Market Entry Strategies From The Inside Out
One of the keys, if not the key, to success in international markets is choosing the right market entry strategy. Get it right and things usually go comparatively smoothly but get it wrong and disaster usually follows. When we look at choosing a market entry strategy it is common to focus almost exclusively on the foreign market and to look at the constraints in that market that will have an impact on the market entry strategy chosen. In my experience this is only part of the selection process. A fully worked up market entry strategy consists of both, an internal and an external component but all too often we don’t consider the internal component when developing the market entry strategy. In choosing an international market entry strategy it is important to first look at the limiting factors faced by the company. These could consist of tight cash flow, insufficient capital, production challenges, lack of human resources etc. Rather than being put off by these challenges, look at how the different market entry strategies can be used to over come these challenges.
One of the most common problems faced by small and medium sized exporters is tight cash flow. Left unaddressed this can result in lost opportunities, delayed shipments and missed payments. One way around this is to use a distributor in your target country. The advantages of using a distributor is that they buy multiple units of your product and depending upon your payment terms you get paid right away. This method has the added advantage that the distributor is usually responsible for providing the marketing support for your product thus proving a further reduction in the money that you need to secure sales in your chosen market.
Another common issue is a lack of capital. Maybe you don’t have enough money to cover your expansion or maybe you need to ramp up the speed of your penetration into the target country but lack the capital to do it. There are a number of strategies we can use to address these issues. You could look for a partner who complements your business offerings. Among the things they could bring is knowledge of the market and money to contribute to the venture. If this was the route you decided to go, you would of course have to verify that your potential partner actually had the resources that they claimed to have and that you were comfortable working with them.
If fast growth is a concern and cash is tight then consider franchising. The common perception of franchising is that it is a way of getting a turnkey process that makes it easy to get into business because all the supply lines and internal processes are in place. However, franchising arose as a form of financing. Businesses that had only limited capital but that wanted to grow quickly hit on the idea that they could get people to buy the franchises. These franchisees invested their own money in the new locations and paid an annual fee for the right to operate the franchise. The franchisor maintained ownership and using the franchisees investment grew their businesses. Even better they maintained control of the operations. Franchising works for both product and service businesses.
Another alternative if capital is an issue is to look into licensing agreements. A licensing agreement means that in return for allowing another company to manufacture your product they pay you a royalty per unit or some other agreed method of compensation for the use of your licence. If this is the market entry strategy that you choose, not only do you avoid the necessity to manufacture the goods but also the responsibility for selling the goods.
These are just some examples of taking internal constraints into consideration when choosing market entry strategy. However, when considering these strategies and which ones to use you also need to take into account your own personality. For instance, how comfortable are you with risk? If you are risk averse then licensing may not be for you because you are giving up a lot of control over your product, its quality, the image projected, etc.. If you are a control freak then partnering may not be for you whereas franchising and your ability to control everything from the product to the way business is done may be perfect for you. By taking into account your personal preferences you are increasing the potential for success of your international venture.
I would be remiss if I didn’t point out that every market entry strategy comes with risks and challenges, which have not been examined here and it is recommended that before deciding which one is correct for you, you should seek professional advice. I should also point out that the market entry strategies outlined are by no means a complete list of market entry strategies but merely the ones that can help offset negative financial situations existing in a business.