Business Markets
What factors force a firm to exit a market? Explain.
In an open market business environment, businesses are free to enter or exit the market at their discretion. Businesses enter into a market with several goals in mind to achieve, which are mainly to make profits and achieve expansion. However, not all of them can achieve these goals, with those finding it hard in the given market opting out, a process referred to exiting in business terms (Sousa, & Tan, 2018). Firms are forced to exit the market by several factors. A leading factor that has pushed many businesses out of the market is losses. All businesses are formed to make profits and expand their market shares. A majority of firms enjoy some level of profits on entering the market; however, with time, changes such as an imbalance in the factors of production result in losses, and these firms have to exit the market since they can no longer stay in business.
The other common reason that forces firms to exit the market is complexities in the market (Sousa, & Tan, 2018). This condition is familiar with firms that expand outside their country of origin to operate in foreign countries. Such firms may find it challenging to navigate the foreign market due to factors such as varying customer preferences and business policies in foreign countries. Every international market has its fair share of uncertainties, even those markets known to be “predictive.” If not well handled, this factor can force the firm out of that market. The other common condition is competition (Sousa, & Tan, 2018). Every form of market, except maybe the monopoly market, has some level of competition between the players. Foreign competition can mainly be a significant issue of concern for both local and international firms. When such competition becomes, ‘unbearable’ firms have to exit the market.
Using an article focusing on a firm leaving a market, Explain the conditions for the departure within the context of the material.
One of the firms that have had to exit a market in the recent past is Target, a retailer based in the U.S, who, in a surprise move, announced its exit from the Canadian market in 2015, less than two years after entering the market (Ho, 2015). Among the reasons for its exit was the continued losses. Before the announcement, the retailer had announced a $5.4 billion loss in pretax records with projections showing continued losses for approximately ten years into the future. The other factor that pushed the retailer out of the market was competition. In a market dominated by its American Counterpart, Wal-Mart Stores, Target stores found it difficult to remain relevant from its inception into the Canadian market (Ho, 2015). The retailer also had a significant communication breakdown between the 133 stores in Canada and the headquarters. The result was problems in management, especially in inventory. This saw the stores in Canada being poorly stocked and therefore limiting the range of selection for its customers. Many were disappointed by this, resulting in poor sales. The result was the retailer closing down all the stores in Canada.
References
Ho, S. (2015). In a surprise move, Target exits Canada and takes $5.4 billion loss. Reuters Business News. Retrieved from https://www.reuters.com/article/us-target-canada/in-surprise-move-target-exits-canada-and-takes-5-4-billion-loss-idUSKBN0KO1HR20150115.
Sousa, C. & Tan, Q. (2018). Exit from a foreign market: Do poor performance, strategic fit, cultural distance, and international experience matter?. Journal of International Marketing. 23. 10.1509/jim.15.0003.