Market Entry Strategies: How to Expand Into Global Markets

Based in Trieste, Italy, Illy Caffé produces and markets a unique blend of espresso coffee under a single brand leader in quality. Illy is sold in over 140 countries around the world and is available in more than 50,000 of the best restaurants and coffee bars. Illy buys green coffee directly from the growers of the highest quality Arabica through partnerships based on the mutual creation of value. The Trieste-based company fosters long-term collaborations with the world’s best coffee growers—in Brazil, Central America, India, and Africa—providing know-how and technology and offering above-market prices. In March 2008, the Coca-Cola company and Illy Caffé Spa finalized a joint venture and launched a premium ready-to-drink espresso-based coffee beverage.

Direct market access is an interesting part of the trading domain which started coming in use by retail traders in the 1980s but gradually by the 1990s gained popularity amongst institutional traders. Investment banks, hedge funds etc. use direct market access mainly in today’s time. Coca-Cola’s global success underscores the significance of adapting to diverse drinking cultures. In the 1970s, the “I’d Like to Buy the World a Coke” campaign and the unforgettable jingle propelled international expansion. Coca-Cola maintained a consistent product while allowing room for cultural taste adjustments.

Selecting the appropriate market entry mode is a critical decision for businesses expanding into international markets. Options such as direct exporting, licensing, joint ventures, foreign direct investment, and e-commerce platforms each offer unique advantages and challenges. Thorough market research, risk analysis, and alignment with long-term objectives are key Dma Defined factors in determining the most suitable market entry strategy. By choosing wisely, companies can establish a strong presence in foreign markets and seize the opportunities for growth and profitability. Exporting is a typically the easiest way to enter an international market, and therefore most firms begin their international expansion using this model of entry.

It also presents an opportunity for high profits when markets are chosen carefully. If an organization is interested in long-term growth in an international market, direct exporting can be a suitable entry strategy because it enables the organization to gain knowledge of the market and develop distribution channels. Direct exporting can be very successful if the selected market is readily accessible and has similar regulations and customs to the organization’s country. If the target market has different regulations, legal systems, cultures or ways of conducting business, and the organization is inexperienced in international trade, direct exporting might be very difficult and risky.

• In working with international markets, I’ve learned that one of the key challenges is navigating the cultural diversity of global markets.
• Cultural intelligence helps businesses understand the values, customs and preferences of the local population.
• The intermediary handles all the complex tasks, in which your business likely lacks the expertise in, from logistical planning and organization of exports to knowledge of the foreign market.
• The process of establishing a new, wholly owned subsidiary is often complex and potentially costly, but it affords the firm maximum control and has the most potential to provide above-average returns.
• In the long run, this could lead to a lack of innovation and development, which could cost your business sales and thus growth.

It will, however, retain control of product design and development and put its own label on the finished product. Contract manufacturing is quite common in the U.S. apparel business, with most American brands being made in a number of Asian countries, including China, Vietnam, Indonesia, and India (Gereffi & Frederick, 2010). Under an international franchise agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance.

As we’ve seen, some companies opt to purchase an existing company in a foreign country outright as a way to get into a foreign market quickly. Corruption makes the world less flat precisely because it undermines the viability of legal vehicles, such as licensing, which otherwise lead to a flatter world (Matlack, 2009). One common factor in exporting is the need to translate something about a product or service into the language of the target country.

Likewise, a foreign firm is not allowed to own more than 25 percent of a US airline (Knowledge at Wharton, 2010). At its best, it can help foster strong, harmonious relationships with corporate and government contacts. Whatever the case, companies without guanxi won’t accomplish much in the Chinese market.

Trade credit insurance can help mitigate the risk of non-payment from foreign business partners and help you get additional working capital from your financial institution to support your international expansion. A direct exporter of products must assume responsibility for all losses during shipping and storage overseas. Substantial amounts must be invested in marketing and sales activities, and there is a risk that these expenses will not be recouped if the venture is not successful. Political and economic instability in the market will also present the risk of business losses. Contract for Difference (CFD) is a type of contract which enables the investor to trade in the direction of the currency pairs instead of trading with the spot quotes. Some forex direct market access brokers could let you trade this type of derivative directly with banking institutions.

Our services are designed to cater to diverse cultures, nationalities, and sectors, all guided by our core purpose of “Unite. Enlighten. Advance.”

This approach offers businesses full control over their operations and allows them to establish direct relationships with customers. However, it may require significant investment in market research, establishing distribution networks, and navigating local regulations and cultural nuances. This represents a market entry strategy where a company establishes complete ownership and control of its operations in a foreign market. In this approach, the business sets up a new entity or company in a foreign country, fully owned by the parent company. While this gives the parent company maximum autonomy and decision-making power, it also entails significant financial investment and higher risks. Wholly-owned subsidiaries are ideal when a business seeks tight control over operations, brand consistency and long-term market presence in the foreign market.

As markets expand, however, a firm might decide to enhance its competitive advantage by making a direct investment in operations conducted in another country. Strategic alliances are also advantageous for small entrepreneurial firms that may be too small to make the needed investments to enter the new market themselves. In addition, some countries require foreign-owned companies to partner with a local firm if they want to enter the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the country are required by law to have a Saudi partner.

Some companies purchase their resellers or early partners (as Vitrac Egypt did when it bought out the shares that its partner, Vitrac, owned in the equity joint venture). Strategic alliances and joint ventures have become increasingly popular in recent years. You can buy into a company or create a new, shared company in a joint partnership with a person in the international community you choose. In a joint venture, you would both share legal ownership and contribute resources to pursue the business opportunity. For example, when Uber entered the Japanese market, its disruptive model clashed with local regulations and a culture that prioritizes adherence to rules.

We discussed the most relevant concepts of direct market access in the trading domain in this blog. The direct market access facility allows a trader/institution to trade in the financial market without any intermediary. Also, we can say that, if you are a trader who operates with high volume levels, then you might need to operate with direct market access brokers who offer CFDs so your big orders don’t move the market. One of the main advantages of direct market access is the low latency it offers compared to the router layer that some brokers have.

Nevertheless, navigating the local Chinese bureaucracy is tough, even for the most-experienced companies. That being said, direct exporting and indirect exporting can be utilized by businesses of all sizes. A direct exporting example is that of a US manufacturer who sells their products directly to end-consumers in the Philippines, like that of a Direct-to-Consumer (D2C) business. The point is that the business exports to an intermediary in the foreign market, rather than selling to an intermediary in their home market – so the export is still deemed direct.