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NAME : KEITH T MAGAKA

REG# : H160203W

COURSE CODE : HIT100

LECTURE : Dr A. MAKASI

TITLE : ASSIGNMENT 2

QUESTION
You plan to start a Technopreneurial business venture in a market where there is intense
competition. Discuss the following:

a) 10 potential barriers to entry into the market

b)10 potential barriers to exit.

Note: Provide a brief description of the nature of the business venture and highlight existing
and potential competition before attempting the question.
As a Technopreneur I planned to start business a sole proprietorship which deals with installing
new electrical equipment in homes and companies for example DSTV installation, CCTV
installation and TV wall mounting. The business venture would also be based on fixing the
electrical appliances for example repairing faulty equipment such as TVs, decoders, stoves,
laptops etc. So I will have to find employees trained to perform specific task of this business
venture.

This nature of business service is multi-usable where we have two goal to fix and install
these electrical equipment but then there are already companies and people who are already
in this business. This means there is now competition.

Existing competition
1. Already existing DSTV installations and repairs companies such as Satellite TV services
who install DSTV and repair the decoders in home and companies. So these companies
have been in the business for a long time now and they now have experience in the
business, which is an advantage because they already have the customers loyalty. They
also mount televisions on walls.
2. Competition from Cable tech who already have connections in setting up TV needs in
hotels. Because they have experience and are trusted they competitors to us.
3. Companies like Lenovo which has warrants on their products. So if the laptop has a fault
during the warrant period the offer repair services for free which is a disadvantage to my
business venture and brings up competition.
4. Existing competition is also from companies like Eletro Tronic which installs and repairs
electrical equipment especially in companies and these provide quality services in these
areas.
Potential competition may come from self-employed electricians who offer these kind of
services at reasonable cost but of poor quality at times. But because their prices are affordable
and they are known buy the community they might be potential competitors to us.

In starting every new business there are always obstacles that make it difficult to enter a business
and also obstacles an individual faces to gain entrance into a profession such as education and
licensing requirements. In my business venture they are there are several potential barriers to
entry which might hinder me from starting my business and to enter this market. Im going to
discuss potential 10 barriers to entry that my business may face in order to enter the market.
Capital investment
This is a very important and strong barriers to entry as I would need capital to start up
such as equipment, machines for installations, materials, R&D, employee training and
advertising. So in order to enter this business I have to be financially stable. This may
deter entry into this market.

Customer Loyalty
A business cannot be productive without having gained the loyalty of the customers to
their product or service. Companies like Lenovo have gained the customers loyalty to
fixing their laptops in the best way. Having strong quality skills of fixing/repairing theses
appliances can deter entry in this market.

Advertising
In order to be recognized and known in the community that we have great quality fixing
and installation skills advertisements need to be done. A lot of money needs to be spend
in advertising which is a sunk cost and deterrent to entry.

Knowledge and expertise


This is basically gained from experience. Tiger electronics a small firm which repairs
electrical appliances have had many years operating in the market and gained experience
which gave them knowledge and expertise in this market. This may be difficult for us to
catchup.

Network effects
People dont necessarily choose the best fixer / installer but usually choose the ones their
friends use. The greater the number of users using a specific service the greater the
individual benefit. There is already a strong network which exist which limits my
business to gain sufficient users to create a positive network

Limiting Pricing
Since there already exist competition a firm may lower prices/ charges for a specific
service, for example mounting TV at lower costs, so as to deter entry. This also prevents
competition.

Economies of scale
Usually occur when increased output leads to the lowering average costs. Most people
buy their appliances from TV sales thus there is increased output of sales and therefore
offer free installation services to their customers .it would be difficult for my business
which doesnt have a significant cost advantage of installation. Therefore the prospect of
higher average cost will deter entry.

Government policy
Government may support local firms through licensing requirements to the extent that
new entrants find it much harder to a profitable entry into the market. Taking in account
the government in Zimbabwe which is corrupt which makes it weak in some areas of
protecting intellectual properties. In such cases my company which is going to have
strong IP advantages such as new methods of installing and fixing these appliances may
choose not to enter the local market where unfettered coping would rife.

