Setting the Foundation for Your Market Entry Strategy
International expansion can start a challenging new venture for businesses of any size. Entering overseas markets presents new customers, revenue streams, and competitors to help grow your business. Before you get started, discover why you should enter a new market and how to target a foreign market.
Why Expand into a Foreign Market?
In an international market entry strategy, your goals must be made clear. With thorough research and an understanding of your current customer base, you can expand your marketing plan to a new target market. Your new marketing campaign will be based on competitor and market research and include product and messaging adaptations to address local language and culture.
Here are some questions to consider when developing your international market entry strategy:
- What do you want to achieve in the new foreign market?
- What is the competitive landscape of your industry?
- What is your budget for your international marketing campaign?
- What are the risks of market entry? Are you willing to take them on?
Which Markets Are You Entering?
An international strategy is an option for many businesses because they can leverage existing capabilities and export abroad. A global strategy features cost efficiencies and can work well for businesses requiring a low need for local responsiveness and localization. An example is Apple, which sells its products with standardized models and prices. There are few differences between Apple products for marketing strategies across the globe.
No matter what your business sells, it is essential to research and plan the growth of your business. If your business grows too quickly or expands into too many markets at once, you could experience financial, legal, staffing, resource, and supplier problems. Business growth should be sustainable to be successful. Some factors to consider when choosing a market to expand to include:
- Market Size
- Local Competition
- Shipping Cost and Supply Chain
- Government Regulations and Local Laws
- Political, Economic, and Operational Risk
8 Types of International Market Entry Strategies
There are several international market entry strategies to consider when planning. Each strategy has a unique structure and approach depending on how the business is established, maintained, invested in, and run.
Exporting
Exporting is the marketing and direct sale of domestically produced goods to another country through a distributor. This is a great first step in global expansion because it allows you to enter a foreign market with low overhead costs.
It is viewed as relatively low risk and highly profitable because you do not need to create new or localized products for the target market. Also, some companies choose to export because there is less competition overseas.
One challenge some companies face is how to scale without hiring in-country resources and staff for the new international markets.
Piggybacking
Piggybacking is a swift and cost-effective international market entry strategy. It involves collaborating with non-competing companies to mutually promote each other’s products or services within their home countries. This strategy requires a foundation of trust as partner companies oversee foreign marketing.
Consider piggybacking if your company has contacts in organizations selling abroad. This strategy involves adding your product to their overseas inventory. If an agreement is reached, both parties share profits from sales. Your company can focus on domestic retail while the partner handles international marketing, reducing overseas selling risk.
Countertrade
Countertrade is a creative approach to facilitate sales between an exporter and a company in a currency-limited country. Instead of traditional currency transactions, countertrade involves trading goods and services. It enables trade in countries lacking import payment capability due to factors like currency scarcity or credit constraints. Companies often consider countertrade to expand into foreign markets, boost sales, nurture customer relationships, overcome liquidity issues, and gain a competitive edge.
While countertrade offers advantages such as entry into challenging markets and overcoming credit difficulties, it presents challenges like uncertain deal value, time-consuming negotiations, higher transaction costs, and logistical complexities.
Licensing
Licensing gives legal rights to parties within international markets to use your company’s name and other intellectual property to sell your product. A licensee can produce and sell products under your name or offer services using your brand. In exchange, you get royalties or other payments. It can be an effective way of entering a market, especially if you’re a service business that needs a local workforce or your products would benefit from local manufacturing.
A downside of licensing is how a licensee behaves towards customers, the quality of their output, and how they market your product can affect the brand. Thorough due diligence is needed to find potential partners. Brands that come to the table with detailed research on their new market are much more likely to solidify essential factors for a successful licensing partnership.
Franchising
One of the most popular international market entry strategies is the franchising process. Franchising is similar to licensing but requires a lot more heavy lifting. Franchising works well for organizations with a trustworthy and established business model, such as McDonald’s or Starbucks. Businesses that begin franchising should ensure that they earn a good brand name, build on it, and promote it.
