You’re planning to take a shot at global expansion. But how to start? What to sell? And which new market entry mode to choose? So many questions that may keep you awake for long at night. The short answer is to get prepared well. From a detailed check of the target market, competitors, and regulations to a well-devised market entry strategy, you should leave no stone unturned while getting ready to execute your global plans.
A strong market entry strategy allows you to consolidate your position in a new market easier and faster. It strengthens your competitive moat, raises your sales and profits, and diversifies your risks (as you no longer depend on a single market). You and your team get a precise and detailed direction of where and how to go so that you can successfully scale your business internationally.
Whether you’re still planning or have a strategy in place but aren’t sure if it will work out well, our step-by-step guide to market entry strategies will help you make a smart move. The article sheds light on what a market entry strategy is, what the top global market entry strategies are, how to choose the right one, and examples on how other companies executed their market entry plans.
What is a market entry strategy
A market entry strategy is a detailed plan of how you may expand your business into a new geography or product market for the first time.
There are several reasons why it makes sense to tap into a new market:
Distribution channels get oversaturated. The number of channels isn’t infinite. You typically have paid acquisition, virality, SEO, and sales outbound. If you’ve been running your company for a long time, you’ve already tested different channels, and you know perfectly well what works and what’s not. At some point you notice that the channels that once worked well get oversaturated and they don’t bring the same results anymore. That’s when you may start building a market development strategy and getting your international market entry strategy ready.
Competition isn’t so tough. You may target international marketplaces that aren’t as competitive as your home market. For example, if we’re talking about the world’s manufacturing, it mostly happens in four to five countries (the US, Germany, China, and Japan), so when you try entering French, Italian, or some other markets, you might face less competition and find more opportunities.
You want to spread your business risks. If you’re operating in a volatile market or there is any political tension or a possibility of an environmental disaster, it gets riskier for your business. Having all your eggs in one basket may hurt your company, so you’d better think about going global. With a new market entry strategy, you can spread your customers worldwide and, thus, reduce the risks.
You want to dominate a particular region. Many companies have problems becoming dominant in one area, but as soon as they expand their business in another region, they start ruling it. Take eBay, for instance. While attempting to enter the Chinese market, eBay failed to understand the local culture and compete with Alibaba’s Taobao. The company had to retrieve its global plans. But, as for the Western markets, it wasn’t hard for eBay to dominate there as the company knew the culture well and had fewer competitors.
Undoubtedly, a new market entry must go hand-in-hand with a thorough market research—a complete analysis of competitors, rules and regulations, consumer pain points, and local networks. When you have a rock-solid market entry plan, you’re more likely to hit your milestones—making your brand more powerful, strengthening your global presence, or making profit. But a poorly crafted one may cost you a reputation and lots of dollars.
When companies decide on their market entry strategy, money and control are at the top of mind—how much this new market entry will cost and how much control they’ll have over selling their product. That’s why they focus so much on the kind of product or service they’re planning to sell, if it’s valuable for the target customers, how it needs to be shipped, what their competitors are doing, and which regulations govern that market. These factors help them pick the most suitable international market entry strategy.
Here are some questions you might need to consider when choosing your market entry strategy:
In which countries can I find my target customers, and how will I promote my product there?
Should I make the product in my home country or work with local manufacturers?
Should I enter the market alone or partner with local businesses?
What laws, regulations, and standards govern this market?
What is my budget to market the brand, acquire customers, to manufacture goods, to ship them, etc.?
What are the risks and how can they influence my new market entry?
What level of control do I want to have over operations and branding in the new market?
What is the competitive landscape in my target market? How will I differentiate my product there?
How will I manage supply chain logistics?
How scalable my market entry strategy is and will it allow for future growth?
The sooner you find the answers to these questions, the more successful your new market entry will be.
