Potential market entrants may be frustrated by not being able to get their products accepted by those individuals who decide which products gain shelf or floor space in retailing outlets. In many industries, manufacturers enjoy control over supply and/or distribution channels via direct ownership (vertical integration) or, quite simply, supplier or customer loyalty. Certain industries, especially those which are capital intensive and/or require very large amounts of research and development expenditure, will deter all but the largest of new companies from entering the market.Īccess to supply or distribution channels These vary according to technology and scale. Lower unit costs result from increased output, thereby placing potential entrants at a considerable cost disadvantage unless they can immediately establish operations on a scale that will enable them to derive similar economies. Typical barriers are detailed below.įor example, the benefits associated with volume manufacturing by organisations operating in the automobile and chemical industries.
Johnson et al (2005), suggest that the existence of such barriers should be viewed as delaying entry and not permanently stopping potential entrants. These barriers must be overcome by new entrants if they are to compete successfully. This depends on the extent to which there are barriers to entry. SBUs are diverse in their operations and markets so the impact of competitive forces may be different for each one.įive forces analysis focuses on five key areas: the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services. The model has similarities with other tools for environmental audit, such as political, economic, social, and technological (PEST) analysis, but should be used at the level of the strategic business unit, rather than the organisation as a whole.
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