Determining the best way to break into a foreign market

When you have your sights set on a foreign market, you have a variety of intermediaries and methods to choose from. Making the right choices is key to meeting your business objectives.

Once you've selected your target market, analyze how you can break into it and identify your best options before you make your move. Here are some basics:

• Learn about business practices in your export market and the value chain favoured by your potential foreign customers.
• Get advice on the major legal and tax aspects of the export market.
• Identify any cultural barriers and local perceptions of your product or service.
• Estimate your resources, especially the financial resources you can use to develop and supply your target market.
• Evaluate the overall strengths and weaknesses of your business and its product or service compared with the export market.
• Anticipate customer needs every step of the sales cycle.

4 ways to break into the market

Whether you decide to maintain control of your sales or delegate it to another business, there are many ways you can break into a foreign market.

Direct approach

With the direct approach, the business sells directly to foreign customers, getting hands-on assistance only from a forwarding agent or an employee dedicated to on-the-ground development. The exporter is responsible for the entire export process.

• Pros:
  • Direct customer contact
  • Stringent cost control
  • Higher profit margin
• Cons:
  • The exporter is the sole business development investor
  • Longer development phase since the network has to be built
  • Steep learning curve and higher risk of error

Indirect approach

The business selects a paid intermediary (agent, distributor, broker, etc.) to develop the market.

• Pros:
  • Direct support of a business network
  • Advice and guidance regarding the strategic, tactical and technical aspects of market development
  • Constant stream of local business intelligence
  • Possibility of sharing development costs
• Cons:
  • Lower profit margin
  • No direct contact with customers
  • Substantial investment to maintain the relationship

Hybrid approach (partnership, consortium, collaboration, etc.)

With a hybrid approach, the business chooses a partner that will bring significant development value and share responsibilities and profits.

• Pros:
  • Risk sharing and additional development resources
  • Compensation for your export market weaknesses
  • Optimal synergy for heightened competitiveness
• Cons:
  • Profit sharing
  • Considerable investment to grow and maintain the relationship
  • Greater risk of misunderstanding

Approach requiring substantial resources (merger, acquisition, direct investment, etc.)

With one of these approaches, a business acquires all or part of a business established in the export market.

• Pros:
  • Quick access to the market and an existing customer base
  • Access to technology, patents, etc.
  • Quick access to an extensive network of resources (governments, bankers, etc.)
  • Control over financial and human resources, faster decisions
  • Optimal synergy and heightened global competitiveness
• Cons:
  • Considerable investment and new external risks to manage
  • Substantial time investment for senior management
  • Risks for the business's image and history

How to choose a local partner

Once you've selected your market entry strategy, you may need to find someone locally (agent, distributor, partner, etc.) who can help you. You'll have to do your due diligence.

• General
  • Number of years in business
  • Creditworthiness
• Local presence
  • Number of points of service
  • Local visibility
  • Quality of the local network
  • Sales force
• Other products and services
  • Synergy with products and services offered by other suppliers
  • Direct or indirect competition
  • Product's likely market share
• Perception among target audience
  • Customer perceptions of quality, presence and reputation
• Interest in your product and business
  • General interest in the product
  • Stated demands and commitments
  • Distributor's sales projections for the territory and market segment
• Shared vision of the business's development and values
  • Partnership growth plan
  • Importance of customer service
  • Service quality and standards
  • Business development vision
• Investment needed in training, marketing and support
  • Assessment of the partner's team
  • Analysis of current customer needs
• Contribution
  • Involvement in sales, after-sales service, marketing, logistics, technical aspects and adaptation of the product or promotional material

Desjardins can help you do business internationally, maintain good relations with your foreign customers and suppliers and manage your business risks. Contact Desjardins International Services