New Market Entry

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1. Set clear goals and principles.

The first step is to formalize powerful frameworks such as objectives and basic principles of intended market entry. With such starting points, one gives direction, making more practical considerations in the subsequent stages. Goals and principles can be established as an example based on the following elements.
– Company capabilities.
– Type of entry market modes
– Define market & sales targets (forecast)


• Company capabilities

Based on what makes the company unique and distinctive, the company’s foundation makes it possible to operationalize the strategic intention and achieve business results. One could go through the business processes and value streams to quickly determine such hard and soft capacities. Of course, it is also important to map out the impossibilities.


Type of entry market modes

There are several methods of entering a new market. It is practical to indicate in the initial phase which strategic modes are preferred, which could be considered and those modes which are ruled out in all cases. A final choice should be made at a later stage.

a. Export
Exporting is selling direct goods and/or services in another country. Production will take place domestically, and transport costs will generally be considerable. In addition, storage, distribution, service and after-sales will still have to occur in the country concerned, and an agency will be necessary for the long term. In the first instance, the purchasing customer will have to act as an importer. Exporting is manageable as only four parties are involved; the company, importer, transporter and government of the country – in particular with regard to the import and customs regulations – to which the goods are shipped.
+/+  Pros: fast entry, low risk, costs scalable to the size and growth
-/-    Cons: low control, exporting knowledge/customs regulations, low local market knowledge, high transportation cost, average to high marketing costs.

b. Licenses
Granting under the condition of a composite package of licenses through which another company obtains knowledge and intellectual property (trade secrets, patents, copyrights, trademarks, designs, production techniques) to do business with this. The mutual tasks and responsibilities in licenses agreements must be further defined. For example, the licensee can take over part or all of the manufacturing. The licensee will pay a fee stipulated in the agreement to the license provider.
+/+ Pros: Low cost, fast entry, low risk, attractive income
-/-   Cons: Less control with a long-term commitment, legal regulation complex (IP and contract law), threat licensee as a future competitor.

– Franchising
Franchising is almost in accordance with a license grant, but the rules for the business to be undertaken for the franchisee are stringent.
+/+ Pros: Sstrict control, multiplicable, brand uniformity, quality assurance
-/- Cons: Time required to build a franchise is not suitable for all sectors, proven success is a prerequisite

– Joint venture (strategic alliance)
Setting up a joint new company and business activities together. The starting point here is cooperation in a JV leads to synergy and thus creates added value. A management team will be appointed for the JV, and control will be divided as agreed in the shareholders’ articles of association.
+/+  Pros: Local entity, synergy, shared costs, reduced investment, reduced risk
-/-   Cons: Higher cost as some other options, integration difficulties, selecting trustworthy partner (time-consuming and risk of a problematic collaboration)

– Foreign direct investment – acquisition
A direct foreign investment is buying an existing business entity and facilities on a foreign market. Such a takeover requires a lot of capital and most likely also a long period to tailor policy and processes to the investor’s wishes.
+/+  Pros: Fast market entry; buying knowledge, established operations
-/-   Cons: Investment capital, integration issues, possible setbacks (inadequate implementation of due diligence)

– Foreign direct investment – startup (greenfield Venture)
This is a direct foreign investment in a completely new company to be set up, a startup. In addition to the amount of capital required, such a market entry will be highly managerial intensive, and many aspects will have to be arranged simultaneously. This while the primary objective is to obtain a lucrative market share.
+/+  Pros: Self-determining and only responsible, maximum control, gain local knowledge.
-/-   Cons: High investment, high startup costs, setup time, intensive for management, many unknowns, high risk.

– Free-ride
Free-ride or piggyback could be if two non-competing companies could work together to promote sales by selling the other’s products or services. Often in their own home country or otherwise in determining projects where people complement each other or act for each other as main contractor and subcontractor. Mutual agreements are often based on personal contacts and mutual trust. Piggybacking is usually incidental and is suitable for exploring a market and gaining some experience. In case of positive development, one can still decide to go for a structural setup.
+/+  Pros: some turnover, some market experience, meagre costs
-/-   Cons: only incident and no continuity, claim and image risk (marketing is almost entirely at the mercy of the other)


Define market & sales targets (forecast)

– size of the market expected market share and expected market growth
– target turnover and gross and net profit margin
– the significant market entry actions to be undertaken and staff available for this purpose
– planning and milestones to be realized
– marketing and business development budget


2. Make a rough provisional market scan

The information from market potential and market entry barriers must provide a good picture of the target market and whether it meets the goals and principles. Companies often underestimate the level of competition and barriers in new markets. If one does not offer added value and is not aware of the local situation, one cannot achieve a winning and planned market entry.

