5 Factors You Must Consider

While Your Company is Entering

to a New Market
Market Entry Strategy: 5 Factors You Must Consider While
Your Company is Entering to a New Market!
It has become imperative for most companies to market their products
and services outside their domestic markets.

But all markets are not equally attractive nor are the companies
competent enough to pursue all markets. A company has to be wise in
selecting markets where its foray would be successful.

1. Economic Factors:
Not all countries will be attractive for all companies. Some companies
may discover that some markets cannot afford the products that they
sell and they should refrain from entering those markets, whereas
there may be some markets which would readily accept a slightly
different version of their existing product. Companies should be aware
that terms like ‘middle class’ have different meaning in the developed
world and developing countries.
India has a large middle class but if a US company assumes that the
spending power of a middle-class family in US and India would be
same, it can make strategic blunders by over-investing in India. Many
companies made such mistakes in the early nineties in their first
forays in India. Companies need to deliberate about the real economic
potential of a market before they decide to commit resources.

However expensive or sophisticated a company’s product may be,

there will always be some customers in every country who will want
such products, and can afford to pay for it. But it would not be viable
to market to such small country markets. A company can explore the
possibility of creating an infrastructure to serve a region constituting
of such small country markets.
Most western multinational corporations will realize that the huge
markets of the developing countries are not for the products that they
are selling at home, but for a far less sophisticated version at far less a
price. An entirely new set-up of marketing and manufacturing may
have to be established to serve such markets. This can be risky but it
would be better than serving third world country markets with old
products from their portfolio.

A company should not be content with studying national indices like

gross national product and per capita income. It should delve deep
into the data to find the number of people who can afford to buy its
products. A company looking for a viable market should let its
economists and marketers stay in the prospective markets for a long
time. They will understand if enough people have enough disposable
income to buy the product the company proposes to sell.

Besides looking at the ability of customers to pay for the product, the
company also has to assess the economic conditions and economic
stability of the country where it plans to run its operations. Studying
the balance of payments situation, GDP, trade patterns and currency
stability will give an idea about the economic prosperity and well being
of the country. These are important indicators of the level of risk
associated with the country which is being viewed as a prospective
market.

2. Social and Cultural Factors:

Countries are different from one other in terms of language spoken,
religion practiced, food eaten and in many other ways. These
differences are very real and significant, and marketers should
consider how these differences can hinder or facilitate the marketing
efforts of the company in the new market.

Products which are related to the way people live may have to be
altered significantly or will not find acceptance at all, whereas
industrial products may find acceptance in countries even with widely
different practices of life.

Even marketing and other business practices may have to be tailored

to suit the social and cultural nuances of the country. A company
would do well to pack a troop of sociologists and anthropologists into
the target market before it sends its product developers and
marketers.

Some marketers initially sell their products to markets that are

culturally similar, while some may look for similarities among
consumers across various countries where they operate. But in most
cases, differences in socio-cultural settings have forced marketers to
adapt their marketing mix.

These may be simple changes such as translation of messages into

different languages, or can involve creating completely different
marketing mixes for various markets that the company operates in.

3. Political and Legal Factors:

It is important to know the attitude of the government and the people
of the host country before a company decide to commit resources. A
company’s historical record and its professed attitude towards foreign
investments and properties should also be considered.
Attitude of nationals of a country towards foreign companies, products
and citizens have to be seriously considered. Nationals of countries
who have been dominated by foreign powers in the past are wary of
anything foreign. Multinational companies should have patience and
demonstrate long term interest among people of the country by
becoming actively involved in their well being, besides selling products
to them.

Streamlined procedures, absence of bureaucratic hurdles, subsidies

and incentives are good indicators of a government’s willingness in
inviting foreign partners in developing their countries. Political
stability and attitude towards foreign investment also matter a great
deal in encouraging participation of multinational corporations.
Political stability indicates continuance of policies. Changes in
government policies could spell difficulties for the profitability
potential of the firm.

It is also important for multinational corporations to assess the tax

structure and other legal systems and procedures before starting
operations in other countries. In many developing countries legal
systems are not stringent, and multinational firms find it extremely
hard to implement and enforce their policies and contracts.

In many such countries, there is lot of government interference in the

functioning of businesses. And despite liberalization of trade, much
protectionism is granted to domestic companies in several developed
and developing countries across the world.

4. Market Attractiveness:
The attractiveness of a market can be assessed by evaluating the
market potential in terms of revenues that can be generated, access to
the market in terms of the host country being warm to investments by
multinational companies, and potential competition and dynamics of
the industry in the prospective market.
The revenue and profit potential of a market can be judged on the
basis of the level of initial investment required in establishing the
operations, the gestation period, the industry structure, and the
number and degree of obstacles that the company must face besides
competition, i.e., the macro-environmental factors. Most of these
indicators can be obtained by studying the history of other players in
the market, or if the market is nascent, by studying similar industries.

A big market with a rapid rate of growth can be very attractive and a
big upfront investment can be justified in such a market. Lack of
entrenched competitors and stability in the type and number of
competitors add to the attractiveness of the market.
A market’s appetite for differentiated products will invite dissimilar
players of the same industry, who will operate in different market
segments without engaging in cut-throat competition. The number of
distinct segments that are in operation is a good indicator of the
development and attractiveness of the market.

There can be other factors such as the terrain of a country and the
level of infrastructure development that can considerably affect the
profit potential of the market. A country with well developed national
distribution would require less investment by the company when it
enters the market.

5. Capability of the Company:

Before a company decides to go global it should conduct an audit of its
resources and capabilities. The company should have clear competitive
advantages in terms of market knowledge, technology, portfolio of
products, reliable partners and other relevant parameters.
The company should have people with experience in foreign markets.
It would be naive to start operations in a foreign market with star
performers of the home market heading the initiative. The learning of
the home market is largely not applicable in foreign markets, and the
home-grown executives should be expected to make strategic and
operational blunders. At such times of incursion, it helps to have a
chief executive with extensive international exposure to guide the
adventure.