Now that you have a general understanding of what a market strategy is and the answers to at least some of the questions above let’s check out which top market entry strategies exist. We’ll break them down, and point out their pros and cons and real-world examples so that you can decide which entry mode fits your goals best.
Top market entry strategies for unicorn startups
Direct exporting
A market entry strategy of direct exporting means selling and sending your goods or services directly to your target customers in another country. Exporting is a well-established, traditional way to enter a foreign market.
A real-world case of direct exporting:
BMW, a German-based automobile manufacturer, uses a market entry strategy of direct marketing to execute its geographic expansion plans. Today, the company has 22 factories in 12 countries. For example, BMW has built a factory in South Carolina, the US and exports its X5 and Z4 models to the rest of the world from there.
Additionally, as part of its global market entry strategy, BMW partners with local distributors to manage regional sales and distribution. In the UAE, it’s ABMC, for instance.
Advantages of direct exporting:
You don’t typically spend money on building factories in a host country. You just need to suggest the right product at a competitive price.
As exporting goods or services abroad can help bring foreign currency to the host country and create foreign currency reserves, many governments may offer incentives and benefits to exporters.
Disadvantages of direct exporting:
An international business strategy of direct exporting may take money if it’s expensive to manufacture goods in your home country. A lot of Fortune 500 companies such as Samsung, LG, and Panasonic chose to move manufacturing to low-cost locations as there’s cheap yet skilled labor.
Not only can manufacturing be expensive, but also the shipment of your goods.
Foreign exchange fluctuations may add to your exporting costs.
Licensing and franchising
A market entry strategy of licensing gives local manufacturers the right to use your intangible property (your trade marks, patents, formulas, trade secrets, etc.). In return, you get a royalty fee.
Franchising is somewhat similar to licensing, but here you can set specific rules for how the business must be run under your brand name.
Note that most manufacturing firms choose a market entry strategy of licensing, while service firms tend to turn to franchising.
A real-world example of licensing and franchising:
Calvin Klein likes to enter into licensing agreements with local manufacturers. In 2020, a company decided to break into the luxury watch market via a deal with Movado Group, Inc.
Meanwhile, brands like McDonald’s, Burger King, and Marriott prefer franchising agreements to conquer international markets.
Advantages of licensing and franchising:
You make money without the high costs of production and overhead.
Using licensing or franchising for new market entry allows you to improve the way your intangible property is marketed.
Entering foreign markets becomes easier as you don’t need to worry about shipping products overseas.
A great tool to solve intellectual property conflicts. Instead of suing a business for using your intellectual property, you may both benefit from a licensing agreement and make a profit.
Disadvantages of licensing and franchising:
You have little control over how your licensee runs their business (more valid for licensing).
With this market entry strategy, you don’t have any guarantee of making a good profit since royalties depend on how well the product sells.
Your reputation may suffer.
There may be conflicts with your licensees or franchisees.
Joint Ventures and Partnerships
Choosing a joint venture as your market entrance strategy means pooling resources with two or more companies and creating a separate legal entity to achieve a specific goal. While you share all the risks, costs, and rewards associated with this new venture, all parties remain independent in their main operations.
If you want to have a more flexible and less formal market entry strategy, choose a partnership. When you form a partnership with another company or companies, you don’t have to create a new entity. Partnerships may involve sharing technology or joining forces to deal with marketing or distribution, but each company remains entirely independent.
A real-world example of a joint venture:
In 2016, Volvo Cars entered a joint venture with Uber to develop next-generation autonomous vehicles. Both companies agreed to invest a combined $300 million. Volvo took the part of manufacturing the base vehicles, while Uber intended to integrate the latest autonomous driving technology.
Advantages of joint ventures and partnerships:
You benefit from the support and expertise of your local partner as they better know the market you’re going to enter.
This market entry strategy allows you to share risks and costs.
Disadvantages of joint ventures and partnerships:
You don’t have full control over your foreign subsidiaries.
With this foreign market entry strategy, you risk losing your core technology.
