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Strategic Management 6 External Analysis
Barriers to entry: include such factors as capital requirements, economies of scale, product differentiation, switching costs,
brand identity, access to distribution channels, and threat of retaliation. The higher the barriers to entry, the higher the
potential profitability of the firms in the industry. Economies of scale.
• The capital requirement of entry.
• Access to distribution channels.
• Cost advantages independent of size.
• Expected retaliation.
• Legislation or government action.
• Differentiation.
Competitive rivalry: the intensity of competition depends on a number of factors whether or not a strong industry leader
exists, the number of competitors (degree of concentration), the presence of exit barriers, the importance of fixed costs
in determining capacity, degree of product differentiation and the growth rate of the industry.
Usually, rivalry is more fierce and intense when there is:
• no industry leader,
• a large number of competitors,
• high fixed costs,
• high exit barriers,
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