5 Effective Market Entry Strategies Alternative To Direct Exporting

February 26, 2022
Market Entry Strategies

Most exporters have more than one target market for their products as people’s buying and consuming behaviors are identical. A Mexican, Turk, German, Indian and Indonesian eats bread, drives a car, watches TV, wears clothes etc. Besides basic needs, they differentiate in terms of geographical, cultural and economic factors. While one likes brown bread, the other likes pita; one likes a hybrid automobile, the other likes a pick-up.

Looking at the diversities of end-user consumption, the characteristics of local businesses are shaped by the influence of their own culture. After all, they are the people living in the same community.

There is no standard market entry strategy

This gives us the answer on how to sell our products to those countries: customization of our approach to every single country. To do this, we must know the culture of a given market: their behaviors of purchasing, consuming, payment as well as the channels and platforms they shop; do they prefer import goods, international brands or local products or cheap non-brand ones? As such we find the right answer on how to design our penetration strategy to that market when direct exporting is out of question.

Firstly, make sure that your expectations from a certain market should align with the potential of the market. That’s why market research and tailored planning is so important. Determine the sizes of target markets and allocate your resources accordingly, neither more nor less. Be realistic and reasonable about your goals. be S.M.A.R.T.

To implement different market entry strategies for each target market you should take these into consideration:

  1. The proximity: transportation costs could be dissuasive if there is a long distance which makes it impossible to export in small batches and you can’t appeal to small importers.
  2. Timezone: It could be impossible to get in contact with the prospects who are off when you are on.
  3. Language: Although it’s necessary for international businesses to speak English, you can’t blame a local company for not speaking English. You are the one who gets in contact with them and tries to sell; and it’s you to figure it out.
  4. Culture: You cannot expect from every prospect to have the same way of doing business with you; either you will adopt yourself or partner with a local company to deal with.
  5. Legal issues: You could have difficulties in penetrating due to high duties, taxes, non-tariff barriers and compliance. In order not to face such barriers, you can use other options than direct exporting.
  6. Competition: What are the activities of your domestic and international competitors in your target market. Do they have distributors, agents, partners, warehouses or branches there? Maybe they don’t exist in that market, then why? Is it an opportunity or is there anything else you are missing?
  7. Regional incompetencies or problems: The market can have security problems due to any kind of upheaval, digital infrastructure can be poor or the internet usage can be low.

In the view of these criteria, there are 5 alternatives to direct exporting that can help you to penetrate into your target countries:

1- Agents/Intermediaries

There are various reasons for a firm not to choose direct exporting which I mentioned above. In a target market where there is limited internet usage and lack of online sources to find businesses, you need to do on-site research. However, if it is also an insecure location, a visit can be dangerous. In that case, working with agents or intermediaries is the best solution for your market entry strategy. If you find the right people who have solid connections in the area, depending on the scope of the contract, you may end up with a huge success in that market.

2- Licensing, Distributorship

If a certain target market is relatively small scale in your export plan or you don’t feel to be effective with direct reach, getting your products to be sold through distributors, franchisees or licensees is quite reasonable. As they are already established businesses and have their customer base across the country or the region, they obviously will do better than you.

For example, a Belgian carpet exporter can consider a distributorship with a company from Dubai to sell to the gulf region (Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE). So, it doesn’t have to market to each of them separately.

The key point is that you should take time finding the perfect representative of your brand. Otherwise they turn out to be another brand’s seller too, and make a deal with you just to cut you in the market.

3- Buying A Company

In the case that a certain target country has trade barriers that makes it impossible or expensive to enter but you want to be there anyway, buying a local company can help you a lot. You not only find a way around legal issues, but also have a skilled personnel and customer base in hand.

Although it could be costly for SMEs, if it’s going to be profitable in the long term and help you achieve your goals, why wouldn’t it be an option? What’s more; considering the time and effort spent on marketing and building a customer base, it’s cheaper than establishing a new firm.

Note: Download the UNCTAD’s World Investment Report 2021 to get FDI insights.

4- Partnering

If you are financially unable to buy a company in the target country, partnering with a local one is a good alternative. Your partner will help you with the market entry conditions, legal procedures, brand recognition, marketing and operation. It’s especially of big importance in the markets where you are required to have a local representation so you can do business. Most importantly you’ll be one up on your rivals and new entrants.

5- Piggybacking

Although it’s not a direct export method, you can use it for certain target markets. Piggybacking is a collaboration between the SME (rider) and a bigger exporter company (carrier) which already operates in the foreign market. According to the collaborative agreement, the carrier exports the rider’s products together with its own products.

The key point is that the products of the rider and the carrier are different and noncompetitive. For example, the carrier exports machinery and the rider produces safety goggles. These two can collaborate on the exporting of safety goggles by the carrier which is called piggybacking.

In addition to 5 market entry strategies there are others like joint ventures, countertrade, and greenfield investments. These three are not convenient for all sorts of enterprises as they require more international experience and budget.

Bottom Line

In such an interconnected globe, internationalization of small businesses is a must to survive and appealing to diverse cultures requires diversification and customization of the strategies a company uses for each market. The better the firm can adapt itself to the market, the better its brand will be recognized.

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