Market Entry Strategy
As your preparations for exports proceed to the point where you are ready for market entry, consideration of the best entry strategy becomes a primary concern. Through the completion of various steps of your Foreign Market Strategy, especially the Marketing Plan stage, you will have considered various ways of actually getting your product to the market. Drawing from these elements, you must now evaluate which option for market entry is most suited to your needs and most likely to bring you long-term success.
Main options for consideration are:
Direct exports
Indirect exports
Partnerships/alliances: Joint venture? Licensing?
Some of the most relevant items you must consider in this decision process include (Note: refer to “Marketing Plan” section of this Guide for more details):
How is business normally conducted in your target market?
What is your product or service – what makes most sense?
What are your strengths and weaknesses (SWOT Analysis: Strengths, Weaknesses, Opportunities and Threats)?
What is your financial capacity? What can you afford?
What after sales service or support is required?
What barriers or regulations apply to your target market?
Direct Exports
As the name indicates, this type of selling is the most direct method of selling to end customer. A significant positive, aspect of this option is that there is greater potential for higher margins for your company as there are no agent’s commission and related “middleman” fees to consider. Also, this option necessarily entails closer contact with customers and market once you have made significant inroads and contacts there. However, making these initial contacts may be more difficult with direct exports as you do no have the agent or other “middleman” to assist you. It may take you longer to get to know market and to build relationships with its key players. Often direct exports end up costing you more in the end due to such things as having to use your own sales force, more frequent visits to the market, etc.
Indirect Exports
Essentially there are two main players in indirect exports: the Foreign Agent/representative and the Distributor. If you decide that indirect exports is the option best suited to your purposes, deciding between the two is one of the most important decisions you will have to make. It will influence your success or failure in the market so consider very carefully the many factors in making a choice.
As reviewed in the Marketing Plan section, Agent/representatives are one type of indirect export partner. They sell on your behalf and in your name. To recap, the Agent/Rep:
Obtains orders in exchange for a commission
Often handles complementary product lines (advantage)
Will enter into contracts on your behalf
Is normally paid when you get paid (incentive)
Has a presence in market – costs less than own sales force
Can make more frequent sales calls – especially if large complementary product line
Allows you to fix the price
Knows the market well
Can be very helpful in many other ways (customs clearance, etc.)
The Distributor is also an indirect player but in their case they take possession of your products; buying and then reselling them in the market. In this case you have little control over the marketing of your product because they take ownership of the product and also control the final price (which can affect sales if the price they set is too high). On the plus side, they handle warranty and after sales service in addition to local warehousing. They also offer some of the same advantages as agents (as mentioned above).
Trading houses are another option which can be regarded as either direct or indirect depending on the agreement you reach with them (i.e. they may buy from you directly or act as agent on your behalf). Trading houses often specialize in sectors or markets and can be particularly helpful to new exporters as they often handle many, if not all, of the marketing aspects.
Partnerships and Strategic Alliances
There are many benefits to this form of market entry, but your decision must be based on the level of compatibility with a potential partner and the need to consider the partnering option. On the positive side, partnerships can complement your capabilities as each partner would focus on its strengths. Risk may be shared, and there may be improved technology, capital and market access. But in order to defer the potential risks in partnering significant time and caution must be taken to find a suitable partner.