Exclusive contacts, patents and licenses


Ideas and knowledge that provide competitive advantages are treated as private property
when they are patented, thus preventing others from using them therefore creating a
barrier entry into the market. Contracts, patents and licenses may make entry difficult as
they protect existing firms who for example have won the contract. Take for example
Lenovo Company they have patented their knowledge of repairing their PCs this might
deter entry into the market. Contacts between Satellite TV and Multi-choice to install and
repair DSTV equipment may deter entry into the market.

High R&D costs


Firms like Cable Tech who have spent money on research and development which is a
signal to my business as a new entrant that they have large financial reserves. My
business
will have to match or exceed this level of spending in order to compete and this deters
entry.

At some point in my business venture there will be a time where I would wish to exit the
market and there are always obstacle which might prevent me from exiting this market. The
obstacles may cost the firm financially to leave the market and prohibit us from doing so.
These obstacles are barriers to exit and if significant; this firm may be forced to continue
competing in the market because the cost of leaving may be higher than those of incurred if
we continue competing in the market. Factors forming barriers to exit may include:

High redundancy costs


In my business I would have a large number of employees with different tasks and high
salaries which may stipulate high redundancy payments and therefore might face
significant costs if we leave the market.

Contractual arrangements
We may have entered into contracts with our customers and suppliers to repair or fix their
electrical equipment where breaching of these contracts creates punitive damages which
we cannot afford. This can deter us from exiting.

Sunk costs
These are costs that cannot be recovered if a firm leaves a market which include
marketing and advertising costs. These costs can deter us to leave the market since we
would have invested much in advertising.

Specialized work force


Having a specialized workforce that in turn is no longer adaptable in terms of knowledge
and skills can deter exit.

Potential upturn
The influence of a potential upturn in the market for example new installation projects
which may reverse our current financial situation may deter the company from exiting the
market since this will boost the finance of the company.

Political or social pressure


Since my business venture provides services of installing and repairing which might be a
key part of the local economy which in turn puts us in social pressure which deters exit
out of the market. The financial help might be there but also we fear damage through bad
publicity.

High investment in non-transferrable assets


This is an exit barrier even though it doesnt relate to my business venture. This is when a
firm invest in equipment that is specific to one task which cannot create any value to
other markets. For example the airline industry one would be forced to continue in the
business due to the high investment in the airplanes.

Managerial or emotional barrier


This is a barrier which refers to the personal feeling of the owner towards the business.
Since I am the owner of the business I may have emotional commitment to the business
which makes it unwilling to concede defeat even though the business will be
deteriorating. Thus I will strive to keep my business in shape to avoid shame from the
community.

REFERENCES
1. Economics Help, (2015), Barriers To Entry.[online] Available at :
http://www.economicshelp.org/microessays/markets/barriers-entry/ [Accessed 1 Oct,
2016]
2. Boundless, (2016) Entry and Exit of Firms. Boundless Economics.[online]
Boundless, Available at :
https://www.boundless.com/economics/textbooks/boundless-economics-
textbook/competitive-markets-10/long-run-outcomes-68/entry-and-exit-of-firms-259-
12356/ [Accessed 2 Oct, 2016]
3. Simister, Paul, (2011). Exit Barriers Intensify Competitive Rivalry. [online]
Differentiate Your Business. Available at :
http://www.differentiateyourbusiness.co.uk/exit-barriers-intensify-competitive-rivalry
[Accessed : 1 Oct 2016]
4. Changing Works, (2016).Barriers To Entry. [online]. Available at :
http://changingminds.org/disciplines/marketing/understanding_markets/barriers_entry
.htm [Accessed 30 Sept, 2016]
5. Economics Online, (2016). Barriers to entry.[online] Available at :
http://www.economicsonline.co.uk/Business_economics/Barriers_to_entry.html
[Accessed 2 Oct,2016]