Franchising is a contractual international market entry mode as a licensing agreement when an organization wants to enter a foreign market quickly with low risk and resource commitment. In addition to the standard license process, a company will assist in establishing the business with the design, equipment, organization, and marketing support for a contractual partner in the target market.
In return for the franchisor’s services, the franchisee pays a lump sum payment up front and a share of future profits. Through this contractual relationship, the success of the operations is interdependent, but the franchisor gains other advantages from the partnership than the franchisee.
Joint Ventures
A joint venture is a partnership between two companies that may sometimes be domestic and foreign firms. Both invest money, share ownership and control. The foreign partner provides expertise, connections, and access to the new market. Joint ventures are riskier but allow faster entry into foreign markets. They can offer tax advantages and may be required in some countries.
Joint ventures are temporary, dissolve after the project, and can involve unequal contributions. An agreement is crucial, specifying contributions, profits, and responsibilities. Examples include real estate, media, and tech sectors.
Foreign Direct Investment
Foreign direct investment (FDI) occurs when a company takes controlling ownership in a business entity in another country. With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they’re bringing money into the investment, knowledge, skills, and technology.
FDI involves creating a lasting relationship with and gaining significant influence in the foreign market. Through FDI, companies can lower production costs and gain access to markets they otherwise may not have been able to do on their own. For the destination country, FDI can be a source of resources and technology and can spur economic growth and development. However, FDI does come with risks for investors and can raise concerns about foreign influence in target countries.
Wholly-Owned Subsidiary
Another way large businesses invest is to set up a wholly-owned subsidiary. With a wholly-owned subsidiary, a local business is entirely under the parent company’s control, running under the same brand or another name that may be chosen.
A subsidiary can be created from scratch, but buying a local business outright is often easier than turning it into a new subsidiary. This model has the same pros and cons as direct foreign investment. The primary difference is that you have greater control over operations on the ground, as the parent company manages the subsidiary.
Green-field Investment
A Green-field Investment is a type of Foreign Direct Investment (FDI) where a company starts operations from scratch in a foreign country. This involves creating new facilities like offices, factories, and distribution centers. Such investments offer control, custom infrastructure, and quality control. They can also receive incentives like tax breaks and bypass trade restrictions. However, they carry higher risks due to substantial investment.
International Mergers and Acquisitions
International Mergers and Acquisitions (M&As) offer the fastest and largest international expansion strategy and is a way to gain greater market power in less time. Market power often influences market share, so large multinational corporations prefer acquisitions to gain that advantage. M&As require the purchase of a competitor, supplier, distributor, or business to capture a competitive advantage in the market.
Acquisitions carry a lower risk than new investments because acquisition results can be more quickly and accurately estimated. Overall, acquisitions are attractive if there are well-established firms in action. However, reaching an M&A can be difficult when trying to merge two different organizational cultures, control systems, and relationships. Integration is a complex issue, both legally and financially. In addition, firms engaging in an M&A can increase their debt levels, which needs to be a consideration during an international expansion.
Challenges of International Market Entry
Doing business in foreign markets is attractive for companies of all sizes, and there are many available strategies. However, there are also challenges associated with foreign market entry. Therefore, companies must be careful while formulating market entry strategies since they may overlook specific challenges that might negatively affect their business.
- Physical Presence vs. Communication:
- Working in-country boosts collaboration.
- Long-distance affects shipping costs.
- Tariffs and Legal Costs:
- Countries impose import fees.
- Shipping laws can be pricey.
- Workforce Considerations:
- Hire locally or send an existing team?
- Vacancies due to international moves.
- Cultural Customer Interaction:
- Prepare for diverse customer needs.
- Cultural differences impact globally.
Of course, language barriers are one of the biggest challenges for international market entry. The fastest way to enter new markets instantly is by meeting people where they live, work, and shop – by speaking their language through translated content that is easy to understand and engage with anywhere.
Bridge the Cultural Gap with Localized Content
Growth-minded businesses aim to expand internationally. MotionPoint offers high-quality translation services for everything from website content, document translation, video, and audio localization, and desktop publishing, so you can fully engage your customers in their language. MotionPoint can help you engage your customers right where they are, and to give your business the edge it needs to compete on an international scale.
Last updated on October 11, 2022
