Expanding a business into foreign markets is usually a worthy endeavor and can open up huge growth possibilities, but it does bring new challenges too, such as unfamiliar customer behavior, unacquainted market response to products or services, universal payment methods, cultural differences, and tariffs and export fees. Without understanding customer behavior, it becomes very difficult for businesses to offer a customer-centric and personalized experience to their customers. Therefore, for businesses to succeed in the global market, it is crucial to have winning market entry strategies in place to review macro and microeconomic environments and assess a market’s readiness for new offerings. Additionally, companies need to do a proper market analysis to identify the potential risks that they can face in foreign markets.
At Infiniti Research, we understand the impact that international market entry strategies can have on your business. And to help companies excel in the target market, our team of experts has provided a detailed guide to market entry strategies to help businesses break into foreign markets.
Identifying potential barriers to market entry, comparing competitor offerings with available alternatives, and building robust market entry strategies are daunting tasks. We can help!
What are Market Entry Strategies?
Market entry strategies are the cluster of crucial elements that help companies gain clarity on what they want to achieve in the target market. Basically, market entry strategies refer to the establishment and management of the company’s contracts in the target market.These strategies provide companies with a roadmap for their entire business in the international market.
A typical market entry strategy framework can take up to 6 to 14 months for implementation, but it is highly recommended to have this framework in place because it can successfully launch a product, set best distribution channels in place, and align your goals with those of your stakeholders.
Still, want to know more about market entry strategies and how they can help companies to gain a competitive advantage in foreign markets? We’d love to help! Request for more information here.
What are the Different Market Entry Modes?
Market entry modes are, basically, the market entry strategies that companies use to enter the target market. It can be categorized into three different types:
- Trading strategies
- Transfer strategies
- Investment strategies
This is one of the types of market entry modes that facilitates exports, indirect exports, and e-commerce. Such strategies do not need huge investments and can help businesses establish their offices in the target market. This mode of market entry can be considered to be a crucial part of new market entry strategies. Developing better trading strategies is the first step to building better market entry strategies since it helps companies to test how well their products or services are going to perform in the new market.
Transfer strategies are considered to be one of the significant parts of market entry strategies as they include the franchising or licensing of technology and intellectual property. These strategies tend to provide an easy route to the global market. This is for the reason that the local franchisee or licensee does a lot of the hard work and you, as the foreign owner of the product, need not build a distribution network in the target market. This means that the initial investment in terms of resources, time, and financial outlay to set up is less.
However, there are some negatives to it as well. Licensing and franchising allow a third party to utilize your IPR to maximize profit and this consequently can lead you to have lesser control over the business model.
Investment strategies involve joint ventures, mergers and acquisitions, strategic alliances, and establishing a presence in-market. This category of market entry strategies covers a lot of options and levels of risk. This market entry mode usually involves higher risks and costs initially and are usually more suitable for companies with a significant presence in the global market and have a demonstrated track record in the target market.
Apart from these three broad strategies, there are five significant modes of entry into foreign markets. They are licensing agreement, a joint venture, exporting directly, purchasing foreign assets, and online sales.
In this mode of market entry, companies entering the international markets, sign contracts with foreign businesses. These foreign businesses are called “licensees,” and they allow foreign companies to manufacture and sell the products or services of the company legally. The foreign companies will either pay a percentage of their revenue or regular licensing fee over time in the form of royalties to these licensees. Licensing agreement allows a company to devise inexpensive market entry strategies and also, provides little control over the foreign marketing and sales of the products and services.
The joint venture is one of the most popular market entry modes. In this mode, two businesses combine their resources to sell products or services. Countries like China often require foreign companies to have partnerships with any local company to sell products or services to their residents. Establishing joint ventures help companies to frame robust market entry strategies.
Some companies choose to simply sell their products or services to overseas distributors. These distributors are in turn responsible for selling those products or services to customers. direct exporting is considered to be one of the smartest market entry strategies as it avoids investments in developing manufacturing facilities in foreign markets. But there is one disadvantage to it that restrictive tariffs and transportation costs may make this mode of market entry uneconomical for certain products or services.
