Market entry Part 0 – Basics
KFC in China or Starbucks in Hungary are two examples for new market entries. In such cases there is usually a dynamically developing company which would like to sustain its pace in the future. This company wants to achieve this by geographical expansion.
New market entry as part of a growth strategy can be examined through the previously introduced Ansoff matrix. As it is widely known, this analytical tool is looking for the answer to how a company could increase its sales. Within the framework determined by the matrix, a new market entry can be interpreted in the market development category. In this case an increase in sales depends on reaching new geographic target groups.
But before we get ahead of ourselves, let’s spend some time on the question of how and where to grow. How does a company decide the direction of its growth strategy? Both in case studies and in strategic decision making processes, this is the point where we have to return to the basics. What constitutes the company’s competitive advantage?
Based on the learned business economics definitions, competition is the activity between two or more actors to obtain advantages against one another within a given set of rules (Chikán, 2013). According to Barney (1991) competitive advantages of companies can be traced back to their strategic resources. Their value, rareness, imitability and organizational embeddedness determine how much they can contribute to a company’s competitive advantage. Therefore with the VRIO analysis we can define a company’s competitive advantage and identify the resources that contribute to it the most. Being aware of all these – and the other factors limiting the decision – can be very helpful in making the decision regarding the direction of growth.
Once our company decided to grow in the direction of new geographic markets there would be several new types of questions and challenges it had to face. The further parts of this article series are going to deal with the questions of when, where and how:
- Market entry Part 0 – Basics
- Market entry Part 1 – Timing or the first mover advantage
- Market entry Part 2 – How do we choose the company’s target market?
- Market entry Part 3 – Entry modes
Referred literature
- Barney J. (1991): Firm resources and sustained competitive advantage.
- Chikán, A. (2013): Business Economics, Aula Kiadó, Budapest