4. Barriers to Entry
When a business is profitable, it attracts potential entrants that desire to gain market share. In addition, it can negatively affect the existing firms' profitability. The probability that new companies will enter an industry depends on the extent to which barriers to entry have been build. In other words, existing firms in the industry set up multiple constraints to limit the number of potential entrants.
Within the auto industry, the threat of new entrants is low, because of the substantial barriers to entry. One of the biggest constraints is the need to invest large amount of money. Start up capital is needed to hire and train employees, purchase facilities, raw materials. Since car-manufacturing business is quite complex there is a need to invest in latest innovations, research and development. Given the nature of business, new entrants must be able to accomplish economies of scale. These economies arise when firms focuses to simplifying product lines in order to reduce the cost per unit at larger volumes. This could be a critical barrier, which forces the new automobile manufacturer to accept a cost disadvantage. The newcomer must find suitable means of distributions. It can sometimes be difficult because the existing firms may have close, exclusive relationships with distributors. In that case, the new company must build its own distribution channel. Another significant barrier that the perspective entrants bear is brand recognition. To gain customers' trust and recognition requires the extent amount of time. Moreover, newcomers may have to invest a large amount of money into advertising, focus on producing right quality products and offer high customer service. In 1986 globally recognised Korean automaker Hyundai entered US market. During that time, economic situation was advantageous to enter a new business. However, Hyundai wasn’t
The reason for this is that there are barriers to entry and exit to potential clients to the firm. Examples of these barriers would be, high capital. costs i.e. start up costs for new firms because the existing firms are already operating in a large market and are well established, they. would have created a brand image and would have brand loyalty. therefore, new firms will find it hard to capture the market.
According to the authors, De Wit & Meyer (2007), this can be a dangerous move and quite possibly lead to bankruptcy. This was noted as a bold endeavor with a substantial amount of risk. Tom Folliard, the CEO of CarMax, uses innovation to redirect the current trend of standard practices, (De Wit, & Meyer, 2010). Through expansion, CarMax provided a wide variety of automotive brands to their customers, not limiting their sales to only a few makes and models, (De Wit, & Meyer, 2010).
The biggest challenge that Costco may face is that its main benefit, offering low-price items through bulk purchases, may no longer attract consumers as before. Furthermore, there are other substitutes to most of Costco’s goods, particularly food products and similar commodities that are easily accessible and can satisfy consumer’s expectations, thereby this is a threat that could be classified as high. Based on this threat of the Five Forces model, the external factors leading to a high threat must be considered one of the company’s most important challenges.
Using a five forces analysis to understand how external factors drive innovation in the mobile phone industry
The literature suggested that “Rapid changes in the external environment of organisations have been accompanied by calls for accountants to change the nature of information they provide, the skills they possess and the role they play in the organisation. The proposed changes, which are encapsulated under the phrase accounting for strategic positioning or strategic management accounting are two pronged. On one hand accountants are required to reposition themselves in the organisation hierarchy where they will be involved in the formulation, implementation and choice of strategies. Accountants are also being urged to adopt a range of techniques whose emphasis is futuristic and external to the firm especially emphasizing the importance of monitoring customers and competitors.” (Nyarnori, 2000). Based on my studies on the industry of stock brokerage, I agree with the statement that “The tools and techniques that were covered in the Strategic Cost Management and Strategic Business Analysis courses are very useful in providing decision oriented information to senior management in my organisation and such information will ultimately enhance its corporate value.” The essay (How Porter’s Five Forces Model shapes strategy for a new and small-size stockbroker) may be one of applications of those techniques learnt from the Strategic Cost Management and Strategic Business Analysis .
There are a lot of factors that determines whether or not a company will be successful. These factors are usually derived from economics. One factor that I plan to focus on is scale economies or better known as economies of scale. Firms that have expanded their scale of operations to obtain economies of mass production have survived and flourished. Whereas smaller firms who have not been able to expand have usually ended up as high-cost producers. The topic discussed will be the Italian automotive industry and how it is affected by economies of scale.
