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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A strategist at Sahyadri Cement says that the threat of new entrants is low in the industry because setting up plants needs very large capital investment and existing players enjoy cost advantages from large-scale production. In Porter's Five Forces, these are examples of which of the following?

Heavy capital requirements and scale-based cost advantages make it hard for new firms to enter, so they are barriers to entry. These reduce the threat of new entrants in Porter's model, rather than affecting buyer power, rivalry or substitutes.

  1. ABarriers to entryCorrect
  2. BBargaining power of buyers
  3. CRivalry among existing firms
  4. DThreat of substitutes

Explanation

High capital requirements and economies of scale are classic entry barriers that discourage new entrants. They do not describe buyers, rivals or substitutes.

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