Market entry strategies for Global Expansion
Expanding a business globally can be a lucrative opportunity for growth, but it requires a well-planned market entry strategy. There are several modes of international market entry, each with its own advantages and disadvantages. In this article, we will first introduce the most common modes of international market entry, including exporting, licensing, franchising, joint ventures, and direct investment. We will then dive into the benefits and pitfalls of two specific strategies: the waterfall strategy and the sprinkler strategy. While the waterfall strategy involves a sequential and cautious approach to entering new markets, the sprinkler strategy involves a simultaneous and aggressive approach. By understanding these strategies, companies can choose the best approach for their business and succeed in expanding globally.
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Best Practices and Examples for Global Expansion
Expanding a business globally requires a well-planned market entry strategy. International market entry strategies can vary based on the target market, resources, and objectives of the company. In this article, we will explore some of the most common international market entry strategies along with best practices and examples.
1. Exporting
Exporting involves selling goods or services to a foreign country from the home country. This strategy is ideal for companies that want to test the waters in a new market without making a significant investment. Exporting can be done directly or through intermediaries such as agents, distributors, or freight forwarders.
Best Practices:
– Conduct market research to identify target markets and competitors.
– Develop a pricing strategy that takes into account the costs of exporting and local market conditions.
– Ensure compliance with export regulations and customs requirements.
Example:
– Apple exports iPhones from China to countries around the world.
2. Licensing
Licenses allow you to grant a foreign company the right to use a company’s intellectual property, such as patents, trademarks, or technology, in exchange for royalties or fees. This strategy allows companies to enter a new market quickly without investing in production or operations.
Best Practices:
– Choose a licensee with a good reputation and the resources to successfully market the licensed products.
– Establish clear terms and conditions for the licensing agreement.
– Protect intellectual property rights with legal agreements and monitoring.
Example:
– Coca-Cola licenses its brand to local bottlers in countries around the world.
3. Franchising
It involves granting a franchisee the right to use a company’s brand and operating system in exchange for fees and royalties. Franchising is a popular strategy in the restaurant and retail industries.
Best Practices:
– Choose franchisees with experience in the industry and a good reputation.
– Develop a comprehensive training program for franchisees.
– Establish clear guidelines for operations and quality control.
Example:
– McDonald’s franchises restaurants in over 100 countries.
4. Joint Ventures
It consists of a partnership between a foreign company and a local company to share resources and risks in a new market. Joint ventures can provide local market knowledge and access to local resources while sharing the investment and risks.
Best Practices:
– Choose a partner with complementary skills and resources.
– Establish clear roles and responsibilities for each partner.
– Develop a detailed agreement outlining the terms and conditions of the joint venture.
Example:
– General Motors and SAIC Motor formed a joint venture in China to produce and sell automobiles.
5. Direct Investment
It consists in establishing a foreign subsidiary or acquiring a local company in a new market. Direct investment provides complete control over operations and allows for customization to local market conditions.
Best Practices:
– Conduct extensive market research and due diligence before investing.
– Ensure compliance with local regulations and laws.
– Establish clear goals and objectives for the investment.
Example:
– Nestle established a subsidiary in Brazil to produce and distribute food and beverages.
International market entry strategies can vary based on the target market, resources, and objectives of the company. Choosing the right strategy requires careful planning, research, and execution. By following the best practices and learning from successful examples, companies can expand globally and succeed in new markets.
Waterfall or Sprinkler strategies
Once established in their domestic market, growing firms are targeting global expansion. Born-global firms are speeding up the process with their strong digital capabilities. Tech and SaaS companies have to scale rapidly as it is critical to maintain a competitive advantage in globalized markets. Fintech, Biotech, Cleantech, Healthtech, Insurtech, and Deeptech companies are racing for growth and internationalization. Scaling is often the primary objective of Venture Capital-funded start-ups.
Single or multiple markets approach
Should you go for a deployment to multiple markets, or a concentrated expansion in 1 or 2 markets?
In fact, if you spread your business across too many countries, will you have a lower impact? Instead, should we focus on the most important markets?It is certainly the best way to ensure much greater and faster success.
But common sense will drive your decision-making: it depends on your competitive environment, technological edge, available capital and human resources. It is also dependent on the level of pressure from the market and shareholders.
The Race for Growth
A common behavior of funded startups (especially those in hyper-growth mode) is that they have limited patience in their drive to grow.
Organic growth or build-up growth will fuel the scaling of your operations. The time has come, and the urgency is contagious, competition does not wait in growing or disrupted markets.
The thirst for globalization is strong, but it can sometimes be misdirected. Most business leaders find it difficult to take a step back, to catch their breath. They really need to do their homework to figure out which markets are best for them.
Market entry strategy: How to choose the entry mode ?
