When You are Ready to Expand into New Markets – Here is Your Guide
A Guide for Businesses that are Considering New Market Expansions
Author Thomas L. Friedman (The World is Flat, 2005), has produced an intriguing look at economic globalization in the 21st century and its potential for huge trade expansion, outsourcing, as well as impact on business practices and raising millions of people out of poverty.
Friedman also speaks to the challenges involved – environmental, political, social, etc.
Friedman’s analogy to a “flat world” is we have become a global society in which information, products, and services traverse the planet without the “roadblocks” of traditional travel.
The challenge for individual businesses, however, is how to expand into any global market, become more competitive, and have as little impact on its current domestic business success as possible.
Backing Up For a Minute
Actually, there are two types of market expansion- the expansion that comes from adding new products and services to a current business repertoire and the expansion that comes from moving into one or more foreign markets.
In both cases, the expansion is a significant undertaking and will have major repercussions for current business activities. Business owners must be certain that the benefits outweigh the risks, as they ask staff members throughout the organization to assume greater responsibilities while they also continue to conduct all of the established day-to-day business activities.
And whether the expansion is into new domestic markets with new products or services or into a global marketplace with the same products and services, it is a complex process that will require, at a minimum:
- An understanding of the target market
- Thorough research of the competition
- An understanding of market trends
- Identification of the requirements to launch and drive growth
- A thorough business plan that accounts for all of the details of set up, launch, and beyond.
This guide for expanding into a new market will primarily focus on foreign expansion, but for those considering a domestic expansion to a new target market, much of this guide will also apply.
The 12-Step Guide to New Market Expansion
- Deep Market Research – Questions to Ask
The first step is to get a clear understanding of the impact your business may have with the target market. This will involve careful research and analysis:
- A market segmentation analysis comes first. According to Wikipedia, such an analysis involves looking at groups of likely customers, clients, or countries that have needs in common that could be met by a product or service. In other words, is there a large enough demographic that has a need for your product or service?
- A product gap analysis comes next. According to Investopedia, a gap analysis looks at existing products and services available to a target market. Is there a need that is not being met already?
- Analysis the competition, especially quality of product or service in comparison to yours, as well as pricing. Moving into a new market, domestically or globally will usually mean that your product/service will initially be introduced at a higher price. Will that market bear that?
- Size of target market. How large is your potential market and how long might it take to capture enough sales for profitability?
- Consider the Political Stability of a Target Country
American businesses enjoyed a privileged position in Cuba for many years, especially during the reign of the dictator, Batista. Fruit and tobacco industries thrived and brought in huge profits. In 1959, however, the Communist revolutionary, Fidel Castro, took control of the country and nationalized all of these industries. The losses were enormous.
Another example is the activity of the government of Cyprus in 2013. It froze bank accounts of foreign investors and extracted a 10% tax.
Political instability can result in power changes that will disrupt if not “freeze” foreign company assets.
Be certain that your expansion is in a country with a stable history. And many foreign governments actually encourage foreign business investments by providing financial incentives for them to set up shop there.
- “Deep Dive” Into the Culture
Ultimately, a marketing plan must be developed. Do not wait until product/service launch to do this. Begin the research as soon as the location(s) has been identified. Failure to understand a culture will result in marketing errors that can ruin a company’s reputation with the new audience.
Enlist locals and spend the money necessary to gain the deep cultural understanding you need. And when it comes to either translating marketing materials or crafting new ones, use a reputable and professional agency, such as The Word Point Translation Service Company, to have those materials created by natives of the target population.
- The Legal Issues
Setting up in a foreign country brings a host of laws, regulations, banking rules, etc. that may be very different from those in your native country.
Just the process of getting the right to do business in a country can take any where from one day (New Zealand) to a number of months. Everything from taxation, to trade and banking regulations, to contract law, and purchasing or renting property will need to be researched and planned for.
The best practice is to find local legal expertise. This may be in the form of an expat lawyer who has taken up residence in that target country or a local law firm that specializes in these matters.
Getting a handle on the legal aspects of doing business early on will provide plenty of time to prepare and be ready at launch.
- The Business Plan and Strategy
Developing a business plan for the expansion must take into account all of the elements covered in the first four steps- a full market analysis, an understanding the target culture, and the political and legal and regulatory infrastructure. Armed with this information a business plan can be developed that accomplishes the following
- Setting short-, middle- and long-range goals
- A method for measuring progress towards those goals and the cost-benefit ratio as the business moves forward
- Defining what success “looks” like
- Development of a projected budget
- Developing the plan for ultimate launch, with a timeline
- Who Will Lead the Launch?
