Approaches to New Market Entry
- June 2024
- Hal Smart
- New propositions
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New market entry is an essential phase of any company’s growth journey, but without a clear plan of how to achieve this, it can feel like a daunting leap into the unknown. Here we break down some of the options available to companies looking to expand operations to new geographies, broaden product or service offerings, or reach new customer groups.
1. Direct Play
One of the most popular market entry approaches involves shifting existing business models into new segments, which enables companies to leverage existing brand equity, IP, or technical expertise to get a head start in new markets. This proved the case for Tesla, whose expertise in electric vehicle battery technology enabled them to enter the battery energy storage market with an existing knowledge base to use as a launchpad. Their revenues in this sector in Q3 2023 stood at $1.56bn, a 40pc increase from 2022.
However, businesses must pay careful attention to the nuances of new markets prior to entry. Differences in market structure, customer needs, cultural values, and the competitor landscape could all challenge a organic move. Salesforce are a prime example of doing this well; as part of their internationalisation strategy, they have developed an array of country-specific grammar engines and customisable customer interfaces to maintain a consistent brand image whilst accommodating all the complexities cultural and linguistic differences between different countries.
Direct plays can be an effective long-term means of ensuring an expanded offering retains the essence of what makes it successful but could be riskier for companies with smaller capital reserves to invest or brands with a less established reputation. Understanding the unique challenges of new markets prior to rolling out operations will enable businesses to both decide whether a direct play is right for them and identify the adjustments to their business model that will be required.
2. Mergers & Acquisitions
Acquiring a business already present in your target market can help you gain market share rapidly by ‘plugging and playing’ a brand with an already-developed distribution network and customer base. When Oracle acquired health information technology brand Cerner, this enabled them to leverage Cerner’s decades-long experience to rapidly build their offering in a growing vertical where the core Oracle brand had lower overall penetration.
Challenges arise, of course, in selecting an acquisition target which both aligns with your strategic vision and possesses enough commercial potential to justify the cost of the initial investment. When Microsoft acquired Nokia in 2013 for $7bn, its stated aim was to tap into the growing smartphone trend by leveraging Nokia’s expertise to build its own high-quality handset. Nokia, however, lacked the in-house technological capability to match the advances of market leaders Apple and Samsung, leading to Microsoft writing off $7.6bn in debt on behalf of Nokia by 2015.
Thorough due diligence into both your target’s in-house capabilities and market positioning versus its competitors is crucial in determining both its compatibility with your offering and its ability to consistently generate revenue in your target market.
3. Partnerships
Partnerships offer a lower-risk, lower-capex market expansion option for companies unable or unwilling to invest in new facilities or pursue acquisition targets.
Certain types of partnerships, such as co-branding, can help companies reach new customer segments through cross-selling opportunities, such as Google and GE combining their cloud computing and domestic appliance capabilities to build a value-add offering in the smart home appliances space.
Partnerships don’t come without risks, however. Co-branding campaigns require the careful selection of partners with both compatible brand positioning to create a powerful selling story and a diverse enough customer base to enable both partners to reach previously untapped audiences. This will require deep knowledge of customer needs and may be suited to companies who place a greater emphasis on building overall brand image through media engagement. On the other hand, licensing partnership arrangements (such as those common within the brewing industry) necessitate diligent quality control to ensure licensed partners can guarantee product consistency in new markets.
Whatever the play, do your research before you commit
Finding the market entry strategy most suited to your offerings requires a deep understanding of how your brand is perceived in your target market, how market dynamics differ from your core verticals, and what M&A and partnership opportunities are available to you.
White Space Strategy has built a breadth of experience helping companies with their new market entry strategies; if you’re looking to expand your offering to a new geography, product category, or customer group and are unsure which approach is most suitable for you, we’d love to hear from you and understand how we can support.
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