Expanding your business to new markets allows you to reach vast numbers of new customers and grow your revenue massively. However, the process may be difficult and filled with complications.
A market entry strategy is a way of maximizing your chances of success when moving into a new market. In this article, we’ll look at some of the strategies you can use.
Why move to a new market?
It’s challenging and expensive, so what are the reasons that make it worthwhile?
The number one reason to consider new markets is to grow your business and increase revenue by selling more products to more customers.
Also, there is more room for opportunities for growth in your home market especially if you’ve maxed out what your local market is capable of in terms of revenue hence, expanding to new markets may be the only way to grow.
Lastly, you’ll reduce risk by diversifying your business and so If one market suffers, you’ll have others to keep you going.
There will be a number of factors that will influence your choice of strategy, including, tariff rates, the degree of adaptation of your product required, marketing and transportation costs.
There are a variety of ways in which a company can enter a foreign market some of which include the following strategies;
Direct exporting is selling directly into the market you have chosen. Many companies, once they have established a sales program turn to agents or distributors to represent them further in that market.
These work closely with you in representing your interests. They become the face of your company and thus it is important that your choice of agents and distributors is handled in the same way you would hire a key staff person.
Licensing is where a firm transfers the rights to the use of a product or service to another firm. It is a particularly useful strategy if the purchaser of the license has a relatively large market share in the market you want to enter. Licenses can be for marketing or production.
Franchising is a process for rapid market expansion in other parts of the world. Franchising works well for firms that have a repeatable business model like food outlets that can be easily transferred into other markets.
Your business model should either be very unique or have strong brand recognition that can be utilized internationally and secondly you may be creating your future competition in your franchisee.
Partnering is a necessity when entering foreign markets in some parts of the world. Partnering takes a variety of forms from a simple co-marketing arrangement to strategic alliance for manufacturing.
Partnering is a particularly useful strategy in those markets where the culture is substantively different than your own as local partners bring local market knowledge, contacts and if chosen wisely customers.
Joint ventures are a particular form of partnership that involves the creation of a third independently managed company. Two companies agree to work together in a particular market, either geographic or product, and create a third company to undertake this. Here, risks and profits are normally shared equally.
Buying a company
In some markets buying an existing local company may be the most appropriate entry strategy. It is certainly the most costly and determining the true value of a firm in a foreign market will require substantial due diligence.
It provides you with the status of being a local company and you will receive the benefits of local market knowledge, an established customer base and be treated by the local government as a local firm.
Piggybacking is a unique way of entering the international arena especially if you have a particular interest and unique products or service that you sell to large domestic firms that are currently involved in foreign markets.
This reduces your risk and costs because you are essentially selling domestically and the larger firm is marketing your product or service for you internationally.
Turnkey projects are particular to companies that provide services such as environmental consulting, architecture, construction and engineering.
A turnkey project is where the facility is built from the ground up and turned over to the client ready to go – turn the key and the plant is operational.
This is a very good way to enter foreign markets as the client is normally a government and often the project is being financed by an international financial agency such as the World Bank.
Greenfield investments require the greatest involvement in international business. A greenfield investment is where you buy the land, build the facility and operate the business on an ongoing basis in a foreign market.
It is the most costly and holds the highest risk but some markets may require you to undertake the cost and risk due to government regulations, transportation costs, and the ability to access technology or skilled labour.
Foreign Direct Investment (FDI)
Foreign Direct Investment is when you directly invest in facilities you want to conquer. This method will require a lot of capital to cover different costs. In general, FDI usually occurs when an investor in a foreign corporation develops foreign business operations or acquires foreign business properties.
FDI can be achieved either by starting up a new venture or by purchasing an existing corporation.
Wholly owned subsidiary (WOS)
A WOS is similar to an FDI strategy. A wholly-owned subsidiary is a company in which entire stock is held by other company-parent businesses. The subsidiary operates independently from its parent company and has its own structure, inner culture, and products to present to the market. Here, the parent company has control over the subsidiary.
Entering a new market can be extremely rewarding and can allow your business to move to the next level and achieve new growth.
You’ll need to thoroughly research the market to understand its potential and position your product for success.