Posted: 18 Apr 2023 Contributor: Ghia Marnewick
Market Entry Strategy: Important Things You Should Know Before Expanding to the US Market
The United States has one of the largest Foreign Direct Investment (FDI) programs in the world, meaning it invests in companies outside its borders. For the United States, this represents $4.6 trillion in 2020.
In 2021, US venture capital (VC) firms invested $90 billion in software companies alone. In the first half of 2021, capital investment is five times higher across Europe.
Additionally, the United States leads the world in gross domestic product (GDP) by over $20 trillion. With GDP growth of 5.7% in 2021, this decade-long trend is likely to continue, giving you the tools needed to grow your local business and should be part of your market expansion plan.
What Is a Market Entry Strategy?
A US market entry strategy for small business is a technique to extend the visibility and reach of a business as well as its product or service to a new market.
Market entry research helps a brand expand into new national or international markets were competition, laws, politics, or culture may be unfamiliar. This is a way to understand new markets as well as help brands identify different successes, uncover potential challenges, and reveal hidden opportunities.
5 Reasons Companies Try to Expand in The Foreign Market
If you are looking to expand your business globally, consider these five reasons to consider looking into international market entry strategies with examples,
1. New market
According to research by the United States Small Business Administration, around 96% of global consumers live outside the United States. For many companies, international expansion provides an opportunity to dominate new regions and reach more customers, increasing sales.
For example, American companies such as Nike and IBM work in the Netherlands because they offer direct access to 170 million European consumers within a space of around 300 kilometers.
Many companies are expanding globally to diversify their acquisitions, a practice that can safeguard the company's bottom line against unexpected circumstances.
Businesses can also use the international market to introduce unique products and services, which can help maintain good revenue.
3. Access to talent
Another important advantage of globalization is the ability to access new talent pools. International workers can provide businesses with increased productivity, advanced language skills, and so much more.
In addition, international talent can also improve the production of innovation within the company.
For example, this is one reason why foreign markets that welcome global entrepreneurs and skilled workers often have a successful startup climate.
4. Competitive advantage
Companies also choose international expansion to gain a competitive advantage over their competitors.
International expansion can also assist businesses in gaining access to new technologies which can improve their operations significantly.
International business can also improve the company's perceived image because global operations can help build a brand identity to support future business situations, such as contract negotiations, new marketing campaigns, or even further expansion.
5. Opportunities to invest abroad
Finally, companies considering international expansion should consider the additional investment opportunities that foreign markets may provide.
For example, many governments around the world offer incentives to companies that want to invest in their region. Therefore, American companies should always do their due diligence before deciding to expand internationally.
Foreign Market-Entry Strategies
Wondering what is the best market entry strategy? Keep reading to find out!
Exporting involves selling your products to the countries you want to sell them to. Some businesses use direct exporting without the help of third parties. Businesses that sell luxury items or sell their products in the global market in the past often choose this method.
On the other hand, companies can export indirectly through the use of international distributors. Although companies pay for their services, outsourcing often results in a return on investment (ROI) because employees know what it takes to be successful in their business. work.
This marketing plan involves asking other companies if you can include your product in their inventory overseas.
If your company and the international company agree to this arrangement, both parties share the profit from each sale. Your business can also manage the risk of international sales by letting a partner handle international sales while your business focuses on domestic sales.
Countertrade is an indirect form of international trade. Counter-trade works as a trading system in which companies exchange goods instead of offering their goods for purchase. Although legal, the process does not have specific rules like other forms do.
Countertrade is a cost-effective option for many businesses because this practice can remove them from import quotas.
Licensing is when a business transfers the right to use or sell a product to another business.
Some companies try to reduce the risk of entering the international market by creating alliances with other companies that plan to sell in the global market. Since partnerships often operate as large independent businesses rather than the combination of two small businesses, they can make more money than sole proprietorships.
This market entry process creates the risk of imbalance in the company's contribution, but both parties can work together to establish a fair system and help prevent this problem.
