Question

WHAT ARE SOME BARRIERS TO ENTERING THE INTERNATIONAL MARKET? PROVIDE EXAMPLES.

Answer 1

Businesses (including those in the U.S) need to enter foreign and international markets once the home market is saturated, for increasing profitability, and other reasons as well. However, businesses also face problems during entry for staying competitive in a new market in another country, which is due to the barriers to entry. These barriers can be classified as:

External barriers- fluctuations in foreign exchange, tariff/non-tariff barriers, government policies, competition, and the differing consumer standards are external barriers.

Operational barriers-payment related problems, clearing of customs, the arrangement of shipments and transportation, and locating new buyers are some operational barriers.

Internal barriers- lack of commitment on part of the management, company's own experiences in foreign markets (and their negativity) and lack of adequate resources are some external barriers.

Below are some common barriers to entering an international market.

Cultural barriers-cultural barriers pose problems in the marketing and advertising efforts, and areas affected include communication methods, product design, acceptance of the offering, the role of decision-makers, physical distribution and distributor relations. For instance, McDonald’s (the fast-food chain) cannot market and sell beef burgers in a country like India, where beef is not consumed by the majority of the population due to religious reasons. The company changed the offering to an extent for overcoming the barrier.

The language barrier- the language barrier also turns to be problematic for marketing efforts. It affects market entry in areas including branding, issue of instructions for product use, packaging, promotion efforts and in communications with the distribution channel members. For instance, there are 28 regional languages in India, and to be popular and accepted at a grassroots level, a business needs to indulge in marketing efforts in the majority of these.

Unfriendly distribution channels- the existing channels of distribution in a foreign market may turn to problematic for foreign firms, due to their complexity and other reasons. For instance, the complex Japanese distribution systems pose a barrier to entry. The Japanese distribution channel has extensive length and size. There are around 1. 7 million retailers in the country having a population of only 120 million. There are 1997 towns, 651 cities, and 607 villages in Japan.

Government policies- government policies in the area including tariffs, taxes, import quotas, controls, and export restrictions also pose a barrier to entry, as they also affect the economic environment. For instance, the French government allowed all Japanese VCRs to land at one place only at a time, and here only one inspector was placed. Therefore, only around VCRs could get through customs in a day.

Political environment- the political environment of a country and its instability may also be a barrier to entry. For instance, some American firms nationalized in foreign markets have been taken over by the governments in the past, during the hostile and violent takeovers. Import quotas are also a barrier to entry and are political.
Corruption- corruption proves to an additional strain on the limited resources of a business and proves to be a barrier to entry.

Switching costs for customers- customers would not prefer the offerings of a new firm if the switching costs are too high when they are not capable of it. The majority of people in developing and underdeveloped countries will prefer Chinese smartphones over Apple phones, because of lesser income levels.

Economies of scale- New companies will not be able to compete as they do not get the economies of scale advantages. The well-established firms will have low production costs when compared to the new entrants.

Geographical barrier-sometimes geography in resources may create a barrier to entry. Countries that do not produce petroleum products and have oils may not enter the oil market. Zimbabwe produces more than 85% of world chromium and hence no country may sell the substance to the country. Location may also be important for certain businesses, for instance, a theater chain. When they do not get such availability, they cannot enter the market.