Purchasing Foreign Assets
Many companies choose to simply invest in or purchase a foreign company rather than launching an entirely new venture. Purchasing foreign assets this way is also considered to be a significant part of market entry strategies. Although it is more expensive, but direct investment offers the investing company to fetch profits from a business that is already well established in the local market.
Many companies try to enter foreign markets indirectly, by targeting foreign customers online. In such cases, firms retain their physical operations in their native countries but sell products overseas. In the online sales mode of market entry, companies take direct orders from consumers. This is one of the most beneficial steps in market entry strategies as it entails only the cost of a website and marketing. The disadvantage is that it is not that less effective as the physical presence in the foreign markets. Customers are often discouraged due to duties, shipping costs, and taxes that may be levied by their government and the length of the delivery time.
For more information on our portfolio of market intelligence services and how to gain a competitive advantage in any market with robust market entry strategies, request a free proposal.
How to Choose Your Market Entry Modes?
Choosing suitable market entry modes for your business forms a very important part of market entry strategies. So, you need to check the following before you choose one:
#1. Time and resources available within your company
Before you choose a market entry mode for your company, you need to ensure that it is compatible with the time and resources available within your company. You need to think about the kind of realistic inputs and level of risk your company can accept. Additionally, to devise winning market entry strategies, you need a clear understanding of what sort of ROI you need to make the risk worthwhile.
#2. The nature of your products or services
It is very essential to check whether your products or services are intangible or physical before hitting the global market as it forms an integrated part of market entry strategies. Do they need customs clearance or can travel freely across the internet? You need to have in-depth knowledge of your market, regulatory environment, business culture, and banking system.
#3. Business conditions and regulations
You need to check the business in the target market need permits, licenses or it needs to cross any tariff barriers as it might make it difficult for your company to operate there in its own right. This helps you make robust market entry strategies.
#4. Analyze the need for on-ground representation
Every business targeting to go global has a privacy and security concern. Therefore, it is important that you check and analyze the need for on-ground representation. This strengthens your market entry strategies even more and helps your company to increase the potential customer base efficiently.
Steps to Create Winning International Market Entry Strategies
Step #1: Define your company goals
Defining and setting goals for your company forms a primary step while devising market entry strategies. You need to be very specific about what your business goals are in the target market. This includes the level of sales you are expecting to reach. Loose goals are unacceptable while devising winning market entry strategies as your products or services, opportunity, and overall business goals are aligned.
Step #2: Research your market
Researching your market forms the second very important step in market entry strategies. You need to do a thorough market analysis by:
- Online research
- Going there in person
- Visiting trade shows as an exhibitor or participant
- Examining the competition
- Establishing business contacts in the new market
Also, you need to learn about the cultural, social, and political climate of your target market. You must necessarily explore all the necessary rules affecting your products or services. Additionally, understanding the requirements of labeling to ensure your packaging complies with local regulations forms an integral part of market entry strategies. Furthermore, you need to learn about different distribution channels.
Step #3: Analyze the competition in your target market
Analyzing your competition forms a very crucial step while devising market entry strategies. It helps in making wiser and informed decisions. Most businesses tend to underestimate the degree of competition existing in the foreign markets but getting advice from the expert can help mitigate the challenges.
Step #4: Choose your mode of entry
You need to choose your mode of entering a new market wisely. You can become a franchise or acquire an existing business in the target market. While choosing your market entry mode you need to ensure that your strategies involve a unique value proposition for the distributor.
Step #5: Check out your financing needs
Checking out the need to get any financial support for your export venture is very important for robust market entry strategies. Also, you may want to get insurance that prevents your organization from risks when a customer cannot pay.
Step #6: Frame the strategy document
The strategy document is supposed to work as a blueprint in the future. It aids in research findings, detailing your goals, budgets, contracts, timelines, and major action items. Also, it can help in monitoring and evaluating the performance of your company on an ongoing basis. It is crucial to have this document in place so that you are not overwhelmed in a new market.
Business growth amidst the rising competition in the international market is not an easy task. It requires developing robust market entry strategies, analysis of your target market, keeping tabs on target market segments, tracking emerging market trends, global market developments, comparing competitor offerings with available alternatives, and a lot more. Request a free proposal to gain unlimited access to our portfolio of market intelligence services.