Strategic Business Leader · Competitive forces

Barriers to Entry and Threat of New Entrants in ACCA SBL

Updated 11 October 2026 · Fact-checked

Barriers to entry are obstacles that make it costly or hard for new firms to enter an industry. Where barriers are high, the threat of new entrants is low. To answer SBL questions, identify each relevant barrier in the scenario, judge its strength, and conclude on the overall threat and what it means for the firm.

Understand Barriers to Entry and Threat of New Entrants

Porter's Five Forces model includes the threat of new entrants. New firms bring extra capacity and a wish to win market share. That pushes prices down or pushes costs up for existing firms, so profits fall. The force is strong when entry is easy and weak when entry is hard.

What decides this is the height of barriers to entry. These are factors that give incumbents an advantage over a newcomer. The main ones are:

Economies of scale: unit costs fall as volume rises. A new firm entering small has higher unit costs. It must either enter at large scale, which is risky, or accept a cost disadvantage.
Capital requirements: large sums are needed for plant, technology, stock, advertising or research. Sunk costs that cannot be recovered on exit make this barrier stronger.
Switching costs: the cost to a customer of moving to a new supplier, such as retraining, new software, contract penalties or lost data. High switching costs make it hard for entrants to win customers.
Access to distribution channels: if shelf space, retailers or agents are tied up by incumbents, entrants must build their own channels or pay heavily to gain access.
Government policy: licences, regulation, patents, quotas, tariffs and safety standards can block or slow entry. Policy can also lower barriers, for example through deregulation.

Other barriers also appear in scenarios: strong brands and customer loyalty, incumbents' experience and know-how, access to raw materials, and the threat of retaliation. Retaliation matters. If incumbents are likely to react with price cuts or heavy promotion, entrants think twice.

Barriers are not fixed. Technology, such as online platforms, can cut capital and distribution barriers. Regulation can change. A good SBL answer says whether barriers are rising or falling, not just what they are today.

The threat also depends on the entrant. A large firm from another industry may have the capital and brand to clear barriers that stop a start-up. Judge the threat from the likely entrants, not in the abstract.

Key rules to remember

Core rule: Higher barriers to entry → lower threat of new entrants → higher potential industry profitability; This is a judgement, not a calculation. Support it with evidence from the scenario.
Entry decision logic: Entry is attractive if expected returns after barriers and expected retaliation exceed the cost of capital; Use this to explain why entrants do or do not come. It is a reasoning aid, not a formula to compute.
Main barriers checklist: Economies of scale; capital requirements; switching costs; access to distribution; government policy; Add brand loyalty, experience, access to inputs and expected retaliation where the scenario gives evidence.

How to solve Barriers to Entry and Threat of New Entrants questions

Use this method for any SBL task on barriers to entry or the threat of new entrants. Keep every point tied to the scenario.

1Read the requirement. Decide if you must assess the threat, advise on entry, or advise an incumbent on defending its position.
2Identify who the likely entrants are: start-ups, firms from related industries, or overseas firms.
3Go through each barrier in turn. Pick the ones with evidence in the scenario and quote that evidence.
4Judge each barrier as high, medium or low, and say why. Note whether it is rising or falling because of technology, regulation or change in the market.
5Consider expected retaliation by incumbents and whether entrants can overcome barriers by scale, innovation or a different business model.
6Conclude on the overall threat: high, medium or low. Be clear and commit to a view.
7Link the conclusion to the requirement: what the firm should do, such as strengthen barriers, enter, or monitor a specific entrant.
8Add a professional skills touch: weigh up both sides, show commercial awareness and write in the format asked for, such as a report or briefing note.

Quickest way: Barrier-by-barrier scan with a verdict

When to use it: Use this when time is tight, such as when barriers to entry are only one part of a wider Five Forces or strategy task.

Underline scenario facts that hint at scale, capital, switching costs, distribution or regulation.
Write one line per barrier: fact, then high or low.
Write one line on who might enter and whether retaliation is likely.
Write a one-sentence verdict on the threat.
Write one sentence on the implication for the firm in the requirement.

Common mistakes in Barriers to Entry and Threat of New Entrants

Listing barriers from memory without using the scenario.
Students learn the list and write it out as a textbook answer.
Fix: Use each barrier only if the scenario gives evidence, and quote that evidence. Skip barriers with no support.
Confusing a high barrier with a high threat.
The word high is attached to barriers and the direction gets reversed.
Fix: Remember that high barriers mean a low threat. State the link explicitly in your conclusion.
Stopping at description and not giving a conclusion.
Students think naming the barriers is enough for the marks.
Fix: End with a clear verdict on the threat and a recommendation linked to the requirement.
Treating barriers as fixed and ignoring change.
Students analyse the industry as it is today.
Fix: Comment on trends such as digital platforms lowering capital and distribution barriers, or new regulation raising them.
Ignoring who the entrant is.
The analysis is done for a generic new firm.
Fix: Say whether a large, well-funded firm from another market would face the same barriers as a small start-up. Often it would not.
Treating economies of scale as only a cost saving for the incumbent.
Students forget the point is the entrant's disadvantage.
Fix: Explain that an entrant either must enter at large scale, risking big losses, or accept higher unit costs than incumbents.

