Market entry strategies: the first step to expansion
by Dan Ilika
Manufacturers have options as long as they do their homework first
So you’re looking to expand your business outside Canadian borders.
Entering foreign markets can be a make-it-or-break-it situation, some experts say, and a key to avoid the latter comes down to choosing the right entry strategy.
Canadian manufacturers have a handful of options to consider before making the move abroad, says Justine Hendricks, vice-president of resources and light manufacturing at Export Development Canada (EDC), and the choice shouldn’t be made with haste.
Direct versus indirect export, entering a joint venture compared to working with a distributor, or simply investing in the market by establishing a location; all options have their merits, according to Hendricks, but it’s important to carefully choose what suits your business, your product and the market you’re considering.
“I would tell you it’s make-it-or-break-it,” she says of the market entry strategy decision. “Not all markets are made equal.”
First and foremost, Hendricks says manufacturers need to consider local laws and regulations in the new market that may pose problems, such as local content rules.
“There (are) markets where they have regulations around local content percentages that have to be part of manufactured goods,” she says. “If you don’t make that part of your research, so to speak … you may find out the hard way that it’s going to be a non-starter because you’re right away contravening requirements.”
If the obstacles are minimal—or non-existent—she says the next step is to determine how best to get into the market.
Likely the first thought to cross most manufacturers’ minds, direct export has a lot to offer financially—as long as it’s a viable option.
“If you go direct and you’re in a market that allows you to go direct there’s a cost-saving potentially,” Hendricks says.
“I would probably venture to say when you’re in the manufacturing business, the day you decide (you’re) going to export as a first step (direct) might be the best thing to do.”
Indirect export—the option of working with a local distributor or importer in the market you’re targeting—offers eyes and ears on the ground in what may be unfamiliar territory to you, Hendricks says.
“When you have a local distributor it brings the concept of having what I consider valuable information a lot closer to you,” she says. “That person can take care of all sorts of logistics and take part of those headaches or those concerns away from you.”
Accessing potential client bases much quicker than you can on your own is beneficial, but the choice does come with a warning:
“I think everybody would advise that the selection of that distributor is obviously the critical part in that type of business arrangement,” Hendricks says.
Similar to indirect export, establishing a joint venture with a local business pro can work to your advantage, Hendricks says, particularly in those markets with local content or assembly requirements.
“When you’re looking at establishing a partnership in some of these markets (where) a percentage has to be assembled in the local market, (this) option becomes very important in terms of your ability to remain competitive or simply access that market,” she says.
Much like indirect export, Hendricks says it’s important to choose the right partner who will represent you well in the market.
Consider whether your potential partner is going to maintain the quality of your product, which, as is often the case for manufacturers, is your brand.
“You want to ensure that the quality that comes out of that joint partnership is as good if not better than what you’re able to produce on your own,” she says.
According to Hendricks, it’s also important to have a clear understanding of the parameters of your partnership and the outcomes of a potential disagreement.
This is where a good contract comes into play.
Make sure you have someone very familiar with the local market advise on the deal.
“Often I think when companies would speak of having a negative experience it often relates to when there’s a disagreement amongst the partners,” she says.
Establishing oneself in a market by setting up operations is another option to explore, particularly if local content regulations get in your way.
While it forces a larger up-front investment, one trend Hendricks says she has noticed over the last number of years is acquisition opportunities that offer a foot in the door, so to speak, in untapped markets.
“There’s a double advantage to that, from my perspective, because you’ve got people that already know the marketplace and you’re bringing along a new element to the culture,” she says.
“It doesn’t mean you’re going to impose your North American culture, your Canadian culture, but you’re going to do a merging of two visions, so to speak, and hopefully come to one.”
Regardless of which strategy you ultimately choose, Hendricks says it’s important to sit down with the right people and take your time in making a decision.
Indeed, in the world of export market development, it’s this first step that can ultimately make, or break, your business.