Factors Influencing Market Entry and Exit Decisions

Entering the market in a timely fashion is equally as important as exiting the market. Just as leaving the market, market entry can be planned. In any market, a business can make money by properly timing both the entry and exit. If one miscalculates any of these, then the business runs the risk of not getting the return on investment.

Entering a market sooner has the advantage of being a market pioneer (Bednarek, 2013). In contrast, late market entry can be advantageous since the products are cheap or improved unlike those already in the market. Already cluttered markets serve an opportunity for late arrival based on improved quality. For instance, a company may launch its product in German, Mexico, and Australia but at different times. The company may launch the product in one country at a time and will only enter the next market after establishing sales in the previous market.

Timing is a major contributor to a company's success or failure. Some markets are barriers at particular times of the year. For instance, companies that deal with Christmas products will only enter the market early enough to gain momentum as the peak shopping season approaches (Drews & Lamson, 2016).

A risk to entry is something that impedes of blocks the ability to enter a market. A risk to exit impedes the ability of a company leaving a market comfortably. Markets that are difficult for new entrants have the benefits of limited rivalry among competitors and good profitability. On the contrary, markets that are easy to enter may attract new entrants during seasons of profitability. However, markets that are difficult to exit are characterized by intense rivalry than markets that are easy to exit. Some of the common risks associated with market entry and exit are discussed below.

A monopoly situation is a very serious risk for market entry. Monopoly is a situation whereby one company becomes the major provider of a service or product in the market (Miles, 2011). A monopoly can be created through the merger of competing firms or state-owned companies. Often, a monopoly situation can pose a risk in the market by using licenses and patents to prevent the entry of any new company through controlling suppliers, resources, distribution channels and using price strategies. A good example of such a monopolistic situation is North America's internet service market. Because of how internet signals are transmitted (either phone lines or cables) usually, consumers have one of two options of how they obtain their internet services. They either have to obtain the service via their cable provider of the phone company. In the rural region, no cables have been installed. Consequently, the phone company is the only internet service provider for rural consumers. New entrants will be unable to access a cost-effective or efficient distribution channel because the incumbent companies already dominate and control the distribution system. Therefore, the new entrants risk losing their services and goods.

Corruption is another risk (Drews & Lamson, 2016). Entrepreneurs entering particular markets may be confronted with unorthodox business practices. In some markets, bribery is a common way of completing a business transaction. As such, a new entrant will have to familiarize itself with such situations and avoid any conflicts that may arise. Such business behaviors are both illegal and unethical.

One risk of exiting a market is the impossibility to transfer specialized skills and equipment (Bednarek, 2013). Investment in specialized skills and equipment, which cannot be transferred to other markets, serves to impede the exiting of the market. Moreover, highly specialized skills by a company, which cannot be used in other markets, are impediments to exiting the market. By investing in specialized skills and assets, which cannot be used in other markets, a company risks losing these resources by leaving the market.

References

Bednarek, D. (2013). Market entry barriers for German small and medium-sized companies in India. Munich: GRIN Verlag GmbH.

Drews, R., & Lamson, M. (2016). Market entry into the USA: why European companies fail and how to succeed. http://public.eblib.com/choice/publicfullrecord.aspx?p=3568046.

Miles, D. A. (2011). Risk factors and business models: Understanding the five forces of entrepreneurial risk and the causes of business failure. Boca Raton: ***.com.