Deciding to open a new market and how to do it are tough decisions in any situation regardless of the product, the market or the country. Just to make this decision requires detailed considerations of the four cornerstones of taking the market diversification step. I have seen companies do this haphazardly without really knowing why or how they are expanding internationally or into adjacent markets and this is almost always a recipe for disaster. On the other hand, huge opportunities are missed by not doing the homework accurately.
First and foremost in deciding to enter new markets, the company (or business unit) as a whole must be totally committed. I know it sounds like a quote from a Geoffry Moore business book, but the reason why the corporation is expanding into the particular market together with the fact that it is ready to support the project fully, must be totally clear. Sacrifices need to be made. You cannot expect volume, high margins and quick growth from day one similar to the ones you are getting from the cash cow part of the business. Imagine the feeling the Tiger Team gets when emails are unanswered, phone calls not returned and resources not allocated. I have seen companies build Tiger Teams to expand into new business, charge them with results, responsibilities and objectives but then give them no authority or support. They must have a company official back at HQ to champion the effort.
Second, the company must have totally clear exactly which market it is targeting and why. Diversification in a company, whether it is vertical, horizontal or geographical, must not be taken lightly and certainly not just because of the all too common “me too” or “market hype” syndromes. If your core business or home markets can still provide reasonably attainable growth just don’t do it unless it is a defensive move. Having said that, then you require a careful study of the market you want to penetrate and have someone in-house do at least the initial field analysis. I recommend keeping away from large consulting firms who can produce a 10 volume business plan which takes three months to prepare and another month to read and is done from an office anyway. Appoint a company executive to do the initial ground work in the field, after all who knows your business and its possibilities better than you do?
Thirdly, after studying the target market the company should establish reasonable objectives both financial and qualitative and prepare a market penetration strategy including an analysis of the corresponding market forces at work. A business plan including midterm financial statements and sensitivity analysis should be prepared (again in-house and under 5 pounds of paper please) and then decide if it has the proper resources and capabilities to not only undertake the project but to absorb the loss if disaster should occur. In my opinion the plan should cover a time frame of no more than 2, maximum 3 years. In this globalized and turbulent world anyone who can see further than that is no more than a soothsayer.
Fourth, the company must have the proper product. I mean not just the obvious, is the product well priced? Does it have the adequate features? Can we capture the necessary channels? Sometimes very simple things are overlooked. This is why someone in-house and in the field should do the basic study. I have seen companies try to force round pegs into square holes, like try to sell equipment manufactured to one continent’s specifications to another continent with totally different ones. Or, using high cost channels for a low cost or low value added products just because "that’s the way we’ve always done it". If you’re getting out of the box you also have to think and act out of the box.
Finally and yes, last but not least, once the company has made all these decisions the final question comes. Who is going to develop the market? Who is going to actually go out there and do it and what channels are the appropriate ones? Of course all of this depends on the product, the market and the company itself and the need for early entry and speed to market . I have found that one rule of thumb is that, if speed to market is not an issue then you should start out with a lower cost channel to first explore the uncharted territory and as you learn deploy heavier forces. If the opportunity indeed looks promising then you should quickly move into a more direct approach. Even if you use indirect channels you should move into having someone who has local knowledge but that belongs to the company as quickly as possible in the field to manage them. This will enable you to gain the direct visibility you need that otherwise you will not have. This visibility will confirm both market realities as well as making sure that the indirect channels deliver. This should be a senior person who has strong fundamentals in a variety of disciplines, can reach and develop the top levels of your clients and strategic partners, who can work alone and with time, build a local organization. Finally, this person should have the capability to bring all of this home and communicate it effectively to all levels of the organization.
If early market entry and speed to market are important issues then there are some alternatives to the classic approaches which provide the same level of visibility as a direct approach but with limited liabilities and cost. Acquisition of a small company is of course one way of entry but not necessarily the quickest and certainly not risk free. By the time you have targeted a candidate for acquisiction and have gone through the negotiations and due diligence you have probably spent a lot of time and money. My suggestion here is to find an independent industry expert that would setup and execute initial operations for you, and as successful milestones are reached you start to bring in or hire your own people. This is the quickest and lowest risk market entry mechanism I have found to date, although I acknowledge that finding the right industry expert is not always easy.
How to do this in BRICs can also return enormous rewards but is even more complicated. I will leave this subject to a subsequent post.