Barriers to Entry: What They Are and How to Overcome Them

 Introduction 

There are many opportunities available in the market that new entrepreneurs can exploit. However, several barriers prevent or impede new entry into a market and limit the competition. They may include high start-up capital and regulatory hurdles. The Consulting Firm has been advising its clients on the concerns raised on entering a new market. Currently, the firm has clients that are considering a venture in the asset-based supply chain and logistics.

Audience and Concerns 

The client is an entrepreneur who wants is considering starting up an asset-based supply chain and logistics business. In addition, the client has limited experience in the field. The first concern raised is if asset-based supply chain and logistics is the most optimal service. Secondly, there is an issue with the initial investment capital. These concerns are valid since the costs encountered while purchasing and maintaining vehicles, information system infrastructure, and warehouses can be high (Dunakin, 2021). Also, providing an asset-based supply chain and logistics services may not be optimal since the client will be using their equipment and storage facilities. Furthermore, it may result in high customer expenses while moving freight.

Potential Barriers 

There are several barriers that the client may experience in the venture. Firstly, there are unclear organizational objectives, which influence the decision-making process for top managers and may sometimes lack support. Secondly, the initial capital may be high for an asset-based model of operation. Thirdly, the level of information technology infrastructure used. In the current information age, the type of information system used may determine the success or failure of a new entrant. Fourthly, competition from other related firms. Already established firms may have a competitive advantage over a new entrant due to their large market shares, while a new entrant may not have the training or education to compete.

Asset-Based vs. Non-Asset-Based 

The two business models, supply chain and logistics, have similarities and differences in their barriers to new entrants. The first similarity is that both of them are influenced by unclear organizational objectives, which may be because of lacking managerial experience. In addition, both models face competition from already established companies. Additionally, the difference between their barriers is that asset-based companies have a high initial capital since they use most or all their equipment to offer their services (Wan et al., 2019). On the other hand, non-asset-based companies do not have a high initial capital as they do not own or maintain the equipment. The next difference is that non-asset-based have higher risks involved since they do not control their transport, warehouses, and dispatch centers. Asset-based companies have complete control of their services, and no control risks are present.

Recommended Solution 

The Consulting Firm recommends that the client pursue a hybrid approach when setting up the supply chain and logistics company, that is, a combination of the asset and non-asset based business models. This approach will experience a reduction of the initial cost in warehouses, vehicles, hiring employees, and an information system. A hybrid approach will be less aggressive for the client before making it a full asset-based company. Additionally, while converting into a full asset-based supply chain and logistics business, it is recommended that the client follow a systematic procedure. Firstly, the client should purchase a warehouse to eliminate the monthly warehouse rent fee. The amount of money saved in a year will be enough for the client to determine the next investment in purchasing trucks or hire permanent workers. The next step will be to incorporate their information system into the business to eliminate the licensing fees.

Benefits and ROI from the Recommendation 

The major benefit of the recommendation is that the client will effectively handle the supply chain and logistics pressure. The hybrid approach will help the client gain much knowledge through outsourcing before establishing their asset-based company. In addition, the recommendation will present a low start-up capital for the client since the business will mainly consist of a non-asset-based business model.

Furthermore, the client's return on investment may be on average during the first few years. According to pro-logistics, an average rental fee is $0.85per square foot monthly (Prologis, 2020). Therefore, renting a 10,000 square foot warehouse will cost $102,000 annually, which is a high amount. Additionally, when the client can put an experienced team of managers together, it will be costly to employ them. However, the managers provide much value to the company. It is recommended that the client focuses on hiring the best managers and owning a warehouse as they pose a high return on their investment.

Conclusion 

At The Consulting Firm, the main goal is to listen to the client's ideas and goals and devise a plan that can help them succeed. Since the client is engaging in this type of business for the first time, it is appropriate to use a hybrid approach that will slowly integrate and transform the business from a non-asset-based to an asset-based company. This approach reduces all the risks and barriers to the client's entry into the market. In addition, frequent meetings should be conducted to determine the next step to undertake and assess the client's current position.

References 

Dunakin, C. (2021, February 10).  The biggest challenges, issues of supply chain management . 6 River Systems.  https://6river.com/biggest-challenges-of-supply-chain-management/ 

Prologis. (2020, April 14).  How much does it cost to rent a warehouse?    https://www.prologis.com/about/resources/how-much-does-it-cost-to-rent-warehouse 

Wan, Q., Yuan, Y., & Lai, F. (2019). Disentangling the driving factors of logistics outsourcing: A configurational perspective.  Journal of Enterprise Information Management ,  32 (6), 964-992.  https://doi.org/10.1108/jeim-10-2018-0236