At this stage, it is not yet necessary to collect detailed and heavily substantiated data. Only the basic information needed to assess whether the market meets previously set criteria and whether those possible obstacles can be overcome. Much information is relatively easily available, if possible, at a low cost, especially if there is a local source of knowledge or market entry consultant.

The assessment of continuing the analysis to arrive at a market entry plan is the weighing up of goals and principles versus the results of the provisional market scan. In a concise report with the analysis and the recommendations, this can be presented to the management. The preparative research can be carried out to arrive at the market entry plan.

The provisional market scan phase includesanalyse and identifying
– market potential
– maret entry barriers
– provisional market scan report; outcomes and recommendations


• Determine the market potential

a. Market size
First, the size should be examined for
– volume, number of potential customers and transactions of the market and the value of this.

b. Market growth
Analyze and forecast the development trends and underlying factors currently, but in the short and longer-term. Also desirable is some data about historical financial analysis of growth dynamics, growth disturbances and vital aspects and risks to possible effects on market entry.

c. Competition
It will have to be mapped out who the competitors are in the relevant market.
– direct competitors with similar products and services
– and possibly, if also decisive, the indirect competitors who sell alternatives to such products or services.
Next is the determination of the number and size of the direct competitors.
One can also make an abbreviated decisiveness analysis of the leading competitors by pointing to the assumed added value/distinctive character and assessing relevant marketing instruments such as price, quality, range, reputation, service, promotion and reputation.
Ultimately, such a short competition analysis will provide an estimate of the entry barrier of the relevant market.

d. Customers
The profile of potential customers, the number and their size, their needs, preferences and behaviour are building blocks. However, the essential information for assessing the market potential is the communication to the customers and the method of customer acquisition and retention.

e. Profitability
Ultimately, profitability is the most critical conditions that will underlie a decision to enter a new market. However, this should be weighed more broadly as a balance between various components such as required budgets and investments, labour intensity, risks and continuity of revenues.


• Determine possible barriers to entry (below 33 market entry barriers)

1. Protected sectors
Restrictions imposed or supported by governments granting exclusive rights – often for some time – to manufacture and/or sell certain products and services. Heavily government-regulated industries such as pharma, oil and gas, financial services, aviation, defence and utilities are included. The reasons to limit competition are the need for (governmental) supervision. Therefore, most protected sectors are characterized by lobby networks.

2. Licenses and permits
This barrier to entry, usually set up by governments or monopolists to reduce competition, is primarily intended to preserve quality and protect investments. In addition to generally applicable conditions, these can also be specific conditions for (long-term) exclusivity contracts where government and industry have a significant interest. (f.e., outsourcing of public transport, regional waste processor, maintenance contracts, etc.). License rules may also be attached to professions.

3. Business set-up
Some countries apply strict conditions to business activities and business entities. This includes ownership relationships and number of shareholders, required capital, requirements for work permits, etc.

4. Import tariffs (import)
The rates on taxes can, on the one hand, limit imports from foreign companies.

5. Corporation tax rates
The high rates hinder the growth in wealth and thus possibly competition with others. Furthermore, the complexity can give rise to intensive research and further expert coordination with the tax authorities to arrive at suitable solutions and conditions.

6. Trade Barriers
The introduction and use of quotas, import tariffs and other trade-restricting regulations restrict competition. This may lead directly to reducing imports as costs will be passed on and therefore less choice in the market, driving up prices and domestic suppliers with better margin as they will be given the advantage.

7. Standards and regulations
This, most likely, will lead to extra costs and time, effort and some frustrations, making an inventory of the conditions, hiring specialists, etc., for market entrants. Considerations of the costs versus the revenues should be made beforehand.

8. Necessary investments
Cover the financial resources required for assets and start-up costs. If these are too extensive, the possibilities of outsourcing and/or collaboration could be explored.

9. High start-up costs
If the start-up costs are significantly higher than in their home market, this could be a reason for a market entry in the country concerned.

10. Sunk costs
These are initial investments and costs that are not expected to cover or can be reclaimed, such as, for example, offsettable VAT, corporate taxes or subsidies.

11. Economies of scale
Large companies usually get better purchase prices, making it much more difficult for smaller companies and market entrants to negotiate.

12. Monopoly / Oligopoly
Some markets are simply already (artificially) dominated by certain companies and do not offer any prospects for new entrants.

13. Contacts and networks
Existing relationships can provide valuable information and accelerate market entry. If you have few or no contacts, you will have to build them first.

14. Development and research
If the market and the market demands vast amounts for research and development, one should evaluate whether it can be met.

15. Scarce resources
Required raw materials and other vital resources, over which people have no control, are scarce or difficult to obtain, can create a high barrier to entry.

16. Geographical advantages
Other markets may be unattractive as they have an advantage given the abundant and favourable presence of (historical) experience and resources such as raw materials etc.

