Investing in companies with a competitive edge. Part 4: The threat of new entrants
Tim Richardson
Pengana Capital Group.
In this episode of Harding Loevner's five-part Porter Forces video series, Co-Deputy Director of Research David Glickman discusses the threat of new entrants with a focus on switching costs as a pivotal factor and how it can affect a company's profitability.
Understanding and mitigating the threat of new entrants is crucial for industry sustainability and investment decisions.
For restaurants, where switching costs are virtually nonexistent, the threat of new entrants looms large. Restaurants must keep prices competitive to retain customers, thus limiting overall profitability.
Conversely, in the industrial gas industry, where switching costs are sky-high due to long-term contracts and massive infrastructure investments, the threat of new entrants remains low. This allows existing companies to maintain higher prices and bolster their profits.
In the last installment, Director of Research Yoko Sakai, CFA, breaks down how the rivalry among existing companies can impact company success and profitability.
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