Key Considerations When Entering a New Market
Breaking into a new market requires careful planning and strategic execution — from identifying your target audience to conducting thorough market research.
With these insights, you should select a market entry strategy that aligns with your business goals.
This article, with expertise in Indonesia, Vietnam, the Philippines, and India, will guide you in identifying your effective market strategy and alternative ways to expand to emerging markets.
Understanding Market Entry Strategies
Market entry strategies differ in terms of capital contribution and foreign direct investment. The higher the capital contribution, the more control you have over foreign operations. However, some strategies do not require any foreign direct investment.
Without Foreign Direct Investment
Exporting/Trading: By selling your goods internationally via local distributors, you'll access their established client base and market insights. However, it limits your control over sales and is best suited for product-based businesses.
Licensing: You grant another entity the right to sell your products or services using your brand in exchange for royalties. This requires minimal effort but carries the risk that the licensee's actions may affect your brand's reputation.
Franchising: Similar to licensing but with more control, franchising helps you to set operational rules, ensuring brand consistency. Conducting background checks on potential franchisees is crucial to maintaining quality. You can expand your brand in Asia through franchising models.
With Foreign Direct Investment
Joint Ventures: Partnering with a local company means sharing resources and market knowledge. It gives you partial control and is ideal for gaining a foothold in new markets. You can access emerging markets through Southeast Asian distributors.
Greenfield Investment: It’s ideal if you're looking to build infrastructure from scratch. You maintain full control by establishing a brand-new operation in a foreign country but will need significant capital.
Market Segmentation Frameworks
When choosing a market entry strategy, you should align it with solid market insights. Market research frameworks guide this process, giving you a clear view of external and internal factors that shape your entry strategy.
- CAGE Framework
Evaluation of the differences between countries in four key areas: Cultural, Administrative, Geographic, and Economic. This framework is useful for strategizing international expansions– understanding the challenges and opportunities of entering foreign markets.
Let’s look at Vietnam as a case study:
- Cultural: Pre-dominantly Buddhist; Vietnamese as the national language
- Administrative: Communist government with distinct regulatory and business practices; however, increasing openness to global trade
- Geographic: Well-located for trade within Asia but far from American and European markets
- Economic: Developing economy but still has lower income levels compared to developed countries
- PESTEL Analysis
Identification of the external macro-environmental factors such as Political, Economic, Social, Technological, Environmental and Legal. This framework is useful for market growth or decline, business position, potential, and direction for operations.
- Porter’s Five Forces
Analysis of the competitiveness and market profitability of an industry that you are in. This framework helps you understand where power lies.
Let’s look at Porter’s Five Forces analysis for India:
- Competitive rivalry is very high due to the vast number of players in most industries, ranging from technology to consumer products.
- Supplier power is moderately low due to local suppliers across most sectors reducing the power of any single supplier.
- The threat of substitute products is very high, as a price-sensitive consumer base.
- The threat of new entrants and buyer power is also high —due to massive market size and competitive pricing.
- Ansoff Matrix
Analysis of your company’s growth opportunities based on existing and new markets and products —- helps you evaluate potential risks of growth strategies and decide which path will best leverage your competitive advantages.
You can approach the market strategy by asking the questions below based on the Ansoff Matrix:
- SWOT Analysis
Understanding your company’s strengths and opportunities while looking into its weaknesses and external challenges.
- Resource-Based View (RBV)
You can use RBV to leverage your company’s internal strengths to withstand market competition. By concentrating on the key resources below, you can overcome competitors and maintain long-term success.
For example, according to RBV, competitive advantage is achieved when your company can utilize its valuable, rare, and hard-to-imitate resources more effectively than its rivals. The theory argues that you should look internally to understand what makes your company unique.
- Global Value Chain Analysis
Identification of potential areas for differentiation or cost reduction along the chain. This strategy allows your company to optimize operations, and maximize market reach.
For example, the Philippines is a destination for service delivery —outsourcing (BPO), including call centers, IT support, and back-office services due to its large English-speaking population and competitive labor costs.
- Cultural Adaptation Strategy
Used for products and marketing strategies to reflect local customs, languages, and consumer preferences —aiming to improve market penetration and consumer trust.
For instance, in Indonesia, food-related businesses should obtain halal certification to meet the dietary needs of the majority Muslim population. Partnering with local companies also helps in adapting culturally. In India, it's important to consider offering vegetarian options due to the significant vegetarian population.
Alternatives for Market Entry in Emerging Markets
Outsourcing Business Processes in Emerging Markets
Setting up a company overseas is very costly. It is possible to test the market without establishing a legal entity by outsourcing. You can delegate business processes to a third party like Emerhub. This will allow you to carry out tasks without putting up a company right away.
Some processes you can outsource include:
- Invoicing. Emerhub can accept payments from clients on your behalf.
- Importer of record. Emerhub will be your local consignee and accept shipments on your behalf. Through this service, you can import goods without applying for an import license.
- Employer of record. As your employer of record, we will hire local employees on your behalf. As part of this service, we will also take care of payroll and ensure that you remain compliant with local employment regulations.
Outsourcing not only allows you to enter new markets with minimal risk. You can also outsource tasks overseas so you can focus on your core business activities.
Emerhub can help you enter the biggest emerging markets in Asia. Fill out the form below and our consultants will get in touch with you.