In this lesson, we’ll learn about market entry strategy by investigating several methods an organization can use to enter a new market. We will look at exporting, licensing, franchising, joint ventures, and more.
What Is Market Entry Strategy?
Busy Tech is interested in entering a new market, so the company is going to work comparing market entry strategies. A market entry strategy is the method in which an organization enters a new market. Busy Tech quickly realizes that they have several options, each fit for a variety of business scenarios.
A first point of consideration is whether or not the organization is expanding domestically or internationally. Expansion within the same market will have different requirements than expansion into the global market. Among other factors that may impact how the company integrates into the new market, Busy Tech finds that when selecting a method of expansion, they must consider:
- Type of industry
- Agility of the products
- Culture of the new market
- Costs associated with entering a new market
- Local and international laws of importation and exportation
Strategies for Market Entry
Exploring the various market entry strategies can help Busy Tech to better understand which strategies best fit their organization.
Some of the most common strategies for market entry include:
- Joint ventures
- Turnkey projects
- Greenfield investments
Let’s take a look these strategies and how each one can be implemented. Exporting is used for international expansion and it is the process of sending goods to an international market. There are two methods of exporting.
- Direct exportation means that the organization takes charge of shipping goods to the international market.
- Indirect exportation takes place when the organization uses a middleman or intermediary to integrate the goods into the market.
In general, exporting is a good strategy if Busy Tech wants to quickly enter several foreign markets.
This would be particularly useful if they were selling a commodity item, such as clothing or food. It is not the best option, though, for a company wishing to produce their technology internationally, because exporting only entails sending finished products overseas to a new market.
Licensing is the process of giving another company the rights to produce or sell the organization’s products or services. This would require Busy Tech to create an agreement with an organization who would then produce Busy Tech products and sell them in various markets.In general, this can be risky for a tech firm because they will have to give the local company the knowledge of their technology.
If they try licensing their products, they will need to be sure they develop a well-thought-out contract and agreement. Despite the risk, this can be a good option if the company Busy Tech works with has a large share of the prospective market.
Franchising is, in essence, copying and pasting a concept into a new market.
This is good option when there is a relatively small need for product and service adaptation. This entry method is most common among food chains because they make only minimal changes when operating in a new market. Franchising is optimal when the company brand is already well-known or in cases when the organization’s concept is truly exceptional and unique.
Partnering means that two or more people will work together to enter a new market.
The partner may be from the desired market. Partnering can occur in any expansion but is most beneficial in the international market. In some cases, it may be required for international expansion and is especially valuable when there are large cultural differences.
Joint ventures are a unique kind of partnership in which two or more companies work together to form a third company. Busy Tech might use this option if they want to create a new tech product.
They could pair with another tech company that makes similar products and together the two companies would make the new product.
A turnkey project means that the company builds and establishes a new business and then turns the company over to the client. Essentially, a company is paid to build the organization for the purchaser to run in the new market.Busy Tech isn’t interested in this option because it requires them to give their technology to someone else without maintaining control of the manufacturing, which could cause them to lose their competitive advantage and potentially create a competitor. One major advantage to using the turnkey approach is that Busy Tech would not have to be in charge of manufacturing, which could save time.
A greenfield investment is the process of purchasing land, building a facility, and conducting foreign business. This is a good option if Busy Tech wants to manufacture internationally. In this case, Busy Tech would need to purchase land in a foreign country, build a new manufacturing facility, and continually operate in the foreign market. Greenfield investments are also an expensive option for expansion, since the initial investment requires land purchase and building.
A market entry strategy is the process by which an organization enters a new market. The type of strategy used depends on whether the organization is expanding domestically or internationally, since local expansion has different requirements from international expansion.
In order to select the best method, an organization should consider the industry they are in, the flexibility and adaptability of their products, the culture in the new market, the cost of integrating into the new market, and local and international laws of importation and exportation.There are several methods that an organization can use to enter a new market. Each method is unique and can assist organizations with reaching their expansion goals. Some of the most common include:
- Exporting: Sending goods directly or indirectly to the international market
- Licensing: Authorizing another company to manufacture or produce the company’s goods and services
- Franchising: Copying and pasting a concept into another market
- Partnering: Pairing with someone, typically from the local market, to enter the new market
- Joint ventures: Partnering with another company so that the two can work together to create a third company
- Turnkey projects: Building a concept and turning it over to the local client
- Greenfield investments: Building a new venture in a foreign market and then continuing to operate it internationally