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Copyright © 2005-2024 MTW GROUP All rights reserved
MTW GROUP CORPORATE HEADQUARTERS:
MTW GROUP USA, LLC
Miami Tower - 100 SE 2nd St.
MIAMI, FL 33131
U.S.A.
Foreign Market Entry:
Market Intelligence
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Whether it’s JV, Direct Investment, M&A, or Export, there are still lots of companies who simply ignore the importance of collecting market intelligence in target market.
by Antonio Acunzo
CEO, MTW GROUP USA
Market intelligence that is strategic and essential to understand the where, why, when and how of stepping into a foreign market in order to optimize company resources (financial, team, production), align company functions on this venture (of which Marketing plays a role of strategic importance for the success of the operation), design the most effective market-entry strategy according to company’s business goals and market opportunities.
On top of everything put the strategy into action and execute it in full, as very often the most brilliant strategy plan remains ineffective because not properly executed.
Quite often companies prefer to sail across uncharted waters confident that their successful business model in their domestic home market may be replicated, and their product or service may be exported as-is, in a sort of copy-and-paste solution that can be applied to any market and independently from studying, analyzing and considering the specific features of the target market.
And aside from defining a business model and a product offering that has to be fine-tuned to the demand and preferences of local consumers in target market. This happens more frequently than you can imagine, and company size is not an indicator of being more prone to success.
Foreign Market Entry, or Internationalization, represents a strategic driver for business growth and expansion for those SMEs and Mid-Market companies capable of eyeing across the domestic border to optimize market opportunities and business potential (especially in the USA for European companies and for US companies towards selected markets in Asia like the ASEAN marketplace in South-East Asia, and the UAE in the GCC marketplace), whether in the form of a structured Joint-Venture or M&A or FDI (US companies in 2022 increased cumulative level of investments made abroad to US$6.58 trillion from US$6.37 trillion in 2021)
THE COPY-AND-PASTE MODEL DROVE CARREFOUR
OUT OF THE MARKET
When in 2005 French retailer Carrefour (then the 2nd world’s largest retailer, and today #7, 2023) announced the withdrawal from Japan market, the then CEO described the exit as “a short, expensive adventure”.
Indeed, the market exit was the direct consequence of failing to understand the market and Japan’s consumer behavior which can be summarized in:
a) frequent shopping in small quantity,
b) not price sensitive,
c) brand conscious,
d) high relevance for product quality.
The retailer in a path of applying an aggressive international expansion ignored Japan market intelligence and Japan market know-how, and opted for a copy-and-paste solution cloning its model applied in France for a large store size, with an IKEA-style one way obliging clients to walk all the way around the store, with oversized shopping carts, aisle signs only in English (and none in Japanese), and with most of the local employees being non-Japanese speaking French staff.
In addition, searching a local player for forming a partnership with was not an option being considered when planning to move into the market. Furthermore, lacking proper marketing communication, the customers’ expectation in Japan from a French brand was that of a provider of high-end and luxurious gourmet products while Carrefour’s business goal was to sell Walmart-style at “everyday low prices”.
Of course, the retailer collected only unfavorable results but notwithstanding this it failed to adapt to changes which in the end lead to the most logical solution of exiting the market to place the word end to an experience which proved totally unsuccessful.
1. UNDERSTANDING THE MARKET BEFORE MARKET-ENTRY
Most companies are simply missing a fundamental step in business planning: it’s what I call “PRE-START™ ”: studying and understanding the dynamics, performances, trends, business potential, competitive landscape, consumers’ behavior, business channels, B2B key players of target market .
And it’s called PRE-START™ because it’s an essential market, business, and competitive analysis that must be done prior to start market-entry in order for the Board of Directors, C-suite, or the Entrepreneur to make a proper decision on how and when to enter the new market. In a blend of market intelligence, business insights, business forecast, quantitative and qualitative data collected based on company’s business goal for target market, the output is a feasibility study that is strategic and instrumental for supporting the new market-entry operation that must receive the full support from all company’s functions (team, resources, and marketing alignment is essential). What comes next from this analysis is the design of the most effective market-entry strategy that blends “global thinking with local acting” in order to optimize time-to-market, business results and returns on marketing investment.
If a company wants to target, say, Chinese consumers, first of all they need to understand that China is not a single market, that there’s a tiered city system that classify cities in 1st, 2nd, 3rd and 4th-tier levels based on a bunch of metrics, what are the preferences of Chinese consumers, what type of marketing communication (adv, magazines, social media) and in what language and format. And on top of that, if the product is fit for that target market, if it is ok as-is, or it requires to be modified or innovated based on consumers’ preferences in order to be successful. And although this may seem too simple and too logical, indeed this is where most companies and brands fall abruptly because they simply assume that targeting a different culture is irrelevant in terms of understanding the local market and applying the correct market-entry and marketing strategy.
