It is a big challenge nowadays to enter a new market. It is even more difficult to understand the process of entering a new market considering that it usually breaches out of the borders of your country. Initially, after a business considers penetrating a new industry or targeting a new demographic, the must-have option is developing a marketing plan. It will provide you with a strategy for reaching the set goals.
Getting back to the topic, it is difficult to count how many ways to enter a foreign market exist. International markets differ from each other and it is obvious that not all entry market strategies will suit your business. However, in this article we will highlight the 10 most popular strategies:
- Turnkey projects
- Joint Venture
- Buying out a company
- Foreign Direct Investment (FDI)
- Wholly owned subsidiary (WOS)
But before digging into this list…
Questions you have to ask before deciding to enter a new market
First of all, make a list of countries you are likely to enter to make your business international because not all may be suitable for your product. It may not be one country but several countries and the entire region.
What is the purpose of entering a new market environment?
Sometimes you are not bound to be the “first-to-market” as it may follow lots of risks. Nevertheless, you have two options: try to enter the market first or wait and look at how your competitors develop.
Who are your competitors? Who are your potential customers?
Your business must definitely know what is your target market. There are lots of aspects after combining which you can define where you need to move on.
If you want to enter a new market having a product that is new to that market you need to know to launch it correctly.
10 entry strategies for international markets
We can not claim that all the market entry strategies are easy to apply but there is a great variety of them. So we’ve prepared a set of 10 most relevant ones for you to get acquainted with and choose exactly which fits your business best.
If you haven’t heard about this market entry method then you have a great chance to get to know about this unique strategy. Initially, there is a condition that must be followed before you decide to piggyback – your business must already cooperate with a domestic company that is contacting international businesses. After all, you may ask this company to provide your existing product to a new market. This is a laconic description of the piggybacking process. Nevertheless, the risks are reduced as you sell only on the home market while the larger firm is marketing your goods in the international area on the market you are seeking for.
We need to clarify it right away – this market entry method won’t suit every business concept you have. This strategy is suitable only for firms that are providing such services as environmental consulting, architecture, construction, and engineering. The essence of this method is that everything is built from scratch and only then turns over to the client ready to work.
We like the principle of “turnkey” work because after all you only need to turn the key to start your business operations. We are not afraid to claim that this strategy is not worse than others. Turnkey projects most of the time come from governments. These contracts are known as one of the best so you have to compete with other foreign and domestic firms to perceive such contracts.
The principle of licensing is rather easy looking ahead. But what does exactly it stand for? Licensing enables the use of your property by another business in your target country. Normally, the property is impalpable, like intellectual property. To be allowed to use rights for certain properties, you must make payments.
Licensing has great advantages such as making little investments and after all, you may have a great possibility of providing a high ROI. In addition, it is the licensee’s responsibility to be cautious about manufacturing, expenses after market entry.
One of the market entry methods which is gaining more and more popularity not only in the USA but in the rest of the world. It is quite similar to licensing regarding the property rights being sold to a franchisee. But most of the aspects differ from each other starting only with the fact that the rules for franchisees who are engaged in the business are much more rigorous. They must follow specific rules to be allowed to use these rights.
How exactly does franchising work? It’s rather easy as you have to take your existing business model, find someone who is going to be a franchisee in your target market, sell the rights, and receive royalties. After all, the franchisee is bound to pay you fees.
If you are seeking franchising, choose your target market carefully as first of all you must have brand recognition.
Let us explain this market entry strategy on simple mathematics. A joint venture is a kind of partnership when two independent companies are merging in order to create a third independent company. To put it simply, this is a 1+1=3 process. It is different from the typical merger because companies work independently on one general project.
This method is convenient as you divide all the investments, losses, and profits in half.
Buying out a company
The name of this market entry method speaks for itself. Actually, it may be the easiest way to enter a new market but simultaneously the most costly one at the same time. As we mentioned at the beginning of our article: certain methods approach certain businesses you are eager to enter. This could be because the organization has a considerable market share, you are a major competitor or this is the only way for your company to join the industry due to government regulations. That is why buying a new company may be the most appropriate way to enter some specific markets.
From our point of view, this strategy is a great chance to establish yourself in a new arena. Here are some advantages:
- Your business already has a market share;
- Fewer problems with authorities as you are taken as a local firm;
- Existing brand image and customer base.
Such a method as buying a new company doesn’t only have pros but there are several cons:
- You are no longer a single organization, and your foreign activities in that specific industry will be somewhat as distinct from the rest of the picture of your brand.
- It’s very expensive, particularly if the company you want to acquire is profitable.
Different foreign markets may require partnering. It’s rather a versatile term. On the one hand, partnering may be that you are co-working in marketing, manufacturing, etc., on the other hand, you and your partner may invest in the same product on general terms.
Personally, we love partnering as it is the best way to get adapted to the new market environment. Looking back, some countries really require partnering and you won’t be able to enter a new market without it. But anyway that is a great strategy especially for the unknown for your business markets to get used to business and social culture, get more knowledge about the local market, and get new contacts. But don’t forget to study in detail who you will be dealing with. You need someone who will be helping you to move on, not slow down.
Foreign Direct Investment (FDI)
The penultimate market entry strategy which is called Foreign Direct Investment is when you directly invest in facilities you want to conquer. This method will require a lot of capital to cover different costs. In general, FDI usually occurs when an investor in a foreign corporation develops foreign business operations or acquires foreign business properties. FDIs, however, are distinct from portfolio investments in which an investor strictly owns foreign-based entities’ capital.
FDI can be achieved either by starting up a new venture or by purchasing an existing corporation.
Wholly owned subsidiary (WOS)
A WOS is a kind of similar to the strategy called FDI which we presented to you a bit earlier. A wholly-owned subsidiary is a company in which entire stock is held by other company-parent business. The subsidiary operates independently from its parent company and has its own structure, inner culture, and products to present to the market. Nonetheless, the parent company has immense control over the subsidiary.
Last but not least in our list is exporting. It claimed to be the best-known method of entering a foreign market, having the lowest risks. Looking back at other strategies, this one won’t be as costly as others because you won’t be investing in facilities located in the country you chose. Everything is still produced in your domestic country but there is a big chance of boosting the prices of transportation costs.
Which entering a new market strategy will you choose?
Our mission was to get you acquainted with a variety of strategies for entering a new market. Which one to choose is your decision. We suggest you study all of these strategies and the market you aim to enter, as your method choice has to depend greatly on it. Hope you found out all the necessary information you were looking for. But regardless of the choice of methodology, RGray will always be ready to develop the most effective marketing strategy for you to succeed in the new market!