13.3 Expanding into New Markets and Internationalization
4 min read•august 7, 2024
Expanding into new markets and going international can supercharge a company's growth. It's about finding fresh customers, adapting to new cultures, and navigating tricky regulations. But it's not just about selling more stuff.
Companies need smart strategies to succeed globally. They must localize products, pick the right market entry mode, and manage complex supply chains. It's a balancing act of risk and reward, but done right, it can lead to massive success.
Market Expansion Strategies
Increasing Market Share and Developing New Markets
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- focuses on increasing sales of existing products in current markets
- Achieved through increased promotion, competitive pricing, or acquiring competitors
- Aims to capture a larger share of the existing market (soft drink companies)
- involves expanding into new markets with existing products
- Targets new customer segments or enters new geographic regions
- Requires understanding the needs and preferences of the new target market (luxury car brands expanding to emerging markets)
- introduces new products to new markets
- Highest risk strategy as it involves both new product development and new market entry
- Allows companies to spread risk across multiple products and markets (technology companies venturing into new product categories and markets)
Evaluating Market Potential and Adapting Strategies
- Assessing market size, growth potential, and competitive landscape is crucial before expanding
- Conduct thorough and feasibility studies
- Identify target customer segments and their buying behaviors
- Adapting marketing mix (product, price, promotion, place) to suit new markets
- Modify product features, packaging, or branding to appeal to local preferences (McDonald's offering local menu items)
- Adjust pricing strategies based on market conditions and consumer purchasing power
- Tailor promotional campaigns and messaging to resonate with the target audience
- Establish appropriate distribution channels and partnerships in new markets
Internationalization Considerations
Language, Culture, and Localization
- Internationalization prepares a product or service for adaptation to different languages and cultures
- Designing a product with global markets in mind from the outset
- Ensures the product can be easily localized for specific regions (software with multi-language support)
- adapts a product or service to meet the language, cultural, and other requirements of a specific market
- Translating user interfaces, documentation, and marketing materials
- Modifying content, images, and colors to suit local preferences (website localization for different countries)
- goes beyond language translation and considers local customs, norms, and values
- Understanding cultural differences in communication styles, business practices, and social etiquette
- Adapting business models, negotiation strategies, and customer service approaches (gift-giving customs in Asian markets)
Market Entry Strategies and Modes
- are the methods companies use to enter and operate in international markets
- , , , , and
- Each mode has different levels of control, risk, and resource commitment
- Exporting involves selling goods or services produced in one country to customers in another country
- Lowest risk and resource commitment, but also the least control over the foreign market
- Licensing and franchising allow a company to grant rights to its intellectual property (patents, trademarks, copyrights) to foreign entities
- Licensor receives royalties, while licensee bears the costs and risks of local operations
- Joint ventures involve partnering with a local company to share ownership, control, and profits of a business entity
- Provides access to local knowledge, networks, and resources, but also involves shared decision-making
- Wholly-owned subsidiaries are foreign operations fully owned and controlled by the parent company
- Highest level of control and potential returns, but also the highest risk and resource commitment (greenfield investments, acquisitions)
Global Operations
Managing International Supply Chains and Regulations
- involves coordinating the flow of goods, information, and finances across borders
- Sourcing raw materials, components, or finished products from international suppliers
- Managing logistics, transportation, and inventory across different countries and regions
- Dealing with longer lead times, cultural differences, and communication challenges (offshoring manufacturing to lower-cost countries)
- and compliance requirements vary by country and industry
- Tariffs, quotas, and trade barriers can impact the cost and feasibility of international operations
- Different countries have varying laws and regulations related to labor, environment, and product safety standards
- Companies need to navigate complex legal and regulatory landscapes to ensure compliance (obtaining necessary licenses and permits)
Financial and Intellectual Property Considerations
- arises from fluctuations in between different currencies
- Changes in exchange rates can impact the value of foreign investments, revenues, and expenses
- Companies can hedge currency risk through financial instruments like forward contracts or currency options
- International is crucial for safeguarding a company's intangible assets
- Patents, trademarks, and copyrights may have different levels of protection in different countries
- Companies need to register and enforce their intellectual property rights in each market they operate in
- Infringement and counterfeiting can be more prevalent in certain countries, requiring vigilant monitoring and legal action (software piracy in emerging markets)
Key Terms to Review (21)
Cross-border regulations: Cross-border regulations are rules and laws that govern the movement of goods, services, and capital across international borders. These regulations ensure compliance with the legal standards of different countries, addressing issues such as tariffs, trade agreements, and customs procedures. Understanding these regulations is crucial for businesses looking to expand internationally, as they can significantly impact operational strategies and market entry decisions.
Cultural adaptation: Cultural adaptation refers to the process by which individuals or organizations adjust their practices, products, or services to align with the cultural norms and values of a new market or environment. This adjustment is crucial when entering new markets, as it helps businesses connect with local consumers and enhances their chances of success in diverse cultural settings.
Currency risk: Currency risk refers to the potential for loss due to fluctuations in exchange rates when a business engages in international transactions or operates in foreign markets. This risk can impact the value of investments, revenues, and costs when currencies are exchanged, making it crucial for companies expanding into new markets to manage these uncertainties effectively. Understanding currency risk is essential for strategic decision-making related to pricing, budgeting, and financial reporting in a global context.
Exchange rates: Exchange rates are the values at which one currency can be exchanged for another, reflecting how much of one currency you need to spend to purchase a unit of another currency. These rates fluctuate based on various economic factors, including interest rates, inflation, and political stability, making them crucial for businesses looking to expand internationally. Understanding exchange rates is vital for pricing products, managing costs, and maximizing profits in global markets.
