A potential competitor is a company that is not currently within our competitive market environment, but has every chance of entry.
Above all, competition is very intense for any company, this is when we only consider current competitors that are already present in the competitive environment.
However, the most dangerous competitors are the potential ones, because we do not know him and we do not have much information about his way of acting in the market and sometimes companies do not know how to face them.
Undoubtedly, the competitors for a company are everywhere and what they try is to stay with the preference of their clients, because if the clients are persuaded by their proposals and market offers, they could choose to buy from the new competitor; that way the competitor keeps the customers’ money.
On the other hand, companies must be prepared to face new competitors, in this way they will be able to maintain their market share, maintain their sales levels and therefore their profitability margin.
The easier the entry for new competitors, the incentive to enter to compete in the different industrial or commercial sectors will be more attractive for any company and therefore increases the incorporation of new competitors.
That is why the easier it is to enter to compete, the greater the threat faced by companies in those particular sectors of the market.
On the other hand, if there are many entry barriers in the commercial or industrial sector, this causes the entry and participation of new competitors to be less; since this discourages or limits them to have access to the market.
So, any kind of restriction or difficulty encountered by a company trying to enter a new market, which it wants to join, is considered as a barrier to entry.
Although the barriers that can prevent the entry of new competitors can be very varied, among the most important we can mention:
1. Absolute barriers
So, it is considered as an absolute barrier in a market, the type of barrier that completely prevents the entry of new competitors.
They are called absolute barriers because they are almost impossible to overcome barriers, so they totally deny the entry of new companies.
2. Relative barriers
Therefore, relative barriers are a series of obstacles and difficulties encountered by a company that wants to be part of a new market; but that can be surpassed, therefore, it allows the entry of competitors that are efficient.
Relative Barrier Types
The most important relative barriers that a company can face are:
1. Low-cost advantage through the use of economies of scale
Since, one of the greatest difficulties that a new competitor can face is for a company to take advantage of the economy of scale and consequently this allows it to carry out its production processes at a very low cost.
This situation forces the potential competitor to be able to dominate this situation in order to compete profitably.
2. High capital investment requirement
Therefore, another problem for the potential competitor may be the need for a large capital investment to install an adequate production infrastructure, which allows it to produce on a large scale and at low costs.
Capital is also required to finance not only the production process, but also the marketing and communication processes.
3. Highly differentiated products
In addition, new competitors may encounter barriers in terms of companies that are already established in the market, due to the fact that in some cases they have the ability to offer highly differentiated products to the market, which gives them a lot of prestige in terms of the positioning of your brand and customer loyalty.
On this same issue, they could find patents that protect companies against copying or plagiarism of similar products.
4. Legal barriers
Finally, in legal barriers, any type of obstacle established by the government through laws can be mentioned, such as the requirement of licenses, environmental regulations, artificial monopolies; among many that can be mentioned.
Risks and opportunities of the emergence of potential competitors
The risks and opportunities that a company faces when potential competitors appear are the following:
- The positioning of the company can be strengthened: For a well-positioned company, the appearance of competitors allows it to reaffirm the quality of its products, in any case, the company must always continue to seek innovation and improve the quality of its products.
- Maintain competitive prices: To maintain competitive prices, companies must maintain their cost leadership, in a way that allows them to maintain their profitability margin.
- Process superiority: The company can maintain innovation, differentiation, the use of better technology in its processes and excellent customer service as a superior value.
- Greater consumer demand: The more competition there is, consumers will become more demanding in terms of quality, innovation and the price of products.
- Less market share: At a higher level of competition, the market share decreases, especially if the new competitors are superior or stronger.
- Higher quality and price delivery by competitors: If potential competitors handle more efficient processes or have more capital investments, they may become a risk for companies, because their products will be of better quality and price.
In summary, we can say that for any company the potential competitors are the ones that are the object of greatest concern, since they are the least known or we do not even imagine that they can become companies that will present a great rivalry in the market and the worst everything is that there is little knowledge of them. That is why it is advisable to be very attentive to the appearance of possible competitors, to be better prepared to face them.