A market entry strategy is a specific approach to distributing and delivering goods and services to a new target market. In an effort to explore new opportunities, expand business operations, and increase profitability, an organization would normally identify and enter a new target market.
It is important to note that the new target market could be an existing market within an industry or sector that has been uncharted by the organization, an emerging market for new goods and services, or a geographic or foreign market.
Different organizations have pursued different market entry strategies depending on their requirements and capabilities. This article identifies and briefly explains these different market entry strategies. It is also worth stressing the fact that these market entry strategies also correspond to models for market entry or modes of entry.
Modes of Entry: The Common Market Entry Strategies
1. Trading or Exporting
One of the most common market entry strategies is exportation. In its most basic definition, exporting is the process of selling goods and services produced in one country to another country. Note that there are two types of exporting: direct and indirect.
Direct exporting involves a company setting up and operating subsidiaries such as sales representatives and importing distributors to countries it intends to distribute its products. On the contrary, indirect exporting involves a company pursuing distribution agreements with export intermediaries such as third-party distributors and resellers located in its target countries.
2. Joint Venture
A joint venture is a business strategy in which two or more parties create and pursue a venture through the combination of their resources and capabilities. There are different reasons behind a joint venture, and one of such is to access a new market or an emerging market.
Fast food restaurants and retailers have pursued joint ventures with domestic companies operating in their target countries. McDonald’s Corporation has entered joint venture agreements with Indian and Chinese companies to expand its retail operations in India and China. The same has been true for 7-Eleven Inc.
3. Franchising and Licensing
Another market entry strategy or type of mode of entry is franchising. It is both a business expansion strategy and a distribution strategy involving a company licensing its business model, operational procedures, intellectual properties such as trademarks, and its branded products to another company in exchange for fees and agreement compliance.
The provider of the license is the franchisor while the recipient of such is the franchisee. American fast food restaurants have used the franchising model as a strategy to enter foreign geographic markets. Note that McDonald’s Corporation owes part of its global success to this strategy. The Coca-Cola Company has licensed the distribution of its branded beverage products to independent bottlers operating in different parts of the world.
4. Mergers and Acquisitions
A merger involves two companies bringing together their respective businesses to become one while an acquisition involves a takeover of another company either by purchasing a controlling interest or by purchasing its entire business operation and assets. Both are corporate level strategies aimed at driving business growth within a short period or promoting a competitive advantage against competitors.
There are several reasons or motivations behind mergers and acquisitions. Some centered on being a mode of entry into a target market. Examples of such are to increase market share through horizontal integration, diversify business through the acquisition of other entities from other industries or sectors, and internationalization of business operations. Hence, based on these reasons, mergers and acquisition are another market entry strategy.
5. Direct Investments
Similar to direct exporting, joint venture, and mergers and acquisition, a direct investment can also be regarded as one of the commoner market entry strategies or modes of entry. It might involve a company directly investing in the creation of a subsidiary, acquisition of an existing entity, entering a joint venture for market entry purposes.
The Coca-Cola Company has entered global geographic markets partly through the creation and operations of subsidiaries. The same is true for McDonald’s Corporation that directly owns and operates most of its fast food chains in the United Kingdom. Tech companies such as Google and Facebook have entered new markets for specific products through the acquisitions of existing companies.
In some case, outsourcing to a foreign country can also be regarded as a market entry strategy. Note that outsourcing is a business strategy involving an organization contracting the services of another organization or service provider to perform specific activities related to operations and business processes.
When considered as a strategy for entering a foreign market, outsourcing essentially allows an organization to access relevant resources that are contested in different types of markets. Examples of these resources include the human resource that constitutes the labor market, technological capabilities of the manufacturing sector, and distribution channels of the global supply chain. Furthermore, outsourcing also gives an organization a semblance of global presence.