Threat of New Entrants

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The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry.

These are typically

  • Economies of scale (minimum size requirements for profitable operations),
  • High initial investments and fixed costs
  • Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets
  • Brand loyalty of customers
  • Protected intellectual property like patents, licenses etc,
  • Scarcity of important resources, e.g. qualified expert staff
  • Access to raw materials is controlled by existing players, ·  Distribution channels are controlled by existing players
  • Existing players have close customer relations, e.g. from long-term service contracts
  • High switching costs for customers
  • Legislation and government action

 

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