Introduction
At present, Porter’s five forces analysis is one of the most well-known evaluation methods of business performance. Michael Porter (1979) emphasized the threat of new entrants, the threat of substitutes, the bargaining power of customers and suppliers, and competition as five primary elements of economic rivalry. Specifically, the threat of entry is a significant factor that defines the market’s attractiveness (Porter, 1979). Since then, financial experts have used the framework to evaluate the business performances of organizations and industries. In the golf equipment industry, which has developed significantly in recent decades, the threat of entry into the sector becomes more evident each year. As more entrepreneurs become interested in the production and distribution of golf equipment products, this market continues to grow denser and more complicated to enter. The current paper analyzes the threat of entry factors in relation to the golf equipment industry, providing empirical examples to explain each barrier that might be faced by potential entrants.
Economies of Scale
The initial and most significant barrier for new companies entering the golf equipment market concerns economies of scale. This concept generally refers to the difference between the established and new companies with associated advantages of scale economies in production and marketing (Porter, 1979). In other words, a large organization can take significant advantage of its position in the market and negotiate lower prices from suppliers. As golf has recently seen a drastic increase in popularity, making the golf equipment industry a denser market, the industry giant Acushnet Holdings has experienced a 200% revenue increase over the last five years (Hunt, 2021). Acushnet reported an $85 million Q1 2021 profit, surpassing the S&P 500 expectations, exceeding the annual break-even points by approximately 10% (Barba, 2021). Furthermore, considering the shortage of supply in the industry, there is little prospect for new entrants in the market (Hunt, 2021). Ultimately, it is highly possible that new organizations in the golf equipment industry would struggle to attract customers due to differentiated economies of scale.
Product Differentiation
The second barrier for new entrants is product differentiation, which requires the novel companies to develop intelligent targeting and positioning strategies to take a competitive place in the market. However, in the industry of golf equipment, the weight of the barrier can become strenuous due to the regulations imposed by the golfing committees (Poulin et al., 2006). While the measures of the produced equipment are controlled by official entities, the corporations which create and deliver the merchandise must also adhere to the customers’ need to experience new service methods (Poulin et al., 2006). As a result, it poses significant challenges for the new entrants in the golf equipment market, who must develop innovative ideas while following strict regulations.
Capital Investment
The third barrier to entry concerns the average capital investment necessary for new organizations to enter the market. It refers to all obligatory costs that cover various expenses, such as licenses, equipment, rent, labor wages, and other fees (Porter, 1979). An empirical example from the golf equipment industry concerns the expense requirements followed by merchandise distributors. Expenses connected to the acquisition of necessary materials and mechanical equipment patents costs significantly hinder the new entrants in the market, forcing the newly-created businesses to obtain capital of at least $500000 (Craw & Dickson, 2017). As a result, capital investment becomes a challenge for a novel corporation, which struggles to accumulate the necessary funds.
Cost Disadvantage and Access to Distribution
Cost disadvantage and access to distribution are two factors that are associated with the learning curve. In other words, the new entrants need to consider the recent research, government regulations, secure raw materials, and distribution chains, all of which require a deep understanding of fundamentals. In the free market system, knowledge and experience are essentials that define the chances of success. Craw and Dickson (2017) demonstrate the significance of experience in the golf equipment industry, explaining that new companies frequently encounter such complications as a lack of connections and knowledge. While veteran firms can easily adapt to the surrounding environment, newly-established corporations are forced to account for high learning costs and the absence of communication with acknowledged distributors (Craw & Dickson, 2017). Ultimately, a lack of experience poses severe challenges for new entrants in the industry.
Government Policies
Lastly, governments generally play a significant role in the economic situation due to the impact of sanctions, patents, and regulations on new entrants. In the golf equipment industry, government policies have little effect on the new companies entering the market, but they might enforce such barriers as quality and safety checks (Robertson, 2017). These regulations typically apply to novel manufacturers as they might lack the necessary experience and funds, thus attempting to balance the costs of competing with large-scale firms and comply with the rules (Robertson, 2017). Although the policies ensure safety control and protection from low-quality equipment, they also make it highly complicated for new companies to enter the market.
Conclusion
The current paper has demonstrated the importance of the threat of new entrants to business performance, first introduced by Michael E. Porter. The examined entry barriers pose significant challenges to organizations in the golf equipment industry. Such obstacles significantly affect the new entrants’ eligibility and force them to be prepared to address each barrier. Currently, the economies of scale and product differentiation appear to be the most severe challenges for enterprises trying to obtain a competitive position in the market.
References
Barba, J. (2021). Q1 financial reports: Acushnet and Callaway. MyGolfSpy. Web.
Craw, M., & Dickson, G. (2017). Innovation in golf. In Golf business and management. Routledge.
Hunt, R. (2021). 4 reasons Acushnet Holdings will thrive despite a golf ball shortage. The Motley Fool. Web.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review. Web.
Poulin, M., Montreuil, B., & Martel, A. (2006). Implications of personalization offers on demand and supply network design: A case from the golf club industry. European Journal of Operational Research, 169(3), 996–1009. Web.
Robertson, J. (2017). Golf retail. In Golf business and management. Routledge.