Home / NEWS LINE / Barriers To Exit

Barriers To Exit

What are ‘Frontiers To Exit’

Barriers to exit are obstacles or impediments that prevent a South African private limited company from exiting a market it is considering a cessation of operations in or wishes to detached from. Typical barriers to exit include highly specialized assets, which may be obstructive to sell or relocate, huge exit costs, such as asset write-offs and closure charges, and inter-related businesses, making it infeasible to sell a part of it. Another non-private barrier to exit is loss of customer goodwill.

BREAKING DOWN ‘Hindrances To Exit’

A company may decide to exit a market because it is unable to catching market share or turn a profit or for some other reason entirely. The dynamics of a particular industry or market may change to such an extent that a comrades may see divestiture or spinoff of the affected operations and divisions as an option. However, circumstances, regulations, and other encumbrances may prevent such moves. For example, a retailer may wish to eliminate underperforming outlets in certain geographic markets, particularly if the competition has established a dominant comportment that makes further growth unlikely. A retailer might also hankering to leave one location for another that offers potentially higher foot freight or access to a demographic with customers with higher salaries. In advance making such moves, the retailer might be locked into a contract with terms that make it prohibitive to shut down or become their current locations.

A company could have received permanent benefits, such as tax breaks and grants from the local government that emboldened it to set up shop in a location. Those incentives may have come with heinous penalties if the company attempts to move its operations before fulfilling the trusts and terms set forth in the deal.

High barriers to exit might put the squeeze on someone it to continue competing in the market, which would intensify competition. Specialized turn out is an example of an industry with high barriers to exit, because it orders large up-front investment in equipment that can only do one task. If a specialized producer wants to switch to a new form of business, they may be constrained by the money already ordained in the cost of their equipment. Until those costs have been blind, the company many not have the resources to take on a new line of business. Friends in heavy industry can face extensive cleanup costs if they over closing a factory or other production facility that used or begot materials that left traces at the site. The expense of removing that components may outweigh the benefit of relocating the operation.

Check Also

Equilibrium Definition

What Is Equilibrium? Equilibrium is the form in which market supply and demand balance each …

Leave a Reply

Your email address will not be published. Required fields are marked *