Planning on expanding your business into new international markets? Great! So what’s your strategy for doing so?
It’s alright if you’re still unsure – we’re going to shed light on some foreign market entry strategies for your consideration. And even if you already have some ideas on your approach, it doesn’t hurt to explore other options to confirm you’re tackling the challenge in the best way possible.
Let’s start with a recap of what foreign market entry strategies are and some factors that may affect your decision on the foreign markets to enter. Then, with these out of the way, we’ll dive into 9 proven foreign market entry strategies and their pros and cons for an up-and-coming global business like yours.
Foreign Market Entry Strategies: A Background
Foreign market entry strategies are approaches to expanding into the global markets to reap the benefits of international trade. A business may want to enter foreign markets for reasons such as:
Diversifying operations: A business that operates in only one market (being that of its home country) may find itself vulnerable if its revenue from that market is affected for any reason. Diversifying its customer base across multiple countries can help the business keep a healthy bottom line even if sales from one market are performing sluggishly.
Finding new business opportunities: This is especially if the business’s home market is small and/or saturated, such that the business may get an unsatisfactory return on investment if it solely continues to try attracting new customers there.
Gaining brand recognition in new markets: And when people in new markets gain awareness of the business’s products and services, the opportunity is ripe for the business to increase its sales.
Earning more revenue: Businesses with customer bases that expand beyond their shores can expect to earn higher revenue than those with a purely local (and smaller) pool of customers.
What are the Factors Affecting Foreign Market Entry Decisions?
Entering a foreign market can therefore bring about significant competitive advantages to businesses. To enjoy these benefits, though, the business will need to enter the right foreign markets for its unique circumstances.
Here are some factors to ponder as you shortlist the foreign markets into which you want to expand your business:
Market size and growth potential: As you’re likely entering a foreign market to increase your customer base, the target market should be sufficiently large to help you maximize your return on investment.
Cultural differences: Since your target foreign market will likely have different societal and cultural preferences from your existing local audience, research what these are and consider if you can localize your messaging and products accordingly. (More information on localization later.)
Legal and regulatory environment: Ideally, the foreign markets should have environments conducive to business. For example, setting up a new legal entity (if required) should be a straightforward and transparent process. The market should also have strong intellectual property laws in force to ensure your creations are well protected.
Economic and political stability: Don’t overlook the economic and political stability of your target markets as this can affect the ease of doing business. As an example, it might be unwise to enter a market experiencing social unrest to the point that people can’t go about their daily lives (including patronizing your business).
Competitive landscape: Who are the potential competitors in your target market? Analyze their market share, strengths, and weaknesses. And most importantly, evaluate how you can differentiate yourself from them.
Costs of market entry: Such costs include not just initial setup costs, but also the costs of maintaining your foreign operations for the long term.
Language barriers: If the people in the foreign market speak a different language from you, you’ll need to take steps to overcome such language barriers. For example, our Weglot website translation solution can help prepare your website for a multilingual audience by translating your content and installing language switchers to help users switch your content’s language to their preferred language.
Last but not least, you’ll also need to decide on your mode of entry into the foreign market – which is what we’ll cover next!
9 Types of Foreign Market Entry Strategies
Now, let’s look at 9 proven international market entry strategies. We’ll also share their pros and cons, which we recommend keeping in mind as you decide on the most suitable approach based on your target markets, available resources, and business objectives.
1. Direct Exporting
Direct exporting is the process of selling products or services directly to customers in a foreign country, often through local distributors or agents.
In 2021, for example, German multinational automobile manufacturer BMW Group exported almost 260,000 vehicles produced at its South Carolina plant in the United States. The international business exported these vehicles to about 120 countries, with its top export countries being China, Germany, South Korea, Canada, and Great Britain.
Pros of Direct Exporting
Directly exporting your products abroad gives you greater control over the marketing and sales process as you will manage the entire sales process. For example, you can dictate exactly how your products are marketed and priced in the target markets. Your business will also receive and handle customer service requests directly.
