How to open up new markets.
Most successful companies are faced with the task of expanding into new geographical markets at some point. Usually, the first step is to sell goods or services through direct export and gain initial experience. If these attempts are successful, you want to take the next step. While you know the market, its rules and laws in your home market, you usually lack the expertise and experience in-house for the foreign market.
What is the best way to proceed?
The be-all and end-all is to be well informed. It is not enough to rely on one consultant or one employee with good local knowledge. It is best to acquire a broad knowledge base. You can do this by participating in trade fairs as an exhibitor, taking part in organized delegation trips, regularly reading the country’s newspapers or trade journals. Above all, however, you should talk to other market participants and advisors, including the competition. With every additional conversation, the picture will change and you will learn something new.
„Ignorance is not a virtue, but a luxury that successful entrepreneurs cannot afford.“
In a further step, the market must be recorded in detail in figures, data and facts. Industry-specific market studies are available for most countries. Chambers of commerce are always available with good information and experienced advisors. Your own bank can put you in touch with the local correspondent bank. From this and from discussions with current and potential customers, a picture must emerge of the opportunities and the potential sales volume. It is crucial to know whether the market is currently growing or heading for a crisis. You don’t want to invest in a falling market. An initial meeting with a consultant is an excellent investment to find out about the general conditions for foreign investors.
After this experience, you will know whether you have the confidence to develop a successful business model for this new market. If so, develop the model. You have to make a decision: Do you enter the market with high-priced premium products as a niche provider, or do you want to gain high market share with low prices? Are the products suitable for the market or do they need to be localized? Do you only need a local sales and service location or do you also need to plan for production?
You are ready to develop a business plan once you have answered these questions. Obtain reliable information and develop a realistic timetable. Administrative processes can be lengthy, suitable personnel are not necessarily available at short notice and land issues and construction work in particular can take a lot of time. Your business plan should be designed for a horizon of at least three to five years.
Then carry out a stress test with the integrated financial plan designed on this basis, which should include not only a profit and loss account but also a budgeted balance sheet, cash flow statement with the required investments and liquidity planning for approx. 5 years. What happens if there is a market downturn in the second year? What are the effects of major currency changes? What is the impact if sales ramp up much more slowly than expected? These and other risks are best discussed with colleagues who are not involved in the project.
Now is the time to make a decision – for or against entering the market. Not before!
You must have the right manager for the job. You should always give preference to a candidate from the country. Qualifications and experience play a decisive role here. A combination with a manager seconded from the parent company can also be a good solution.
„Opening up new geographical markets requires not only strategic foresight, but also the experience and expertise of a highly qualified manager. Only by skillfully navigating between cultural differences, regulatory requirements and economic dynamics can true growth be achieved.“
For all further steps, it is important to bear in mind what has already been said: Make sure you are well informed! The quicker entry is not necessarily the better one. Depending on local commercial law, for example, you may end up making a long-term commitment to a commercial agent without intending to do so. And never think of bribing administrative officials to work faster. Don’t be fooled: This is common practice in many countries, but there are many reasons why it absolutely cannot be done. It is best to seek the support of a local lawyer and tax advisor when setting up a company. As far as the company form is concerned, the tendency will usually be towards a limited liability company.
Once the concept is in place, decisive action is required.
Create a checklist of the necessary tasks and work through them in detail and meticulously. Establish the right financial, accounting, tax and HR processes in the new company right from the start. Establish contact with a local commercial bank and the auditor at an early stage. The wealth of administrative tasks should not be underestimated. For example, it is important that you take care of a business license, an import permit or visas for the expatriates in good time.
Setting up the corporate structures is important, but planning the market entry is just as important. Marketing, sales and service must be adapted to cultural differences, language, local preferences and customs as well as prices and discount scales. Many an established premium company has found that neither the brand is known in the local market, nor is anyone willing to pay a premium price for the international brand.
Create a management handbook for the subsidiary from the original checklist! This will gradually fill it with all the important information on the company organization, processes, regulatory framework, stakeholders and corporate planning. This makes it easier for you to maintain an overview during a turbulent start-up phase and also simplifies the handover to future management.
Before investing in production capacities, check exactly what is to be produced. Localization does not only mean finding local suppliers for the product planned at home. You will also get to know the expectations from a detailed study of the competition and from discussions with customers. If you plan the products in consultation with suppliers, you can usually achieve purchasing advantages and keep stock levels low.
In the event of deviations from the plan, it is particularly important in the start-up phase to realistically assess these discrepancies and initiate the necessary changes. Such divergences can be managed well if the signals from a controlling system that has been well established from the outset are provided in good time.
If business picks up as planned, then plan further ahead. The rolling local planning should be decisive, not the expectations of the parent company.
An Example
During a boom phase in the Middle East, the author was faced with the task of opening up the market for a German premium company. The construction-related specialist company was already very successfully established in Europe and the USA. Initial market research showed that our products were far too expensive and the brand was practically unknown locally. The usual method of specifying the products in tender documents did not appear to be compatible with our company’s compliance guidelines and the contractual terms were unacceptable.
Nevertheless, a concept was developed and the company’s CEO supported the attempt to enter the market. A budget and guidelines for the manager were defined. The foundation of a company in Dubai was the first step. Participation in several tenders was initially only intended to gain experience.
„Our prices were three times higher than the prices known locally.“
The manager held numerous discussions with local stakeholders and took part in many events. Not only potential customers, but also multipliers and competitors were invited to a major marketing event. Internationally renowned speakers conveyed the company’s international reputation to the region. Suddenly the company was on everyone’s lips. Thanks to the successful localization of the products and targeted marketing, major orders were won on good terms after just one year.
In more than a decade, the company has made a name for itself not only in the UAE, but throughout the region.
Conclusion
This illustrates the opportunities that are available when opening up new markets abroad. From thorough market research and the development of a suitable business model to the planning and implementation of a successful market entry, a careful and strategic approach is crucial. Ultimately, expanding across borders requires not only courage and determination, but also flexibility, adaptability and the ability to respond to change. By continuously monitoring, evaluating and adapting business strategy, companies can achieve long-term success and realize their full potential on a global scale by taking advantage of the many opportunities offered by international expansion.
Christa Consult 