New entrants are potential competitors. The barriers to entry are high, and therefore the threat of entry is categorized as a high risk in the industry.
Economies of Scale:.
The economies of scale found in the PC Industry are very high. In fact, the most cost efficient level of production is termed Minimum Efficient Scale (MES). This is the point at which unit costs for production are at minimum - i.e., the most cost efficient level of production. In the PC Industry, the MES is on a level of medium-high, which means that this presents a medium-high barrier to entry for competitors.
Product Differentiation:.
This is a very important factor in the PC Industry. This is due to the fact that Branding and customer loyalty play a great role in the industry. The potential competitor will need to produce an array of ideas for a brand identification, advertising, and customer service. This is a high barrier to accomplish in a challenging arena.
Capital Requirements:.
This is a high barrier because there is a need to invest large financial resources in order to compete. Capital is necessary for inventories, credit, and absorbing start-up/production losses.
Cost Disadvantages Independent of Size:.
In the PC Industry, the starting point of developing a product is a high barrier. Usually, when the product is finalized and marketed, the company is increasing its volume and improves its business processes, only then its cost disadvantages will decline.
Access to Distribution Channels:.
This is a high barrier since it is very difficult to have access to channels of distribution for a new company. Especially in the PC Industry, where the channels do not yet familiarize with the product and its quality as compared to the current market products.
In the Best Buy case, this barrier was low-medium because VPR Matrix had its own distribution channel (Best Buy Stores & BestBuy.com). In general, this will be a high barrier in the industry.