There’s always a risk of a conflict between the partners.
Acquisitions
Instead of taking your business off the ground in a foreign market either from the start or via licensing or partnerships, you may purchase a part or all of another company’s assets. That’s how a market entry strategy of acquisition works.
A real-world example of an acquisition:
In 2018, Walmart chose a foreign market entry strategy of acquisition to step into India’s growing e-commerce arena. Walmart acquired 77% of Flipkart, the biggest marketplace in India, for $16 billion.
Advantages of acquisitions:
You can build your presence in a foreign market quickly.
When choosing acquisition as your market entry strategy you risk less (compared to greenfield ventures, for instance) because the company you acquire already has a customer base, knowledge of the market, brand recognition, and infrastructure.
Disadvantages of acquisitions:
There’s always a risk you might pay more than the company is really worth, either because of competition or because the team overestimates its value.
There may be a cultural conflict between the parties.
Greenfield investments
If you want to build operations in a foreign country from the ground up, take greenfield investment as a market entrance strategy. In such a way, you’ll create a new, wholly-owned subsidiary under the parent company.
A real-world example of a greenfield investment:
Toyota Kirloskar Motor plans to make a $2.38 billion greenfield investment into Macharashta, India to set up a new manufacturing plant. The company believes that such a market entry strategy will help strengthen its global footprint and drive sustainable mobility.
Advantages of greenfield investments:
- You can build a subsidiary company that you want. It’s much easier to create a company’s culture from scratch rather than trying to change it. The same concerns establishing operating rounties.
Disadvantages of greenfield investments:
With this market entry strategy, you must be ready to invest a lot and wait a long time.
There’s always a risk that the government policies in the country you’re planning to invest in aren’t so foreign-investor-friendly.
How to develop an effective market entry plan
New market entry isn’t about chasing trends or jumping on the hype because a market in another country seems to be doing well. This must be a thoughtful decision supported by a solid market entry analysis. Before tapping into a foreign market, you must know where, why, and how you plan to establish your presence. Let’s get into more detail.
1. Conduct a thorough market research and analysis
As a rule of thumb, a strong market entry strategy rests on solid market research and analysis. Here are some of the questions to consider if you want to build a successful roadmap:
What is the market’s growth potential? What are the key niches, drivers, and barriers?
What are the needs, preferences, and behaviors of my target audience? How do cultural, economic, and social factors shape their buying decisions?
What are the rules, regulations, and legal frameworks governing this market?
Related read: Top-down and bottom-up market size calculation for startups
2. Look at your potential competitors
You must know all your potential competitors, their strengths and weaknesses, and what they offer. This will help you find the gaps in the market and understand how you can differentiate your product or service from the competition.
3. Choose the appropriate new market entry mode
Think about which market entry strategy can fit your target the best. If you’re stepping into a highly competitive arena, consider a strategic partnership or a joint venture. If you want to have more control and autonomy, choose a greenfield investment. Every market entrance strategy we’ve listed in the previous section has its pros and cons, be sure to get to know all of them before choosing the one you find the most relevant. Some questions you may ask yourself before making the choice:
Is it easy to reach my target customers with this market entry strategy?
How much control do I have over pricing and product decisions? Can I easily make changes if needed?
What are the risks in this market? How do competition and regulations affect me?
How much do I need to invest and how long until I start seeing profits?
4. Select sales and marketing entry strategy
Once you’ve chosen your market entry mode, start developing your sales and marketing entry strategy to effectively position your product in the new market. Pick the marketing channels that best reach your target customers—digital marketing, partnerships with local distributors, or local advertising. Be sure that your messages fit the cultural, social, and economic landscape. You also need to decide on your sales approach. Are you going to use direct sales, local retailers, or an e-commerce platform?
Remember, your sales and marketing approach is a crucial part of your market entry strategy. That’s why try to perfectly align your sales and marketing tactics with the target market dynamics.
