Definition of Market Entry Strategy
Market entry is an institutional arrangement and plans for organizing and conducting internal and international business transactions. A firm should decide and plan how to enter the untested new target market. A firm should consider market uncertainty, competition, heterogeneity, cannibalization, and other market entry barriers.
Market Entry Barriers
1. Incumbents’ brand loyalty
When existing brands have higher customer loyalty, it is hard to penetrate such a market. Only a few customers are willing to try out your product. Low customer retention is experienced, even among those who decide to try your product or services.
2. Price Fixing
This is the limit of pricing incumbents’ firm’s place to deter the entry of new firms into the market. Existing players sometimes collaborate to fix prices, making it hard for a new entrant to thrive.
3. Number of competitors
If the target market that a firm is entering has many competitors, it becomes difficult for the enterprise to venture since it will have to deal with stiff competition. Unless you are bridging the gap that none of these competitors has visualized, success in market entry would be hard.
4. Cost for adapting technology to the local market
Where the cost of adapting the required advanced technology to a local market is high, it becomes expensive for firms entering new markets. This only favors existing players who have already adopted these newer technologies.
5. Government policies
The government can impose sanctions and tariffs on imports and exports, thus creating regulatory barriers in market entry. If your company wants to operate in a jurisdiction that imposes many tariffs, entry could be hard and nearly impossible.
Overcoming Market Entry Barriers
1. Government subsidies
Government subsidies are used as a fiscal policy tool. Adjusting government tax revenues and levels of spending to favor new firms entering the market will help overcome barriers to entry.
2. Political stability
Ensuring there is no political turmoil in the target market the firm wants to enter will enable new firms to overcome market entry barriers. This is due to the ease of getting investors on board with their capital.
3. Trade and economic sanctions
A firm should avoid markets with heavy trade and economic sanctions imposed by one or more countries against the home country because it deters a firm’s entry into the market.
4. Customs tariffs and taxes
When the rate of customs tariffs and taxes charged by the government is favorable and controlled, it becomes very easy for a firm to enter the target market.
Factors to Consider For Market Entry Strategies
1. Host country risks
Risks in the host country affect the choice of market entry strategy. These are uncertainties embodied in the market environment, such as political and transactional risks, like transfer risks and currency inconvertibility.
2. Industry factors
These factors consider the industry and marketing manager of a company. Asset and liability management ensures that the firms in the industry use the asset to generate sales and manage the industry’s liability for high asset turnover. Product promotion should also be considered for high sales.
3. Bureaucracy between host and home countries
This is the extent to which host and home countries interact in commercial diplomacy. The closer and better the relationship and interaction between the two countries are, the easier it is for firms from their home country to do business and learn how to compete favorably in the home country.
A firm should consider the required resources for its smooth operation. Resources to be considered are money, assets, time, and personnel it is willing to commit for market entry.