- 24 November 2019
- Posted by: JC
- Category: Business
Market Entry Strategy is at the core of any international business development success. Global markets are all different. To be the leader in your local market does not mean that the same will happen in a foreign market. You can read about the issues that happen to big corporations when they tried to enter the Japanese market the wrong way. If it happened to eBay, Ikea, Vodafone, and Carrefour, you can be confident that it can happen to you if you lack preparation. In any country and especially in Japan, foreign companies should forget any preconceived ideas and be ready to localize their knowledge. Market segments might be different in an overseas market, and strategy in a foreign country will always need to be meticulously crafted. In this article, we will aim at presenting the key strategies and road maps to follow in order to maximize the chances of success and clarify the unknown.
1. Define Clear Goals
To enter the global marketplace and Japan, in particular, is always challenging and potentially risky for small businesses. Today’s business environment provides more opportunities to fight against large competitors on the global stage. The fact that global markets are wide open to new entrants is in our opinion one more reason to be well prepared. It takes time and effort to change from a local or regional market perspective to an international field of view. Setting specific, measurable, actionable, and time-bound goals for entering new markets is critical and should not be neglected. The first and maybe most crucial first step to undertake is to understand your new environment and how to best address it. Copy-pasting your existing strategy will certainly not be enough. In our shrinking world governed by instant communication, Yoko Ono citation never seemed so true: “Think global, Act local”.
2. Research and analyze your market thoroughly
Analyzing your target market to define a robust market entry strategy can be done in various ways, such as:
- Researching online,
- Organizing a field trip to collect firsthand knowledge of the market,
- Attending shows, conferences as a visitor or an exhibitor,
- Learning more about the competition,
- Contacting business organizations in the area
Understanding the tastes and behaviors of your potential new customers is also critically important, but it doesn’t stop there. It is also mandatory to know more about the legal barriers to entry such as the needs for licenses, the regulatory requirements, and potential tariffs. Learning about packaging, labeling requirements, distribution channels, pricing policies should also be part of your TODO list.
When getting to know your market, it’s essential to learn as much as possible about the social, cultural, and political trends.
Collecting all of these data will take time but they will be the foundations of your new business and must be strong. Gathering all of these pieces of information can be done by contacting embassies, consulates, industry associations, and market entry business consultants. In Japan, JETRO, the Japanese External Trade Organization, is a place not to neglect.
3. Study the competition
Studying the competition can be done in various ways and goes well beyond an excel spreadsheet highlighting the potential competitors and their respective market share. When dealing with a competitive environment, it is advisable not to focus only on your industry. Identify and study the winners in other industries. Then, adapt your findings to your own business. By doing so, you will expand your field of view and not suffer from what we can call the “short-sighted” competitors syndrome.
Analyzing the competitors, their manufacturing and sales process will also provide a lot of valuable insights on what to do and not do.
By studying your competitors, you will also gain a better understanding of your customers. What do they want? What do they like? How price-sensitive are they? Knowing what your competitors are offering would provide a great way to better understand the expectations of your future. By doing so, you will then be able to fine-tune your offer and enter the foreign market with a product or service that will have more chances to succeed. Understanding the sales funnel of your competitors would also provide valuable information on how to address the market.
Interestingly when studying your competitors, it is essential not only to analyze the winners but also to understand why the losers failed. This 360 degrees perspective will be precious for not repeating the mistakes done by the others and define a crystal clear market entry strategy. Entering a new market is difficult, and you should aim at flattening, as much as you can, the learning curve.
Once a clear understanding of the environment and of the customers will have been reached, it will then be time to think about how to enter the market.
4. Define how to enter the market
Here again, there are numerous ways to define your market entry strategy.
- Direct export: Selling directly to the target market carries advantages but also constraints. Agents and distributors can shortcut many issues and provide a quick way to analyze the potential of a product or service in a new market. For products, selling online is also a swift and efficient way. In Japan, websites like Rakuten or Amazon offer an easy way to test the temperature of the water. Choosing an agent or a distributor is critically important as they will represent your company abroad. Japanese customers are known for being very demanding, and you will have to make sure that your partners in Japan will have the ability, knowledge, and will to support your customers and provide stellar after-sales services.
- Licensing: Transfering to a licensee the right to sell a product is also a way to quickly expand abroad and to export indirectly. Licensing will create opportunities for passive incomes, new business opportunities, and the freedom to develop a well thought and unique marketing strategy. On top of that, when selling abroad, selling under license makes it easy to bypass the potential tariffs. Somehow, providing a license to a third party can also carry issues such as IP theft and can create a dependency on the licensee. In the worst-case scenario, it can also prevent you from selling directly in the considered market and can also damage the reputation of your brand. Working with a licensee is also not a guarantee of receiving a steady flow of revenues and may lead to royalty litigation. License agreements should always be carefully established and only for a clearly defined period.
- Finding a partner: In Japan, one of the main barriers to entry will be to localize the product. Finding a local partner will provide a solution to this problem and will undoubtedly ease the entry process. Finding the right partner in business is just like finding the right partner in life. It can be a bumpy ride. It takes time and trusts to plan a long term business relationship in Japan. Do not underestimate the difficulties and always aim for the best while being prepared for the worse.
- Joint Ventures (JV): Joint Ventures involves creating a new company. It can be considered as the ultimate value creation process where 1+1=3. In a JV, two companies agree to commit to each other and to create a new entity to leverage the sales in a defined market. JVs will provide more resources, expertise, and will divide the risks and costs to potentially enable fast growth. Somehow, it is critically important when defining a JV abroad to clearly define the objectives. Understanding the cultural and management differences that could arise is also critically important to make sure that both parties will effectively commit to the JV. To know more about how to set up a company in Japan, we recommend you to read this article.
- Mergers and Acquisitions (M&A): Buying a local company is an efficient but somehow costly way to enter a new market. The benefits are clear. An M&A will provide an immediate entry, reinforce the local knowledge, and will leverage the current market position of the acquired entity. Somehow, between 70 and 90 % of the M&A will fail. Here again, the local management cultural differences should not be underestimated. Do not copy-paste your current business practices. When managing and selling abroad, local knowledge and plasticity are vital to succeed.
5. Summarize the strategy and how to finance it
Once the homework has been done, it will then be time to summarize it and to define how to fund it. A blueprint will have to be established and clear goals, timeline, and milestones defined. This document will have to be validated not only by the management but also by lawyers, accountants, and external local experts. In order not to be surprised, contingency plans will also have to be defined.
At HASHI Consulting, our goal is to help you analyze the Japanese market and the best possible ways to define your market entry strategy. We leverage our international expertise to ease the analysis process, provide real answers and save time and money when entering Japan.