How can an organization enter an emerging market?
There is huge growth potential across much of the developing world, but there are also very significant risks associated with entering these markets. How do organizations deal with the challenge of expanding into rapidly growing emerging markets? What strategies are most effective?
Many good points have already been made. I will briefly summarize a project I'm currently working on in hopes1 that it sheds some light on the topic.
A Ghanaian friend of mine is helping several midwestern farmers and farm equipment companies to sell into West Africa. His sales leads are coming from trade shows, industry associations in the US and the target markets and his own network on the ground. The prospects are experienced farmers and capable entrepreneurs in Ghana and Nigeria.
We are finding that the prospects can benefit with some assistance presenting themselves to investors and US resources like Eximbank (who will finance the purchases). We have also found that they are looking for more than mere suppliers of goods. They are often seeking technical assistance and operating partners who can make a longer term commitment to the growth of the market, often as part of a larger economic development plan. It's still early but it looks promising so far. My friend is about to close on a grain export shipment to Ghana and we're working closely with a couple of Nigerian poultry farmers--which has also generated revenue for my consulting practice.
1. Find capable trustworthy local partners or US immigrants from the target markets.
2. Make use of industry associations both here and abroad. Often the fact that someone has been welcomed into the industry fold means some amount of vetting has taken place.
3. Your strategic plan for your target market should be consistent with that country's development priorities.
4. Spend as much time as is feasible in the target country. US government resources are helpful but there's nothing like being there and seeing for your self the environment you're selling into. It will also help to implement the above suggestions.
It is often the case that business strategies should be revised to fit the conditions of emerging markets. This includes the package of market entry strategy.
Much depends on the concrete case, for instance whether the strategic intent is to seek a market, cost reduction, resources, efficiency and strategic assets. Could you provide details on a concrete case?
We can also talk about emerging markets in general terms. Compared to mature markets, emerging markets differ importantly in terms of resources, markets, institutions and competition. The natural resources are generally abundant and the labor cheap and increasingly skilled. The markets grow rapidly with low initial segmentation. The market institutions are in transition and, meanwhile, institutional voids exist and informal institutions prevail. The different nature of competition implies new perspectives on first-mover advantage and competitive advantage.
These characteristics often imply greater risks for entering emerging markets, and these risks should be balanced against the long-term rather than the short-term opportunities.
In general terms, business strategy should be adapted to the conditions of emerging markets by revising each component of the strategy. For a market entry strategy, this includes global-local strategic fit, location, timing and entry mode decisions as well as supporting decision in the marketing, logistics and human resource departments.
Across strategies, businesses tend to face institutional voids on emerging markets, which can translate into risks and lost opportunities. Which market institutions do you depend on in your home market, how do they differ on the emerging market? Depending on the answer, you can consider whether to replicate or adapt your business model, compete or collaborate with local businesses and accept or change the market context.
Having trusting partner at the market, who is understanding your business and share the same passion about is one of the best ways. Expenses for doing business at emerging markets are lower so don't be afraid to invest in your office or at least hire someone to do the business for you.
One common mistake is to think that emerging countries are similar, I was born in one of those and have lived in other four due to business reasons and I can tell you that every single country is a single world, even if you speak the same language you will find so many times that the local expressions and the way used to determinate things and relationship style, might make you think you are in Mars. So base in this experience despite there are a lot of things to take care about, this is the must important issue to success, this might take time, that perhaps you don't have, so make sure to be surrounded by local talent, at least good local advisors that facilitate the process, after that you can work in your business plans, strategies, etc. that might be applied based on the regular methodology. Hope this might help!
Emerging markets certainly provide new investor opportunities.
The biggest risks faced by foreign investors are
Volatile political climate
You will have to do your homework of business plan to reduce above risks.
In most emerging markets, you use a currency other than your own. Your investment returns are affected by changes in the value of both your currency and the emerging market currency. For example, in India US dollar appreciated in the last few years which helped the investors. At the same time, the infrastructure costs zoomed too.
Strategic partnership with a local company or a local contact will be a good approach. You should also verify the credentials of this local contact and the local company.
Risk factor is the part of your business plan,so it depends on your business plan and business coach,but only for your knowledge I can defined some important risk factor,
1-Business environment e.g business friendly or not
Based on personal experience: 1. Study the target country economics and culture to be sure that your business has a place in that market. 2. Find a local person in that country to help you introduce your product or service. The best way to establish your business is with a "local face." 3. Get help with legal issues such as duties and taxes. If you're not familiar with them there could be huge costs that will surprise you. 4. Be patient. If you are committed to a certain region or country stick with it but realize that business moves at a different pace in certain parts of the world than in others. Good luck!
No best approach to enter the emerging market. It depends the nautre of the business, the target market, current resources, and marketing intention to initiate the enter strategy.
Whether to JV or licensing or agency or distributon or direct investment by self, you need to at least localise + local marketing/ sales expert + local supports & fulfilment + local Finanical Infrastructure + tax solution.
The above summarised my experiences helping clients to enter Asia market.
It is important to be aware that those markets are not "up for grabs", you are venturing into new territories that already have very competitive businesses operating there, that not only benefit from experience and established brands, but also have deep understanding of their own markets and legislation, not to mention cultural factors and several other advantages. What you will find in many cases is that these countries are more focused in exporting and expanding into other countries rather than attracting foreign investment that might have once been highly sought. It is a common misconception that emerging economies are desperate for foreign investment. If you are serious about such venture, look for a partnership(not necessarily on paper) that is mutually beneficial for you and prospective partners, it is a simpler way to start.
It is always better for organizations to go with collaboration model and mindset to be successful in emerging markets. Once the organization understands the value the interdependence with partners and integrators they have much more confidence in going with this approach.
In many ways this will also help companies to get more comfortable in knowing the cultural differences and start adapting techniques which suits different regions