Threats of New Entrants

This document discusses the threats of new entrants in the market and their impact on existing businesses. It explores the factors that determine the ease or difficulty of entering a market, such as startup costs, economies of scale, and the availability of big brands. The document also provides a case study on IBM and its competitors in the technology sector.

THREATS OF NEW ENTRANTS
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Threats of new entrants
The threat of new entrants focuses on the ease or difficulty of entering a market by new
business entities. Usually, the ease or difficulty of penetration comes with advantages and
disadvantages for the existing business enterprises (Dobbs, 2014). Markets which are easy to

penetrate are disadvantageous in that new entrants pose threats to the existing firm’s market
share. The more difficult a market is to enter for new firms; the more advantageous it is for the
existing firms as their market share is not likely to be affected (Michaux, Cadiat & Probert,
2015). Several factors determine the ease or difficulty involved in a certain market. These factors
include the startup cost, economies of scale, the availability or lack of big brands in the market
and the ease of getting inputs. More profitable industries are more likely to attract new entrants
compared to less profitable industries (Magretta, 2011). The more the number of competitors, the
less the profits margin are and vice versa.
IBM is an American multinational corporation operating in the technology sector. The
company offers financial solutions, enterprise software, consulting services, etc.IBM
Competitors Include Oracle Corporation, Microsoft Corporation, Apple Inc, Dell Inc, Amazon,
and many others. These are both large and small organizations (Sun,2015). Motivations of entry
include the increasing adoption and use of technology in many parts of the world due to the
expansion of internet accessibility, change in consumer tastes and preferences and the invention
of new and more efficient technologies. However, the cost of entry and establishment of
successful operations in the Technology sector is relatively high. This aspect weakens the threat
of new entrants in the market (Rowland, 2017). For IBM therefore, the threat of new entrants is
low. The reasons for this are that new entrants will need to invest huge amounts of capital to
successfully penetrate the Technology market and compete successfully against the existing
enterprises.IBM and its main competitors are renowned brands trusted by millions of customers
(Ahamed, Inohara and Kamoshida,2013). For new entrants to successfully penetrate the market,
they would, therefore, need to establish a brand that can easily win the hearts of targeted
customers. This would be an uphill task based on the strength of the already existing firms.IBM
has been in operation for over 100 years (Cortada,2019). With many years of operation, the
organization has one of the most sophisticated technology. It is unlikely that new entrants would
afford such advanced technology. This is also a barrier of entry.

References
Ahamed, Z., Inohara, T., and Kamoshida, A., 2013. The servitization of manufacturing: An
empirical case study of IBM Corporation. International Journal of Business Administration,
4(2), pp.18-26.http://www.sciedu.ca/journal/index.php/ijba/article/view/2579
Cortada, J.W., 2019. IBM: The Rise and Fall and Reinvention of a Global Icon. MIT
Press.https://search.lib.virginia.edu/catalog/u7865224
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1),

pp.32-45.https://cemi.com.au/sites/all/publications/Dobbs%202014.pdf
Magretta, J., 2011. Understanding Michael Porter: The essential guide to competition and
strategy. Harvard business press.
Rowland, C. (2017). IBM PESTEL/PESTLE Analysis & Recommendations - Panmore Institute.
[online] Panmore Institute. Available at: http://panmore.com/ibm-pestel-pestle-analysis-
recommendations [Accessed 16 Feb. 2019].
Sun, L. (2015). SWOT Analysis of International Business Machines Corp. -- The Motley Fool.
[online] The Motley Fool. Available at:
https://www.fool.com/investing/general/2015/05/07/swot-analysis-of-international-business-
machines-c.aspx [Accessed 16 Feb. 2019].