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Given the variety of items procured from unorganized agricultural produce to localize packaging material. Risk factors also varies from item to item. Seven major barriers are discussed.
Capital Requirements - The costs of becoming established in the industry. Obviously the amount will vary depending on your area of interest, from several lacs for metal caps to couple of crores for polymer. The greater the capital requirement, the greater the need for explanation for accepting this risk.
Economies of Scale - Depending on your area of business, a high volume may be necessary for you to be efficient. Achieving this high volume may require larger facilities or a large labor force. Existing organizations are going to have the benefit of having the resources in place to react to whatever market forces have created the opportunity you have identified. It is essential to explain to what extent Economies of Scale are a factor in your business and how you plan to overcome this barrier.
Cost Advantage - Although these do exist with Economies of Scale, Scale is not necessary. Many times the first entrant into an industry or market will be able to negotiate the best contracts with suppliers or distributors. These relationships leave new comers at a disadvantage. Also, first entrants or existing businesses have an advantage on the learning curve that allows them to pursue cost issues more effectively. Are there any areas where existing relationships are going to put you at a disadvantage?
Product Differentiation - You have identified an opportunity to provide a product or service profitably. If you are successful, your success is going to attract attention. One problem you will face is when another firm with name recognition and brand loyalty for their current offerings decides to follow you. You will have to spend large amounts on promoting and differentiating your offering to combat an established firm's goodwill. If there is no major established player in your industry, who in a related industry would be likely to follow your lead?
Distribution Channels - The extent of this concern depends on how you are planning to get the product to our manufacturing facilities. Existing suppliers with spread out manufacturing facilities or well-set distribution system will be in a position to effectively cater to varying demand and quality parameters
Legal Restrictions - Many claim that the only barriers that can not be overcome with shrewd planning and business sense are those created by government. It is necessary to investigate and explain any ordinances, laws, taxes, etc. that will have an impact on your business. Tax benefits or subsidies will result in direct cost advantage.
Retaliation - If you are entering the market of other established businesses, do not expect your company to be welcomed without response. There are a host of responses available to the competition depending on their market position. Reactions can range from price slashing to negotiating exclusive arrangements with suppliers and distributors you would have worked with. Time must be spent anticipating the reactions of existing businesses and determining the impact these reactions will have on your organization
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