Boost your profits by seizing opportunities in overseas markets through a well-thought-out global development plan.
Entering a new market can be a powerful way to grow your business. For instance, it may allow you to:
- increase your revenue and/or decrease the costs of goods sold, thus increasing your profits
- follow your existing customers abroad
- attack your overseas competitors in their home markets
- guarantee a continued supply of raw materials
- acquire exploitable technology or ingenuity
- diversify geographically
- satisfy your stockholders’ desire to expand.
But once you’ve chosen your target overseas market, how will you gain entry? That is one of the most crucial strategic decisions you will ever make. The right decision can bring you huge competitive advantages. The wrong one could cripple your business.
How TCii can help you plan your global development
There are many different entry routes to choose from, each with its own advantages and disadvantages. The trick is to know which of these are likely to have a particular impact on your business.
TCii has an excellent track record in helping businesses choose the global development method that will best fuel their growth while protecting their intangible assets.
Modes of entry to foreign markets – an overview
Below are some examples of the pros and cons of the major routes to international expansion.
- Acquisition of an existing company. You will gain access to an established market and a complement of skilled workers, and you will instantly acquire branding, technology, clients and vendors. However, you will also inherit any existing business and staff problems.
- Greenfield investment. You will achieve economies of scale and enjoy greater control. But it can be expensive and slow, and you may face entrenched competition and regulatory barriers.
- Licensing. This may work well for you in markets where there are barriers to import and investment. You will benefit from a relatively low capital outlay, fairly quick returns and fewer financial and legal risks. But you will have less control and may lose intellectual property and even your brand’s reputation.
- Technology licensing. You will share in any technical improvements developed by your licensee. But again, you may risk losing your intellectual property and control over your technology.
- Franchising. This offers lower risk together with economies of scale, but as a licensor you will have little direct control.
- Direct exporting. Your risk and investment will be minimised, business entry will be fast, and you will be able to sell excess production capacity and stabilise seasonal market fluctuations. But this method is relatively expensive, and presents difficulties in terms of coordination, customer development, logistics, trade barriers, and control over pricing and marketing.
- Indirect exporting. You can sell through an agent who has knowledge of the business practices, languages, laws and culture of the overseas market, and can provide a wealth of practical guidance. However, agents often work for numerous businesses, and prioritise their clients based on product, incentives and/or base pay. Other exporting options include the use of an export management company and piggyback exporting – both of which have their own upsides and downsides.
- Contract manufacturing. This works best when the risks of investing in a foreign country are high, when stringent import barriers exist, or when there is a lack of raw materials at home. Access is usually easy, but you could lose control of quality and you won’t have control over pricing or marketing.
- Management contract. Market entry is simple, but profits will be low and the foreign company may eventually become your competitor.
The above is only a brief overview of the main alternatives and some of their chief pros and cons. For your expansion plans to succeed, you need to carefully analyse and compare all the alternatives.
Next steps to a safe global expansion plan
TCii can help you to choose the mode of entry that will ensure a profitable overseas presence for your product or service, and plan a successful foreign venture. Please call us on 020 7099 2621 or email us for more information.