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Stephen N. Anderson offers a broad-based viewpoint on how to best approach new export markets.
It is a seductive logic that plants the seed of replicating successful, current business practices into the plan for entering a new market. It seems to make sense. Why tamper with success?
One good reason for challenging this logic is to reduce the risk of expensive failure and eroding the three “Cs” – Confidence, Cash and Customers.
A new market entry consideration should start with a blank page and ask – What is the opportunity? How large is the market? Who are the competitors? Do we have the right product?
How much time to success?
Determining the opportunity is, of course, the first step, and it requires solid data and some analysis.
Let’s consider, for example, what is the opportunity for supplying oilfield equipment or raw cotton or automobiles to China. Zepol Corporation, an industry research organization, provides a data based window into a variety of sectors.
China exported $1.1 billion in oilfield equipment to the US in Q3-2008, a high point, followed by two quarters of similarly high levels. For anyone watching this market growth starting in 2007 when it was $608 million in Q1 of that year, the run up would have drawn a lot of attention and looked like an opportunity for a supplier of replacement parts, services, or transportation for Chinese manufactured oil equipment. Today, however, it has declined over several quarters to $175 million.
Down markets are also opportunities.
Raw cotton exports from the US to China grew from $466 million in Q3-2008 to $1.2 billion in Q1-2011.
Passenger cars, new and used, exported from the US to China grew from $277 million in Q3-2008 to $1.2 billion in Q1-2011. There is opportunity in analyzing facts like these in preparation of anyone developing a new market entry strategy.
Cases in retail: paying close attention to customers
Retail is a business highly sensitive to market nuances that are more easily and quickly recognized than in other sectors, and it therefore provides good examples of new market entry experiences.
The history of British retailer failures in the US stands out because it is counterintuitive. On the face of it, the business and social cultural issues between the two countries are minimized. It should be a “piece of cake”, but it is not. Common language and similar cultures, with “similar” being the operative word here, is the problem. Most companies entering a country where the language and culture are different pay closer attention to, and respect, the differences.
US retailers entering the UK find it is more competitive than expected and costs, including commercial rents, are higher. Those facts should not be a surprise.
Carrefour, the French foodmarket retailer that today has 9,000 stores worldwide, tried to enter Japan a decade ago and made it known that it would revolutionize retail in that country. They did not succeed in achieving their proclamation and as of September 2011 does not have a presence in Japan. Japan is recognized as a particularly hard market for retailers.
Carrefour has been successful in many other foreign markets by reinventing the range on offer at its local stores. Ten years ago, Carrefour was convinced that the Japanese would love a French shopping experience. Japanese shoppers, however, wanted a broad range of fresh produce that they could buy in daily consumption quantities.
Acquisition generally has been considered as a risk reduction, fool-proof way to enter new markets. Walmart’s acquisition of Asda has been successful primarily, it is thought, due to the fact that local management was kept in decision making positions.
What to look for in competition
The foundation of a strategy for a new market starts with understanding and matching your business to the opportunities in the market. The top three topics are:
• Internal Capabilities: What are the core strengths and weaknesses of your product and services.
• Competitor Financial Health: How healthy is the competition?
• Market Information: What are the size, growth, names, products purchased, their customers, their suppliers?
Most companies are skilled at doing their own SWOT analysis on ‘Internal Capabilities’. ‘Obtaining Market Information’, depending on the size of an organization, is accomplished by a combination of professional research conducted by firms familiar with the market and first-hand information gathered by the Company itself.
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‘Competitors’ Financial Health’ is elusive if it is not a public company, or is a division of a public company.
Rapid Ratings International Inc. is an independent source for corporate financial health. It has a blue-chip list of customers who rely on its analysis of their suppliers’, customers’ and competitors’ financial health. Their reports are current and offer more advanced insight than Dun & Bradstreet or Standard & Poors.
(Rapid Ratings was founded in New Zealand in 1997 and developed there by economist Dr. Patrick Caragata, executive vice chairman. The business was bought by Dr. Caragata and a New York City based professional financial group. HQ is now in the US with technology remaining in New Zealand, R&D in Australia and Quality Assurance in India.)
If a competitor’s financial health is good, and they are in a new product or geographic market under consideration, that information must be included in a new market strategy for two basic reasons: (1) they have sustainability in the new market, and (2) if the market opportunity information looks positive, the new market may contribute to the competitor’s financial health.
If a competitor’s financial health is not good, according to the analysis by Rapid Ratings, it has limited resources and sustainability in the new market. That needs to be put into the new market strategy planning and questions added to market research such as: How long has the competitor been in that market? What is the approximate market penetration? What is wrong with their strategy, according to their customers?
When a competitors’ financial health in a market under consideration is not good, it suggests that the market may not be good and more needs to be known about what they have done in the market; size of the market; and what were the product or strategy faults according to their customers.
While every industry and every business regards itself as unique, there are more commonalities than differences between companies and industries than anyone cares to admit.
When entering a new country or market my advice is to think like a startup. There are limited or no sales, no organizational infrastructure experience and most important, little knowledge of the market.
Stephen N. Anderson is managing partner of the Marquis Advisory Group LLC, based in San Francisco, California. Email [email protected]
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