Next of Porter’s 5 Forces – Threat of new entrants
The easier you can enter the market the greater the threat of new entrants. The scale of this risk is assessed by defining barriers. The fewer barriers, the risk of new players increases and profitability of the market falling down.
• Capital intensity. The higher the amount you need to invest to open a business such as yours and to develop it on the market, the risk of new inputs is smaller,
• Economies of scale. The higher the economies of scale players reach the lower is threat of new entrants. This is due to the fact that new players would have to work for a long time in adverse conditions before they would start getting the benefits.
• Know – how. If the industry uses the expertise that companies acquire and build for many years, the risk of new entratns is low. In addition, some technologies can be protected by patents.
• Legal barriers. Some industries are limited by state regulations, which makes it difficult to enter new entities, including foreign enterpreneuers. Moreover, is often required to meet additional criteria to operate in a particular industry. The more of such a restrictions, the less the risk of new entrants.
• Product differentiation among competitors. If existing providers offer different tech products that are not too similar, and their brands have a strong position, the entry of new players will be difficult. The lower the risk.
• Switching costs. If a change of supplier is simple for the customer, the greater the danger that new suppliers will appear. And receive customers of suppliers that already exist in the marketplace.
When analyzing a given industry, all of the mentioned factors regarding the threat of new entrants may not apply. But some, if not many, certainly will. Of the factors that do apply, some may indicate a high threat of entry and some may indicate a low threat of entry. The results will not always be straightforward and easy to notice. Therefore it is necessary to consider the nuances of the analysis and the particular circumstances of the given company and industry when using these data to evaluate the competitive structure and profit potential of a market.