Barriers to entry

The barriers to entry in the business field refer to the difficulties and obstacles that a company encounters when accessing a recently created market, product or brand. These barriers can be of different kinds, such as legal, economic or ethical.

The term barrier to entry is attributed to Michael Porter, who defined it as one of the five forces of basic competencies, within the analysis he carried out of market and positioning strategies. By detecting these obstacles, he was able to find out the different complications that could be encountered by companies wishing to compete in a certain market and expand their business volume.

Before starting the activity of a business in a certain sector, entry barriers must be taken into consideration. The barriers to entry in economics are also a great measure of two essential aspects such as profitability and the level of competition.

The presence of entry barriers serve to control the emergence of new competitors, protecting those that already exist, and therefore safeguarding the options of profitability.

These barriers are usually linked to a series of essential factors such as the size of the industry in which it is going to enter, the main distribution channels or the preparation of the personnel that will need to be recruited.

Examples of entry barriers

In the industry there are a number of barriers to entry to the market that you should take into account, among which are the economic aspect, the need for capital or legal obstacles. Here we see some types of entry barriers that companies encounter on many occasions.

  • Legal barriers: it refers to the most frequent administrative procedures and permits that are necessary to enter certain markets or to acquire patents.
  • Economic barriers: this is the investment that must be made to enter the market, which includes, for example, the coste in advertising to promote the company and the investment part focused on development.
  • Capital needs: from the outset, in some cases, a large investment will be required to compete with other companies. It will be necessary to do research in R&D or cover the losses at the beginning.
  • Product differentiation: new companies entering the market will be forced to make significant investments to compete with the rest of the players who already have a prestigious company or a consolidated brand.

These entry barriers often appear when a company wants to expand into new markets. To do this, we must take into account all the key aspects of business internationalization if we want to do it correctly.

Internationalization of a company

Leave a Comment