Deciding on market entry mode

Expanding into new markets is easier said than done. It requires a thought-out business and marketing strategy. Before all, you must determine that it is, indeed, a good fit. Even an agile company experiencing great success may struggle against an established competitor in a new market.

A critical step when expanding to a new market is selecting the best market entry mode for your business. Different approaches all have pros and cons. Deciding which to choose is as much about market insight as to business logic. You must select one that will work best in your case. One size will not fit all.

Companies usually choose a market entry mode based on the market potential, the type of product they sell, the value of their product, and whether it requires some after-sales support. Companies should also consider their current competition and consumer needs. The cost and the control over distribution can vary depending on the chosen strategy.

Market entry modes overview

There are a variety of options to enter the Serbian market. These options vary with cost, risk, and the degree of control over them.

Direct Exporting

Exporting goods enables companies to dip their toes into the water in a foreign market with minimal investment and risk. While relatively low risk, it entails limited control. Direct exporting does not give a company firsthand experience in staking out a competitive position abroad, and it makes it difficult to customize products and services to local tastes and preferences.

Indirect Exporting Through Piggybacking

Some domestic companies that already have an extensive exporting system and comprehensive international marketing network in place look for other products that complement their lines. If you manufacture such a product, they can agree with your company to sell your product through their international networks.

Licensing and Franchising

A company that wants to get into an international market quickly while taking only limited financial and legal risks might consider licensing agreements with foreign companies. Another popular way to expand overseas is to sell franchises. Although, your business risks tarnishing its brand image and reputation in the new markets due to the incompetence of its licensing and franchising partners.

Partnerships and Strategic Alliances

The advantages of partnering with a local firm are that the local firm likely understands the local culture, market, and ways of doing business better than an outside firm. Partners are especially valuable if they have a recognized, reputable brand name in the country or have existing relationships with customers that the firm might want to access.

Cooperation with the Agent

A good agent knows the markets and has connections to possible customers. The agent gets a commission from sales. If there are no sales, there are no expenses for the company exporting. For a company starting a business in a new country, an agent can be a good alternative, although finding the right agent and getting them to perform consistently is not always that simple.

Representative Office

A representative office is a good way to get solid information about market dynamics, customer preferences, and product suitability. A representative office is relatively simple and faster to establish, as there are fewer regulations and no capital requirements. Virtually any type of business might benefit from using a representative office as the initial market entry mechanism. However, representative offices are somewhat limited by the fact they are not legal business entities.

Foreign Subsidiary

This approach to going international not only gives the parent company full access to local markets but also exempts it from any laws or regulations that may hamper the activities of foreign firms. The parent company has tight control over the operations of a subsidiary, but while senior managers from the parent company often oversee operations, many managers and employees are citizens of the host country.

Strategic Acquisitions

Strategic acquisition implies that your company acquires a controlling interest in an existing company in the new market. This acquired company can be directly or indirectly involved in offering similar products or services in the target market. Acquisitions are appealing because they give the company quick, established access to a new market. However, they are usually expensive and risky.

Foreign Direct Investment

Foreign direct investment refers to the formal establishment of business operations on foreign soil— the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country. FDI is generally the most expensive commitment that a firm can make to an overseas market, and it is typically driven by the size and attractiveness of the target market.

Market Entry Consulting

Our market assessment begins after understanding your current goals and plans in the Serbian market. Depending on your objectives, we can perform the activities to help you define and refine your market entry strategy. We can provide you with information, such as indications of market size, market trends and requirements, typical customers, relevant sales and distribution channels, regulatory and competitive environment, certifications and approvals needed, and possible obstacles to market entry.