What is market entry strategy?

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How do you enter a new potential market?

Expanding your business to new markets allows you to reach potentially vast numbers of new customers and grow your revenue massively. However, the process can be difficult and filled with complications.

A market entry strategy is a way of maximizing your chances of success when moving into a new market. In this article, we’ll look at some of the reasons to consider moving to a new market, the differences between domestic and international markets, and some of the strategies you can use.

Why move to a new market?

First up, why should you consider moving to a new market in the first place? It’s challenging and expensive, so what are the reasons that make it worthwhile? Here are some of the main ones:

  • You’ll gain more customers and make more money – The number one reason to consider new markets is, of course, to grow your business and increase revenue by selling more products to more customers.
  • There might be no more opportunities for growth in your home market – If you’ve maxed out what your local market is capable of in terms of revenue, expanding to new markets may be the only way to grow.
  • You’ll reduce risk by diversifying your business – If one market suffers for whatever reason, you’ll have others to keep you going.

Domestic markets vs international markets

Are you planning to enter a new domestic market, or take your products overseas to sell in a foreign country? The approach for each of these will be very different.

Domestic markets

Typically, this will be much easier than entering an overseas market. The culture will be the same, everything will probably be geographically closer, and things will likely be very similar to your existing markets.

International markets

This is where things become more complicated. You’ll have to factor in a number of differences compared to how you currently run your business. These include:

  • Cultural differences
  • Administrative differences
  • Economic differences
  • Logistical challenges involved in transporting goods abroad

Things to consider

Before you enter any new market, it’s crucial to take some time to confirm whether you can afford the move. Can you afford the costs of exporting, working with intermediaries, tax, and all the other expenses involved? And what proportion of the market can you realistically expect to be able to serve? 

You also need to consider if the product or service will work in your intended market. Market research (both online and offline) plays an important role here — make sure there is a demand for your product that justifies the export cost.

Risks of entering new markets

There are also numerous risks involved in entering a new market, including:

  • Country risks, like the possibility of political unrest, sudden changes, or financial issues that could impact your business
  • Foreign exchange, such as the possibility of currency exchange rates changing drastically which could seriously affect your bottom line
  • Cultural risk, which essentially means the possibility of your new business venture running into challenges due to major differences in culture and customs
  • Weather unpredictability. Are you moving into a market where natural disasters and weather conditions could cause damage to your facilities and cost money?

Once you have carefully researched your new market and weighed up the potential risks, you may decide that it’s worth entering. If so, there are a number of different strategies you can employ, each with its own pros and cons.

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Different market entry strategies

Direct exporting

This is where you export your products into the new market directly. You’ll have to handle all the aspects of the process independently, from transport to payments to operations in the new market.

This method requires more resources and time compared to working with an intermediary. You’ll need to create an exporting infrastructure, train employees, and make and receive international payments among many other challenging tasks.

On the plus side, this approach maximizes your profits as you don’t need to pay any third parties. You’ll also have complete control over your sales and marketing processes.

Indirect exporting

Indirectly exporting involves working with an intermediary. It has a number of advantages, such as:

  • Much lower risk. An experienced third party will take care of the exportation process which minimizes the risk of failure.
  • You’re able to focus on your own business and domestic markets without being occupied by your new ones
  • Fewer resources are required on your part

On the other hand…

  • Profits are lower since you have to pay your intermediary
  • You’ll be disconnected from your customer base, so you’ll miss out on important insights and lessons
  • You’ll lose full control over sales and marketing abroad

There are a number of different options when it comes to indirect exporting. Here are some of the most common ones.

Indirect exporting with buying agents

Buying agents are representatives of foreign companies that want to buy your products. You’ll work through them when selling your products to your new market.

They’re usually paid by commission and will try to negotiate the lowest possible price. Sometimes, buying agents are government agencies.

Indirect exporting using distributors

You can sell your product directly to distributors or wholesalers, who will then take care of distributing the product to retailers.

Indirect exporting through management and trading companies

Export Management Companies (EMCs) exist to take care of all your export and sales processes in your new market.

It’s worth taking some time to research and find the right EMC, as most specialize in a particular market and region. They’ll help you identify markets, find customers, handle all shipping and logistics, and much more.

Indirect exporting through piggybacking

Piggybacking is where you allow another, non-competing, company to sell your product. This can work extremely well if they already have an existing customer base and distribution infrastructure in your target market.

You’ll get immediate access to your new market but for a fee.

Producing products in the target market

Another option is to manufacture your products in the target market. This saves you the cost of transport and the many logistical challenges involved in exporting your product abroad.

However, you’ll also need to consider the many challenges involved in manufacturing your product abroad, any legal issues, costs, possible risks, and more. Depending on your situation, this could be a good option.

(For more information on the most effective strategies for entering a new market, check out our top four marketing strategies article).

Entering a new market can be extremely rewarding and can allow your business to move to the next level and achieve new growth. It’s important to take time to research all the possible options and ensure the export strategy you deploy is the safest and most effective for you. You’ll also need to thoroughly research the market to understand its potential and position your product for success, something we cover in our Ultimate Guide To Market Entry.

Kadence can help you do that. We have extensive experience helping businesses carry out research and create effective strategies for market entry. To find out more, learn about our market entry services or get in touch.

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