entry barriers

Entry barriers, size does matter

In a age when everyone believes that people can achieve anything, it is rarely said that to get into a highly competitive market you have to pay – for the entry. Such markets where corporations are present are not easy market get your part. But the bigger issue for beginning businessmen are entry barriers – which usually mean few million dollar to break them. What you have to know before you decide to bite more than you can chew?

Entry barrier of big branches are astronomical.

In fact, main suppliers of most popular goods have so cheap production process, that you can’t beat them without a factory in a less wealthy country. For example: cost of producing a t-shirt which is going to be sold in a store – is between one to three dollars. Top tier smartphones are manufactured for 100-150 dollars, and sold for four times more. Even masterpieces of wristwatches are manufactured for one third of their price. Anyone who would like to compete with such company without a big factory – will fight for a few dollar profit. Actually, those brands have enough profit from every piece of product to drop the price, and eliminate smaller brand. Almost no one is talking about it, but this is how smaller brands are eliminated from the market.

Such maneuver makes product of smaller brand more expensive, and quickly wipes off the brand from the market. You have to keep in mind that any clothing brand this days, which made it’s way to the top, made it quick. Either because of good funding, or rapid expansion of marketing and popularity they can pass entry barriers.

TRY: BUSINESS360.EU

The bigger you are, the more stable you are.

None of the companies which exist on the market for 20 years and have a recognizability has to worry about it’s future, nor situation next day. But owner of small company, which is living from day to day – has to mind next week. Bigger companies can sustain temporary turbulences of the market by cutting it’s size or using backup funds. Company which has one factory can’t. Beings which rely on marginal profit have to get it every year, or they collapses. There are cases of corporations which had big financial trouble for few years, but made it. No small company can sustain lack of profit for five years. Of course unless owner is paying from his pocket, but this also counts as size advantage – in this case financial.

In Europe entry barriers are lowered.

European Union is constantly trying to force a bigger number of companies into almost every market by limiting monopolies and oligopolies, while financing smaller companies. If you have enough luck to be in charge of a innovative company, then you can get free funding. In EU we have aids beginning in a form of non-returnable financing to credit guarantees. It makes markets more accessible to innovative minds, and gives you opportunity to put your business between ranks of corporations. However you have to keep in mind that as everywhere you have free money – there is also more people willing to get it.

The bigger you are, the more you can.

Size of a company matters when you negotiate agreements, sell your products and make new contacts with different brands. Frankly, the bigger you are, the more people are eager to talk with you. Not everyone is going to try new bulb from small startup, as much as they would from a giant like Philips. Because of their successful story and worldwide known brand – they can sell more. Even if you sell the same product and your sales personel is on the same level. Simply saying – they are bigger, and provide more psychological security to the customer.

Just remember to cut your coat according to your cloth.

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