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    choose the option which indicates the criteria for increased new entrants to an industry

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    Oxford University Press

    Frynas and Mellahi: Global Strategic Management 3e

    Chapter 3: Multiple choice questions

    Chapter 3: Multiple choice questions Instructions

    Answer the following questions and then press 'Submit' to get your score.

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    Threat of New Entrants

    The Threat of New Entrants refers to the threat that new competitors pose to current players within an industry. It is one of the forces that shape the

    Threat of New Entrants

    Threat posed by new competitors within an industry

    Written by CFI Team

    Updated November 28, 2022

    What is Threat of New Entrants?

    The Threat of New Entrants, one of the forces in Porter’s Five Forces industry analysis framework, refers to the threat that new competitors pose to current players within an industry. It is one of the forces that shape the competitive landscape of an industry, and it helps determine the attractiveness of the industry. The framework was developed by Michael Porter at Harvard University.

    The other forces are competitive rivalry, bargaining power of buyers, the threat of substitutes, and the bargaining power of suppliers.

    The Threat of New Entrants Explained

    The Threat of New Entrants exerts a significant influence on the ability of current companies to generate a profit. When new competitors enter into an industry offering the same products or services, a company’s competitive position will be at risk. Therefore, the threat of new entrants refers to the ability of new companies to enter into an industry.

    Barriers to New Entry

    The Threat of New Entrants depends on the barriers to entry. The barriers refer to the existence of high costs or obstacles that can deter new competitors from entering the industry.

    Barriers to entry include:

    Brand loyalty: Customers in the industry show a strong preference for the products and/or services of existing companies.Cost advantages: Existing companies can easily produce and offer their products and/or services at a lower cost/price than that of new entrants.Government regulationsCapital requirement: A high fixed cost to enter into an industry, e.g., telecommunications.Access to suppliers and distribution channels: Existing companies own exclusive rights to suppliers and distribution channels.Retaliation: Existing companies may collude and deter new entrants.

    High Threat of New Entrants When:

    Low brand loyalty in the current industry

    Current brand names are not well-known

    Low initial capital investment required

    Access to suppliers and distribution channels is easy to obtain

    Weak government regulations

    No threat of retaliation

    Proprietary technology is not required

    Low Threat of New Entrants When:

    High brand loyalty in the current industry

    Brand names are well-known

    High initial capital investment required

    Little to no access to suppliers and distribution channels

    Strong government regulations

    Threat of retaliation from existing competitors

    Proprietary technology is required to be successful

    Barriers to Entry and the Threat of New Entrants:

    A low threat of new entrants makes an industry attractive – there are high barriers to entry. Therefore, existing companies are able to enjoy increased profit potential.

    A high threat of new entrants makes an industry less attractive – there are low barriers to entry. Therefore, new competitors are able to easily enter into the industry, compete with existing firms, and take market share. There is a reduced profit potential as more competitors are in the industry.

    Example Analysis

    Let us consider whether JetBlue, a company in the airline industry, faces a high or low threat of new entrants.

    New entrants to the airline industry pose a very low threat to JetBlue. First, the barriers to entry are remarkably high, as several airplanes are required to compete in the airline industry. Operating costs are massive, and there are major government regulations for companies in the industry. Therefore, it is safe to say that the threat of new entrants in the airline industry is low as barriers to entry are high.

    However, the threat of new entrants alone does not determine the overall attractiveness of an industry. The remaining forces (bargaining power of buyers, rivalry among existing competitors, bargaining power of suppliers, and the threat of substitutes) must be taken into consideration when determining overall industry attractiveness.

    Related Reading

    Thank you for reading this guide to performing industry analysis. To keep advancing your knowledge, these additional CFI resources will be helpful:

    Market Economy Law of Supply Monopoly Inelastic Demand

    See all management & strategy resources

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    Five Forces Model Multiple Choice Questions

    Five Forces Model MULTIPLE CHOICE QUESTIONS-MCQ five forces model multiple choice five forces model multiple choice questions indicate the correct answer for

    Cape Peninsula University of Technology

    Business Strategy 2

    Five Forces Model Multiple Choice Questions

    1 out of 12

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