Global business
Explore the major ways of entering foreign markets to find out which best suits your business and strategic goals.
If you have a product or service that you’d like to offer in international markets, you can choose from a variety of strategies to make it happen. Global expansion is a complex process with many moving parts, and each type of market entry strategy has its own pros and cons. Keep reading to find out more about the major modes of entry into a foreign market and how to tackle any potential challenges.
Choosing a target market
To begin the process, you’ll need to identify the market you want to expand into. No two markets are alike, so consider the factors that make each one unique and how those relate to your product or service. For example, beef-based products are difficult to sell in India, where much of the population does not eat beef. The laws in a foreign country may also vary from those of your home country in ways that could interfere with your business, such as by imposing licensing requirements or banning certain products entirely.
Timing is another aspect to consider at this stage of entering foreign markets. Do some research to learn about what offerings, if any, already exist in markets that seem like good fits for your business. Being the first to offer a product or service in a given market means you don’t need to worry about competition right away, but it does come with some risks, like not knowing how consumers will react to your business. By contrast, having established competitors makes it easier to understand customer needs in that market and predict how your offering will be received. The downside is that other businesses already control a share of the market.
Building a market entry strategy
After you’ve identified a target market, the next step is to pick a mode of entry—a way of gaining access to that market. In this section, we’ll go over the five most common modes of entry. Keep in mind, however, that not all of these options will be viable for every business and every market.
Direct exports
Direct exports are a popular way of launching a product in a foreign country. In this strategy, you work with a distributor or agent to find resellers for your product in your target market. A good distributor has contacts and an understanding of the local market that will help in finding resellers for your product. This improves your chances of success and saves you the trouble of trying to deal with foreign resellers directly.
Franchising and licensing
This approach comes in two “flavors” suited to both product- and service-oriented businesses. In both cases, instead of marketing your business directly to consumers, you market it to current and prospective business owners.
In franchising, you allow foreign business owners to open their own branches of your business, called franchises. Owners pay you a fee to open a franchise, plus a percentage of their sales; the remaining profits are theirs to keep. Franchising is especially common in the restaurant industry.
Licensing is similar to franchising, but it’s better suited to product-oriented businesses. In this variant, foreign companies pay you for limited rights to your product. For instance, instead of manufacturing a product and exporting it directly, you could have a foreign licensor manufacture the product themselves to keep transportation costs down. The terms of the license might permit the licensor to manufacture only a certain amount of the product or to manufacture it only for a certain period of time.
Joint ventures
A joint venture is a partnership between two companies that agree to work together on a project, such as creating a new product. This option is also a good choice if you decide to develop a market-specific version of an existing product since local companies are more familiar with their consumers’ needs and expectations. Having a local partner also makes marketing easier – you probably won’t need to shop for a design agency, translation service, and so on.
Online sales
Online sales have been gaining ground on other modes of entry for more than two decades now. At least, in theory, one of the major advantages of online sales is the ability to expand into many international markets at once with minimal expenses; after all, most websites are available throughout the world. Today, most software is also sold exclusively through this channel.
The catch with online sales is that you’re on your own when it comes to marketing, support, and so on. While it costs no more to sell an app in one country than it does to sell it in every country, many users won’t even consider buying an app if it isn’t available in their language. This means that you will need to add app localization into the equation, as it will be a crucial factor for your success online. Unless you have an army of translators willing to work for free, you’ll likely need to pay for an app localization service.
Buying a foreign company
Also known as foreign direct investment [FDI], this strategy does what it says on the tin, so to speak. There are plenty of advantages to buying an existing company in a foreign country: among other benefits, your purchase comes with a share of the market, a brand, a customer base, and employees.
As with the other modes of entry, there are drawbacks to just buying a company, too. In most cases, the single largest drawback is easily the cost. There can be additional issues associated with the need to maintain two distinct companies, and some countries choose to legally restrict FDI in certain sectors.
Looking ahead: What’s next?
No matter which mode of entry you choose, most international markets come with an extra challenge: language. While many countries have a single official language and a single way of writing it, the situation in others can be more complex. For instance, both Kazakh and Russian are official in Kazakhstan, and as of 2020, the Kazakh language is transitioning to a new alphabet! Fortunately, this is a fairly extreme example, so the odds that you’ll face a similar situation are low.
Even in markets where the linguistic landscape isn’t so difficult to navigate, the process of having everything from legal documents to websites translated for the new market can be a daunting one. If you sell software, you’ll need to have the product itself translated into the local language, too. This process can be a bit tricky, so you should definitely invest time and resources in developing the right localization strategy for your business. When you start laying out your plans, make sure to consider localization solutions like Phrase that can help you get everything right on the first try and avoid potentially costly mistakes.
The Phrase Localization Suite brings all of your translatable materials into one place, making it easy for translators, proofreaders, project managers, and others to collaborate on them. Features like the in-context editor make translations more accurate by showing translators where their translations will appear in the finished product. Because Phrase supports so many file formats, you don’t have to worry about converting localization files or “breaking” them while editing their contents manually.
If you want to learn more about expanding into new markets, check out the following guides:
- How to Nail Your Market Positioning When Going Global
- How to Expand Your Startup Growth Globally
- 15 Stats & Facts on Why Localization Is About Global Survival
Last updated on November 4, 2022.