17. Technological knowledge
Entering the market and starting a business requires a high degree of expertise. In particular, the necessary technological knowledge can undoubtedly create an impregnable or costly barrier.

18. Price reductions (intense price competition)
To keep out newcomers to the market, competition can artificially lower prices and (temporarily) incur some loss. An established company retains business by competing on reputation, while new entrants cannot afford the entry costs.

19. Limit pricing
In line with the above price reduction, a purchase obligation or a minimum quantity of purchase may be linked to reduced prices. All this to an amount that is not accessible to new market entrants.

20. Lots of advertising and promotion
The position and confidence of existing companies are strengthened based on image and strengthening this through a lot of advertising. Newcomers are lagging behind and possibly limited advertising budgets, and when the establishment spends huge advertising expenditures, that is certainly a deterrent.

21. First mover
The market and customers associate themselves with ‘the first of its kind’, the company that first comes to their mind with a particular product and service. Breaking this through to some extent is complicated and is a difficult barrier to entry to overcome.

22. Vertical integration
Taking advantage of synergy benefits with other companies of a different supply chain can provide a competitive advantage in the market and especially to the new entrants.

23. Switching costs
Switching suppliers can involve direct and indirect costs. Switching costs are the disadvantages that can be associated with switching and therefore occur a discouraging; f.e. cancellation (process, administration, time) replacement parts, inventories, maintenance, training/instructions, standardization etc.

24. Brand loyalty
Brand image is related to trust and quality assurance. Good strong brands have the power to create habits, and that results in sustainable customers.

25. Loyalty programs
Customer loyalty (customer discounts, customer products/services, rewards, events, apps) to retain customers and to discourage newcomers from gaining a solid sustainable market share.

26. Intellectual property
IPs gives companies the legal right to restrict access to a market by allowing them to stop other companies from producing and distributing a product for a certain period.

27. Distributor Agreements
If there are exclusive agreements in the market with major distributors, it will be challenging to enter the market as new entrants.

28. Supplier agreements
Exclusive supplier agreements regarding products, sectors and pricing can also be disruptive and hindering.

29. Cost benefits of competition (other than the scale advantages)
There can be a cost advantage of competition independent of economies of scale. This could be product leadership, services, development and engineering, expertise (learning curve), subsidies, technology, partnerships, infrastructure, climate, etc. (in fact, this should already have been established in the competitive analysis)

30. Control of resources
If a single company or few companies has control over the resources essential to a particular industry, there will be little competition.

31. Technology or changes in technology
This does not only happen in high-tech sectors but can also occur due to, for example, environmental requirements and changes in regulations.

32. Location
Environmental factors such as market concentration, zoning plans, industrial free trade zones, and accessibility and effects should be evaluated.

33. Bribes & fraud market habits
It may be a market where it is common practice for new entrants to be extra ‘taxed’, but whether this will be accepted and to what extent will depend on company regulations and compliance.


3. Conducting an in-depth analysis

Definition PEST analyses – what is PEST Analysis?

PEST stands for the four external factors/influencers, represented as the first letters of political, economic, social, and technological. It is an analysis to determine how and to what extent these external factors affect the company’s performance and operations.

1. Politics

Political regulation influencing the business climate, trade, labour, security, taxes, etc. A political environment and the influence on companies are challenging to predict, partly because democratic governments have periodic elections and stakeholders and pressure groups’ (increasing) power. The results are less difficult to predict
– of totalitarian systems, there the power is in a very select group.
– corruption and kickbacks are an obstacle to economic development and product added value.

All applicable facets should be related to seven main aspects with a distinguishable influence
-effects on the economy
-modification in regulations
-political firmness
-risk mitigation
– politics effects on the economy
– politics effects on the socio-cultural environment.
– politics effects on technology (development, emergence and acceptance)

Listed below is a checklist of political elements impacting businesses
– Bureaucracy
– Corruption degree
– Liberty of the press and journalism
– Tariffs
– Trade regulations and control
– Education and learning
– Anti-trust legislation
– Employment legislation
– Discrimination Legislation
– Stakeholders & pressure groups
– Information security legislation
– Building regulations
– Environmental & natural resources
– HSE Health, safety & environment regulation for companies
– Competition policies
– Constitution on entrepreneurship and business management
– Tax obligations & policy, rates
– Investment regulations
– Corporate regulations and shareholders statements
– Incentives & grants
– Restructure & insolvency laws
– Federal government stability
– Law additions & modifications
– Trade unions and arrangements
– Import constraints
– IP Intellectual property
– Customer protection
– Quality control & supervisory authorities
– E-commerce laws and protection
– Regulations of environment pollution.


