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:
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:
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:
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.
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.
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.
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.