Threat of New Entrants

The threat of new entrants into an industry refers to companies or firms which plan and /or execute a business entry into a geographical area to establish themselves as a competitor to more established rivals. If this threat is high or very prevalent in the industry it usually poses restrictions on current industry player’s prices thus affecting profitability. Import parity and substitute products also restrict prices in a market, these are analysed in a strategic force analysis. Firms or entities wishing to enter a market must also consider how established competitive players will respond to the entrant. Will they retaliate with increased marketing? Price wars? Or secure their channel to market?
Industries with high barriers to entry usually have a lower threat from new entrants. Some of the most common barriers to entry are :

-Economies of scale by producers, giving the ability to offer better prices
-Brand loyalty and investment in marketing to create a superior brand awareness coupled with a quality offering to customers
-capital requirements to compete in the industry
-Customer switching costs among competitors
-Control and accessibility to channel to market and or distribution channels
-Government and authority regulations
-Control of strategic assets, licenses or patents

These barriers will vary greatly between industries and will also affect potential new entrants in a different way. Some multinational firms could have enough cash flow from established mature business that could fund large capital expenditures or start up costs and losses to successfully enter an industry. The same could be said about some large government owned agencies or companies which don’t have to report earnings and business strategies to shareholders. Different firms will have different economic resources, knowledge, and scale thus barriers may affect them in different ways.