Business leaders often sense the potential of a market after single signals or inputs rather than a 360° view of risks and potentials. This feeling is reinforced when you know that there is a strong demand for what you sell all over the world. The right approach is rather to combine guts and data.
The market entry strategy is always wrong when there is a lack of time, resources or hindsight to investigate the different landing scenarios.
But while the international prospects you envision may seem limitless, there are often hidden thorns. Thorns that you won’t even be able to see until these markets start to bloom. Gathering relevant data on each market, but also taking stock of your company, its resources and skills is essential.
Top 5 for a good market entry strategy
Here are the five best reasons not to rush into too many international markets at the same time :
Do not dilute your brand awareness efforts.
Creating brand awareness for your business is essential. Unfortunately, this has to be done by one country at a time. Do not limit the marketing impact on targeted markets that speak the same language. Long-term success requires focused efforts in every country.
Focus on your investments.
Even if it’s just by assigning a unique salesperson to that market, it is an investment and a potential litigation risk.
In the case of an international expansion, these first decisions often end up affecting your bottom line and your cash flow. The mistake is to spread your investments too thinly across too many markets. You will probably later have to struggle with divesting some of them.
Gaining ground in each of these markets takes time, energy and money. Don’t waste your resources, even if you have plenty after raising funds.
Engage your teams.
If you launch into too many markets at once, you will end up forcing your internal teams to compete for resources. At some point, you will have to make decisions about how to expand your presence. To a certain extent, your decisions may have a financial impact that will damage your team’s engagement. Spreading financial resources and focus on corporate teams is harming their motivation. You will literally not be able to support all markets in the same way.
Reduce operational complexity.
Going global is the least perceived risk of many early-stage companies, but one of the most harmful.
When you start targeting new markets, it’s easy to forget the complexity you will add to your less visible teams (HR, Finance, CIO…). But the more countries you add at once, the faster the complexity of your business will multiply. Of course, you can manage many of these things through third parties and outsourcing. But someone in your company needs to manage these relationships, and ideally someone who has worked with these markets before. At the beginning, you will probably not recruit teams with in-depth and specialized international knowledge in your company but rather generalists for the function.
Adopt a Market Differentiation Strategy
You can absolutely target more countries in order to grow your business faster. The question is how to adapt your go-to-market approach to the country’s specificities. Adjusting your Marketing and Sales to the local requirements is often the key element for successful market penetration.
To create minimal long-term risk, it is recommended to build country tiers. By defining common market factors, you should be able to determine how and where you will invest. The pace of investments in new international markets can then be differentiated.
Efficient market penetration
Market conquest is more effective, after having correctly determined the company’s Product Market Fit. The product market fit may vary from a country to another.
We have reviewed the best practices, methods and resources for setting up the right product market fit . This includes various steps to go through and the working out of your Minimum Viable Product with the support of the Grind process. In order to measure the effectiveness of your Product Market fit , we have documented how to run the Net Promoter Score and the Ellis Test.
This marketing approach is described in our Product Market Fit article.
Waterfall or Sprinkler Entry on Foreign markets
Waterfall or Waves development model? Of course, the sector in which you operate will deeply influence the choice of expansion model.
For a software publisher or SaaS company, rapid growth in multiple markets is possible. To do this, you need to have a mature organization with strong capabilities for localization. This includes the ability to grow externally through a build-up model or talent sourcing, as did companies such as Sisence. Investing more heavily in the markets that matter strategically will increase your brand awareness and allow you to continue growing the teams that support those markets while avoiding unnecessary operational complexity. That doesn’t mean you can
Conclusion
My advice: focus on a few countries from the start. It will be tempting to grab every opportunity that comes your way. If you do, you will only distract yourself and your teams.
Save scenarios of greater international complexity for later. Gather experience and successes in a limited number of countries first, then build a book of success stories and customer references. You can take advantage of this experience and these playbooks. It is then possible to adapt them to other markets.
About Emmanuel Facovi the Founder and Managing Partner
As former CEO / senior executive (Nokia, Coface, FCI, Kompass, Schneider, Areva…) his expertise consists in leading tech companies (SaaS, marketplaces, Techs) with ambitious growth objectives in fast-changing environments.
He is a cross-cultural high technology executive passionate about new technology, innovation, disruptive models, and above all, scaling up your business globally. One of the most renowned Experts in Data, Marketing Strategies of Tech and Digital Industries,
As an« all-rounder» entrepreneur with a proven track record of building high-performing teams, he has a wide skill set ranging from Strategy and International Sales performance, also encompassing Finance, Marketing/advertising and legal/HR/culture.
He is an enthusiastic leader, keen on making sure that the office develops every day into an even “Greater Place to work”, gathering professionals of diverse talents who succeed together with a common vision in mind.