While market entry barriers is the taxonomy

While discussing about Types of barriers prevailing in industries, we cans see that from years there are many discussions about how to classify barriers and how to group it.  . Different classifications are visible, some researchers separate particular barriers, others bring them together. The prior and dominating theory on market entry barriers is the taxonomy of barriers to entry by Shephard (1997). Shephard classifies barriers into two groups, namely endogenous and exogenous barriers.

 

Endogenous barriers or Strategic BarriersH1 

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“Endogenous barriers are created by the established firms through their market strategies and their competitive behavior and are thus based on incumbents’ reactions to new entrants’ efforts to become established” (Pehrsson 2009). It can be substantially more difficult to measure the difficulties that such behavior can impose on potential entrants than it is to measure the height of structural barriers. Furthermore, it is not always easy to determine whether strategic behavior should be viewed as fostering or restricting competition in the first place. Based on the experience of competition agencies, some strategic behavior may be designed to thwart competition by raising entry barriers, which can help incumbent firms to maintain their market shares. In other instances, however, strategic behavior may result in the retention of market share because it is efficient, even though it also happens to raise entry barriers. Competition authorities sometimes face the difficult problem of determining which conduct is pro-competitive and which is anti-competitive when both types of conduct would raise entry barriers.

 

Exogenous Barriers or Structural Barriers

“Those barriers are embedded in the underlying market conditions and, in principle; firms are not able to control these barriers” (Pehrsson, 2009). For example, these barriers can be cultural differences; geographical isolation; government policy, insufficient market size, Customer’s switching costs, the number of competitors, distribution, need for research and development etc. Sometimes it is possible to quantify these kinds of barriers because it is known in advance how much it will cost to build an efficient plant or to purchase necessary inputs.

Some types of impediments can fall into either one of these categories, depending on the particular facts of the case. Statutory/regulatory barriers, for example, could be considered either exogenous or endogenous depending on whether incumbent firms played a role in persuading the government to create them. Similarly, sunk costs are typically exogenous but could be considered endogenous if incumbent firms are responsible for creating or enhancing them, such as by integrating vertically and thereby forcing potential entrants to do the same thing.

 

When entering a new foreign market, in a competitive environment, managers of firms must acknowledge the barriers to enter this particular market (Pehrsson, 2009).Pehrsson (2009) again mentioned about barriers by saying that “Barriers imply disadvantages relative to market incumbents for firms trying to enter a particular market”. Consequently, if a company does not take into consideration entry barriers, this can lead to a failure when implementing the foreign market. Gable et al. (1995) found that incumbents frequently increased advertising and sales promotion when reacting to market entrants. These measures enhanced the degree of production and service differentiation attributed to the incumbent. Consequently, Gable et al. (1995) stated that endogenous barriers of increased advertising and sales promotion reinforce the exogenous barriers of capital need and product differentiation.

 

As per my analysis and detailed study on entry barriers, from Karkaya (2002), has proposed 25 barriers in his latest findings and from other authors nearly a ten more barriers  generally associated with all industries.  I will be detailing about 38 barriers along with description mainly surrounded in the industry for market entrants. Many identified barriers can be considered both structural according to the industrial organization view but also strategic in terms of incumbent influence on the height of the barrier. Here Karakaya classified these barriers into different groupings. Based on different findings of entry barriers in my literature it’s grouped into 5 dimensions and also in account with most of Karakaya’s classifications. They were grouped into Firm specific advantages, Product differentiation, financial requirements of cost of market entry, Profit expectation of entering firms and General barriers with respect to industry.

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