What are the market entry barriers in business?

As new entrants to a market, most likely, it requires the company to create new production capacity, desire to establish a secure place in the market, and acquire substantial resources to be able to compete. The seriousness of its effect as competitive threat of entry will depend on barriers to entry and the expected reactions of existing firms to new entry. A barrier to entry exists whenever it is difficult for a newcomer to break into the market scene. But what are these barriers? Here are some factors that can be source of market entry barriers in business:

ECONOMIES OF SCALE

The presence of important scale economies hinders the entry because it forced potential entrant to enter the market on a large scale basis or accept a cost disadvantage. Consequences of this decision will result to high cost of investment and high risk involved or possible lower profitability.

EXISTENCE OF LEARNING AND EXPERIENCE CURVE EFFECTS

New entrants were faced with dilemma in competing with older, experienced and established company. Their accumulated know-how serves as their advantage in achieving lower unit cost of production making it difficult for new entrant to compete on the basis of price.

BRAND PREFERENCES AND CUSTOMER LOYALTY

It takes substantial time and money for new entrant to build its own clientele and overcome customer loyalty to rival sellers. Because commonly, products of rival sellers are differentiated that made buyers developed some degree of attachment to existing brands. It requires new entrants to invest more money on advertising and sales promotion that will increase its preliminary costs.

CAPITAL REQUIREMENTS

It will be financially difficult for new entrants when incumbent firms have substantial financial resources for defense against new entry. For the lower your investment, the less chances you can enter the market. The larger the investments of existing players, the more limited are the pool of potential entrants. Enough capital requirements is obviously required to finance manufacturing plants and equipments, inventories and customer credits, introductory advertising and sales promotion in order for new entrant to establish clientele and cover-up start-up losses.

COST DISADVANTAGES

New entrants will experienced cost disadvantages as compared to existing firms. This is true on cases wherein existing firms may have easier access to the best and cheapest raw materials, possession of patents and proprietary technology, availability of learned and experienced manpower and favorable locations.

ACCESS TO DISTRIBUTION CHANNELS

Potential entrant may face barriers in gaining adequate distribution access because some distributors may be reluctant to take on products that is not yet known to buyers or lacks buyers' recognition.

GOVERNMENT ACTIONS AND POLICIES

It can be a barrier on cases when government decided to ban entry or limit the players in a certain business industry. This can be controlled by limiting the issuance of business permits and licenses.