Market entry framework: how to successfully enter a new market

Businesses tend to grow organically as they find their market niche and fill a need. However, they often plateau in a certain area and need to look at new markets to keep growing. This growth can occur through geography or product expansion.

Consider Amazon. Had Jeff Bezos been content with selling books through Amazon, he would never have become one of the richest people on the planet.

So, how can you decide how and where to grow your business? A market entry framework can provide analysis that will help you determine your direction and strategy.

Your business can enter new markets in two primary ways:

1. New product(s): expanding your offerings through new products or variations on an existing product.

2. Geography: reaching into a new region (nationally or globally), often with the same product line or variations tweaked to meet needs and regulations in the new location.

A market entry framework establishes a system for your company to evaluate options for expanding into new markets.

Whether you’re thinking of adding a new product line or expanding into a new geographical area, following this framework will help your company evaluate the prospects of expansion and plan for it if you determine it’s feasible.

Generally, establishing a high-quality market entry framework will allow your company to 

• Perform a thorough analysis of potential markets

• Evaluate external forces that could affect the new market entry, such as competition, culture, and regulatory hurdles

• Assess internal issues, such as capacity, capabilities, and capital

• Craft a workable plan for proceeding with a market expansion

• Create an environment for evaluating the expansion as it proceeds to determine if and when adjustments are needed

All these aspects of the framework will allow you to move into a new market with confidence and keep your business on-track to growth.

What are the five Cs of market entry?

You can also think of a market entry framework as a way to evaluate what some refer to as the “five C’s to market entry”:

1. Company: does your company have the products and capacity to expand into a new market?

2. Customers: do customers exist for your new product or within your new geographic target?

3. Competitors: how do competitors’ offerings stack up against your product or services?

4. Collaborators: are there resources in your new market that can ease your journey?

5. Climate: is your potential target ready for your product and how your company operates?

A market entry framework prevents your company from flying off into the dark with any potential new markets. It provides the following benefits:

• Mitigating risk: by thoroughly evaluating any market entry before investing capital, the framework allows you to move cautiously and confidently into a growth phase.

• Creating a roadmap: the framework helps you determine the best route to take in any market expansion. It enables you to deal with any cultural or regulatory issues if you’re expanding geographically and shows you how to meet customer desires if you’re creating a new product.

• Establishing an evaluation process: opening a new market is only the start of the process. A framework will allow you to assess your market entry and make adjustments as you move ahead.

• Enhancing strategic alignment: the market entry framework ensures that every step of your market entry aligns with the company’s broader strategic goals. This alignment helps ensure that resources are allocated efficiently and that the market entry supports long-term business objectives, ultimately leading to more sustainable growth.

Companies looking to expand into the global market can adopt five primary market entry strategies, depending on what best fits their capacity, capabilities, and the reality in the new market:

1. Exporting: shipping products to distributors in a geographical new market allows you to expand without committing the resources needed to establish facilities there.

2. Licensing: a company releases its brand or intellectual property to an existing company in the market in exchange for fees or royalties.

3. Franchising: similar to licensing, franchising allows another company to use your products and brand in a new market. However, you maintain more control as franchisees typically must meet standards your company establishes or risk losing the franchise.

4. Joint venture: your company can enter a joint venture with a company in the new market and share profits and losses.

5. Wholly owned subsidiary: your company can establish its presence in a new market by creating a subsidiary. This requires the greatest commitment of resources and leaves your company carrying all the risk.

Each market entry framework will differ between companies, products, and geographic regions. However, here are some key components of a well-designed framework:

• Market research: no expansion can succeed if you don’t fully understand the new market you’re entering. You’ll also need to evaluate how your products and/or services can best serve that market.

• Adaptation: you may find you need to adapt your product or service to best meet the new market’s needs. Can your team easily adapt a product or service? Will this create problems with manufacturing or the supply chain?

• Capacity: is your company ready to handle an expansion in a new market, either with new products or a new location? Will you need to expand your company or open satellite offices?

• Regulatory environment: you need to ensure you learn and adapt to the regulations in your new market—especially in a geographic expansion. Sometimes, this involves partnering with a local company to meet regulatory demands.

• Marketing strategies: you may need to adjust your current branding and marketing efforts to suit the new environment. For example, if your slogan doesn’t translate well into a new language, you’ll need to tweak it.

• Entry strategy: regardless of whether your company has entered new markets or locations previously, no two entries will be the same. You may need to adopt a new method in this instance, particularly if there are different regulatory and cultural issues to contend with. Your strategy will also depend on your target market.

• Monitoring and evaluation: your ongoing strategy for evaluating and adapting after a market entry will be vital if you want to grow beyond the initial splash.

Every company will experience its own success or failure when expanding into a new market. Following a market entry framework—a tried-and-true path—will give your business the best chance of success.

Let’s look at some theoretical examples of market entry frameworks.

Grocery chain expands its footprint

Imagine this scenario: a successful grocery chain based in the US heartland eyes the growing market in the Southeast. Can the traits that have made the company a success in its home region translate to a new location?

The company will have to thoroughly evaluate the grocery market through the Southeast and determine if its competitors are missing a piece of the market. It will also need to evaluate its product lines to determine if they meet a different market’s tastes.

Software provider eyes SaaS

A software company has been successful with its accounting software, serving small and medium-sized businesses in the US marketplace.

Will it be able to expand its footprint by converting to a software as a service (SaaS) company? Will businesses be willing to pay a monthly fee for a more robust product that undergoes more frequent updates? Can it reach an even larger share of the small business market with a simple interface that can be used on mobile devices as well as personal computers?

