Barriers to Entry
Barriers to Entry
Barriers to Entry
For the success of any business venture, several things must function harmoniously. It is not sufficient to just get into the market and assume that everything will work out perfectly. When one is introducing a new product into the market, there are challenges that they must fact before their products can be fairly incorporated into that particular market. These challenges have often been referred to as barriers. There are barriers as such because they prevent a quick entry into the targeted market. Some of the barriers include; barriers to market entry, and barriers to market acceptance. There are certain risks that one must take in any business venture in any given country. Some of these risks include; country risks, market risks, product risks and commercial risks. These issues will form part of the discussion in this paper. Another issue that every business venture must consider whenever seeking entry is the Corporate Social Responsibility Strategies. The way a business interacts or participates in the social affairs of the people it targets determines to a very large extent, the customer response. This study will also be concerned with the strategies that businesses can make to ensure that they remain relevant within their areas. Some of the issues to be considered include; environmental issues, issues related to human rights, unfair or corrupt business practices, and very importantly, health related issues. This study will focus on China when dealing with these issues.
Country Risks
This refers to the risks involved in investing in a particular country. The political environment in this case plays a major role in determining the extent of the risk involved in investing in a certain country. Although the current recession has affected literally every country, China's economy has experienced an upward trend for several years now. The last couple of years have seen several companies shifting to China, a clear indication that the risk involved is relatively low. However, experts warn that, if the current recession continues, there is a possibility of unrest, as has been previously witnessed, and this would further lower the ratings of the country, because every potential investor is concerned about the security of their investments. Considering the trend of economic growth in China, however, one realizes that it has been less affected that have many western countries. This makes this country the choice of many, for investment. A survey conducted by Spectaris in 2007, showed that since the year 1999, the country has maintained a gross domestic product growth rate of between 7.1 to 10 percent. This is very impressive. The Foreign Direct Investment has also experienced steady growth over the years.
Market Risks
Successfully entry into to a certain market could be easy in some places and more difficult in others. Certain risks in the market have to be assumed and overcome before entry can be gained. When investing in China, there are certain risk factors that should be considered. Some of these risks are closely related to the country risks discussed above. As already mentioned, the economy of this Country has seen rapid growth in the recent years. This can easily obscure the vision of the investors to the market risks involved. The first important thing that investors should familiarize themselves with is the fact that despite the fact that there have been major developments in China, this growth is very uneven. The risk in this case would be investing in an area that is not capable to consume the products, based on the assumption that every place is doing well.
There still are problems with regard to the Chinese currency. It is still not clear how conversion would take place, creating possibilities of undervaluation of currency. This would be detrimental to the investor because the primary task is to maximize profits. The potential loss of money through undervalued conversions is a major risk at present.
Another risk that the investor should be aware of is the fact China is composed of several markets. These vary according to regional sizes and differences in levels of income. It has been experienced that certain provinces institute measures to keep other markets out of their regions. It is important that this be well understood by any potential investor because this is a major market risk in China. The variance of the laws in the provinces also creates a potential risk. In other words, a certain product may do very well in one province but lack the possibility of expansion due to the variations in laws. Attention should also be drawn to the fact that laws are subject to frequent change. The value added tax is rebate is a good example.
There is also the risk of a product not being adequately marketed due to the problems of language. A company coming from the United States for instance may face serious challenges in marketing their products in China. This is because there are barriers that come with cultures, and language disparities. For example if one is required to fill certain forms, it may be very difficult to find the same in English. This may work against the products in the market. The specifications in a certain country could be different from those in the investor's country of origin. This means that extra costs may be incurred in standardizing the products. As a matter of fact, whatever is considered as a quality product in China may not be similar to what is considered in the United States? There are regulations in the area of exports in China. Not everyone can export goods into the country. There are certain goods as well, which are banned from exportation. The story is similar in the case of imports. Great risks could arise as a result of these restrictions because, one could very well produce goods with the view of exporting them only to realize that they are banned from exports, or pay for goods in view of importing them from their country of origin, only to realize that they cannot be imported into the country (German-Chinese Business Association, 2007).
Product Risks
In the last few years, the world has witnessed various cases of goods that have been considered harmful for human consumption from China. Cases of toxins in clothing for children, faulty heaters, faulty wiring in electric fans, candles with plastics, faulty driers, faulty electric lamps, jackets with toxins, and so many more, has been reported over the last few years. These goods are produced at very low costs, creating the possibility of a compromise in quality. A company or person investing in China, needs to be aware of this because, despite the fact that cheaper options are always easily taken, the negative publicity arising from these products may lower the competitiveness of the products from China(Wong, 2008). This may affect the entry of the product, not in China but in the global market. It appears that lack of proper regulations lead to this kind of problems. This is a potentially explosive area, and investors need be aware of it.
Barriers to Market Entry
There are several things that make entry into a particular market difficult. This is mainly because in virtually every market, there are existing businesses. Customers also get used to certain products with time, and the possibility of changing their particular orientations could be difficult. Some of the barriers include;
Economies of Scale- the government of China has over the years invested heavily in strengthening its local industries with the aim of improving its export capacity (German-Chinese Business Association, 2007). These companies have since grown vastly. These firms have access to raw materials at a cheaper cost, and this eventually translates into cheaper products. This makes it difficult for new firms because they are often struggling with finances, and the competition is against giant companies.
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