THE INSTITUTE OF FINANCE MANAGEMENT

FACULTY OF ACCOUNTING, BANKING AND FINANCE

DEPARTMENT OF BANKING AND FINANCE
BACHELOR IN BANKING AND FINANCE
ACADEMIC YEAR, 2020/2021
BBF 3, STREAM A
STRATEGIC MANAGEMENT

MSU: 08501

INDIVIDUAL ASSIGNMENT.
NAME. : MECKTRIDER TIMBA YABEJA
REG NO: IMC/BBF/2021332

QUESTION: Entry barriers exist whenever it is difficult or not

economically viable of new entrepreneur position. Where entry barriers
are high, the threat of entry of new firms in the industry will be low.

Discuss the validity of the contention above with vivid examples from
organization of your choice.
Entry barriers, is an economics and business term describing factors that can prevent or
impede newcomers into a market or industry sector, and so limit competition. It is true that
Entry barriers exist whenever it is difficult or not economically viable of new entrepreneur
position. Where entry barriers are high, the threat of entry of new firms in the industry will be
low.
This is due to the following reasons :-
Economies of scale, occur when increased output leads to lower average costs. Therefore new
firms, with relatively low output, will find it difficult to compete because theirs average costs
will be higher than the incumbent firms benefiting from economies of scale. The prospect of
higher average costs may deter entry.
Capital requirement, Another type of barrier to market entry occurs when new entrants are
required to invest large financial resources in order to compete in an industry. For example,
certain industries may require capital investments in inventories or production facilities. Capital
requirements form a particularly strong barrier when the capital is required for risky investments
like research and development.
Switching costs. A switching cost refers to a one-time cost that is incurred by a buyer as a result
of switching from one supplier's product to another's. Some examples of switching costs include
retraining employees, purchasing support equipment, enlisting technical assistance, and
redesigning products. High switching costs form an effective entry barrier by forcing new
entrants to provide potential customers with incentives to adopt their products.
Government policy. Government policies can limit or prevent new competitors from entering
industries through licensing requirements, limits on access to raw materials, pollution standards,
product testing regulations,
Product differentiation. In many markets and industries, established competitors have gained
customer loyalty and brand identification through their long-standing advertising and customer
service efforts. This creates a barrier to market entry by forcing new entrants to spend time and
money to differentiate their products in the marketplace and overcome these loyalties.
Access to channels of distribution. In many industries, established competitors control the
logical channels of distribution through long-standing relationships. In order to persuade
distribution channels to accept a new product, new entrants often must provide incentives in the
form of price discounts, promotions, and cooperative advertising. Such expenditures act as a
barrier by reducing the profitability of new entrants.
Conclusively, Thereby the threats of new entrants refers to the ability of new companies to enter
into an industry. Thus the threats of new firms depends on the barriers of entry. As the barriers of
entry become high the threats to new entrants become low. Where as for low threats 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, proprietary technology is required.

Example of an organization to be taken here is AZAM that can be used to show on how barrier
led to threat to the new firms in industry to be low.
REFERENCES

1. “Strategic Management Concepts” by Robert E Hoskisson and Michael A Hitt