For any successful business, the topic of expansion becomes unavoidable after a certain point. This is an inevitable part of taking your business to the next level. In fact, if you are a public company, it’s what your shareholders will be expecting and pushing for.
However, expanding to new markets is always a scary process. It requires significant amounts of research and capital expenditure. Make the wrong move or a string of wrong decisions, and your losses might be unacceptable. To avoid having any such unpleasant situations, let’s take a look at some key considerations before entering a new market.
1. Start With Resource Assessment
Too often you’ll find businesses jumping at doing market research and trying to understand the culture. That’s obviously important, and we’ll come to that as well, but the first step is taking inventory. Does your business actually have the resources for an expansion? If not, is borrowing or finding more investors a good move right now?
Entering a new market might seem like it’s just an expansion, but often, it’s a replication of the entire business. This means having enough financial and human resources, the necessary licenses, trademarks, partnerships, marketing, and more. A mistake in even one of these areas can derail the entire process.
Even aspects like the manner in which you acquire data on customer preferences can play a bigger role than you think. For example, if your data is only coming from college-aged students in urban areas, it doesn’t give you an accurate perspective on the market as a whole. Do you really have the resources for that?
As you can see, these are not decisions you want to make if you have to pull multiple strings to make things work. Bigger businesses with tons of resources to burn don’t have to worry about these factors as much. That said, having resources helps, but it doesn’t mean your business is completely immune. This brings us to our next point.
2. Why Market Research Plays Such a Big Role
You see, risk is at the heart of entering any new market. Market research is a priority because it mitigates a lot of risk. It’s simple mathematics. The more factors you are aware of, the better you can prepare. However, it’s still a complex process, and mistakes can happen even for powerful companies.
Take the example of Starbucks. When it entered the Australian market, it lost $143 million per year. It was so bad, they had to close 70% of their stores. Similarly, Walmart lost $1 billion when it tried to expand into Germany.
This is why so many businesses these days reach out to location data provider services. Businesses essentially want as much contextual information about their target market before they even set foot in it. Think about it, if large, already international companies can fumble this, you can too. While they are rich enough to take the hit, it can wipe out smaller businesses.
As dataplor states, bad or even outdated data leads to an annual loss of $7 trillion for businesses. The more accurate and up-to-date your information is, the better your chances of a successful expansion. Moreover, good market research often means a better understanding of the local culture.
3. Understanding Culture Can Crack Even Tough Markets
While Starbucks failed in Australia, they do need to be given credit for their entry into China just a year earlier in 1999. On the surface, it would appear that trying to enter a market dominated by tea lovers would be a bad idea. However, the company put in the effort and targeted cities with higher disposable income and where consumers wanted premium experiences.
In addition, cultural adaptation in terms of flavors played a big role, with the now famous Green Tea Frappuccino becoming a bestseller. In fact, the entire menu was redesigned with the local culture in mind. They offered mooncakes during the Mid-Autumn Festival and Dragon Dumplings during the Dragon Boat Festival to great results.
Cultural faux pas are extremely easy to make when entering a new market. Even the language used to describe your products needs to be well-researched.
Long story short, entering new markets doesn’t require some sort of secret knowledge. Yes, it’s tough, but the answers lie in thorough effort into factors we already know. Hope for the best, but prepare for the worst, and you’ll be more ready than many other entrepreneurs who think they know it all.