When expanding internationally, there are a variety of ways to enter a new market. Basically, you have three options; you can decide to trade, collaborate, or create.
Trade Exporting is typically the cheapest and lowest risk way to enter a new market. You don’t build a local presence in the new market, and you manage things from your home country.
Collaborate There are different ways to collaborate with partners structurally. You can set up a distribution, franchise, license, subcontract, or build a strategic partnership with a local player. Collaborating with a local partner can be a great way to learn about the new market and quickly gain traction if done right.
Create You create a new venture through a merger or acquisition, or by setting up a joint venture. Establishing a new business is also known as a greenfield venture.
The more you move to the right on the chart, the more you need to invest and take risks. However, it also means that you are showing a higher commitment to the new market.
There is no “one size fits all” for Market Entry
Here’s the truth: no one market entry strategy works for all international markets or all industries. Export may be the best strategy to expand to a neighboring country, while hiring a local sales manager may be necessary for overseas and large markets such as the USA. An acquisition may be the way to go for a big corporate, while young companies may need to opt for an organic growth strategy. There is a range of factors that define which strategy will work best for you. To make the best choice, you need to have a deep understanding of the market. Some factors to consider are tariff rates, transportation cost, local labor cost, marketing, and sales requirements, etc.
Balancing Risk, Control and Flexibility
Before choosing your market entry strategy, you need to consider three things.
Risk How much do you want to invest, and how much risk are you willing to take? Exporting without a local presence in the new market is typically a low-risk strategy. You don’t need to invest much but know that it is hard to understand the market without a local presence.
Control How much control do you need to keep over the operations in the new market? If you are selling a complex product that requires integration and after-sales service, it might be essential to maintain a high level of control to ensure high quality. In this case, it might be an excellent option to create and set up a local sales and service office.
Flexibility How much flexibility do you want to exit the market? If you don’t know yet if there is an opportunity for your business, and you are just testing the waters, you want to choose a flexible strategy and be able to exit the market without incurring high costs.
Choosing the Right Strategy is a Process, not an Event
The right market entry can be a combination of strategies, and it can also evolve over time. You can start with exporting, soon realizing you need a local distributor to store and deliver your goods. Or, at first, the headquarters can take care of after-sales, but once the volume is too big, you might want to train a local partner. In a constantly changing world, your strategy is ever evolving. A strategy is an ongoing process and needs to be adapted to new opportunities and unforeseen circumstances.
When your company expands to a new country, it is increasingly important to show commitment. It means being serious about building a business in a new country, investing time and money to achieve ambitious goals, never settling, and refusing to throw in the towel when things are getting tough. Showing commitment opens doors, builds trust, and attracts many good things to your business.
Fixed on the Vision, Flexible on the Journey
On your way to success, you must know where you are going, but no navigation system will tell which exact route to follow. It is impossible to work out a strategy that considers all the unexpected and unplanned events that will inevitably take place. The road to success is not a straight line. Jeff Bezos, founder and former CEO of Amazon once said that the company is “fixed on the vision, flexible on the journey. The ability to embrace change and the talent to adapt quickly to new circumstances are key to be successful in this fast-changing world.