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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

A cement manufacturer in Rajasthan finds that building a new plant needs a very large capital outlay, existing firms enjoy cost advantages from scale, and limestone mining leases are scarce. Under Porter's framework, what does this indicate about the industry?

The facts point to a low threat of new entrants. Large capital needs, economies of scale enjoyed by incumbents and scarce mining leases are entry barriers that discourage newcomers, protecting the profitability of existing cement firms. None of the facts relate to buyer power or substitutes.

  1. AHigh bargaining power of buyers
  2. BLow threat of new entrants due to strong entry barriersCorrect
  3. CHigh threat of substitutes
  4. DLow rivalry because of product differentiation

Explanation

Heavy capital requirements, economies of scale and restricted access to key inputs are classic entry barriers. These make it difficult for newcomers to enter, so the threat of new entrants is low. Buyer power and substitutes are not addressed by the facts given.

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