An understanding of the entry barriers to internationalization and their effect on entry mode selection is important because they can assist in determining why global marketers are unable to exploit their full potential and why many firms fail or incur financial losses in their international activities. The height and nature of market entry barriers directly influence the entry mode chosen by a company. Entry barriers increase the cost of entry and constraint the option available, and where they are high, the company might have only one choice of entry mode or else have to stay out. The concept of entry barriers comes from the economics of industrial organization. It generally connotes any obstacle making it more difficult for a firm to enter a product market. Thus entry barriers exist at home, as when limited self space prohibits a company from acquiring sufficient retail coverage to enter a market. Overseas it can mean that customs procedures are so lengthy that they prohibit at importer’s fresh produces from getting to the stores before spoiling. In global marketing it is convenient to classify the entry barriers according to their origin. Although gradually less important because of dramatic improvements in technology, transportation costs sometimes force new investment in manufacturing to be close to the market. Proximity of supplies and service still matters when transportation costs are high. Tariff barriers are obvious obstacles to entry into the country. Less visible non-tariff barriers for example slow custom procedures, special product tests for imports and bureaucratic inertia in processing import licenses can also make entry difficult. Government regulations of business, domestic as well as foreign, constitute another set of market barriers, sometimes creating local monopolies. A special subset of these barriers is regulations directly intended to protect domestic business against foreign competitors. Other barriers are more subtle. Access to manufacturing technology and process, component suppliers and distribution channels can be restricted by regulation, territorial restrictions, competitive collusions, or close ties between transacting partners. These barriers constitute artificial value chain imperfections and become very important for the marketer to consider when deciding the configuration of the overseas operation. There are natural entry barriers that arise because of competitive actions. Many of typical marketing efforts- creating of brand loyalty, differentiation between products, high levels of promotional spending- are factors that, when successful, lead to barriers or defenses against competitive attack.
Reasons to use entry barriers
Global marketing increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties. Entry barriers or trade barriers are often created to protect infant industry and developing economies, but are also used by more advanced economies with developed industries. Here are five of the top reasons trade barriers are used: I. Protecting Domestic Employment:
The possibility of increased competition from imported goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate. The unemployment argument often shifts to domestic industries complaining about cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply.
II. Protecting Consumers :
A government may levy a tariff on products that it feels could endanger its population. For example, South Korea may place a tariff on...