New Market Entry Strategy

When the growth of the business achieves its maximum potential in existing market and there is no significant expansion possible companies are looking for a “step change” to bring extra revenue. The obvious solution is a New Market Entry i.e. going international.

New Market Entry is a tedious process, which requires a detailed market research, thorough planning and precise execution. In this article we will briefly touch upon main steps in this process, which we divided into 2 main parts: PART I – ANALYTICS, PART 2- IMPLEMENTATION.

ANALYTICS

Project goals and objectives
New Market Entry is a complex project and as any other project it requires clear goals and objectives to be set up from the start. These will be the parameters against which you will be measuring the success in Post Investment Review.

Market Research and Analysis
The basic rule is as follows: know where you are going. Ignorance will cost you dearly. Use all available sources of information and be creative in finding non-standard sources of information. A lot of foreign markets information is usually available through US and local government resources.

Risk Assessment
Risk/ease of entry assessment should be performed based on market research information. Some of the risks to be aware of are: entry barriers, foreign currency regulations, changes in legislation, etc. It is advisable to build a risk model, which encompasses all factors with a certain system of scoring attached to each of them. The high overall score will signify the higher risk of entry. Your company should identify for itself where on this scoreboard there will be the “red line” which cannot be crossed.

Competitive Positioning
Study your competitors, never underestimate them and, if they already went the same route you are going, learn from their mistakes. Identify your strength and weaknesses vs. competition and choose a target market segment where you are most likely to succeed. Know all government regulations with regards of competition (competition laws). Be aware that you might be facing local competitors who have strong government support and protection and thus, you might find yourself in a disadvantageous position at best or face an unfair competition at its worst. It is better to start with a niche and slowly grow bigger, especially in emerging markets because you might scare the local competitors protected by the government who might create artificial but strong barriers to entry. The actual question of how to compete will be discussed below in Part 2 – Implementation.

Profitability Analysis
Identified risks should always be evaluated vs. potential rewards. After a target market segment(s) is(are) identified the calculations of potential market share gains, volume and revenues forecasts should be made. Forecasts can be made based on historical data and projected growth rate in each of the identified segments.

Every new market entry will require a certain amount of investment. Any investment proposal should be evaluated through the calculation of the discounted cash flow generated by the project.

IMPLEMENTATION

Getting approvals and certifications
The market research that has been performed will indicate the relevant authorities in the country that regulate the industry in which your company operate. You have to start implementation stage with obtaining all necessary approvals and certifications.

How to compete
Your company’s competitiveness will depend on 3 main constituents:
Customer Value Proposition: your company’s unique product/service proposition that is different from what is already on the market and which will add value to the customer.

Sources of Competitive Advantage: a company has a sustainable competitive advantage when customers perceive consistent benefit between your company’s offering and the competitive offerings. This difference results from a capability gap between your company and competitor organizations

Relationship-building with key stakeholders: it is very important to identify all stakeholders and build relationships with them. These usually include: government, authorities, environmental agencies, pressure groups, distributors, etc. They may not be your direct customers but they are very strong influencers who have the power to decide the conditions of your presence in the country.

Marketing Mix
As part of implementation stage a classic marketing mix should be developed (Product, Price, Place, Promotion). The specifics of the marketing mix will depend on the results shown in the market research and your company’s competitive positioning.

Establishing the supply chain
A new market entry will require the establishment of a new supply chain. The success of the supply chain will determine the success of the project because even if your product is great and the price is competitive but it takes months for it to get to the destination, transportation costs are “eating” your price competitive advantage and the product arrives damaged or not in ordered quantities then no one will ever want it.

It is very important to calculate the most efficient mode of transportation, where “efficient” means the ultimate combination of being cost effective and reliable/secure.

You also have to be familiar with customs regulations of the market: required paperwork, fees and duties, etc.

HR strategy
Your team on the ground will be the one implementing your strategy. You will need people who learn and adapt quickly to the new environment, who are flexible and culture sensitive.

You need to decide who of the existing experts you are going to use and how much local staff you need and for which functions. You have to know well the country’s regulations on employment of foreigners, work permit procedures, registration process etc.

Post investment review
Any investment decision carries with it the responsibility to ensure that performance of the project is measure against original objectives and projections. Post investment revue is an important step, which can reveal the consequences of the new market entry decision and provide lessons to be learned for future market entries. Here are some important indicators that should be evaluated: volumes, margins, market share and operational costs.
The timing of the revue will vary depending on the type of business but generally it should be the second or third year of operation in the country.

Exit strategy
Unfortunately, thing do not always go according to plan and you have to be prepared for this scenario as well. There may be many reasons why a company can decide to exit the market. Usually the contribution analysis and the competitive analysis show vividly an undesirable situation. In most of the cases when company finds itself in a poor competitive position in a poor market segment and no actions are capable of improving the situation the company might decide on exit strategy.

The general rule of the exit strategy is to maximize short-term cash generation. No more investments should be poured into the market and the market share should be allowed to slip till the time the business do not generate any more cash and this will be the point to quit.

When developing a specific exit strategy several external factors should be taken into consideration and well thought out, such as: political and social implications, competitor reaction, public relations issues - to name just a few.

It is very important to maintain good face and excellent company reputation through the whole process. Openness and fairness of approach as well as buy-in of the local team will help a lot.

CONCLUSION
I cannot stress enough that a New Market Entry is a very complex project, which requires detailed preparations and can last for years. A company should have enough human and monetary capital to invest in it.

But most importantly a company should always bear in mind that everything comes with a price: while the success of the project will be internationally recognized the failure will well publicized too. A mistake on a local scale may pass unnoticed; a mistake on a global scale may never be forgotten.

Article Source: http://www.mycontentbuilder.com

About the author: EMAdvice = Emerging Markets Advice (www.emadvice.com) provides consulting services in the field of international marketing and busiess development. We are your Navigator in the uncharted territory!

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