How Does Barriers to Entry Impact on Small Businesses in South Africa?

In South Africa, barriers to entry have a big impact on small businesses. As you have learnt this in your Business Studies textbook.

This impact is mostly felt in 6 critical areas, which are: growth, funding, access to markets, pricing, compliance, and competition.

But before we go further, let us explore what are the barriers to entry, which are posed by government, big corporates, and certain outdated systems on small businesses.

Barriers to entry in the South African economy are in the following forms or ways:

• High compliance costs and red tape – registering a business, getting licences, and dealing with tax paperwork is expensive and slow
• Access to funding – most banks don’t take small businesses seriously unless you already have money
• Big business dominance – large companies already control supply chains, making it hard for newcomers to get in
• Tender processes and regulations – small businesses are often excluded due to unrealistic B-BBEE or turnover requirements
• Location and infrastructure limits – township and rural businesses struggle with poor roads, no Wi-Fi, and no delivery access
• Lack of networks and exposure – many small business owners are disconnected from industry opportunities

Now, these barriers block and slow down small businesses until some of them are forced to shut down unnecessarily.

This is a clear indication that the small businesses in South Africa, are facing a huge structural disadvantage that needs serious attention.

The 6 Ways How Barriers to Entry Impact Small Businesses in SA

The main six ways on how barriers to entry impact small businesses in South Africa are the following:

1. Lack of Access to Funding

The very first and most important barrier to entry that impacts small businesses the most is access to funding. We see this everywhere, from township kasi tuckshops trying to expand, to young entrepreneurs needing capital for stock or equipment.

Small businesses are severely impacted by strict loan requirements and a lack of trust from banks, in a way that forces them to depend on loan sharks, family savings, or give up completely because no one wants to take a risk on them.

2. Compliance and Red Tape

Another major barrier is too much red tape and unrealistic compliance requirements. From registering a company with CIPC, to getting tax clearance, B-BBEE certificates, and industry-specific licences — the process is expensive, slow, and confusing.

Small businesses are forced to spend money on consultants just to be “compliant”, while big companies already have teams for that. This delay alone is enough to block small businesses from operating or applying for tenders.

3. Big Business Dominance

In many industries, big businesses already own the market, making it hard for smaller players to even be seen. Whether it’s retail chains, food suppliers, or courier services, the large companies control pricing, distribution, and exposure.

Small businesses are squeezed out before they even start, because customers already trust the bigger names, and suppliers give them better deals and more access.

4. Limited Market Access

Even when small businesses are ready to trade, getting into the market is a struggle. They don’t have access to major shopping centres, commercial spaces, or high-traffic digital platforms.

Many are stuck relying on word of mouth or social media, with no proper channels to reach customers in bulk, especially in rural or informal areas.

5. Pricing Pressure

Because big companies can afford to drop their prices and run promotions, small businesses are forced to compete in a price war they can’t win.

This leads to small businesses undercharging, cutting corners, or selling at a loss — all just to survive. Eventually, many close down because they simply can’t make enough money to keep going.

6. Lack of Support Networks

Lastly, many small businesses don’t have access to business mentors, legal advice, or partnerships that can guide them through early challenges.

Without these support systems, they make avoidable mistakes, fall into bad deals, or fail to respond to market changes in time — all because they are isolated in their business journey.

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If we take a closer look at what constitutes barriers to entry, we will see the following:

• A barrier to entry is regarded as anything that makes it hard or expensive for a new or small business to enter a market.
• It is characterised by unfair restrictions, high startup costs, strict regulations, and dominance by big players.
• And it is often confused with normal business challenges, when in reality, barriers are built into the system in a way that protects those who are already winning.

Looking at all the 6 ways how barriers to entry impact small businesses, as discussed above, we can see that some South African small businesses are not failing simply because of poor ideas or laziness, they are being locked out, delayed, and pushed aside by a system that was not designed to support them from the start.

Thank you.