Essay About High Capital Requirements And High Exit Barriers

Bargaining Power
Bargaining power of new entry is low because there are barriers to entering the market. The competition in this industry is low therefore the other companies are harder to enter. The main reason to makes this industry difficult to enter is required to having the patent or proprietary technology. The other reason is needs high capital requirements. Besides, existing company in this industry had close customer relations. Example: company has long-term service contracts with customers. Moreover, restricted distribution channels by existing company. Therefore, Pet Clubhouse has a lower bargaining power of new entry. High exit barriers place a high cost on abandoning the product. The firm must compete. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry. Litton Industries acquisition of Ingalls Shipbuilding facilities illustrates this concept. Litton was successful in the 1960s with its contracts to build Navy ships. But when the Vietnam war ended, defense spending declined and Litton saw a sudden decline in its earnings. As the firm restructured, divesting from the shipbuilding plant was not feasible since such a large and highly specialized investment could not be sold easily, and Litton was forced to stay in a declining shipbuilding market. A diversity of rivals with different cultures, histories, and philosophies make an industry unstable. There is greater possibility for mavericks and for misjudging rivals moves. Rivalry is volatile and can be intense. The hospital industry, for example, is populated by hospitals that historically are community or charitable institutions, by hospitals that are associated with religious organizations or universities, and by hospitals that are for-profit enterprises.