- November 27, 2017
- Posted by: adminplanthy
- Category: Business plans
Threat of new entrants is a source of discomfort for many startups. Such threats cannot be eliminated completely but it is very much possible to increase the entry barriers. These barriers typically act in preventing a business from entering a specific market.
There are ignorant factors in the process which can help in fixing the barriers in the industry. There are even deliberate factors involved in the process. Some of the possible barriers are discussed as follows:
- Economies of scale – You have the scaling of the economies. These are specifically the declines in matters of the unit cost of the item when the complete volume per period will have an increase. This will force the entrant either to appear on a massive scale or on a small scale.
- Product Differentiation – There can be differentiation in case of the product. The settings come with the specific brand identification and even with the amount of customer loyalty. This will make the entrants make a heavy expenditure for the reason to manage the issues of loyalty. The startups may introduce different items to the market and the benefits are clearly communicated in case of the targeted customers. The startups can discover the perfect positioning and this will often involve the various market resources and these are beyond the limits.
- Capital prerequisites – These are several fiscal resources and they are needed for the sake of the infrastructure. These are even required for matters of R&D, advertising, and machinery. The startups may have in possession the capital requirements and they can even outsource the operational parts to the rest of the companies that can at best handle the existing amount of investment.
- Switching Costs – It is the one time cost being faced by the buyer when concentrating on the existing product of the supplier in case of the new entrant. It is the cost being paid in matters of retraining the employee, supplying the new equipment and providing with the sort of technical support.
- Access to distribution channels – This can be a great barrier in matters of logical distribution of the channels and some of these are locked up by the servings.
- Government Regulations – Government can even act in limiting the entry of the industries with the preferred control methods. They can put a license on the various requirements or put limitations in matters of accessing the raw materials.
- Effects of the Network – The customers can stay locked in as they have created all the connections and these are hard to be replicated.
- The Proprietary Methods – This includes the list of efficiency and economies.
- Patent – Patent protection restricts entry rather than preventing it. In case of a process innovation, it forces a potential entrant to sufficiently differentiate his production technology.
- Control Talent or Raw Material – These are difficult to achieve. Exclusive access to the mines by a steel manufacturing company can be an example. For a high-tech IT company, hiring bulk of Ph.Ds available in market can create a talent scarcity for others. Exclusive contract with major suppliers can be another way.
- Innovative Speed – Speed with innovation is important in case of new business. This will help the business out-innovate its competitors.
- War Chest – This is an essentiality in new business. This will help in hoarding things for future prospects. A heavily funded startup can bear losses to expand its market share. This will prevent competition from smaller bootstrapped competitors.
These are some ways that barriers are created by disallowing other businesses a proper entry into the market.