Whenever organizations try to enter a market, they will encounter some obstacles or conditions that make entry more challenging, more expensive or even impossible. Without a full understanding of the different types of market entry barriers, organizations may choose an ineffective market entry strategy. The research and risk analysis completed as part of the feasibility study may reveal potential barriers.
Here are nine of the most common market entry barriers and potential strategies to address them.
1. Trade and economic sanctions
- Choose a different market not affected by economic sanctions
- Export a different line of products/services not subject to trade sanctions
- Delay market entry if it appears sanctions may be lifted
2. Export and import controls
- Select a different market with which to trade
- Develop alternative goods/services to trade
3. Customs tariffs and taxes
- Develop value-added activities in the target market, such as after-sales service, that are not subject to tariffs and will enhance the value of the more expensive product
- Start producing goods in the target market to avoid the need for importing
- Partner with an organization in the target market that will produce goods at its facilities
4. Import and tariff quotas
- Export to a different market
- Develop products/services that will not be subject to quotas
- Produce goods/services in the target market to avoid having to import
5. Government subsidies
- Develop value-added activities in the target market to increase the attractiveness to foreign purchasers
- Adapt the product or service to give it more appeal and justify the enhanced price
6. Trade blocs (if the organization’s nation is not a participating member)
- Partner with an organization in a preferred trading relationship with the chosen market or in the chosen market
- Set up a subsidiary organization in the chosen market or in one that has a preferred trading relationship
- Invest in production facilities in the chosen market to avoid the need for exporting
- Adapt the product or service to enhance its perceived value and justify the increasing price
7. Political instability
- Enter the market for a short-term venture only
- Limit exposure by not locating facilities or employees in the country
- Request cash or an irrevocable confirmed letter of credit up front, before delivering goods or services
8. Customer preferences (product familiarity, religious and cultural aspects, language, etc.)
- Adapt products or services to appeal to the target market
9. Economic barriers (costs for land, construction, raw materials and resources, tax rates, market wage rates)
- In markets that will not bear the cost of the product/service, assess ways to cut costs
- Reposition product/service as a luxury item
- Specify payment in stable currencies
- Use hedge funding techniques to mitigate currency risk
How will you handle the market entry barriers facing your business?
Careful research will identify potential problems in a market and those problems will vary from one market to another. For example, Canadian exporters to the U.S. might not encounter many cultural barriers, but they will have to overcome those imposed by U.S. protectionist legislation.
It is important to evaluate exactly which barriers apply to which markets. Only then can decision-makers responsible for logistics, marketing and distribution develop a plan, recommendations and proposed solutions to overcome or minimize the impact of the specific barriers, allowing for the desired market penetration.
There are few barriers, no matter how difficult or insurmountable they seem, that cannot be overcome or at least minimized. The process requires a detailed study of each barrier and consultation with available experts, including local business people.
A preferred strategic approach is to use partnering to help overcome most, if not all, barriers to entry. Local partners can provide insights and useful advice into market dynamics, serve as representatives and agents, and become business associates and even permanent joint-venture partners. A careful use of partnering strategies can go a long way toward eliminating barriers, reducing risks and smoothing the way to market entry.