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

Several new electric two-wheeler start-ups are entering a market in which Hero-like incumbents have large dealer networks, high brand loyalty and heavy capital needs for plants. Which of Porter's five forces is most directly weakened (i.e., the threat reduced) by the incumbents' dealer networks and capital requirements?

The threat of new entrants is reduced, because high capital requirements, established distribution networks and brand loyalty are barriers to entry that make it costly and difficult for start-ups to enter the market and compete with incumbents.

  1. ABargaining power of buyers
  2. BThreat of new entrantsCorrect
  3. CThreat of substitutes
  4. DRivalry among existing competitors

Explanation

Large capital requirements, established distribution channels and brand loyalty are classic barriers to entry. They lower the threat of new entrants. Rivalry is a separate force and is not directly reduced by entry barriers.

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