STARBUCKS
THINK GLOBAL, AND ACT LOCAL
Starbucks takes market intelligence very seriously when eyeing a new target market, as the famous American coffee brand that turned a simple coffee drink into a lifestyle experience is today present in 11 markets in Asia Pacific (2023), with 145 Starbucks Reserve stores, and more than 5,000 Starbucks stores , achieving a new store growth of 8% in 2022.
Asia-Pacific represents the 2nd largest coffee market in the world representing 24% of global coffee consumption, with Europe in pole position at 32% and North America at 19%.
In Dec 2017 Starbucks opened a Reserve Roastery in Shanghai, the world’s largest Starbucks store with a total square footage of 30,000 sqf. and located in the city’s luxury shopping area of Nanjing Road (think of the equivalent of the Fifth Avenue in New York), totally surrounded by luxury shops to highlight and reconfirm the Starbucks brand as a top premium brand. Shanghai already shows the presence of over 600 Starbucks stores, more than in any other city in the world, and in a huge market – China – with more than 3,000 stores in 136 Chinese cities.
The Shanghai Reserve Roastery offers customers with a theatrical experience that can be defined as a kind of Willy Wonka factory version for coffee with the roasting and packaging process of the coffee beans taking place right in full customers’ sight. The highlight of the store is a 2-story 40-ton bronze cask where coffee beans from Yunnan province in southwest China (an area long known for its tea production is now increasingly diversifying by growing coffee as well) deposit after the roasting and this bronze cask is adorned with 1,000 hand-engraved traditional Chinese stamps that narrate the story of the Starbucks company and its passion for coffee. And in Hong Kong, a Special Administrative Region of China, Starbucks Hong Kong opened in Jun 2018 its Flagship store in the vibrant Causeway Bay area (known as the world’s most expensive shopping area in the world) and conceived as “an urban retreat within the bustling city” featuring a one-of-a-kind Mixology Bar with a dedicated menu of coffee-inspired alcoholic beverages.
The “think global” vision in delivering the consistency of the Starbucks global brand DNA across multiple diversified markets is that of a space conceived to enable customer to stop by for a quick take-away coffee or to spend time at the coffee shop. The “act local” strategy is executed around the diversity in target market and target location, and focused on the customer experience. In Asia, Starbucks is synonym with a place where people entertain friends (apartments are often small in size and social life is often best carried-out outside home walls), meet new dates, study, socialize, set business meetings or interviews, and each store is different and designed to be a unique destination also because customers are different especially in multi-cultural markets where different ethnicities and cultural aspects influence and blend the customer’s motivation to purchase a product and his/her lifestyle.
A great example of this diversified clientele can be seen at the Starbucks Reserve Kuala Lumpur opened in May 2018 at the Four Seasons Place in Kuala Lumpur, Malaysia, a mixed commercial and residential skyscraper right next to Malaysia’s iconic Petronas Twin Towers, and comprising the luxurious Four Seasons Hotel, the exclusive Four Seasons Residences, and the high-end shopping complex of The Shoppes at Four Seasons Place where you can purchase a variety of products ranging from organic extra virgin olive oil from Italy to the latest fragrance from luxury fashion brands like Chanel.
Same “think global, act local” vision for the opening in 2021 in Dubai, UAE of the one-of-a-kind marine-themed Starbucks Reserve Bluewaters Island, the 1,000th Starbucks in the MENA region (Middle East North Africa).
But for Starbucks, doing the correct PRE-START™ proved even more essential, and strategic, when they decided to enter into a challenging market that is the traditional home of the classic espresso coffee: Italy.
And indeed, on Sep 6th 2018, Starbucks opened the lavish Reserve Roastery in Milan, the fashion, business and luxury capital of Italy. In Milan, Italy the challenge has been more complicated as Starbucks approach to coffee is totally different from the local coffee culture where Italians make coffee at home, drink a simple single espresso shot at a local bar (Starbucks charges in Milan EUR€2, or USD$2.20 for a single espresso, almost the double of the average price Italians are accustomed to pay at any local cafes), and shy away from intricate preparations like the Frappuccino. Italy is the world’s largest coffee market but 75% of coffee is consumed at home and, as a cultural element to consider, Italians do not favor chain brand as 89% of the more than 57,000 cafes is made up by independent bars and coffee places (and no other country in the Western world has that many cafes).
