Business Expansion: Entering New Markets

With the advent of technology, the business landscape around the world has changed; more businesses are coming up, traditional business models are challenged, competition has increased and, technology is at the forefront of any business. Every business in the fourth industrial revolution is looking to remain at the top not only locally but also regionally and globally.

It is expected that with increased sales, an extended and diversified product line, along with an established product or service in the local market, expanding into new territory seems like the natural next step for a business. Since growth is the bottom line for any business, the prospect of scaling beyond borders is a tempting one for any business leader. However, expansion into new markets can either be a win or a loss for your company; as such, the decision to expand is not one to be taken lightly. The decision to enter new markets must be grounded in business logic and confidence. It is crucial that you consider the following factors:

Market Analysis. Expansion into a new market involves a great deal of market research in addition to an assessment and deep understanding of your target customers. Before you decide to expand your business, ensure you have an in-depth understanding of market growth rates, country risk, forecasted demand, competitors, and potential barriers to entry. This is particularly important if you are looking to enter a relatively undefined market. Though it may seem obvious, you must clearly define your target market. Some of the important things to consider are their demographics, their common interests, needs, and their propensity to buy.

Internal Capabilities. After completing your market analysis, the next step is to assess your internal capabilities. For the most part, your decision on how to enter a new market is driven by an internal capabilities assessment. It is during this stage you need to ask questions such as: How much of my core competencies can I leverage? Do I have the sales channels, relationships, and infrastructure in place? Do I have the right talent to execute my market entry strategy?

Market Selection. Market selection should be based on your ability to effectively serve the new market and the strategic fit for your business. Find the gaps you need to fill in the new market and if you can do it better than your competitors. You also need to define what your value proposition for the new market is and assess whether the market is ready to pay for it.

Market Entry. The final thing you must take into consideration is the mode of market entry. Keep in mind that the mode of entry is determined by factors such as country risk, government regulations, physical infrastructure, level of competition, cultural orientation market size, and market growth. There are three main methods of entry into new markets, you must evaluate which would work best for your company.

• Build from Scratch: Building up your business capabilities from scratch in a new territory may seem like a daunting prospect. However, by going this route, you will be able to retain all of the profits from your enterprise. This method will allow for a smooth transition as the new enterprise will essentially be an extension of your existing business. On the other hand, it is important to note that all the administrative costs and business risks are also wholly borne by you.
• Buy-Out. By acquiring an established organization in the market, you are able to cut out a large portion of the administrative burden of building from scratch. The best part about market entry through buy-out is that you can quickly enter a market through an organization with pre-existing knowledge, systems, and processes. Many acquisition efforts fail due to poor integration and process conflicts between the acquirer and acquired. It is crucial that you perform an in-depth due-diligence of any organization you plan to obtain to ensure you are buying something that is of legitimate value.
• Partnership. Partnering with an already existing company is an alternative option for the more risk-averse. Partnership with an existing company allows for sharing any sunk costs and risks associated with the business. However, as a result of this partnership, profits will be shared with your partner organization, and integration efforts between organizations can prove costly.

Organizations can accrue many benefits from expanding from their borders. By expanding into new territories your organization will have access to new markets, new talent, competitive advantage overpeers, diversification of products and services along foreign investment opportunities.

However, knowing you want to take your business into new markets around the globe is just the first step. Businesses have this desire but enacting it is a very different process.

About our Global CEO Programme

Today the global, interconnected world calls for executive leaders uniquely attuned to the economic currents and market shifts.

As an industry leader, you map out your company’s course, chart its strategy and foster a culture guided by clear objectives and a shared mission.

The Global CEO Africa Programme is designed to enhance your strategic vision and equip you with new tools to navigate disruptive trends that could impact your business. The Programme is delivered by Strathmore University Business School together with YALE school of management and Lagos Business School.

Article by Juliet Hinga

Would you like to share an article? Write to us at sbscommunication@strathmore.edu