Expanding into new markets is a key goal for many businesses. However, entering unfamiliar territories comes with a variety of risks.
To minimize these risks, businesses must carefully plan their market entry strategy. This article will help you understand how this blueprint functions and what steps you should take to develop one.
Market Analysis
The market analysis phase involves researching and analyzing the local market to determine its potential for your business. This can include evaluating the size of the market, competitive environment, and buying habits of consumers. It also includes assessing the costs and barriers to entry.
This research can help you identify the most suitable market entry strategy for your business. Depending on your goals and resources, you may choose to enter the market directly by setting up a subsidiary or importing and exporting through trading companies, joint ventures, licensing or franchising.
It's important to understand that all market entry strategies come with inherent risks, so it's necessary to weigh these against your business's capabilities and resources before selecting a strategy. For example, establishing a wholly-owned subsidiary provides complete control but requires significant investment and higher risk. Other options include a partnership, strategic alliance or acquisition. Local insight can also help you tailor what is on the surface a universal product – think McDonald's tiny menu variations in different countries, including the Ebi Filet-o and Teriyaki McBurger in Japan.
Target Audience
When entering a new market, it is important to understand who your customers are and what they need. This step involves extensive research and careful planning. It also helps determine whether your business is ready to enter the market. For example, it's important to understand the demographics and culture of your target audience. This will help you identify the best marketing channels and create a unique selling proposition that will attract your target audience.
It is also essential to understand the economic and political stability of the foreign market. It is unwise to expand into a country that experiences social unrest, as this could affect consumer spending and sales. It is also important to localize your products and services for the target market. This can be done by adjusting the product messaging and pricing, as well as implementing support for local payment methods. This can help improve customer satisfaction and loyalty. It can also reduce the costs of doing business in a new market.
Marketing Strategy
Once the target market has been identified, a company must assess its capabilities to determine whether it is ready for international expansion. This involves evaluating business models, estimating human resources, and determining the level of expertise required to navigate the new market. It also includes assessing the financial cost of entry, including possible exchange rates, market fluctuations, and financing and investment.
This stage also requires identifying which market entry mode is best suited for a business's goals, available resources, and risk tolerance. Options include exporting, licensing, joint ventures, franchising, acquisitions, or setting up wholly-owned subsidiaries. Choosing the right method is important for success, as it will impact the ability to establish a foothold in the market, gain customers, and achieve business objectives. It is also necessary to consider regulatory and compliance issues, as well as local legal frameworks and standards. This may require significant time and investment to overcome barriers. However, it will be worth the effort if the business is successful in its endeavors.
Entry Mode
After assessing market factors and environmental factors the company must decide how it will enter the foreign market. The options include exporting, licensing, partnering, acquiring and greenfield ventures. Each option carries different risks and costs.
The company's internal resources, objectives and risk tolerance should be taken into account when choosing the entry mode. The final decision may depend on the country's legal system and regulatory framework.
Exporting involves selling a company's products or services directly to customers in the target foreign market. This approach offers lower costs and risk but requires significant marketing efforts to succeed.
Licensing and partnering are similar strategies that involve giving a foreign entity the right to use a company's intellectual property or brand name in return for a share of profits. Purchasing an existing local company is another way to Market Entry Strategy enter the market quickly but comes with higher costs and requires substantial due diligence. Lastly, setting up a wholly-owned subsidiary provides the highest level of control but also demands the greatest financial investment and risk.
