Barriers to Entry into the Overall Cost Leadership Strategy

Abstract

The implementation of the overall cost leadership strategy by some Japanese firms has resulted in a change in the structure of the industry, and with that change a change in the height and nature of the barriers to entry. I mentioned above that the scale of output has increased substantially among the leading firms. Combined with the possibility of reaping benefits from economies of scale, price competition has taken on a much more important role in competition. In this chapter the nature and size of the economies of scale in the production and marketing of CNC lathes will be examined. Other barriers to entry have also become greater over the last few years. The speed of technical change has increased, and with it has arisen a greater need for R&D expenditure and skill formation. Furthermore, associated with the increase in the minimum efficient scale of production, there has been a growing need to increase exports. This has accentuated the need for access to a marketing network in foreign markets. Sections 4.1–4.4 therefore discuss the barriers to entry in the R&D process, in the procurement of components, in production, and in marketing. In section 4.5 the shape of the cost curve and the levels of output at which a firm reaches the minimum efficient scale of production are discussed. As mentioned in the previous chapter, there are alternative strategies to the overall cost leadership strategy.