IIM Calcutta

Strategic Management

Gateways to Entry
George. S. Yip

December 19th, 2009

Submitted By:

Group A5 – Section A

Ajay Bansal 023/46

Alpesh Chaddha 026/46
Aman Deep 027/46
Amit Gupta 032/46
Amol Deherkar 040/46
Ankit Jain 048/46
Amit Nagdewani 036/46
Avinash Pandit 085/46
Gautam Adukia 022/46
Ankit Kumar Singh 404/16
INTRODUCTION

In the dynamic competitive world of today, it is becoming increasing difficult for

new businesses to take the erstwhile strategies of entering present markets or
acquisitions. It has become vital to develop key strategies to overcome the
hurdle of “entry barriers”
Entry barriers not only test the new entrant for its mettle but are also a vital test
for the incumbents. Even though incumbents may feel secure behind the entry
barriers they have created, but these very barriers sometimes provide an
advantage to the new entrants.
The major classes of barriers – economies of scale, cost, absolute scale, capital
requirement, distribution; protect market by deterring potential entrants and by
dampening the success of the entrepreneurs. But using a two step process, new
entrants can succeed in overcoming the barriers after evaluation.
The first step is to overcome the roadblock. Although simple in principle, this is
the step where most discipline is required. The next step is evaluating barriers
and formulating strategies to overcome or avoid them.
The three key strategic approaches in overcoming the second step are:

I. USING THE SAME STRATEGY

Entry barriers get reduced by new entrants even if they apply the same strategy
as the incumbents but deploy sufficient additional skills and resources. New
entrants breaking away from incumbents or having succeeded in a different field
before the new venture already have sufficient skills and resources to exploit
opportunities to reduce the effect of entry barriers.
The various ways in which the new entrants may reduce entry barriers using
their existing talents, assets and resources are:

Even if the new entrants do not possess superior skills or abundant or preexisting
resources, they can utilize the ‘advantage of lateness’ to win the battle:
 Entrants can use the latest up-to-date and even next-generation
technology to gain an upper hand over incumbents who might have spent
 large capital expenditure and thus have huge sunk costs associated with
pre-existing technology.
 By optimizing plant size and thereby reducing costs, entrants may achieve
greater economies of scale.
 Since new entrants have no pre-existing contracts, they can negotiate
better deals with distributers, suppliers, employees and customers.
 New entrants can enter into a price-war and thereby shock the
incumbents.
 They can strategically attack the weak-link in the strategy of the
incumbents. Disruptive innovations and businesses attack the bottom of
the pyramid or the unserved customers of the incumbents.

I. USING DIFFERENT STRATEGY

New entrants may follow a different strategy rather than be clones of the
incumbents to by-pass the entry barriers.

II. ACQUISITION ROUTE

A new entrant can avoid all barriers altogether by acquiring an incumbent. The
new entrant changes the dynamics of the field with a different strategy,
corporate structure and vision. This is also a viable alternative for entrants
having a vision to become market leaders as this move sets a tone for a later all-
out assault over market leaders.

Issues with acquisition route:

○ Acquisition rule is not always available.
○ Differences in financial and managerial standards and practices.
○ Premium paid to purchase the acquisition is just the cost to overcome the
barriers. So in effect, the new entrant has already paid for the barriers.

CONCLUSION
As is evident, there are various mechanisms through which the new entrant can
either avoid or reduce the burden of entry barriers. But, in all these alternatives
certain caveats exist.
When the entrant is planning to utilize existing resources and skills to enter the
market by taking the same strategy as the incumbent, it must ensure that these
assets are easily transferrable to the new market. When the entrant decides to
take a differentiated approach, it must ensure that the service/product offered
has customer appeal and would make profits in the market.
Entrants need to ensure that whatever strategy they decide to implement, the
must first completely analyze the various dynamics of the market and select the
strategy which gives it a competitive advantage in the long term over the
incumbents.