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What strategy for foreign markets? The importance of the right decision

What strategy for foreign markets? The importance of the right decision

TLDR
  • There are three typical paths for entering a foreign market: commercial agreements with agents and distributors, transfer of technology and expertise, and Foreign Direct Investment.
  • The three paths differ in terms of opportunities offered, the level of financial commitment required, and the degree of reversibility of the choice.
  • There is no absolutely most effective entry strategy: the choice depends on growth objectives, financial resources, personnel, know-how, and product.
  • Agents and distributors involve a modest level of involvement and are indicated for non-priority countries or those considered too risky.
  • Foreign Direct Investments, through joint ventures and M&A, are the largest form of investment and aim for structured and lasting expansion.

Strategies for entering a new market

Before making a decision, it is therefore necessary to Consider the real business needs to take one of three typical expansion paths in the foreign markets. These pathways differ in the opportunities they can offer, the level of financial commitment, and the degree of reversibility, and specifically are:

Export through trade agreements which include agents and distributors. They may be advisable for exporting to countries considered non-primary or deemed excessively risky because they involve relatively modest levels of involvement/investment;

Transfer of technology and skills: business skills are enhanced by collaborating with counterparts in the target market. These transfer activities give exporting firms the opportunity to increase their profits in foreign markets characterized by significant barriers to entry and therefore difficult to penetrate through more “traditional” forms of commercial entry;

Foreign Direct Investment: are implemented through joint ventures and M&A, and are the major form of investment for companies that want to have a structured and lasting expansion right away.  

Which strategy to choose for foreign markets?

Ultimately, therefore, it can be said that there is absolutely no one strategy for entering a new foreign market that is more effective than another.

The three strategies presented can be complementary, or opposite, depending on the company's growth objectives, its financial resources, personnel, know-how and its product. Each company must choose the best one for itself based on internal assessments that revolve precisely around its characteristics.

Next, we will come to a complete picture, with an analysis that tracks the costs and benefits that a given method of entry may entail.

Entering a foreign market is a great opportunity, an exciting journey that leads to the growth of one's business and culminates in increased sales and profits.

Octagona can confirm this, having contributed to the growth of numerous businesses in 20 years of operation. If you, too, would like to penetrate a new market, but do not know which of the strategies may be the most suitable for your business, then contact us by clicking the button below: we will listen to you to propose the best solution and build a successful export project.

ALSO READ:

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The’approach to the U.S. market: options and strategies

From Kick-Off to Export Plan: how to create a winning internationalization strategy

Frequently Asked Questions

What are the main strategies for entering a new foreign market for an Italian company?

The typical strategies are three: exports through trade agreements with agents and distributors, technology and skills transfer, and Foreign Direct Investment. They differ in terms of the opportunities offered, the level of financial commitment, and the degree of reversibility. They can be complementary or alternative, depending on the objectives and resources of the company.

What is the best strategy for entering a foreign market?

There is no strategy for entry that is more effective than others. The choice depends on the characteristics of each company: growth goals, financial resources, personnel, know-how, and product. Therefore, an internal assessment and an analysis of the costs and benefits of each entry method must be carried out before deciding.

When is it advantageous to export through agents and distributors instead of investing directly in the foreign country?

It is particularly suitable for countries that are not considered of primary importance or considered to be excessively risky. Commercial agreements with agents and distributors require relatively modest levels of involvement and investment, and allow the market to be tested without exposing the company to high and difficult to reverse financial commitments.

What does the transfer of technology and skills constitute as a strategy for internationalization?

It consists of leveraging the company’s business skills by collaborating with counterparts present in the target market. It is a useful strategy in markets with significant barriers to entry, difficult to penetrate using more traditional business models, and offers the exporting company the opportunity to increase profits in foreign markets.

What are Foreign Direct Investments and for which companies are they suitable?

Foreign Direct Investments are realized through joint venture and M&A operations and represent the largest form of investment in internationalization. They are suitable for companies that want to immediately have a structured and lasting expansion in a foreign market, accepting a higher financial commitment than other strategies.

Why is it important to choose the right strategy before entering a foreign market?

Starting with the right strategy influences the results expected by the company in foreign markets and avoids mistakes that can seriously compromise the internationalization process in advanced stages. A well-considered choice, based on the costs and benefits of each entry method, reduces the risk of having to change course when the investment has already begun.

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