Threat of New EntrantsThreat of New Entrants
Whenever new firms enter a particular industry, the intensity of competition among firms increases. To reduce this threat, there must be sufficient barriers to entry in the industry. For example, in the financial services industry in Malaysia, barriers to entry are high due to the unavailability of new business licences as it is the Central Bank's policy not to issue new licences. Other forms of barriers to entry include:
(a) Economies of Scale Firms cannot enter the industry due to the high economies of scale such as high production costs per unit enterprises.
(b) Product Differentiation Brand identification creates a barrier to entry, forcing new entrants to compete with established brands. For instance, local brands versus international brands for tea products.
(c) Capital Requirements The need for high capital or set-up costs can deter firms from entering the industry, such as the airline industry.
(d) High Switching Costs Switching costs refer to the cost of changing from one supplier to another.
This can be difficult for certain firms in the industry as it may involve high costs. (e) Access to Distribution Channels Limited access to the channels of distribution can deter firms from entering the market.

(f) Cost Disadvantages Independent of Size Some firms may have cost advantages regardless of their size. In such cases, the cost advantages can be due to tax incentives or allowances given by the government for locating the premises in certain areas. This incentive cannot be enjoyed by other firms in different locations.
(g) Government Policy Government policy can also deter entry of new firms as the government wants to control the number of players in the industry.
Despite these threats to new entrants, new firms might enter the industry with higher quality products, lower