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Market Entry Strategies


For a business considering entering a new international market, the choice of market entry strategy is of crucial strategic importance as it affects the entire marketing and business planning process. An international market strategy is defined as the planning and implementation of delivering goods or services to a new target international market. It often requires establishing and further managing contracts in a new foreign country.  The basic steps involved in entering a foreign market include:

  1. Evaluating the firm: determining the competitive advantage.
  2. Evaluating potential markets for entry.
  3. Determining the best product or line to enter the market with.
  4. Estimating the resources required.
  5. Determining the constraints on the firm.
  6. Choosing the vehicle (method for market entry).

Developing a win-win market strategy involves a thorough analysis of multiple factors, in a planned sequential manner.Many factors need to be taken into consideration including:

  1. What are the marketing objectives? Examines the volumes intended to be sold, timescales and coverage of key market segment. For example, if volumes are expected to be low initially, then setting up own manufacturing facility would not be appropriate.
  2. What resources are available in the business? Does the business possess sufficient resources to support the level of planned international business activity?
  3. Suitability of a market entry strategy. Businesses may have to use different market entry methods for different countries, i.e., some countries will only allow a restricted level of imports but may welcome the business in building manufacturing facilities to provide jobs and limit the outflow of foreign exchange. Additionally, some market entry methods are questionable on a practical basis i.e., a possible lack of suitable distributors or agents to sell and service the product.

Other factors that influence a business’s choice of strategy includes but is not limited to tariff rates, the degree of adaption of product required, marketing and transportation costs.

There are a number of ways to enter a foreign market as no one-market entry strategy works for all international markets. These broadly consist of:

  1. This is the easiest, most cost effective and most commonly used method of entering a new international market. A business can either opt for direct strategies or indirect strategies. A direct strategy is when products are sold directly to buyers in target markets either through local sales representatives or distributors where:
  • Local sales representatives promote their company’s products and do not take title to the merchandise.
  • Distributors take ownership of the goods (and the accompanying risk) and usually on-sell through wholesalers and retailers to end-users.

An indirect strategy is when products are sold through intermediaries such as agents and trading companies. Selling through an agent is the most common form of indirect exporting.

Exporting has many advantages in that it requires less investment and allows businesses to ‘try out’ exporting on a small scale as a handy way of developing and testing its international plans and strategies without great commitment. Export also allows a business to concentrate its production in a single location, allowing for better economies of scale and quality control measures.

  1. Franchising/Licensing. As a franchisor or licensor, the business effectively gives licensee of franchisee permission to:
  • Produce a patented product or patented production process.
  • Use your manufacturing know-how.
  • Receive your technical and marketing advice and know-how.
  • Rights to use your trademark, brand, etc.

Franchising and Licensing have many advantages, as both are simple and quick to implement and offer the advantage of minimal business costs as well as access to some markets, which may otherwise have been closed due to government policies etc.  The most obvious drawback of this entry method, however, is that revenues are likely to be significantly lower than other market entry methods, as well as a possible lack of control over production and marketing.

  1. Joint Ventures. A joint venture is an arrangement between two or more (often competing) companies to join forces for the purposes of investment with each having a share in both the financial running and management of the business. Joint ventures are usually an alternative to building a wholly owned manufacturing operation and offer benefits such as:
  • Capital outlay is shared,
  • Reduced risk, i.e., less government intervention if an alliance is formed with an indigenous business,
  • Closer control over production, marketing and other business operations,
  • Better local market intelligence provided by the indigenous joint venture partner.

The major disadvantage of joint ventures is that conflicts of interest may occur between different parties, i.e., on issues such as profit shares, amounts invested, management of business and marketing strategy. As with any type of partnership, there are ways to minimise the risk of conflict by careful selection of partners and the formulation of jointly beneficial contracts.

  1. Wholly Owned. Setting up a wholly owned operation in a new international market offers less of the ‘quick’ advantages of other market entry modes as it involves setting up a presence from scratch. It takes some time and effort to build a new market presence, especially in mature markets and where the business may have little knowledge of the local market. However, it does offer more in the way of control and management of the business.

There are two basic Strategic Frameworks for Market Entry strategies, which are dependent on Product type, and the Product Lifecycle. These include:

WATERFALL STRATEGY: In this strategy, the business is spread in international markets sequentially. First, a firm enters a new market and establishes an identity in the same. Establishing an identity involves the estimation of potential market size and revenue patters, identification of target segment, creation of brand awareness, identification and creation of all possible distribution channels and finally formulation and implementation of sales strategy. All these strategies at individual stage is independent on the product type and the life cycle. Once the product identity is established in the new market, the learning from the same is utilized to expand into another market, somewhat with similar structure sequentially. Typically, products with a longer product life cycle or in the maturity phase would follow a Waterfall Strategy, for expansion into new markets.

SPRINKLER STRATEGY: Markets are approached simultaneously in sprinkler strategy. This is a more risky strategic framework for entering new markets and hence, typically, more suitable for products with a shorter life cycle (like Technology products) or at the introduction and the growth stage of the product life cycle. In such a strategic framework, markets are entered simultaneously and often a Skimming Product Pricing strategy is used to generate as much profits as possible from sales. Experiences from market responses are limited to individual markets and the same are not replicated in the other markets.

Thus, there are a variety of ways in which organizations can enter foreign markets.