Page 12 - Barclays Bank (B) Teaching Note

Threat of New Entrance

In order to enter the banking sector, new entrants are likely to be
required to:

• have high investment (capital)

• comply with all regulations from the authorities
• bring innovation and new ways of doing things

• reducing costs, and
• providing new value propositions to customers

Barclays has to manage these challenges and build effective
barriers to safeguard its competitive edge especially if new

entrants put pressure on Barclays through a lower pricing

strategy,

Barclays response to the Threats of New Entrants

• By innovating new products and services. New products not
only attract new customers but also allow existing

customers a reason to buy Barclays’ products.
• By building economies of scale and scope can lower the

fixed cost per unit.

• Building capacities and spending money on research and
development. New entrants are less likely to enter a

dynamic industry where the established players such as
Barclays keep defining the standards regularly e.g. mobile

banking. In addition, it significantly reduces the window of
extraordinary profits for the new firms thus discourage new

players in the industry.

Finally, the operating costs in banking sector are high e.g. opening
branches, high investment on employees and IT systems. Banking
has high factor costs and a high learning curve which means that

new competitors must have deep pockets and spend time and
resources to overcome the embedded barriers to entry.