The paper "Challenges Facing Firms as They Enter Foreign Markets by Adopting Different Modes of Entry" is a perfect example of business coursework. In this era of 21st-century globalization is a reality to business and it comes with global competition. Before a business competes in any given market, it must enter into that market and there are many impediments and barrier that makes it hard for business and companies to enter into any given market. Entry barrier can be defined as a situation that might hinder a company from entering a given market.
However, scholars have disagreed on the universal definition of entry barriers. Niu, Dong and Chen (2012) define barrier to entry as structural, institutional and behavioral conditions that enable firms to earn economic profits for a significant length of time. Ang et al. , (2015) on the other hand defines the entry barrier as the set of technology or product conditions that allow the incumbent firms to earn economic profits in the long run. In his definition, three major things are outlined here as economies of scale, product differentiation and absolute cost advantages of established firms.
The barrier to entry has been discussed by scholars like Seamans (2013) to include cost and policies that are put in place to enable a firm to earn sustainable income over a given period of time. For this paper, a barrier to entry will be defined as the set of structural, institutional and behavioral condition that allow incumbent firms to earn economic profits for a significant length of time. This will hinder other new firms from getting into the markets as the established firms continue marking profit in the same market. Strategic entry deterrence These are intentional activities created by incumbent firms in the market mainly to create deterrence to entry.
Strategic barriers normally arise from behaviour such as exclusive arrangements within the industry or prospective governments. Measuring the extent through which behaviour such as exclusive arrangement may impact on the potential entrance into the market. It should also be noted that it is not easy to establish whether strategic behaviour help in fostering or restricting competition in the market but it is clear that some of the strategic behaviour may be well designed to help in thwarting competition in the market (Niu, Dong and Chen, 2012). The conceptual problem with the analysis of limit pricing which is called SYLOS POSTULATE which is often criticized due to weak unrealistic assumptions and assumptions which are often relaxed and do not affect the validity of the model.
The SYLOS discusses the barriers which are generated by sunk cost which are impossible to reverse. For example costs like taxes required to enter into a new market, legal fees, equipment cost which might prove to be so high and ones a firm has decided to enter into a market, these are cost which is not easy to reverse once incurred (Seamans 2013). There is also a very naï ve assumptions that the incumbent will keep its output at the pre-entry level in the event of entry which might prove to be a real threat to new entrants (Seamans 2013).
Ang, S.H., Benischke, M.H. and Doh, J.P., 2015. The interactions of institutions on foreign market entry mode. Strategic Management Journal, 36(10), pp.1536-1553.
Belleflamme, P. and Peitz, M., 2015. Industrial organization: markets and strategies. Cambridge University Press.
Huisman, K.J. and Kort, P.M., 2015. Strategic capacity investment under uncertainty. The RAND Journal of Economics, 46(2), pp.376-408.
Niu, Y., Dong, L.C. and Chen, R., 2012. Market entry barriers in China. Journal of Business Research, 65(1), pp.68-76.
Seamans, R.C., 2013. Threat of entry, asymmetric information, and pricing. Strategic Management Journal, 34(4), pp.426-444.