4. Determining financing and insurance needs

Financing and insurance can be postponed until the actual moment that there is a definite need. Albeit that, the management must already know the financial contours before entering the market. After all, there should already be a picture of the initial investment in resources and the value of the work in progress (operating capital; purchasing, production, shipping and other costs). Furthermore, consider the payment method and possibly longer payment terms of the foreign buyers.

Also,in this the possibilities and impossibilities of international payments must be discussed, such as
– prepayment or after delivery (open account),
– payment with checks (promise),
– bank guarantees,
– documentary collection (documentary credit; D / P – documents against payment or D / A – documents against acceptance) and /or
– letter of credit (L/C)
It is always better to arrange the banking liquidity line or loan in advance than to risk liquidity problems with increasing sales.

In this stage, it is also advisable to weigh up a few insurance policies, such as credit insurance, performance security insurance, and cancellation insurance (also covering for force majeure).

 

5. Develop the market entry plan

The market factors and environmental factors of the new market to enter have been analyzed, and the management has decided to expand the market, then a market entry strategy is needed.

A market entry plan is an appliance to legitimize and streamline the activities but also to arrange the necessary financing. A tip is to ask some external experts such as an adviser, accountant, lawyer or banker for comments for additions and improvements. Such a market entry plan should be regularly reviewed and supplemented with the latest analysis and experiences.

Below is a brief market entry plan template:

a. Formulation basis
– reasons for the market expansion
– substantiation of the market choice (primary and secondary target countries)
– company profile and added value in the relevant market
– sales targets (quantitative and qualitative)
– entry market mode choice
– success factors regarding the market entry
– market entry and connection to current mission and policy
– role and dedication of management
– priorities and importance of the market entry (compared to other market segments and the home market, etc.)
– hidden problems and possible failure factors

b. Policy and solutions (counter the negative results of the analysis)
– market scan (competition, customer etc.)
– market entry barriers
– Porter’s Five Forces of Competition
– PEST analysis
– SWOT analysis

c. Finance & budget
– financial expectations and targets (turnover, return, costs)
– other possible criteria set by financial management
– when will break-even be reached, and when will it be self-sufficient?
– investments
– insurances
– possible subsidies or other incentives
– released budgets for marketing and sales
– other initial costs as a result of the market entry
– allocation of the market entry costs
– calculation and settlement standards
– origin of the financial resources
– profit and loss account for the next five years (forecast)
– financial risks and mitigation

d. Experience
– market entry experience from other countries, lessons learned
– which products and market segments are most successful?
– sales funnel percentages and trend
– current domestic customers exporting with the products
– the success factors of domestic and foreign competitors

e. Management and staff
– international expertise
– international sales
– language proficiency
– cultural differences
– distance and time zones (travel and communication)
– key persons regarding business development and sales, task and responsibilities
– role and time to be spent on market entry by management
– role and time to be spent on market entry by other personnel
– required additional expertise and capacity
– organization and procedures
– planning and reporting

f. Production capacity
– using current capacity
– production priority domestic versus export and possible consequences
– costs related to possible additional production
– production fluctuations and workload
– minimum order quantities

g. Product (or service)
– the local need for the product or service
– necessary modifications and accessories requirements, also design to be considered
– necessary inspections, certificates, licenses, guarantees, service
– compliance with (export) controls
– requirements for packaging, coding, etc.
– brand name
– image
– compliance with (export) controls

h. Price and price considerations
– the costs of bringing a product to market (product costs, marketing costs, selling costs, freight, import duties, commissions, etc.)
– pricing strategy
– is the protection of products intellectual property possible?
– discounts and promotions
– bundle sales
– payment methods
– terms of payment

i. Promotion
– advertising and PR
– mechanism
– brochures, documentation
– adjustments websites
– use of social media
– trade union memberships
– local networks
– local and regional fairs
– sales organization

j. Place
– where to produce
– use of distribution channels
– method of distribution of the products
– storage
– logistics
– import & customs

k. Business development & sales
– define sales strategy
— sales targets & forecasts
— distinctive capability
— elevator pitch
— market, customer and competitive research
— prospecting
— selling strategies (such as script-based, needs-satisfaction, consultative and strategic partnering selling)
– sales implementation plan
— attract prospects
— build engagement
— acquire opportunities
— get customers
— keep customers
– periodic planning of activities
– periodic reporting
— commercial targets, effectiveness and productivity
— visit reports
— CRM and other tools
– cooperation with other departments (internal and external sales)
— supply chain management information exchange
– core competence and professionalization (coaching, training, etc.)
– staffing and division (regions/product-market combinations)
– market exit criteria

l. Appendix (mostly research done in previous phases)
– market entry goals and principles report
– financial budgets and forecasts
– market scan (competition, customer etc.)
– market entry barriers analysis
– Porter’s five forces of competition analysis
– PEST analysis
– SWOT analysis

6. Implementing a market entry plan (business development)

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