Worked examples

Example 1

Zenith Telecom is a long-established mobile network operator in a mid-sized country. Building a national network needs very large investment in masts and spectrum. Spectrum can only be used with a government licence, and only a limited number of licences are issued. Most customers sign 24-month contracts with early termination fees. A foreign operator is considering entry. Assess the threat of new entrants to Zenith.

Show the solution

Entrants: a foreign operator is likely to be large and well funded, so it could meet some barriers a start-up could not.
Capital requirements: a national network needs heavy investment in masts and spectrum. Much of this is sunk, so the barrier is high.
Government policy: a licence is needed and few are issued. This is a strong barrier, and may be the deciding one for the foreign operator.
Switching costs: 24-month contracts with termination fees make customers slow to move. The barrier is medium to high. An entrant would need generous offers to cover the fees.
Economies of scale: a large network spreads fixed costs over many users. This is implied by the heavy investment, so an entrant starting small would have higher unit costs.
Retaliation: Zenith could respond with price cuts or retention offers, though the scenario gives no evidence of this, so say it is a possibility.
Conclusion: the threat is low overall, because the licence and capital barriers are strong. The main risk is a well-funded foreign operator that wins a licence.
Implication: Zenith should keep the regulator relationship strong, protect its customer base through service quality and retention offers, and monitor licence decisions.

Answer: The threat of new entrants is low. Capital requirements, government licensing, scale economies and contract-based switching costs are all high. The one real risk is a well-funded foreign operator winning a licence, so Zenith should monitor licensing and strengthen customer retention.

Example 2

Brightfield is a local grocery chain. A new online delivery start-up is entering its market. The start-up needs only a website, rented warehouse space and hired vans. It uses existing courier firms for delivery. Customers can use its app for free and can switch back to supermarkets at any time. Explain what this shows about barriers to entry in the grocery industry and what Brightfield should do.

Show the solution

Capital requirements: the start-up needs only a website, rented space and hired vans, so capital needs are low compared with building stores. The barrier is low.
Distribution access: it uses existing couriers, so it does not need to build its own network or win shelf space. This barrier is low.
Switching costs: the app is free and customers can return to supermarkets easily, so switching costs are very low. This helps the entrant win trial customers, but also means its customers can leave just as quickly.
Economies of scale: the scenario gives no data. Brightfield's larger purchasing and store network may give it cost advantages, but a start-up can reduce this gap by buying from wholesalers. Say that the effect is uncertain.
Technology effect: digital models cut traditional barriers, so the threat of new entrants is higher than it was.
Conclusion: the threat is medium to high. Entry is easy, but the start-up will have to work hard to keep customers who can leave at no cost.
Recommendation: Brightfield should build its own online offer, raise switching costs through a loyalty scheme, and use its supplier and store network to lower costs. It should also watch whether the start-up gains scale.

Answer: Barriers to entry are low because capital needs, distribution access and switching costs are all weak, so the threat of new entrants is medium to high. Brightfield should launch its own online service, build loyalty with a rewards scheme and use its scale to keep costs below the entrant's.

Exam tips

Always tie each barrier to a fact in the scenario. Generic textbook lists earn little credit.
Commit to a verdict on the threat. A balanced discussion that ends without a conclusion loses marks.
Link the analysis to the requirement. If asked to advise, give clear recommendations for the firm.
Note change over time. Technology and regulation often move barriers, and the examiner likes to see this.
Use the professional skills marks by writing in the format asked, weighing both sides and showing commercial awareness.

Practice questions from Competitive forces

Barriers to Entry and Threat of New Entrants: frequently asked questions

What are the main barriers to entry in Porter's Five Forces?

The main ones are economies of scale, capital requirements, switching costs, access to distribution channels and government policy. Brand loyalty, experience, access to inputs and expected retaliation are also common. Use the ones the scenario supports.

How do I assess the threat of new entrants in the SBL exam?

Find evidence in the scenario for each barrier, judge how strong it is, and consider who the likely entrants are. Then give a verdict on the threat and say what the firm should do. Aim for a clear conclusion, not just a list.

How do economies of scale act as a barrier to entry?

Incumbents with large volumes have lower unit costs. A new firm must either enter at large scale, which is risky and costly, or accept higher unit costs and lower margins. Either way, entry is less attractive.

Can barriers to entry change over time?

Yes. Technology can lower capital and distribution barriers, as online platforms often do. New regulation or licensing can raise barriers, while deregulation can lower them. Mention the direction of change in your answer.