There are several options here.
One is to use existing management and executive staff. This can overburden certain personnel and impact the home-based business operations.
Another is to build a local team in the target country. But this is a slow process, as recruitment and selection processes take place.
Both options take time. But the ultimate goal is to build a leadership team. So, a third option is to bring in interim executives who act as consultants and who have done this before. They can set up the infrastructure and get things up and running far more quickly. There are organizations who do provide consultants for this and who can operate while a permanent management team is secured.
- Take Steps to Ensure Your Product/Service is Ready
Here you will want to do several things:
- First be certain that all government regs are complied with
- Ensure that all localization is in place (e.g., website), especially if the product is digital
- Be certain that local patent and trademark certification is in place
- Test the product if necessary
- Organizational Structure
Policies and procedures must be in place for the local organization to operate according to company expectations and guidelines. The following will need to be in place:
- Your company has policies, procedures and perhaps an employee handbook. These should all be developed/translated for the local staff
- Develop salary and benefits packages that will be attractive to local employees, based upon the “going rate” in your target country.
- Provide for management of the HR function – this can be largely automated or outsourced locally for the more complex task responsibilities
- Develop Your Marketing Plan
This is a complex process. Your business success depends on it. There are a number of activities that will be required. You will need a comprehensive marketing plan, just as you developed for your local market.
– Will you sell directly or indirectly through local distributors or a combination – What types of marketing programs will you have? A website? A local social media presence? Paid adds? Development of an email list?
- Will you be using your parent company brand name or a new that better fits the local audience?
- Develop your pricing plan, along with incentives and discounts
- Establish KPI’s for analysis of marketing success
You may plan on utilizing some of your current sales and marketing pros, especially if your marketing and sales functions are digital or if your expansion involves new products/services to an existing or new target audience. Global expansion, though, should involve some native marketing and sales personnel.
And if there is a need for customer service or support personnel, employing natives will be just plain smart.
- Finances and Taxes
Doing business in a foreign country means compliance with its banking and tax laws. Finances also entails accounting and payroll, and these, too, may need to conform to local laws and regs.
Here are the things that must be considered:
- Will you handle payroll, accounting, and taxes from your home office or locally? Lots of businesses that set up in other countries outsource these functions locally. It saves personnel costs, and the potential for error and/or noncompliance is significantly reduced.
- Any time income is generated locally, having a relationship with a local bank is the best solution.
- How will cash be repatriated?
- How will sales and VAT taxes be reported?
- Courting Local Businesses
There are two potential activities that can serve to grow your business from the start.
First, there will be local businesses that are related to your niche but that are not in direct competition with you. Developing relationships with these established and locally-trusted businesses can mean referrals and introductions to groups of your target audience. Having local representatives participate in business networking groups will also go a long way toward establishing your reputation within a local community.
Second, there are those businesses that are related who can serve as distribution centers. Setting up partnerships and alliances with them can move product faster. Consider affiliate programs for these companies.
Local businesses can be great resources all the way around, and you can learn a great deal about all of the nuances of successful business operations from them.
- Be Patient
Once you have made the decision to expand into a new market, the excitement of it all may cause you to jump in quickly without developing a comprehensive plan for this expansion. If you are already running a successful operation locally, remember how you began that business. You had a plan, you covered all of the details, and you practiced patience as that business evolved and scaled.
Moving into any new market, whether that be a new domestic or a foreign audience is neither rapid nor easy. But without such expansion, a business can become stagnant and revenue become flat. Establishing a global presence, in fact, will ultimately become inevitable, moreover, if a business is to remain competitive. Having a guide to cover all of the details for selecting the right market and serving that market well, is critical.
Coates, Josh, How to Expand into a New Market without Falling into a Trap. Last retrieved My 16, 2018, link: http://www.Fortune.com/2017/03/03
Friedman, Thomas L. (2007). The World is Flat. Picador, Inc., USA.
Market Segmentation Analysis. Last retrieved May 16, 2018, link: http://www.enwikipedia.org/wiki/market_segmentation.
Myers, Chris. How to Break into a New Market. Last retrieved May 16, 2018, link: http://www.Forbes.com2016/11/28/how-to-break-into-a-new-market/
About the author: Margaret Reid is a freelance writer who is seeking to discover new ways for personal and professional growth. Currently she`s working in the company The Word Point and trying to improve herself in the blogging career. Margaret is an experienced and self-driven specialist who cannot imagine her life without writing.