In a world of free trade, growing competition and accessibility to foreign markets, the need for methodical market analysis and assumptions is steadily rising in today’s business environment. It is just a normal way of thinking to primarily intent to eliminate the financial before entering a new and foreign market. This suggests that enterprises have to develop an overall strategy for their business in order to gain competitive advantage and consequently market share. With the words of Michael E. Porter, professor at Harvard University and leading authority on competitive strategy, this desirable market success is indirectly linked to the individual structure of a market. The unique structure of a single market influences the strategic behaviour and the development of a competitive strategy within a firm. The competitive strategy finally decides whether a company performs successfully on the market or not. Referring to this interpretation of business success, M. E. Porter established his five forces framework that enables directives to gather useful information about the business environment and the competitive forces in industries.
Socially educated parents are more likely to make decisions based on updated information, whereas parents, who lack higher education or have less education, make decisions without getting the background information. Demand for movies could be dependent on this factor. Also, people who have a more prestigious job reputation or social reputation can influence demand. These people carry this prestige because of the ways that society views their characteristics either as a group or as an individual. People that own homes may be more likely to attend movies rather than renters. In Canada, the population is aging. The age for the average movie-goer is increasing.
Threat of New Entrants - Moderate – Deregulated industry. Threat of new entrants higher during downturns in industry (e.g. JetBlue’s entry point). Existing airlines may encroach on an opponent’s major or regional market-share. High cost of entry into industry
3. Analyze BP using the five forces of competition model to determine the industries current attractiveness in terms of profits potential Danger of Incipient Entrants - The more effortless it is for beginning organizations to enter the business, the more vicious rivalry there will be. Variables that can repress the risk of early contestants are kenned as obstructions to entrance. A few cases include:• Power of Suppliers - This is the amount of weight suppliers can put on a business. In the event that one supplier has a cosmically sufficiently enormous effect to influence an organization 's edges and volumes, then it holds generous puissance.
Introduction: Toyota Motor Corporation is a very successful automobile manufacturer that is recognized globally. They have continued to obtain and retain a competitive advantage over their counterparts, despite recalls over many years. Regardless of recalls, Toyota has been quick to rectify their shortcomings and continue to lead the automotive industry with their innovative measures. In this essay, I will discuss key internal factors for Toyota. Within those factors will include Toyota’s core competencies, which are what they do really well in comparison to their competition, three of their strength’s, which will include their posture within the automobile market and their heavy focus on research and development, and two of their weaknesses.
AutoEdge is facing crisis since millions of its automobiles has had to be recalled due to product quality issues. Many things should be considered in order to implement a proactive response to rectify the situation. As the research analysis, I have been tasked will helping to rebuild AutoEdge’s reputation as well as to reduce and control operating costs. When making any decision on implementing change within the organization market analysis must look at the market structure of the organization. Market structure is made up of the relationship that exists between buyers, sellers, competition, product differentiation, and ease of entry into and exit from the market. The article “Review of Market Structure” (n.d.) defines market structure as the “microeconomic characteristics of different markets” and include such elements as competition level, high versus low entry barriers, and scale (Review of Market Structure, n.d.) To make the decision the decision to relocate, AutoEdge must analysis and evaluate of market structure. This report will discuss the four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition. Additionally, it will outline the type of market structure AutoEdge fits into, how that market structure impacts the level of competition, elasticity of demand, price, and position in the industry.
After a period of continuing growth, the stagnant sales growth of the automotive industry in the late 1970s led all car makers to start to look for methods to fit the new climate. With the purpose of using money on research and development more effectively, spreading the risk of making main components in greater volume, and accessing to new market which were hard to enter, more and more automobile producers reached to the conclusion of collaborating with others. In addition, to remain independent, joint venture seemed to be the best answer. (Campbell, Stonehouse & Houston 2002)
New entrants to an industry, with a desire to gain market share, will put pressure on prices, costs and capital needed to compete. It can affect the profit potential.
The system adopted by 7-eleven maximizes the threat for new entrants. That’s means that threat of new entrants of 7-Eleven is low. It is because 7-Eleven has already reached economies of scale through maintaining a strong customer base and brand loyalty. Over the years, 7-Eleven has increases their customer and brand loyalty. The access to latest technology and capital investments in the same ensures that the barrier for entries for new entr...