As a result, you can foster a consistent brand image and level of product quality no matter where in the world customers may encounter your products.
The closer interaction between your business and customers also means you get more in-depth insights into the receptiveness of the foreign market to your products. Using these insights, you can tailor your product range to your customers’ preferences and improve your sales.
Cons of Direct Exporting
Since you’ll be entering a foreign market solo, you’ll need to manage your foreign operations on your own as well. For example, you may need to undertake market research on your target customers’ preferences, and establish and maintain your distribution channels, by yourself.
These endeavors can prove resource-intensive and complex, especially if you aren’t familiar with the local market and business environment.
If you pick the licensing route, you’ll grant a local business the right to use or sell your intellectual property in exchange for fees (also known as royalties). Such intellectual property could include your trademarked business logo, or patents over your proprietary inventions.
By licensing your intellectual property, you partner with a business that already understands the relevant market dynamics, government regulations, and distribution channels – and can navigate all these with ease. This business will also handle all the relevant marketing, sales, and customer service operations on your behalf.
All this will make your entry into the new market less costly and come with lower risk.
Cons of Licensing
By outsourcing sales to an external licensee, however, you may have less control over how your offerings are sold in the foreign market. Your brand reputation could even be harmed if the licensee delivers substandard products or provides slipshod service.
Being a licensor may also hinder your ability to fully integrate into the foreign market in the long run, as you’re relying on a third party to be your brand ambassador there.
3. Joint Ventures
In a joint venture, two or more businesses collaborate to achieve an outcome, such as helping one of them enter a new market. The businesses will share not just the risks involved in the joint venture, but also the rewards.
If you’re a Chinese tourist, you may be pleased to know you can enjoy exclusive promotions at Marriott hotels worldwide via the Fliggy travel platform. These perks were made possible due to a joint venture between Chinese multinational technology company Alibaba – which owns Fliggy – and American multinational hospitality company Marriott International in 2017, which has helped Marriott penetrate the Chinese market.
Pros of Joint Ventures
Joint ventures offer foreign businesses the opportunity to access local knowledge and resources from the business they’re partnering with, and thus jump-start their entry into the overseas market.
And with the businesses pooling their resources, they combine their technological expertise, production capabilities, financial resources, and other strengths to give the venture the best shot at success.
Cons of Joint Ventures
Miscommunications can arise if the businesses in the joint venture aren’t on the same page regarding their respective obligations. If left unchecked, such mismatches in expectations can result in the partnership souring and being prematurely terminated.
Hence as with any other partnership, businesses entering into a joint venture should clearly define the terms of their venture at the outset to align their goals and expectations.
If you enter foreign markets via the franchising model, you’ll invite businesses in your target market (called “franchisees”) to operate your business model under your brand name in exchange for franchising fees. These fees could include a licensing fee to use your trademarks and an ongoing share of the franchisee’s revenue.
Subway provides a classic example of franchising at work. The American sandwich restaurant has become a global household name by opening worldwide franchises in various restaurant formats, such as free-standing eateries, drive-thru locations, and inline outlets.
Pros of Franchising
Franchising potentially offers your business a low-risk approach to rapid market expansion. That’s because the franchisees will invest their own capital to establish and operate your business’s local offshoots. They also bear most of the costs and risks involved.
At the same time, franchisees will be bound to follow the operating procedures, systems, and training processes you’ve laid out in the franchising arrangement. You can therefore be assured of consistency in the product quality, brand image, and customer experience they deliver to customers.
Cons of Franchising
Beware of accepting too many franchisees in many different markets and locations at once. If you expand too quickly, you could oversaturate the market with your offerings and dilute your brand value.
Your franchisees may also then end up competing with each other for revenue, leading to premature closure of your franchised stores if they have difficulty turning a profit.
