needs. Due to technology is rapidly changing across the industries, Perodua had used some of the advanced technology such as advanced electrical and heat exchange equipment, interior equipment in order to maintain competitive edge in the industry. However, there are only limited suppliers in Malaysia who able to provide or supply these types of advanced technology to the Perodua such as APM Holdings and Pecca Group. Thus, the price of goods and services is high and costly to Perodua. Nevertheless, Perodua have a strong relationship with the suppliers especially Perodua have a partnership relationship with Japanese company, Daihatsu which supply those importance advanced technology to the Perodua such as engine.
Therefore, the suppliers are willing to lower the price of goods and services if Perodua could guarantee a higher orders such as produced approximately 5,000 cars a month. In fact, Perodua is doing very well with introducing Bezza model by selling 207?110 units in domestic market last year and success in negotiating for lower prices from its suppliers. In addition, this implies that the bargaining power of suppliers is moderate.