Exporting: Exporting is the process of sending goods or services produced in one country to another country for sale or trade. This practice allows businesses to expand their market reach, increase sales, and gain access to new customer bases, contributing significantly to international trade and economic growth.
Feasibility study: A feasibility study is an analysis that evaluates the practicality and potential success of a proposed project or business idea. It helps in determining whether a project is viable, considering factors such as market demand, financial resources, and technical requirements. By assessing these elements, a feasibility study provides a clear picture of whether it makes sense to move forward with the idea or not.
Foreign market entry modes: Foreign market entry modes refer to the various strategies that companies use to enter and operate in international markets. These modes encompass a range of approaches, including exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries, each with different levels of investment, risk, and control. Understanding these modes is crucial for businesses looking to expand their operations globally and successfully navigate the complexities of internationalization.
Franchising: Franchising is a business model that allows individuals or companies (franchisees) to operate a business under the brand and operational guidelines of another company (franchisor). This arrangement enables franchisees to leverage established branding, proven business practices, and support systems while paying fees or royalties to the franchisor. Franchising is crucial for expanding brand presence and entering new markets, as it allows businesses to scale quickly without bearing the full costs of opening new locations.
Global supply chain management: Global supply chain management refers to the strategic coordination of a company’s supply chain activities across international borders to maximize efficiency and effectiveness. This process involves managing the flow of goods, information, and finances from raw material sourcing to product delivery, ensuring that businesses can meet customer demands in a competitive global market. Effective global supply chain management is crucial for companies looking to expand into new markets and establish a strong international presence.
Intellectual Property Protection: Intellectual property protection refers to the legal rights that grant creators exclusive control over their inventions, designs, and artistic works. This concept is crucial when expanding into new markets and internationalization, as it ensures that businesses can safeguard their innovations against unauthorized use or imitation in different jurisdictions, fostering a secure environment for investment and growth.
Joint Ventures: A joint venture is a business arrangement where two or more parties agree to collaborate and share resources, risks, and profits to achieve a specific project or goal while remaining independent entities. This collaboration can lead to shared expertise, reduced costs, and improved market access, especially important when entering new markets or leveraging technology through licensing agreements. Joint ventures can also facilitate innovation and enhance competitive advantage in various industries.
Licensing: Licensing is a legal arrangement in which the owner of intellectual property (IP) grants permission to another party to use, produce, or sell the IP under specific conditions. This process is crucial for businesses seeking to expand their reach and leverage their IP assets while ensuring that they maintain control over how their creations are utilized. Licensing plays a significant role in navigating international markets, building IP strategies for startups, and understanding different types of intellectual property like patents, trademarks, and copyrights.
Localization: Localization is the process of adapting a product or service to meet the language, cultural, and other specific requirements of a target market. This involves not only translating content but also modifying elements like imagery, branding, and even user experience to resonate with local consumers. The goal of localization is to ensure that offerings feel native to the local audience, which is crucial when expanding into new markets or pursuing internationalization.
Market development: Market development is a growth strategy that focuses on increasing sales of existing products in new markets or segments. This approach often involves identifying new customer demographics, exploring geographic expansion, or creating partnerships that allow for access to previously untapped markets, thereby driving overall business growth.
Market penetration: Market penetration refers to the strategy of increasing a company's share of existing markets, typically by selling more of its current products or services to existing customers or attracting new customers from competitors. This approach is often measured by the percentage of total market sales that a company achieves, highlighting its competitive strength and effectiveness in maximizing customer engagement. Understanding market penetration is crucial for businesses aiming to assess their growth potential and establish strategies for deeper market engagement.
Market Research: Market research is the process of gathering, analyzing, and interpreting information about a market, including information about the target audience, competitors, and industry trends. It plays a crucial role in decision-making by helping businesses understand consumer needs and preferences, allowing them to refine their offerings. The insights gained from market research are essential for developing a minimum viable product (MVP) and for effectively expanding into new markets or internationalization strategies.
Michael Porter: Michael Porter is a prominent professor and thought leader in the field of business strategy, best known for his work on competitive strategy and the concept of competitive advantage. His frameworks, like the Five Forces Model and Value Chain Analysis, help businesses understand their competitive environment and how to create unique value propositions that differentiate them in the marketplace.
Peter Drucker: Peter Drucker was an influential management consultant, educator, and author, widely regarded as the father of modern management. His theories emphasized the importance of entrepreneurship, innovation, and effective management practices that empower individuals and organizations to succeed in a rapidly changing environment.
Product Diversification: Product diversification is a growth strategy that involves expanding a company’s range of products to reach new customers or markets. This approach not only helps in minimizing risks associated with relying on a single product line but also capitalizes on opportunities for increased revenue by appealing to different customer segments. It plays a crucial role in helping businesses adapt to changing market conditions and enhances competitiveness, especially when entering new markets or expanding internationally.
Trade tariffs: Trade tariffs are taxes imposed by a government on imported or exported goods, designed to regulate international trade and protect domestic industries. These tariffs can influence the pricing of goods, affect trade balances, and alter consumer behavior in both the importing and exporting countries. By making imported goods more expensive, tariffs aim to encourage consumers to buy domestically produced products, thus supporting local economies.
Wholly-owned subsidiaries: A wholly-owned subsidiary is a company whose entire stock is owned by another company, known as the parent company. This structure allows the parent company to have complete control over the subsidiary's operations and decisions, which is particularly useful when entering new markets or expanding internationally. By fully owning a subsidiary, companies can better manage risks and align business strategies with their overall objectives in foreign markets.