In theories of competition in economics, barriers to entry are obstacles that make it difficult

to enter a given market.[1] The term can refer to hindrances a firm faces in trying to enter a
market or industry - such as government regulation, or a large, established firm taking
advantage of economies of scale - or those an individual faces in trying to gain entrance to a
profession - such as education or licensing requirements.

Because barriers to entry protect incumbent firms and restrict competition in a market, they
can contribute to distortionary prices. The existence of monopolies or market power is often
aided by barriers to entry.

Barriers to entry for firms into a market

Barriers to entry into markets for firms include:

 Advertising - Incumbent firms can seek to make it difficult for new competitors by
spending heavily on advertising that new firms would find more difficult to afford.
This is known as the market power theory of advertising.[5] Here, established firms'
use of advertising creates a consumer perceived difference in its brand from other
brands to a degree that consumers see its brand as a slightly different product.[5] Since
the brand is seen as a slightly different product, products from existing or potential
competitors cannot be perfectly substituted in place of the established firm's brand.[5]
This makes it hard for new competitors to gain consumer acceptance.[5]
 Capital - need the capital to start up such as equipment, building, and raw materials
 Control of resources - If a single firm has control of a resource essential for a certain
industry, then other firms are unable to compete in the industry.
 Cost advantages independent of scale - Proprietary technology, know-how,
favorable access to raw materials, favorable geographic locations, learning curve cost
advantages.
 Customer loyalty - Large incumbent firms may have existing customers loyal to
established products. The presence of established strong brands within a market can
be a barrier to entry in this case.
 Distributor agreements - Exclusive agreements with key distributors or retailers can
make it difficult for other manufacturers to enter the industry.
 Economy of scale - Large, experienced firms can generally produce goods at lower
costs than small, inexperienced firms. Cost advantages can sometimes be quickly
reversed by advances in technology. For example, the development of personal
computers has allowed small companies to make use of database and communications
technology which was once extremely expensive and only available to large
corporations.
 Government regulations - It may make entry more difficult or impossible. In the
extreme case, a government may make competition illegal and establish a statutory
monopoly. Requirements for licenses and permits may raise the investment needed to
enter a market, creating an effective barrier to entry.
 Inelastic demand - One strategy to penetrate a market is to sell at a lower price than
the incumbents. This is ineffective with price-insensitive consumers.
 Intellectual property - Potential entrant requires access to equally efficient
production technology as the combatant monopolist in order to freely enter a market.
Patents give a firm the legal right to stop other firms producing a product for a given
period of time, and so restrict entry into a market. Patents are intended to encourage
 invention and technological progress by offering this financial incentive. Similarly,
trademarks and servicemarks may represent a kind of entry barrier for a particular
product or service if the market is dominated by one or a few well-known names.
 Investment - That is especially in industries with economies of scale and/or natural
monopolies.
 Network effect - When a good or service has a value that depends on the number of
existing customers, then competing players may have difficulties in entering a market
where an established company has already captured a significant user base.
 Predatory pricing - The practice of a dominant firm selling at a loss to make
competition more difficult for new firms that cannot suffer such losses, as a large
dominant firm with large lines of credit or cash reserves can. It is illegal in most
places; however, it is difficult to prove. See antitrust.
 Restrictive practices, such as air transport agreements that make it difficult for new
airlines to obtain landing slots at some airports.
 Research and development - Some products, such as microprocessors, require a
large upfront investment in technology which will deter potential entrants.
 Supplier agreements - Exclusive agreements with key links in the supply chain can
make it difficult for other manufacturers to enter an industry.
 Sunk costs - Sunk costs cannot be recovered if a firm decides to leave a market. Sunk
costs therefore increase the risk and deter entry.
 Switching barriers - At times, it may be difficult or expensive for customers to
switch providers
 Vertical integration - A firm's coverage of more than one level of production, while
pursuing practices which favor its own operations at each level, is often cited as an
entry barrier.

Globalization means the integration and democratization of the world's culture,

economy, and infrastructure through transnational investment, rapid
proliferation of communication and information technologies, and the impacts of
free-market on local, regional and national economies. According to late
Pakistan's most prominent economist late Dr. Mahbub-ul-Haq  "Globalization is
no longer an option, it is a fact. Developing countries have either to learn to
manage it far more skillfully, or simply drown in the global cross currents."

The process is not new of course, and started almost as soon as mankind began to trade. It
experienced, however, through history a number of "bursts", such as at the time of the Great
Explorers, the Industrial Revolution, the Colonial Experience, and more recently, the
Transport and Communication Revolution, through which the world has progressively
"shrank" as far as the economic space and time is concerned.

 Causes of Globalization

While it is truethat state ventures (or adventures) have at times driven the process, e.g. the
colonial conquests, the globalization process has largely reflected market forces, specifically,
the exploitation by large and smaller businesses in the world of benefits from trade in
commodities, goods, services, capital, and even labor, and of opportunities for new
investments and markets.

The process of global economic integration was perpetrated at the behest of World War II,
when the leaders of Britain and the US helped establishing the World Bank and International
Monetary Fund in 1944 to promote a liberal, capitalist world to counter the shadows of
Socialism and Marxism.

The loans are granted by IMF and WB on the condition that the borrowing country will
reduce the state's role in the economy, lower barriers to imports, remove restrictions on
foreign investment, eliminate subsidies for local industries, reduce spending for social
welfare, cut wages, devalue the currency, and emphasize production for export rather than
for local consumption. Such conditions imposed laid the basic foundation to open economies
to steer the mechanism of economic integration giving birth to the World Trade Organization.

