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Created on 04.10.2024
Expansion: opening up new markets
Do you want to expand your business? This article will show you how to open up new markets, improving your sales and reducing your dependence on existing markets. Find out more about the different strategies for opening up new markets, the most important ways of breaking into a new market and the most common mistakes you should avoid.
At a glance
Strategies: there are a range of strategies available for opening up new markets. We’ve put together some practical examples as a demonstration.
Type of market entry: when expanding abroad, companies are able to break into the target market either directly or indirectly.
Mistakes: it’s always risky opening up new markets, especially abroad. Avoid making these common mistakes.
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What are the strategies for opening up new markets?
For companies wanting to grow and strengthen their market position, entering a new market is an important step. Attracting new target groups and expanding into different regions gives your business the opportunity to increase sales and reduce its dependence on already established markets. But how can you maximize your chances of success in unfamiliar territory? We’ve put together four strategies you can use.
Companies open up new sales opportunities by using additional sales channels. This could be the creation of a professional online shop, strategic cooperation with partners and influencers or direct interaction with customers in the company’s own stores or sales stands.
Example
An SME produces natural care products. In an effort to open up new markets, the business entered into partnerships with gyms and wellness centers. Their products were then sold directly in the gyms and used in the wellness center’s treatment rooms. The business also offered a subscription, allowing gym members to have monthly packages containing care products delivered right to their door. Using these sales channels, the small business was able to reach sporty and health-conscious customers interested in natural, high-quality care products.
Companies can expand their customer base by looking into new target groups. These could be older or younger customers, different genders or even different income groups. There is also potential in targeting people with certain lifestyles, values or interests. It’s important that the company’s marketing is flexible and can always adapt to the needs and wants of these diverse target groups.
Example
A company that produces innovative air filtration systems is looking to attract a new target group. Previously, the company’s focus was on large industrial enterprises. In an effort to attract private customers, the company now develops smaller filtration systems for use in the home.
Regional expansion allows companies to increase their presence in different parts of the country or in a certain region. For this strategy, it’s important to adapt products to local needs if necessary, open new stores or offices, and plan and carry out marketing campaigns locally.
Example
A Geneva company specializing in high-quality delicacies offers its products for sale in Western Switzerland, but wants to expand regionally into other parts of the country. By opening new stores and entering into partnerships with local delis and restaurants, the company managed to launch its products successfully in German-speaking Switzerland and Ticino. Advertising campaigns and in-store tasting sessions helped increase awareness and demand. As a result of this expansion, the company benefited from a significant increase in sales and a stronger market presence in different regions of Switzerland.
Tip
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International expansion means companies seek new markets in different countries. There are numerous routes into new markets, including partnerships with local companies, franchising or selling directly in different countries. It’s important to take cultural differences into account (for example, consumer behaviour, values or social norms) and adapt products and marketing to local needs (such as local tastes and portion sizes). In addition, legal and tax regulations in the target countries must be adhered to, and efficient supply chains must be established.
Example
A Swiss tech company develops and sells innovative smart home systems based on advanced technology and Swiss precision. Following great success in Switzerland, the company decides to target the US market to take advantage of the high demand for smart home systems there.
Focus on expanding abroad: types of market entry you should be aware of
Opening up new markets in different countries is one of the most difficult tasks when expanding a business. Deciding where to expand is one thing, but there’s also the issue of how to enter the new market. There are two options: direct and indirect market entry.
Direct market entry
Direct market entry means a company establishes its presence in the target market, selling its products or offering its services directly to consumers. This way, the company maintains full control of its sales processes. This can be done by founding a local branch, acquiring local businesses or entering into a joint venture .
Indirect market entry
Indirect market entry means a company cooperates with local firms or uses already existing distribution systems. This enables an expanding company to benefit from its partners’ market awareness, distribution channels and customer bases. In comparison to direct market entry, this strategy comes with lower investment costs and risk. However, it also means that a part of the company’s control over sales, marketing and customer experience must be handed over to its partners. Four common forms of indirect market entry are franchising , cooperation with local sales partners , indirect export or licensing .
When is each form of market entry ideal?
Direct market entry
Founding own local branch
This is ideal if the company wants to maintain full control and independence when entering the market and is prepared to put up a lot of initial investment
Acquiring an existing business
This is ideal when a company wants to quickly establish a position in the market and make use of existing customer relationships
Indirect market entry
Joint venture
Ideal when a company wants to have access to an existing customer base and make the most of local knowledge whilst sharing any business risks
Franchising
Ideal when a company aims for quick expansion and wants to benefit from local knowledge and investments
Sales partner
This is best when a company wants to access existing distribution channels and customer networks to make the most of market knowledge and resources
Indirect export
This is most useful for companies wanting to break into a new market without having to build up their own presence there
Licensing
Works best when a company wants to use the knowledge and experience of local partners to break into a new market quickly
Think about foreign currency and associated risks
Companies wanting to expand abroad should be aware of foreign currencies and their associated risks.PostFinance’s specialists are happy to answer any questions you might have.
Set up a finance plan for your growth plans. Find out more about what this should contain and how you go about making it in the article “Investors wanted: financing startups and SME”. The information in this article can also be adapted for growth financing.
There are different financing options available for expanding into new markets. Find out more about what they are and what expanding companies need capital for in the article “Growth financing for your company”.
What mistakes should companies avoid when entering a new market?
Different countries, different customs. Just because a product is in high demand at home doesn’t mean it will be when sold internationally. Anyone wanting to enter a new market must analyse it ahead of time and recognize any important differences, such as the culture, distribution chains and marketing channels to name a few. This way, you can rule out any potential misunderstandings early – such as not properly understanding the purchasing behaviour of consumers in the new market.
Every market is different. Marketing and sales concepts should never simply be carried over when entering a new market. The same is true for products: a common mistake is thinking a product will do just as well in a new market as it does in its home market. There’s a reason large companies adapt their products when entering a new market. For example, food must be adapted to the new target market’s tastes, and packaging may have to be resized to meet customer needs. There are also legal aspects to consider. It’s recommended to try out test products on test markets. Furthermore, each new market has country-specific regulations and practices that must be taken into account.
Companies wanting to expand should think carefully if their plans are viable or not. Put another way: does the company have the financial, logistical and human resources? Good questions to ask include: does the company have sufficient financial resources and a team available to implement the expansion? Can the company take care of all administrative and legal requirements by itself or must external knowledge be sought after for a cost? Is the company able to increase its production volumes and successfully compete against competitors?
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