By expanding your business into new markets, you can potentially reach a large number of new customers and significantly increase your revenue. However, the procedure can be difficult and complicated.
A market entry strategy is a method of increasing your chances of success when entering a new market. In this article, we’ll look at some of the reasons why you should consider moving to a new market, the differences between domestic and international markets, and some strategies you can employ.
Why move to a new market?
First and foremost, why should you think about moving to a new market in the first place? It’s difficult and costly, so what are the reasons? why it’s worthwhile? Here are a few of the most important reasons:
- You will gain more customers and make more money – Of course, the most important reason to consider new markets is to expand your business and increase revenue by selling more products to more customers.
- There may be no more room for expansion in your home market – If your local market has reached its revenue ceiling, expanding to new markets may be the only way to grow.
- By diversifying your business, you will reduce risk – If one market suffers for whatever reason, you’ll still have others to keep you afloat.
Domestic markets vs international markets
Are you planning to enter a new domestic market or export your products to sell in another country? Each of these will require a very different approach.
This is usually much easier than entering a foreign market. The culture will be the same, everything will be closer geographically, and things will be very similar to your current markets.
This is where things become more complicated. These complications include:
- Cultural differences
- Administrative differences
- Economic differences
- Logistical challenges involved in transporting goods abroad
Things to consider
Before you enter any new market, you must first determine whether you can afford the move. Can you afford the costs of exporting, working with intermediaries, paying taxes, and all of the other expenses that come with it? And what percentage of the market can you realistically expect to serve?
You should also consider whether the product or service will be successful in your target market. Market research (both online and offline) is critical here; ensure that there is enough demand for your product to justify the export cost.
Risks of entering new markets
Numerous risks that involved in entering a new market:
- Country risks, such as the possibility of political unrest, abrupt changes, or financial issues that could have an impact on your business.
- Foreign exchange, such as the possibility of currency exchange rates fluctuating dramatically, which could have a significant impact on your bottom line.
- Cultural risk refers to the possibility of your new business venture encountering difficulties as a result of significant differences in culture and customs.
- Unpredictability of the weather. Are you entering a market where natural disasters and weather conditions could damage your facilities and cost you money?
After thoroughly researching your new market and weighing the potential risks, you may decide that it is worthwhile to enter. If this is the case, you have a number of options available to you, each with its own set of advantages and disadvantages.
Different market entry strategies
This is where you directly export your products into the new market. You’ll have to handle every aspect of the process on your own, from transportation to payments to operations in the new market.
When compared to working with an intermediary, this method necessitates more resources and time. Among many other difficult tasks, you will need to establish an exporting infrastructure, train employees, and make and receive international payments.
On the plus side, because you don’t have to pay any third parties, this method maximizes your profits. In addition, you will have complete control over your sales and marketing processes.
Working with an intermediary is required when exporting indirectly. It has several advantages, including:
- Significantly lower risk. The exportation process will be handled by an experienced third party, reducing the risk of failure.
- You can concentrate on your own company and domestic markets without being distracted by new ones.
- You will be required to use fewer resources.
On the other hand…
- Profits are lower because you must pay your intermediary.
- You’ll be cut off from your customer base, which means you’ll miss out on important insights and lessons.
- You will lose complete control over international sales and marketing.
- When it comes to indirect exporting, there are several options. Here are a few of the most common.
Indirect exporting with buying agents
Buying agents are representatives of foreign companies interested in purchasing your products. When selling your products to your new market, you’ll have to work through them.
They are usually paid on commission and will try to get the best deal possible. Buying agents are sometimes government agencies.
Indirect exporting using distributors
You can sell your product directly to distributors or wholesalers, who will then distribute it to retailers on your behalf.
Indirect exporting through management and trading companies
Export Management Companies (EMCs) are companies that handle all of your export and sales processes in a new market.
It is worthwhile to spend some time researching and locating the best EMC, as most specialise in a specific market or region. They will assist you in identifying markets, locating customers, handling all shipping and logistics, and much more.
Indirect exporting through piggybacking
Piggybacking is the practice of allowing another, non-competing company to sell your product. If they already have a customer base and distribution infrastructure in your target market, this can work extremely well. You will have immediate access to your new market but at a cost.
Producing products in the target market
Another option is to manufacture your products in the market where they will be sold. This saves you money on transportation and the numerous logistical challenges that come with exporting your product overseas.
However, you must also consider the numerous challenges of manufacturing your product in another country, as well as any legal issues, costs, potential risks, and so on. Depending on your circumstances, this could be a viable option.
Entering a new market can be extremely rewarding, allowing your company to advance to the next level and achieve new levels of growth. It is critical to spend time researching all of your options and ensuring that the export strategy you use is the safest and most effective for you.