By mid 1950s Pakistan had become a favorite candidate for receiving the benefits pledged
by President Truman, having joined the network of international defense treaties with the
United States. It marked the beginning of an enduring trend in Pakistan to follow every one
of the strategies of development devised successively in Washington and promoted globally.
Pakistan's own Dr. Mahbub-ul-Haq called this trend the pursuit of "development fashions"
and listed it among his "seven sins of economic planners."

Before development theory and practice could be redesigned in any significant way to
address the lingering issue of social justice it was literally hijacked to serve the agenda of a
more aggressively mobile global capital which aimed at a deeper integration of all national
economies into the structures and ideological framework of neo-liberal globalization. Foreign
debt is the main lever used by donor countries and multilateral aid organizations to break
resistance to the imposition of external economic agendas and development policies.

Claimed Benefits of Globalization

World has discovered new trade routes and improved the technology of transport to obtain
the benefits from the process of openness.

Openness to foreign direct investment can contribute to economic growth by stimulating

domestic capital formation and improving efficiency and productivity, as a result of greater
access to new technologies.

Increased competition and access to the domestic financial system by foreign banks
may improve the effectiveness of the intermediation process between savers and
borrowers, thereby lowering markup rates in banking, as well as the cost of
investment, and again raising growth rates.

Financial openness helps to lessen asymmetric information problems and to reduce

the fixed costs associated with small-scale lending; it can enhance the opportunities
for the poor to access the formal financial system.

It is widely accepted that openness has long been seen as important element of
good economic policy and trade liberalization as necessary step for achieving it.

Trade liberalization process often works as an instrument to combat poverty: it

usually tends to increase not only incomes but also provide some additional
resources in order to overcome the issue of poverty.

Globalization or trade liberalization in general is being found to increase economic

opportunities for consumers and producers and to raise earnings for workforce and
that under grater openness to trade, resources tend to be reallocated towards
productive activities and away from less efficient activities.

Foreign Direct Investment (FDI) is well attracted by openness to the free flow of
capital, which then stimulates domestic investment and contributes to employment
generation and economic growth. Financial openness also helps to increase the
depth and breadth of domestic financial markets, leading to increased efficiency in
financial markets through lower costs and improved resource allocation.

 The Consequences of Globalization

Mainly, the general views about globalization can be categorized into four main
perspectives that are economic, technological, development, and societal
respectively.

The Economic Perspective: of globalization is the growth of world trade as a

proportion of output (the ratio of world imports to gross world product, GWP, has
grown from some 7% in 1938 to about 10% in 1970 to over 18% in 1996). It is
reflected in the explosion of foreign direct investment (FDI): FDI in developing
countries has increased from $2.2 billion in 1970 to $154 billion in 1997. It has
resulted also in national capital markets becoming increasingly integrated, to the
point where some $1.3 trillion per day crosses the foreign exchange markets of the
world, of which less than 2% is directly attributable to trade transactions.

The Technological Perspective: involves Information Communication Technology

(ICT) what explains this globalization? It certainly lies in the development of
technology. The costs of transport, of travel, and above all the costs of
communicating information have fallen dramatically in the postwar period, almost
entirely because of the progress of technology

The Development Perspective: is the most controversial and important of all. It

touches the heart of dichotomy which today globalization phenomenon faces. It tries
to find the clues of the increasing divide between the rich and the poor, the existing
cleavage between the ICT haves and have-nots, under the umbrella of one world
concept of integrated markets and capital flows. Above all it challenges the greatest
protagonists of globalization, the global institutions of World Bank, IMF, and even
WTO one hand. One the other it has created a massive wave of antagonists
threatening the industrial nations through anti-globalization relays, protests, and
strikes.

 The Societal Perspective: focuses on some key factors which have become
pivotal to ensure the longevity of success of developed nations and that are their
sensitivity to the community, cultural norms, and environmental care. This includes
the condition of human rights, women empowerment, gender sensitization, civic
education, status of women in the society, political status becoming more
democratic, freedom of speech, rule of law, equal access to resources and level of
education.

 Globalization is also a key to future environmental changes. Decisions made by the

private sector, in its search for comparative advantages, are increasingly affecting
where and how people live and work. Globalization is having a major impact on
population migration, population distribution, particularly through accelerating
urbanization trends, and growth of mega-cities. These population changes are in turn
impacting on security, governance, poverty, health and environmental factors

 Globalization research raises many questions with respect to contemporary forms of

power--economic, political, cultural--as well as strategies to challenge power and
promote alternatives. To what extent do globalization processes produce global
convergence, for example, towards economic insecurity? Do local conditions
produce "varieties of globalization" at local levels? Are states overwhelmed by
corporate power? To what extent do states shape the new global economy? With
respect to questions of resistance, in what ways do globalization processes facilitate
or constrain new opportunities for collective action? In the age of transnational
corporate institutions, in what ways has social activism responded to this
transnational context?

The increase of globalization surfaced many complex and controversial issues as

economies and societies became more interdependent with greater frequency of
interactions between one another. A number of important trends make up
globalization including: (1) location of integration activities; (2) impact upon poorer
societies; (3) flow of capital; (4) migration of labor and work; (5) diffusion of
technology; (6) sustainability of the natural environment; (7) reconfiguration of
cultural dynamics; and (8) development of organizational strategies for global
competition.

Many authors specialize in exploring each issue with much greater depth. The
purpose of reviewing the different trends in this essay is to provide some highlight
concerning the interrelated complexities underlying globalization.

Read more: Globalization - strategy, organization, levels, system, advantages,

manager, model, business, competitiveness
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Gov/Globalization.html#ixzz1M4j4ZpTX

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