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Porter's Five Forces Analysis: Threat of Entry

Strategies and resources for creating a Five Forces Analysis

What is Threat of Entry?

To defend against the threat of new competitors, companies depend on barriers to entry within an industry such as customer loyalty, product differentiation, market share, and cost advantage.

Questions to ask include:

  • How easy is it for new companies to enter the market?
  • Do incumbents have advantages? in price? brand loyalty? materials? location? experience?
  • Are there technological barriers to entry?
  • Are size and economies of scale important?
  • How do capital requirements & switching costs influence market entry?
  • Does government policy play a role?
  • Are distribution channels open or closed?

Research Industry Operating Conditions

Research Government Policy

Researching the regulatory environment of an industry involves looking at both the regulators and the positions of those affected by the regulations. Look for news from these sources:

  • Government executive departments, such as the Department of Transportation (DOT), and regulatory agencies like the Federal Energy Regulatory Commission (FERC), the Food and Drug Administration (FDA), and the Federal Communications Commission (FCC), set regulations for U.S. industries. Search the A-Z Index of U.S. Government Departments and Agencies for agency websites and Regulations.gov for active or proposed government rules, regulations and related documents.
  • Committees of the United States  House and Senate regularly hold hearings on proposed legislation.
  • Trade associations represent the interests of their members in position papers and testimony before Congress.

Research Technology Barriers

A company's intellectual property is often protected by patents on products or production methods. Companies often discuss their patents in their 10-K report. Review Item 1. Business and Item 1A. Risk Factors of the report or search the document with the terms patents or intellectual property. Actual patent documents can be found on the following websites:

United States Patent and Trademark Office (USPTO)

Espacenet (European Patent Office)

FreePatenetsOnline

Google Patents