Farming equipment manufacturer expands to Asia

An American manufacturer of farming equipment sees an expanding agricultural market in Asia.

Will its products appeal to an Asian market? Can it be adapted to meet Asian farmers’ agricultural practices? Will it need to build factories in the target countries rather than exporting from existing plants? Are there manufacturers in those countries it can partner with to keep costs under control?

Companies can follow a four-step process to build a market entry framework that will help them as they consider new market options.

Step 1: assess the target market (desirability)

A market analysis is the key first step in evaluating a new market. This assessment will determine if there is a consumer market that desires the company’s products or services. Is the market growing? Are competitors serving the market? How can your company serve the market in a unique and superior way? Can you capture a large enough share of the market to make it profitable?

If this analysis undercovers a negative or questionable result, looking into other options for market expansion would be better. At this point, the loss of staff time and resources is minimal. It might be the ideal time to bail out.

Step 2: evaluate internal capabilities (feasibility)

Once you have determined that a potential market is suitable, review your company’s internal capabilities to evaluate feasibility. Will entering a new product or geographical market work in a practical sense?

Does your company have the resources or production capability to enter a new market? If not, do you have the resources to expand your capacity and capabilities? Would you be willing to partner with another company to meet the necessary capacity?

This step will require some honest evaluation. Expanding to a new market can often expose a company’s weaknesses—weaknesses they were unwilling to address when everything was still following the status quo.

Step 3: analyze investment case (viability)

This is where the rubber hits the road. The evaluation team will be tasked with determining your company’s financial commitment to making the expansion happen. They will also project your return on investment (ROI) and the timeframe for reaching that return. Will those numbers make sense? Does the investment pay off within a reasonable time? What are the risks? How confident can you be in the numbers?

Some investments play out with a longer time frame than others, so bear that in mind. Companies that work with the most realistic figures at this step are the most likely to succeed.

Step 4: build an execution plan

When it’s time to move ahead with a market expansion, a well-defined execution plan will give you the best route for success. An execution plan must cover the following issues:

• How do we increase internal capacity to meet the demands of the new product/market?

• Do we handle the expansion internally, find a partner, or buy out a competitor?

• How do we meet regulatory hurdles?

• Who can help us deal with cultural issues?

• What is a reasonable timeline for entering the new market?

The execution plan should also feature an evaluation and adaptation plan to help the company deal with the aftermath of the rollout into a new market. This should include information on the key metrics you should meet and what to do if you don’t meet them.

A number of issues could come into play when your company develops its market entry framework, and these will impact its effectiveness.

• Do stakeholders want an honest, thorough assessment of a new market? Sometimes, a company founder with an ego larger than the company’s capabilities or resources may not listen to the reality the framework presents.

• Have you allocated the resources needed for a thorough analysis? Market research and viability studies require time and financial resources to collect the best data.

• Are the right people at the table? The team you assemble to build the framework should look at all aspects of market expansion. Silos need to be removed to ensure the right personnel work together.

• Will the company be honest about its capabilities? Entering a new market creates challenges across the company, and all departments must be ready to pull their weight.

• Can you really say no? Are the company’s executives so committed to this project that they would be unwilling to walk away if the analysis deems the market inappropriate? In this case, launching a market entry framework could be a waste of time and money.

• Are finances in place if the framework tells you to go ahead? You’ll lose opportunities and resources if you don’t have the finances to back a market expansion or if you can’t obtain them promptly.

We’ve looked at some hypothetical examples; now let’s consider where real-life companies have used market entry frameworks to expand into new markets.

KFC in China

Yum! Brands faced numerous hurdles when trying to enter the growing Chinese market with its Kentucky Fried Chicken restaurants.

First, it needed to determine what part of the Chinese market would be welcoming to Western foods and where to target its locations to meet that market demand.

It also faced the task of partnering with a Chinese company. Even its popular “finger lickin’ good” slogan was initially translated as “eat your fingers off.” 

Despite these challenges, KFC has established itself as the number one Western fast-food chain in China, with over 5,000 locations.

Aldi in the US

German discount grocer Aldi has managed to continue to expand into the US by sticking to the basics and offering quality products at the lowest price. By maintaining control of its private label products, it has attracted a growing base of middle-class shoppers who seek low prices but don’t want to compromise on quality.

Aldi also established its identity by opening its first stores and growing from a base in Iowa rather than taking on giant chains in more populated areas.

Mcdonald’s in the UK

Global fast-food giant McDonald’s strategically entered the UK market by opening its first restaurant in Woolwich, London, in 1974. This initial location allowed McDonald’s to test its operations and adapt its menu to suit British tastes and preferences.

Following a successful launch and positive reception, McDonald’s expanded rapidly across the UK, leveraging its brand recognition and standardized service model. This approach helped McDonald’s establish a strong foothold in a competitive market. It also enabled it to integrate localized menu items, such as the popular “McDonald’s Breakfast,” catering to diverse consumer needs and preferences nationwide.

The explosion of big data over the past decade gives companies the opportunity to more accurately gauge a market before they launch their brands and products. Crucially, market researchers can leverage this data to reduce risk. However, smaller companies can sometimes feel overwhelmed by the amount of data they encounter. In this case, seasoned researchers can help them make sense of all of the data sources available.

Artificial intelligence (AI) will also impact research and decision-making moving forward. As with all new tools, companies will want to ensure they are using AI properly and cautiously.