Threat of New Entrants

Capital Intensive- The cost of raw materials and other accessories required in the process of
manufacturing air conditioning units is significantly high. They require specific thermal and
thermodynamic properties along with resistance to corrosion. The refrigeration cycle in an air
conditioning system is a complex process which can be further subdivided into four elements:compression, condensation, expansion and evaporation. The same is evident financial
statements of Blue Star.

Source:- Blue Star Limited Annual Report 2014

Access to distribution network- An effective distribution system is required in this industry

especially for room air conditioners. It is very important to gain visibility across different retail
environments ranging for malls to standalone shops dealing with consumer durables. For a
new player it is difficult to establish this sort of a distribution network initially. Blue Stars
distribution channel capacity can be explained by the following excerpt.
Company now has nearly 2000 channel partners for selling room air conditioners, packaged
Air conditioning, chillers, cold rooms and refrigeration products and reaches out to
customers in more than 650 towns. Blue Star has also expanded the retail distribution reach
of room air conditioners to about 450 retailers and distributors across the country. 1

Technological Upgradation- In the industry of air conditioning, the product designs undergo
rapid change especially with the growing concerns of the consumers regarding energy
efficiency. Reducing size and power consumption is never ending demand from the
consumers end and to meet them the manufacturers continuously keep upgrading the
technologies incorporated in their air conditioning units. Hence, there is a lot of investment
required in Research and Development in this business.

Source : Blue Star Limited Annual Report 2014

Based on the above three factors it can be concluded that the entry barriers in the air
conditioning and refrigeration business is fairly high. Therefore, the threat posed to existing
players in the market by a new entrant is not very significant.

http://www.madehow.com/Volume-3/Air-Conditioner.html
http://www.bluestarindia.com/manufacturing/default.asp
http://en.wikipedia.org/wiki/HVAC#Air_conditioning