5. Buying a Company
Instead of trying to set up in a new market from the ground up, it may be worth buying over an existing business in the market and rebranding it as yours. This is how the foreign market entry strategy of buying a company works.
There are two ways of making such foreign direct investment (FDI) in the target business. A merger is one way, where your business combines with the other to create a new entity. The other is an acquisition, where you take over the other business completely.
The case study of Dutch multinational food delivery business Just Eat Takeaway.com taking over American food ordering and delivery platform GrubHub is an example of a business acquisition, where Just Eat Takeaway.com bought 100% of GrubHub’s shares in its bid to enter the online food delivery market in the United States.
Pros of Buying a Company
By buying a company in your target market, you enjoy immediate market presence there and access to the company’s existing customers. You therefore bypass the time-consuming process of setting up operations and building a customer base.
And if the company you’ve bought is a competitor, you’ll have eliminated one of your potential rivals. Accordingly, you shore up your market share and give your business a higher chance of succeeding in the new market.
Cons of Buying a Company
Buying a company isn’t as straightforward as simply shelling out the money (or shares) for it. There’s the issue of integrating the business with yours, and depending on how different both entities’ management styles, company cultures, and operational processes are, this endeavor could prove more challenging, time-consuming, and costly than expected.
You’ll also need to undertake a sound evaluation of a suitable merger or acquisition price. An inaccurate assessment can lead to you overpaying for the business, and having to pour in much more resources to make your investment worth it (if this is even possible).
Under a partnership, you’ll form a strategic alliance with a local business to further each other’s goals. For example, you might want to leverage the local partner’s reach and customer base for growing your own pool of customers in the local market, while the local partner strives to do the same with respect to your home market.
Partnerships differ from joint ventures in that the former tends to be more long-term, while joint ventures usually cover shorter-term and more narrowly defined collaborations.
For an example of a partnership at work, check out how global insurance services provider McLarens formed a strategic alliance with Egyptian loss-adjusting firm Egypt Global Adjusters. As a result of the partnership, Egypt Global Adjusters became McLarens’ exclusive affiliate in Egypt for helping McLarens provide insurance coverage to clients nationwide.
Pros of Partnering
Partnerships offer the opportunity for businesses to exchange their knowledge, expertise, and resources, and thus ease one partner’s entry into the local market (if this is the intended partnership objective). The risks involved are lowered as well, since the partners will also share these.
Cons of Partnering
Since you’ll be working closely with your partner after signing the partnership agreement, it’s important to look for a partner with a similar vision and working style. A clash in goals or corporate cultures may make the partnership less productive or effective than you would like.
Your relationship with the local partner may even deteriorate to the extent that you need to end the partnership before you’ve gained a strong foothold in the target market.
7. Greenfield Investments
Making a greenfield investment involves building operations in the target market from the ground up (or entering a new field of opportunity, if you will). Such operations are often parked under a new wholly owned subsidiary of the parent company.
Since you’ll oversee your greenfield investment operations yourself, you’ll have complete control over them. These include your subsidiary’s production, marketing, distribution, and quality management efforts.
At the same time, you’ll also be able to customize your products and services for local needs more agilely. It beats needing to first get buy-in from a business partner, which delays the process.
Cons of Greenfield Investments
Greenfield investments are typically higher risk and involve higher initial costs, given how you’ll undertake the effort yourself. Be prepared to fork out substantial upfront capital, and navigate the applicable legal regulations, on your own to get your facilities up and running.
And since you’ll be building your local operations from scratch, the wait time before you start seeing the fruits of your labor could be considerable, depending on how long you need to get your operations off the ground.
8. Turnkey Projects
A turnkey project is one where you’ll contract with a local firm to build and set up a facility for you. When the facility is ready, the local firm will hand it to you – and all you have to do to start operations is insert the facility’s key into the appropriate keyhole, and turn it. (Hence the name “turnkey project”!)
