Breaking into new markets is something businesses do every year. Leaders make the bold move because they see an opportunity and want to strike while the iron’s hot. Often, there’s a chance to grow sales or get in on the ground floor. At some point, expansions make sense if a company’s ambitions exceed an existing market’s potential.
But entering a new territory isn’t the same as booking a vacation to an unfamiliar overseas location. The endeavor is demanding given the multiple barriers that stand in the way. Cultural differences, compliance issues, and hiring difficulties are a few obstacles companies must overcome. Determining market fit is another.
Despite these challenges, businesses can enter new markets with confidence. With enough planning and research, pulling off a market expansion is more than possible. Let’s explore some ways to do it.
Work With an HR Partner
Hiring isn’t easy, even in a company’s local area. Writing appealing yet honest job descriptions, sorting through applications, and holding rounds of interviews can be exhausting. Managers can get their hopes up, only to have promising candidates drop out. In new markets, there are even more than the typical hiring challenges.
For starters, labor laws may be different. Businesses have to jump through more legal hoops than usual. Onboarding staff in another country, for instance, usually involves setting up a local entity. Plus, mandated benefits, minimum salary requirements, and tax structures may be unlike what companies abide by at home.
Handling all of this alone can expose businesses to risks such as penalties for non-compliance. Working with an experienced employer of record service is an efficient way to mitigate risk and overcome hiring difficulties. Since the service is the worker’s legal employer, companies don’t have to establish local entities.
When onboarding employees on another company’s behalf, an EOR manages all the legalities according to local regulations. The service also takes care of benefits and payroll tax compliance. An EOR can help businesses hire staff in new markets more quickly so they can get up to speed sooner.
Develop a Clear Market Snapshot
Market expansions flop when companies make assumptions. Insufficient cultural understanding is one of the main reasons for failure. A country may look promising because growth potential is positive. For example, possible demand for wireless services may exist in an area where new infrastructure is going up. The numbers appear good, making the country a front-running candidate for expansion.
However, cultural aspects may make locals think twice about adopting technology from unknown foreign vendors. Socioeconomic factors could also lower the perceived need for wireless services. Just because Americans are willing to shell out for unlimited data plans doesn’t mean other populations will be.
Cultural factors can overshadow attractive numbers, something companies can learn the hard way. When the focus is solely on the quantitative, leaders may assume people shop for the same reasons consumers at home do. Gaining a clear understanding of the market’s culture, motivations, and consumer behaviors helps companies avoid mistakes. Leaders can better position products for successful adoption or choose countries with more favorable cultural attributes.
Test the Waters
Test marketing is a way to see whether research data matches market reality. With test marketing, businesses can discover whether there are problems with advertising, product features, or consumer perceptions. Instead of going all in, decision-makers can lower their companies’ risk. They may also stumble upon hidden or overlooked barriers to entry.
For instance, say a company’s research identifies local competitors. But information on those competitors is limited. The data doesn’t say how fiercely loyal local customers are to those brands or that they consider switching to an alternative too dicey. To make a change, locals will need a high incentive to outweigh the unknown. Providing such an incentive could drastically shift the company’s pricing and promotional strategies.
If those changes are cost-effective, leaders can make the necessary adjustments to succeed with the expansion. But even if the modifications aren’t feasible, test marketing has revealed what it needed to. The insights companies get from the process can prevent bigger losses. Leaders may discover the barriers to entry in one market are too high but are surmountable in another.
Look at Cash Flow Forecasts
The numbers aren’t everything, but companies do need to consider potential profits and losses. Insufficient cash flow can shut down a market expansion if it becomes unsustainable for the business. Leaders must calculate the immediate and ongoing costs of market entry. Then they need to compare those expenses against sales forecasts.
It’s best to make these calculations based on conservative scenarios. What if revenue trickles in slower than expected? Does the company have enough resources to build a contingency fund? Determining how the business will manage higher-than-expected costs and lower-than-projected sales is imperative. If the company can’t financially pivot, it may not be the right time to expand.
But say the business’s financial position is strong enough to weather the unexpected. Those at the helm will still want to see whether conservative forecasts align with the company’s goals. What’s the minimum acceptable ROI? If projections indicate it’s within reach, a market expansion is less likely to drain the business’s resources. Leaders can decide to enter, knowing they have greater chances of building on baseline results.
Growing Market Share With Confidence
Entering new areas can be financially rewarding for companies when market share increases. Boosting sales and extending brand leadership adds to the bottom line when existing markets taper off.
Yet expanding beyond a business’s home country presents its share of challenges and risks. To make confident decisions, leaders need to lay the right groundwork first. HR partnerships, cultural research, test marketing, and cash flow projections can lower the more common entry barriers to new markets.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.