Related read: What is the difference between your GTM strategy and marketing strategy?
5. Plan for risks and have a backup
A powerful market entry strategy is flexible and ready to tackle risks. That’s why you must get prepared to identify and ride challenges in the new market, be it market volatility, competition, or regulatory issues, and have a solid backup plan for how to handle these situations if they happen.
Successful market entry strategies case study
IKEA’s path to India: market entry strategy analysis
Background: In 2018, IKEA, the biggest furniture retailer worldwide, started executing its geographic expansion plans. The company had already opened more than 483 stores in 59 countries, and it was the time for a powerful move towards India. However, India turned out to be a hard nut to crack given its cultural, economic, and consumer peculiarities.
IKEA tried to break into India’s diverse, price-sensitive market in early 2006. Unfortunately, it failed. As soon as the Indian government relaxed its foreign direct investment policies, IKEA tried again. And that time, it was a success. In 2018 IKEA opened a store in Hyderabad, followed later by one more grand opening in Mumbai in 2020.
Key takeaways:
Market entry strategy type: Greenfield investment
Initial investment: $1.5 billion
Localization: IKEA adapted its products, supply chain, and services to match the Indian culture and the buying patterns of the population and worked with local suppliers.
Outcomes: IKEA saw big early traction and brought much benefit to local suppliers.
Analysis of IKEA’s market entry strategy: IKEA’s choice of market entrance strategy was more than logical. Greenfield investment satisfied all the company’s goals. First of all, IKEA wanted to maintain full control over its operations. Second, it wanted to build a lasting presence in the Indian market. Both goals are best achieved through greenfield investment. If IKEA had taken, for example, joint ventures or franchising, it could have limited the company’s ability to introduce its self-service model.
One more reason for such a choice of market entry strategy was the market’s potential. The growing population opened the doors wide for IKEA to sell affordable, stylish furnishings both at that time and in the future. The fact that IKEA built its own stores and worked directly with local suppliers helped the company adapt its product range to target customers’ tastes and needs faster.
Outcomes: By leveraging a market entry strategy of greenfield investment, IKEA secured a strong foothold in the Indian market, especially appealing to the middle class that sought style and affordability. IKEA store in Hyderabad attracted over 3.7 million visitors in its first year, bringing much money. Through its investment, IKEA helped to develop India’s manufacturing and retail sectors, which, in turn, created jobs and stimulated economic growth.
IKEA’s new market entry also increased competition in the region. Local and global brands started rethinking their strategies of pricing, customer service, and product offerings. As a result, product quality and customer experience across the sector improved. All this shows that IKEA chose the right international market entry strategy.
The bottom line: It took IKEA much time, research, and a well-crafted market entry plan to build its presence in the Indian market, but this was a power move that ended in success.
Win your target market with a rock-solid market entry strategy
Around 90% of businesses fail to succeed in a foreign market due to half-baked new market entry strategies. Culture, needs, tastes, economic and political aspects, regulations—everything might significantly differ from what you’ve been used to in your home market. What worked well at home, might not work that well when you target an international marketplace.
That’s why you must dig very deep into the market you’re tapping into. You must know it inside out—the culture, the behavior of customers, their needs and pain points, your potential competitors, the political and economic situation in the country, and how regulation-friendly this market is. Also, think about the market entry strategy itself—which mode you choose, why, and how you’re going to implement it.
Don’t forget to work on your sales and marketing entry strategy. You must know what, via which channel, and how to sell. Finally, be flexible and ready to face any challenges on your way to tackle them wisely.
At Waveup, we’ve created over 600 successful projects across 80+ verticals. We know how to craft a killer market entry plan that will let you secure a strong foothold in the foreign market. If you feel overwhelmed with devising your market entry strategy yourself, contact our team, and we’ll gladly help you. Also, check out our roundup of the top go-to-market consulting firms to find the best partner for your market entry.