Explain how corporations can create barriers to entry. Egypt case

??????First of all, we should identify the barriers of entry to a new market for new competitors, and then we can identify which barriers can be created by the main competitors of the market (corporations), or created by the government or others like Environment, so corporations can create barriers, the government can create barriers and nature can create barriers.

Corporations can create barriers through:

1-??Capital requirements

2-??Economies of scale

???????In the airplane manufacturing sector, you will find the main two corporations in this sector are Boeing and Airbus. Also, you can notice that countries like China, Russia, Canada, Australia, and more can’t get into this market, why? The simple answers are: it’s too costly, the hidden know-How in the manufacturing process, the unlimited resources needed, so we can say because of the lack of resources, not just the capital resources which are the financial resources but also the Human resources, the technological resources too.

Recently, you can notice on the shelves of any supermarket, strange products which appeared to compete with P&G products, they may succeed by percentage to save the capital requirements, but still, other resources like quality and know-how are needed. So, they can get into the market but out in a very fast way, so this situation created by P&G itself, it’s so hard to compete with me, and we will use the long breath strategy, and finally, you will get out of the market.

For the economies of scale, I can remember the birthday of my little girl, when I decided to create the birthday cake myself to save some money, I get the ingredients, and the surprise is the ingredients costs me a lot of money which is higher than buying the birthday cake from the Dessert shop, and the main question here, how the dessert shop create it and sell with a profit margin of course and achieve profit. It’s the economies of scale issue, the dessert shop deal with suppliers and buys in huge quantities his raw materials, so he gets discounts and offers with the quantity, also he produces in big quantities and sells in more quantities. So finally, he cost me the birthday cake than me. This issue considers a barrier created by a big corporation in a specific industry, they produce on a big scale and so the costs are small, on the other hand, small or medium companies can’t use the same scale because they don’t have enough sales points, enough shops, enough distributors, and so corporations created barriers by nature when they work according to the history and size.

Potential new entrants. Capital requirements and economies of scale are examples of two potential barriers to entry that can keep out new competitors. It is far more costly to enter the automobile industry, for instance, than to start a specialized mail-order business. In general, Internet technology has made it much easier for new companies to enter an industry by curtailing the need for such organizational elements as an established sales force, physical assets such as buildings and machinery, or access to existing suppliers and sales channels.

Barriers to entry is an economics and business term describing factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. These can include high?start-up costs, regulatory hurdles, or other obstacles that prevent new competitors from easily entering a business sector. Barriers to entry benefit existing firms because they protect their market share and ability to generate revenues and profits.

Common barriers to entry include special tax benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high customer?switching costs. Other barriers include the need for new companies to obtain licenses or regulatory clearance before operation.

Some barriers to entry exist because of government intervention, while others occur naturally within a free market. Barriers to entry can also form naturally as the dynamics of an industry take shape. Brand identity and customer loyalty serve as barriers to entry for potential entrants. Certain brands, such as Kleenex and Jell-O, have identities so strong that their brand names are synonymous with the types of products they manufacture. High consumer switching costs are barriers to entry as new entrants face difficulty enticing prospective customers to pay the additional money required to make a change/switch. Industries requiring heavy regulation or high upfront capital often have the highest barriers to entry. Telecommunications, transport (i.e., car or airplane), casinos, parcel delivery services, pharmaceuticals, electronics, oil and gas, and financial services often all require substantial initial investments. Each of those industries is also heavily regulated or requires substantial oversight from governing bodies.