ACCA Strategic Professional · Strategic Business Leader · Competitive forces
Veltra Foods, a long-established producer of packaged soups, enjoys cost savings because each additional unit it makes lowers the average cost per unit, and a start-up would need to build a huge plant just to match those unit costs. Which Porter barrier to entry is most directly illustrated?
Economies of scale is the barrier illustrated. Veltra's average unit cost falls as volume increases, so a new entrant must either invest in very large capacity or accept higher unit costs. Brand, switching costs and regulation are not mentioned in the scenario.
- AEconomies of scaleCorrect
- BGovernment policy restrictions
- CSwitching costs for buyers
- DProduct differentiation through brand identity
Explanation
The key feature is that unit cost falls as volume rises, forcing entrants either to come in at large scale or accept a cost disadvantage. That is economies of scale. Brand identity concerns customer loyalty, not production cost, and no switching cost or regulation is described.
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