6. Company ownership
If your business plans to sell products abroad without controlling the shipping and distribution of the products you produce, you may want to buy a business in the country where you want to do business.
Having an established business in the international space gives your company credibility as a local business, which can increase sales. Owning a business pays more than most marketing strategies, but it can lead to a return on investment.
Franchising is a distribution system in which an individual or consumer pays for the right to manage a branch on behalf of the company.
Franchising generally requires a strong brand identity because consumers in your target market need to know what you offer and want to buy it.
Important Things for U.S. Market Entry & Expansion
An understanding of key macroeconomic indicators is an important international business skill that provides a broad overview that, when combined with company-level analysis, not only gives you greater confidence in international growth decisions but also the concept of potential benefits. and the disadvantages of following this course of action.
Here is an explanation of three key economic indicators and what they tell us about the state of business in a given country.
1. Gross Domestic Product
Gross Domestic Product (GDP) is the value of goods and services produced in an economy. The lunch you bought at a local restaurant, the money your government gives to firefighters and teachers, the money a company spends to build its new headquarters, and the value of a car made in your country and sold internationally again, it is a part of GDP.
2. Unemployment rate
The unemployment rate of a country is the number of people who are not working divided by the number of people who are working or actively looking for work.
The unemployment rate, however, is not always good for businesses. In calculating unemployment, those who change jobs for better opportunities in emerging economies are considered unemployed for the entire period they spend between transition periods. With low unemployment, companies have to invest more money to attract candidates to work for their companies, and these costs are passed on to consumers at higher prices, leading to inflation.
3. Sales price
Inflation represents the rate at which general prices in the economy increase. If you do business in a high-cost country, the cost of your investment will increase and the value of any money you save or borrow will increase.
Despite these disadvantages, rising inflation can be beneficial if you borrow money at high-interest rates to start or expand your business. Successful economies tend to have some growth. As long as it is stable and predictable, you will be able to adjust it to your budget and pricing decisions.
Market Entry Strategy Framework
The market entry process allows companies to evaluate and decide whether entering a new market is the right decision to make.
Marketing strategy is a tool used to evaluate whether a business should expand into a new market or not and investigate potential foreign market entry strategies. The process is a top-down analysis of the situation and situation, from the general to the other, to determine whether expanding into new markets is the best strategy for growth. It can be compared to other options, such as introducing a new product.
First, companies considering entering the market should look at their current market. Is there room for growth market? If there is enough room for growth, expanding into the current market may be more profitable.
The next step is to compare the competitors. How does the current market compare to the potential new market? Sometimes companies choose to move quickly into new markets because local markets already have strong competition while adjacent markets have less competition.
Second, the company will analyze the customer's behavior in the potential market. This requires market research. Businesses can conduct research and hire market research firms to determine whether consumers can buy their products and services in new markets.
For example, people may express a desire for a restaurant to come to their city after dining at a restaurant in another city.
Another example is companies that produce physical goods that can be shipped have the advantage of reaching new markets through current technologies such as online marketing and modern shipping. However, shipping a unit directly to customers can be very expensive.
A common marketing strategy is to partner with a local retailer to reduce unit shipping costs and reach consumers who prefer to shop in-store. The company can ship to these large retailers and new markets, reducing shipping costs per unit. However, this will be planned and negotiated, as retailers charge producers a percentage of royalties or profits to include products in their stores.
Market entry strategies are an important step in becoming a successful business owner because they allow you to reduce risk and increase your chances when trying to enter an unknown market that has the ability to become your audience.
With the right strategy, you will be able to succeed in entering the industry and be able to establish a stable business position in time.
To implement this strategy successfully, you need to know all the potential markets for your product or service. In this way, you can create an action plan that will help you enter the market effectively.
A well-prepared marketing plan will allow you to reduce risk and increase your chances when trying to enter an unknown market, thereby increasing your chances of success when entering the market.