An important insight for management leaders is that since external forces generally affect all companies in the industrial sector, the key is the different capabilities of companies to cope with them.
In this article we will devote a good part of it to develop ideas of the external forces that intervene on the industrial sector, and that have importance mainly in a relative sense.
The intensity of competition in an industry sector is neither coincidental nor unfortunate. Rather, competition in an industrial sector is rooted in its fundamental economic structure and goes beyond the behavior of current competitors. The competitive situation of an industrial sector depends on five basic competitive forces:
1.- Threat of entry of new competitors, it is considered that in a sector in which it is known that the return on invested capital is higher than its cost, the arrival of companies interested in participating in it will be very large and rapid, until they take advantage of the opportunities offered by this market, since it is obvious that companies entering the market increase production capacity in the sector.
In the event that the sector's profits are above average, it will attract more investors, which will increase competition and, consequently, reduce the sector's profitability.
From this perspective, when trying to enter an industry, a new company may face barriers to entry such as lack of experience, customer loyalty, high capital requirements, lack of distribution channels, lack of access to inputs, or market saturation. But they could also easily enter if they have higher quality products than existing ones, or lower prices. This brings us to one of the concepts of strategies, that of barriers to entry and their relationship to industry profitability.
Therefore, the threat of new entrants places limits on the potential profitability of an industry. When the threat is high, incumbents must keep prices low or increase investment to discourage new entrants. This creates barriers to entry for companies that want to enter the market.
Taking into account what has been expressed in the previous paragraphs, it can be said that the more difficult it is for new competitors to enter the market due to the aforementioned aspects, the more competitive advantage is generated for the organization already positioned in the market.