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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Zephyr Brew, a regional coffee roaster, notes that a global retailer is considering entering its market. The retailer would need to build roasting plants costing $80 million to compete at an efficient scale. Using Porter's five forces, which barrier to entry does this primarily illustrate?

The barrier is economies of scale combined with capital requirements. A new entrant must invest heavily to reach efficient scale, such as building costly roasting plants, which discourages entry. Nothing in the case concerns buyer switching costs, licensing or supplier power.

  1. AEconomies of scale and capital requirementsCorrect
  2. BSwitching costs for buyers
  3. CGovernment licensing policy
  4. DBargaining power of suppliers

Explanation

A large investment needed to reach efficient production scale is a capital requirement and scale barrier, which deters new entrants. Switching costs concern the buyer's cost of changing supplier, which is not described. Licensing is not mentioned and supplier power is a separate force.

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