Industry Environment Analysis Research Paper Example | Topics and Well Written Essays - 1000 words

Industry Environment Analysis - Research Paper Example However, the business can shield itself by use of the barriers to entry. Barriers to entry are those actions by the firm that increase the costs incurred by potential competitors for them to enter the market (Hill & Jones, 2012). Therefore, the higher the barriers to entry, the higher the costs incurred by competitors and, therefore, the lower the rate of entrance into the market. The common barriers used by industries include economies of scale, switching costs by customers, capital investments, government regulation, brand loyalty and absolute cost advantages. Economies of Scale Economies of scale refer to the benefits and advantages that accrue to a company due to its large size. Economies of scale usually arise from sources such as mass production by the firm, discounts awarded due to buying in bulk, and benefits received due to spreading fixed costs over a large volume of production. Because of a large volume of output, the industry also limits its marketing and advertisements c osts (Hill & Jones, 2012). Therefore, the profitability of a fast-causal restaurant will be affected if its size is small, which limits its economies of scale. However, it can focus on increasing its size in order to increase its economies of scale such as pricing benefits. ... For example, a restaurant could create new recipes for foods; it could also spice up its foods in a unique way as compared to those of its current competitors. Therefore, customers will get used to the products and will prefer the restaurant’s foods to other foods offered in the market (Hill & Jones, 2011). This is a feature referred to as customer loyalty; it is used to ensure that customers stick to the original supplier irrespective of any other suppliers in the market. Capital Investments The business can ensure that its profitability is maintained by investing in capital intensive projects which assure it high returns in the future. For example, a restaurant could invest in latest technological equipment of operation. Such an investment will lead to offering of quality services to customers, thus increasing the number of customers attracted. Consequently, the profitability of the business will be increased. New competitors will be barred from entering the market since the y will not have similar investments for them to compete in the market. On the other hand, the capital requirements needed to make similar investments will be extremely high, so any new business would opt not to enter the market (Kar, 2011). Absolute Cost Advantages Cost advantages for the business will arise from such angles as experience, high quality trained personnel, and control of crucial inputs of production in the market such as labor, raw materials and management skills. It could also have additional advantages such as access to cheap sources of finance and insurance benefits. Therefore, a new company in the market will be hindered from entering since it will not be able to match to the advantages of the