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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Norvik Telecom wants to assess the attractiveness of the mobile network industry. It finds that building a network needs very large capital investment, licences are restricted by the government, and existing operators enjoy strong economies of scale. What does this imply under Porter's model?

The threat of new entrants is low. High capital needs, licence restrictions and economies of scale are barriers to entry that protect incumbents and tend to support industry profitability. It does not automatically mean rivalry or buyer power are low, as those are separate forces.

  1. AThe threat of new entrants is low, supporting higher industry profitabilityCorrect
  2. BThe threat of new entrants is high because the industry is profitable
  3. CBuyer power is low because licences are restricted
  4. DRivalry is certain to be low because entry is difficult

Explanation

Capital requirements, regulation and economies of scale are barriers to entry, so the entry threat is low and incumbents can sustain profits. Low entry does not guarantee low rivalry, which also depends on factors such as competitor balance and exit barriers, so option D overreaches.

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