Entry and Exit Barriers

Synopsis

How do you pass market entry barriers? What do you need to know about market barriers to have a solid exit strategy for your business? Conduct extensive analysis and answer these questions and more with our 100% modifiable Entry and Exit Barriers presentation. Determine the ability of competitors to encroach on your industry and stay informed and ahead at all times.

Questions and answers

How can staying informed about market barriers help a business stay ahead of its competitors?

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Staying informed about market barriers can help a business stay ahead of its competitors by allowing the business to anticipate changes and adapt accordingly. It can help identify potential threats and opportunities, enabling the business to strategize and make informed decisions. Understanding market barriers also allows a business to create effective entry and exit strategies, which can give them a competitive edge.

What role do competitors play in the formation of market barriers?

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Competitors play a significant role in the formation of market barriers. They can create barriers to entry by establishing strong brand identities, controlling key distribution channels, or leveraging economies of scale. Additionally, they can pose exit barriers if they dominate the market to such an extent that it's difficult for other companies to find a profitable exit strategy.

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Slide highlights

Use this slide to list all artificial (strategic) and natural entry barriers. These include high set-up and high R&D costs, predatory pricing, network effects, ownership or control and other barriers.

With this slide, share your knowledge and data about barriers to exit. These barriers include highly specialized assets and high exit costs: asset write-offs and closure costs and the loss of customer goodwill.

Populate this slide with examples of entry and exit barriers backed up by quantitative data to support your findings. We included analysis of entry and exit barriers for Amazon's rival, Alibaba, below.

Overview

According to Investopedia, barriers to entry is a set of factors that prevent or impede newcomers into a market or industry sector and limit competition. And barriers to exitare obstructions that prevent a business from exiting a market, per Accounting Tools.

Examples of barriers to entry:

• Capital intensive
• Government standards and permitting requirements
• Intellectual property
• High switching costs
• Distributor agreements
• Supplier agreements
• Established brand identity

Examples of barriers to exit:

• Potential upturn
• Redundancy costs
• Specialized skills
• High fixed costs
• Closure costs

Application

MBA Boost recommends the following method for identifying entry and exit barriers for your business:

1. Identify barriers – figure out the factors that make an industry attainable or unattainable to new entrants. Also, list the factors that would prevent a business' exit from an industry.
2. Analyze barrier sizes – when you measure the resources and connections needed, you can better control and pass the entry barriers. It also makes sense to identify direct and residual costs for the exit.
3. Determine barrier significance – compare the levels of resources, skills, tech and other factors against those required to pass the entry barriers. Then, identify the steps needed for incumbents to raise entry barriers. Lastly, compare the cost of exit against the benefit and identify steps needed to lower exit barriers.

Case study

Alibaba

Amazon's rival Alibaba makes a great "lab rat" for looking at entry barriers. While the Chinese company specializing in e-commerce, retail, Internet and technology has several key entry drivers, such as explosive growth in the Chinese e-commerce market and global expansion, "Forbes" lists a few important entry barriers for the company.

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The first one is the low monetization rate on mobile. Alibaba's mobile platform has a lower monetization rate (1.96%) compared to the desktop monetization rate (approximately 3.2%), owing to its smaller screen size.

Another issue that is plaguing Alibaba's Chinese marketplaces, "Forbes" reports, is the massive presence of counterfeit products. A few years back, the company had come under criticism from China's regulatory authority State Administration for Industry and Commerce (SAIC) for not doing enough to stop illegal activities on its Taobao marketplace. Also, the American Apparel and Footwear Association had concerns pertaining to the sale of counterfeit products on Alibaba's C2C marketplace. In May 2015, Kering, which owns luxury brands Gucci and Saint Laurent filed a lawsuit against Alibaba on charges of trademark infringement and counterfeiting.

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The last barrier to mention is growing business-to-consumer (B2C) trends in the Chinese e-commerce market, which affects Alibaba's chances for expansion within the market.