Chapter 2
Instructor Shan A. Garib, Winter 2013
1
Overview:


When a company tries to entry market find it
challenging, more expensive, impossible
This chapter to discuss main market barriers and
strategies used to overcome them
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Types of Entry Barriers

Two schools of thought:
◦ A) situations and events prevent a company form entering a
market
◦ B) something that makes a company bear additional costs that
companies already in the market don’t
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
Don’t forget!! Sometimes, barriers can be source of
competitive advantage lessoning competition!
In other cases they are impossible to overcome eg.
Certain exports to country are forbidden eg shark
fins
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Types of Entry Barriers

Source of Entry Barriers (Michael Porter)
◦ EOS: unit cost of product declines as volume manufactured
increases eg. big company with new efficient robots
◦ Product Differentiation: established competitors have loyal
customers and brand identity a new company will have a
different brand to offer making it hard for customers to switch
◦ Capital Requirements: Invest large amounts of money to enter
◦ Switching Costs: the cost buyers pay to switch from one
company’s product to another company’s
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Types of Entry Barriers

Source of Entry Barriers (Michael Porter)
◦ Access to Distribution Channels: in many markets,
competitors control the optimum distribution channels a new
entrant must provide discounts to enter the channel
◦ Government Policy: can limit or prevent competitors eg.
requiring licenses to trade, limiting supplies of raw materials
and enforcing product testing regulations
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Political and Legal – eg. FDI policies, Political Instability
◦ Customer – eg. Product familiarity
◦ Environmental – eg. Environmental legislation
◦ Economic – eg. Eco Instability, uncompetitive wage rates
◦ Business Infrastructure Barriers – eg. Lack of business
infrastructure, Monopolies
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Political and Legal – eg. FDI policies, Political Instability
 Trade sanctions
 trade penalties against countries to persuade them to change their
actions/policies
Eg. Higher tariffs (taxes or duties) imported from the country in question
Eg. A set quota limiting the amount of goods from the importing country
Eg. The need for a license before importing or exporting goods
 Economic sanctions
 Act to prohibit or severely limit trade
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Political and Legal – eg. FDI policies, Political Instability
 Economic sanctions
 Act to prohibit or severely limit trade through the following measures:
 Import Bans
 Export Controls
 Freezing of assets of the sanctioned nation that are held in the imposing
country
 Embargo where any trade with nation is forbidden eg Cuba and US
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Political and Legal – eg. FDI policies, Political Instability
 Strategies to Consider
 Choose a different market that is not affected
 Export a different line of products
 Delay market entry if expected sanctions to be lifted in a year
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Export and Import Controls – control on the type of G&S want
to export
Purpose: protection of domestic industries, prevention of disease
transmission, proliferation of weapon - must retain a permit to
export
 Strategies to Consider
 Select a different market to trade in
 Develop alternative good or services to trade
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Customs tariffs and additional taxes – imposed at point of
entry
 used to raise additional revenue, prevent unwanted goods entering
the market, render foreign goods non competitive
 Customs duties acts as barrier because they raise the price of
imported goods making a profit is harder eg. Value Added Tax - a
% of value of good
 Strategies to Consider
 Develop value-added activities in the market eg. After sales
service that are not subject to tariffs and will enhance the value of
a more expensive product
 Produce goods in the target market to avoid importing
 Partner with a company in target market
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Import and Tariff Quotas – import quota is a defined limit of a
foreign good that can be brought into a country for a given
year as a form of protectionism
 When a product imported is restricted it cannot gain a large
market share eg guns
 Two Types import quotas:
 Absolute Quotas – limit amount of product that can be imported over a
specific time
 Tariff Rate Quota – permit a certain amount of a restricted good to be
imported at a reduced or normal rate of duty and any amount over the
quota has raised duties applied
 Strategies to Consider
 Develop value-added activities in the market eg. After sales
service that are not subject to tariffs and will enhance the value of
a more expensive product
 Produce goods in the target market to avoid importing
 Partner with a company in target market
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Import and Tariff Quotas – import quota is a defined limit of a
foreign good that can be brought into a country for a given
year as a form of protectionism
 Strategies to Consider
 Export to a different market
 Develop products that are not subject to quota
 Product goods in the target market to avoid importing
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Government Subsidies – form of protectionism
- Subsidies the production costs of domestic industries in order for them to
offers product at lower costs acompete more effectively against cheap
imports
- When a product imported is restricted it cannot gain a large market share
eg guns
 Strategies to Consider
 Develop value-added activities in the market to increase
attractiveness to foreign purchases
 Adapt the product to give it more appeal and justify the higher
price
 Set up facilities in target market to obtain subsidies
 Buy out or Partner with a company in target market
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Types of Entry Barriers

Examples of Common international market entry
barriers
◦ Trade Blocs – political barrier
- intergovernmental associations that promote activities
• Various levels of trade reciprocation:
• Preferential Trading Agreement – among member countries where tariffs
are lower
• Free Trade Agreement – is a regional PTA where member countries apply
no tariffs/quotas to imported goods
• Common Market – unrestricted movement of goods eg. South America
• Economic Union – EU, trade, work, live and travel is unrestricted, common
currency and duties are reduced
 Strategies to Consider
 Buy out or Partner with a company in target market
 Set up subsidiary/invest in production facilities in target market
 Adapt the product to give it more appeal and justify the higher
price
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