The Starbucks Reserve Roastery, which is located in a prestigious building at the core of the Milanese banking hub, a short walking distance from the famous Duomo square, and is the world’s 2nd largest Starbucks store, has an innovative model with 2 aces in the sleeve: 1) local Milanese customers will be treated to the Italian evening tradition of “aperitivo” (the classic happy hour with wines, cocktails, small bites and canapes) served at the Arriviamo Bar, set on the Roastery’s mezzanine, where a selection of over 100 cocktails will be available for the classic happy hour along with favorites Milanese cocktails like Negroni and Aperol Spritz, and paired with small bites 2) a wood-fired oven for freshly-made baking delicacies made on-site from Italian upscale bakery chain Princi, an institution in Milan for artisan breads, pastries and pizzas, and with whom Starbucks signed in 2016 an agreement to license globally and opened the first stand-alone Princi bakery in Seattle, WA.
2. UNDERSTANDING TARGET MARKET AT A SNAPSHOT
As international business advisors we always highlight that in order to succeed in a foreign market a product needs to command some sort on uniqueness, call it a Competitive Advantage, or Unique Selling Proposition, some elements of Innovation or Differentiation, a recognized Brand Awareness, a specific patent, something that makes it to stand out of competition and sends a vibe that allures, and attracts as the interest of a consumer, as something desirable, in a market some 8,000 miles away, a consumer who is not in need of this product but he/she’s willing to consider it providing it is perceived as a new need or the right new product.
Therefore to see if this product is a “fit”, if not the next blockbuster, in a new foreign market it all starts by understanding the target market, and collecting valuable market intelligence favors the conditions for designing a market-tuned and product-bespoke market-entry strategy which turns to be more effective with the implementation of a calibrated marketing plan displaying the correct set of actions for presenting, promoting and positioning this product.
Of course there’s no one single one-size-fits-all framework for running a market intelligence analysis that requires to be designed bespoke specifically on company’s goals and expectations, and on product potential, for enabling the company to make the final decision for a yes-go, or a no-go.
Company’s goals for entering a new foreign market can range from simply expanding more sales to accelerate revenue growth (via export solutions, searching for a local distributor to team up with, starting with a store-in-store corner) to a more strategic goal (opening a representative office to be later upgraded lto branch/regional office status, searching for a local partner to team up with for a JV or M&A, directly investing abroad for opening a retail/flagship store or for delocalizing manufacturing capability).
So it all starts by selecting a target market
which can be a single country (for instance, Dubai, UAE) or a target of 2-3 markets within an enlarged marketplace (for instance, the ASEAN marketplace in South-East Asia comprises the 10 economies of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) or a specific target within a larger single market like the USA (for instance targeting the luxury market of Miami and Florida, or the high-end consumer market of the Atlantic coast from Boston, all the way south to New York, Washington, Atlanta, Miami, or the green tech hubs in Florida and in Texas just to make few examples).
But if China is the target market for export and the company has no experience in that market, which is huge and complex, it is probably easier to consider Hong Kong which is definitely much less complicated than mainland China and after developing some experience verify the conditions for scaling up the geographic scope right across.
While if China is the target market for a JV or M&A, the company will need to familiarize with the legal practices for doing business in China, IP protections, IP licensing, tariffs, negotiations, potential frauds and scams, and all business-related aspects to protect the foreign investment component of the operation.
Next step is assessing how easy it is to do business in target market, if target market is a developed or developing or emerging economy, what are the local regulations that affect business, the local legal system, procedures for incorporating a local company, if there are trade barriers, if there are tax incentive to operate in the market as a foreign entity, the quality of infrastructures (airports, logistics, roads, transportation), how easy it is to travel from home country to target market and within the market, any language barrier or if English is widely spoken (for instance in Dubai and in Singapore, English is fluently and widely spoken, in Malaysia English is business language in most urban areas, in Vietnam the younger generation learns English, in Thailand and China can be a challenge), transparency in doing business.
Next step: the market environment
a) competition, who are the key players in target market, how the competitors are positioned and how they communicate their product proposition.
b) understanding consumers’ behavior and all the differences that influence the purchasing decision process, in brief language, ethnicity, race, religion, diet, spending power and lifestyle as it will be mandatory for the company eyeing that target market to bridge the cultural gap because getting customer knowledge facilitates building market share overseas (note: there’s not only a cultural gap when doing business between the US and markets in Asia but also between the US and markets in Europe, and vv).
c) local partners to deal with for export operations, selecting potential distributors and conduct some due diligence to understand whether they can be a reliable partner to structure a business relationship with. A part of this PRE-START™ market intelligence analysis will then focus on the company’s capabilities to understand a) product’s competitive advantage and where this advantage can be used as leverage to compete in target market as-is, or if the product requires being partially redesigned or innovated to accommodate customers’ preferences and win their demand, interest, and purchase, and to understand b) how the company can source capital, time and talent based on the type of market-entry strategy that will result more functional in line with business goals, and what marketing plan will need to be designed, activated, executed and implemented to support product and brand positioning.