Professor Thomas
Andrew Lett
Salem International University
October 22nd, 2017
Barriers to entry into an industry or business are economies of scale, product differentiation, capital requirements, switching costs and government policies. Some other barriers include cost disadvantages and access to distribution channels. Start up business may look to enter business with high barriers which will be hard to overcome.
Economies of scale are decreasing unit costs of a product. This will force an entrant to either come in at a large or small scale. Entering at large scale would be risky as incumbents would have major reactions to it causing the entry to be a failure. Small scale entry may result in small scale disadvantages in cost.
Product differentiation is where companies have established brand loyalties which in result forces entrants to have to spend mass amounts to overcome the issue. Marketing resources will be needed as the small start-up will need them to establish effective positioning.Capital requirements are required for infrastructure, machinery, R&D, and advertising. Startups can get around these financial resources by outsourcing to companies.
Government policies are a major barrier as they force you to obey them. If not, fines and loss of business will be the result. Regulations are ever changing and many things require special licenses to obtain equipment or sell certain products. This makes it very hard for startups to succeed.
Reference(s):
Barriers to entry: factors preventing startups entry to a market. (n.d.).
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