Select an industry sector of interest and list the main types of entry barrier (e.g. research and development expertise, brand profile, facilities, etc) within it. Then examine annual reports of the leading competitors to establish their financial investment in these key areas. What does this tell you about the height of the entry barriers facing a potential new entrant?

Question

What will be an ideal response?

Answer 1

Define an entry barrier as the value of the investment needed for an outsider to acquire the array of
resources and knowledge needed to operate in the sector of interest. One can debate whether the
appropriate figure is the absolute minimum necessary to enter or the (potentially much) larger value
vital to achieve MES in all critical operations and therefore to achieve a sustainable, i.e. effective
and profitable position in the sector. The figures will vary from one potential new entrant to another,
depending on their circumstances. Shrewd potential entrants may defray some investment in vital
resources by drawing on those of partners or other enterprises willing to share in order to achieve
mutual benefits. In well-established sectors the most, indeed only viable entry mode may be via
acquisition, in which case the size of the barrier is the acquisition value of the cheapest available
incumbent, plus the post acquisition costs of integration and rationalisation of their respective
resource bases.