Author: John Park, Texas A&M University, jlpark@tamu.edu
New entrants into a market bring new production capacity, the desire to gain a foothold in the market, and sometimes, substantial resources with which to compete. These new competitors may come from several sources: market areas or segments you currently do not serve, indirect competitors with competing products, customers and suppliers. The potential for the entrance of new competitors into a market principally depends on barriers to entry and the expected reaction of the incumbent firms. Barriers to market entry include: economies of scale, brand preferences and customer loyalty, capital requirements and government policies, such as tariffs and trade restrictions and regulatory policies. Whether these barriers are judged as high or low depends, in part, on the resources and competencies of the potential new entrants.
In agricultural markets, the largest threat for new entrants comes from foreign producers entering the U.S. and world markets. For example, the development of produce and vegetable production in Central and South America has changed the U.S. market for fresh foods.
Your Turn …
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- Is there growth and profit potential in your industry that would attract new entrants?
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- List any barriers that make it difficult to enter your industry and what it would take to overcome these barriers.
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- Is it possible for your customers or suppliers to replace you with business initiatives of their own?