Just consider how Saudi Arabian petroleum company Saudi Aramco engaged American-Irish oilfield service company Weatherford International to obtain drilling and intervention services. Under this turnkey project, Weatherford would plan and carry out all operations on Saudi Aramco’s behalf and deliver to the latter 45 wells per year.
Pros of Turnkey Projects
As the contractor bears responsibility for the entire turnkey project, including planning, construction, and regulatory compliance, the business commissioning the project exposes itself to less risk than if it were to undertake all such operations itself.
The commissioning business can also tap into the local contractor’s knowledge of local regulations and business practices to expedite the business setup process and facilitate market entry.
Cons of Turnkey Projects
The success of a turnkey project relies highly on the local contractor’s performance. If your contractor fails to meet expectations or is ultimately unable to complete the project, your business’s entry into the local market could be significantly delayed.
Also, if the contractor’s job is to simply build the facility, the actual work of running it will fall on your business – and you’ll need to be prepared to maneuver through the local business environment on your own after that.
If you’ve ever piggybacked someone, you’ll be familiar with how it entails one person riding on another’s back to get to a destination with less effort. And the concept works similarly in the business world, too: your business will use the existing distribution channels or resources of a local business to enter the target market, often through a partnership or joint venture agreement.
For example, London-based mobile telecom operator Lebara previously piggybacked the mobile phone network of Saudi Arabian mobile telecom operator Mobily to start a competing telecom service in Saudi Arabia.
Not only did such a partnership help Lebara enter the Saudi Arabian market, but Mobily also benefited from gaining market share “in a segment [it wasn’t] so strong in.”
Pros of Piggybacking
By piggybacking on the resources of a local business, you can leverage its existing infrastructure and expertise to speed up your entry into the new market. Your entry costs will also be lower as you save on acquiring the necessary infrastructure or expertise yourself.
Apart from that, your business can take advantage of the partner’s established distribution channels, customer base, and business relationships to penetrate the market quicker.
Cons of Piggybacking
Expect to be heavily reliant on the partner you’re piggybacking, as they’ll have significant say in how you enter the market (including the resources you’ll have at your disposal). Such reliance could severely hinder your market entry if both businesses’ visions for the partnership aren’t aligned.
Your partner may also inadvertently harm your business if it insists on distributing your products in a way that conflicts with your brand image, resulting in poor customer perception of your business.
Which Foreign Market Entry Strategy Should You Choose?
Of the 9 foreign market entry strategies discussed here, consider which strategy is right for your business based on your specific needs and objectives, and the characteristics of your target market. You may even want to pick a combination of strategies!
Localization is the process of adapting your messaging, products, and services to suit the local preferences of the target market. It’s a vital step for helping your business resonate with your audience so they’re more inclined to buy from you.
Aspects of your business operations that may need localizing include your:
Products and services: You may need to modify certain products to account for cultural norms before distributing them, or come up with new products entirely.
Legal documents and business policies: Work with lawyers to ensure your legal documents, such as contracts and website terms and conditions, and your employment policies comply with local laws and regulations.
Pricing and payment methods: Wherever possible, display your products in your customers’ native currencies so they can understand your prices more easily. Also, implement support for payment methods popular with customers in your target market to make the payment process more convenient.
Ready to Take the Plunge?
Venturing overseas is no easy feat, but using the right foreign market entry strategy for your business can smoothen the entry process. Localizing your offerings can also help win over customers and boost sales in your new markets. In this respect, invest in the right tools to facilitate the localization process so you can look forward to cutting the ribbon on your new overseas operations sooner.
Our Weglot website translation solution can prove a key component of your plan to take your business abroad. It detects, translates, and displays the content of your website, handling a key aspect of entering foreign markets. You then get full control over your translations, whereby you can make edits and refine them together with translation and cultural experts in Weglot’s collaborative platform.
Afterward, Weglot displays the finalized translations on your website under language subdomains or subdirectories optimized for the highest international search visibility. It also adds a language switcher to your site to help users switch between different website languages effortlessly.