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What Parameters Should a Business Consider Before Deciding Which Markets to Enter?
When companies decide to move out of their comfort zone for business expansion and more market share, they have to take up various calls. These calls are difficult and have their own set of pros and cons to offer the company. Companies can no longer be the leading player in the local market and be satisfied because the competition that they are getting is from around the world. Today, brands like Amazon, Flipkart, Ajio, Blinkit, and others make it possible to deliver every international brand to your doorstep with the utmost efficiency. When the competition is international, companies also have to work internationally to survive and thrive both in the long run and the short run.
In this article, we will be discussing what could be the various ways through which a company can plan expansion. We will also back up all this information with examples of renowned businesses like Body Shop, Starbucks, and others to ensure that this is possible and is followed in the industry.
Questions to answer for deciding which markets to enter
For a successful business expansion, companies have to ask themselves these simple questions. While finding these answers, the business will find the rough plan for its expansion already chalked out.
How many markets is the business planning to enter during its expansion?
What parameters will they be used to decide on the potential markets, or, in simpler terms, how are they going to evaluate the market?
How is the business planning to succeed in the developing markets?
How many markets are there to enter?
When the business has decided that it will be entering various markets, it is time for them to decide how it will be entering those markets. It can be done in two ways by the brand.
When the business has decided that it will be entering various markets, it is time for them to decide how it will be entering those markets. It can be done in two ways by the brand.
Waterfall method for entering different markets − in this method, the company plans to enter one market at a time. So, for example, the business has decided that they will be entering the Indian market, the Chinese market, and the Korean market based on customer preference and need data. So now they will first be ticking off one country and then another. This ensures that the business has an optimal time to plan things out and that there is no strain on financial and other resources.
Companies understand that they have limited resources and that there are significant differences in the ethnicities and cultures of each country. Instead of making a mess, they try to stay calm and composed and establish themselves as renowned brands in the market. Brands like The Body Shop, BMW, General Electric, and Bennett have followed this method of market expansion.
Sprinkle method for entering various market segments − in this method, the business decided to enter various markets at the same time. Continuing the example, if the business has decided that they will be entering the Indian market, the Chinese market, and the Korean market based on customer preference and need data, they will be entering all three markets at the same time. Companies use this method of the market entrance because they are afraid of losing the first mover or pioneer advantage, and if that is lost, the whole point of entering a new market will be in vain.
It does put a strain on the financial resources and other resources, but it is like the company will be going through hardship all at once. KFC, Microsoft, and Starbucks have used this method of market expansion. When Microsoft was expanding as a company, it sold more than 60 million licenses and also entered 42 countries at the same time in 2012.
Evaluating the potential markets
When a business has identified its marketing strategy, it is important for them to determine which geographical boundaries they have to cross. With globalization, privatization, and liberalization, companies might think that entering new markets is nothing but a cakewalk, but they could not be more wrong in their stance. Countries have greater differences in terms of culture and other operational factors. Before deciding on the markets that the business has to enter, they should understand −
Demographics of the population
Economic status of the population and the health of the economy
Socio-cultural factors
Natural factors like the weather, natural disasters that occur, and others.
Income statistics of the individual
The educational background of the country as a whole
Language barriers between nations.
technological advancement of the country.
Political environment and the legal framework of the company.
All these factors give the companies a coherent understanding of the market that is going to be there in the entering country. Most countries prefer their neighboring countries for the import and export of goods because of familiarity. The more promising countries might have equal risk associated with the expansion. For example, the major exporting countries for the United States are none other than Mexico and Canada. Examples of some renowned companies are −
Kentucky Fried Chicken (KFC) − When KFC entered the Chinese market, they introduced dishes like the dragon twister, a wrap stuffed with chicken strips, duck sauce, and others. When the brand entered the Nigerian market, it witnessed a shortage of chicken supply in the market, and it was illegal for them to import chicken from other countries, hence the brand started adding more fish-related dishes to its menu.
MacDonald’s − When MacDonald’s entered the Indian market, they knew that beef-related products would not only be acceptable but the company would also be frowned upon; hence, the brand came up with more and more chicken-based products and even started many poultry-related burgers and dishes for vegetarian consumers.
Entry into the developing markets
Brands have to understand that the majority of the world's population resides in developing nations, not developed or underdeveloped ones. India and China are the most populated countries in the world. Hence, with a growing population, these brands offer companies major opportunities for growth and success. Along with opportunities, brands will be facing major adaptation challenges as well. Brands have to adjust their pricing, promotional strategies, products, and distribution channels according to the customers and their needs.
Companies cannot and should not ignore these markets, as Nestle has more than 1 billion consumers in the merging market and 40% of the sales are derived from emerging countries. HUL’s 50% of the sales are derived from developing nations like BRICS (Brazil, Russia, China, India, and South Africa); Kraft has 30% of its sales derived from developing nations; and others. Businesses have adjusted themselves to position themselves in the BRICS market, and some of the examples could be −
McDonald's − The brand is discussed here again. When McDonald's entered the Indian market, it understood that customers were price sensitive and did not believe in wasting food; they wanted a value meal, so the size of all its fast food was reduced to better serve them.
Hindustan Unilever Limited (HUL) − The company understood that, though it has very strong distribution channels, not all of its customers are willing or able to afford those big boxes of shampoo, oil, and conditioner. Hence, the companies came up with the sachet system of packaging, which does not burn a hole in the purchaser's pocket during purchase.
Companies should be entering international markets. There are a lot of opportunities in these markets for the company. The countries and their customers will also embrace the brand, but for that to happen, companies also have to understand their customers, their thinking process, their behavioral patterns, their beliefs, and their culture. It is a two-way road, and they must meet both ways.
Today, we see cold drinks like Thumsup, Fanta, Sprite, Limca, and Pepsi available in every nook and cranny of India, but for that, they understood their customers and adapted themselves. Most Indians today believe that HUL is a brand that originated in India, but this is not the case. Expansion is powerful, and companies should invest in the same.
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