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A key step when expanding to a new market is choosing the best market entry strategy for your business. There are a few ways to enter an emerging market. You must choose one that will work best for your business. Show
In this article, we explain common market entry strategies used in emerging markets. Additionally, we will provide you with alternative ways to expand to emerging markets. How to Enter a New Market#1 Identify your target marketA common mistake among entrepreneurs is not identifying a target market. Knowing your prospective customers will help you choose your market entry strategy. When identifying your target market, consider the demographics and location of your customers. You must also consider the psychographics of your customers. Psychographics include interests, behavior, beliefs, and values. #2 Conduct market researchAfter identifying your target market, you can conduct market research. Market research consists of the following:
If you have not finalized which market to enter, conduct market research in each one. Compare the findings in each one to narrow down your selection. The results of your market research will also help you decide on a market entry strategy. #3 Choose a market entry strategyUsing the results of your market research, choose a market entry strategy. There are several market entry strategies and each one has its own advantages. Some strategies also work better with certain types of customers than others. We discuss the different types of market entry strategies later on in this article. Make sure that your strategy will help you meet your business objectives. You should not pick a strategy based solely on cost or convenience. #4 Create a business planAfter choosing a market entry strategy, create your business plan. A detailed business plan contains full descriptions of your products and/or services. It should also include the strategies you will use to reach customers. In addition, the cost to start and operate your business must be a part of the business plan as well. Emerhub can help you expand to new markets. We are familiar with the Indonesian, Vietnamese, Philippine, and Indian markets. Our consultants can identify your target market and conduct market research. We can also suggest market entry strategies and help you create your business plan. Types of Market Entry Strategies#1 Exporting/TradingOne way to enter a new market is through exporting goods. This strategy allows you to enter several markets simultaneously. You can assign a local distributor to conduct transactions with your buyers. The main advantage of working with local distributors is access to their existing client base. They also have experience in the local market and will be able to share insights with you. The downside to this, however, is that you will be dependent on your local distributor. You will have little control over your sales. This strategy also only works for companies that sell products, not services. Import to Southeast Asia without import licenses. Use Emerhub’s importer of record service. Learn more #2 LicensingLicensing is when you give legal rights to other parties to use your company’s name. Under a license agreement, the licensee can produce and sell products or offer services using your company name. In exchange, you will receive royalties. Your company stands to gain a lot with minimal effort if your licensee performs well in the market. However, it also carries risks. For example, the actions of your licensee will affect your brand. As such, you need to make sure that you are dealing with a company that will protect your interests. Emerhub can perform background checks on your potential licensees. You can also get comprehensive company profiles from Emerhub’s company registry. We can also assist in creating license agreements to protect your interests. #3 FranchisingFranchising is similar to licensing in that it lets a separate entity use your company’s name for a fee. However, as the franchisor, you can set rules for how the franchisee must operate the business. You also retain control over branding. The franchising model is particularly popular with big brands like McDonald’s. You have slightly more control over the business as a franchisor so it is less risky than licensing. But you can also run background checks on your potential franchisee. #4 Joint ventureSimply put, a joint venture is a partnership between your company and one or more parties. Having a local partner brings many benefits like existing infrastructure. Your local partner will also be able to share insights on the market with you. This is one way to make foreign direct investment in a new market. You will also have more control over the business than the previously mentioned options. #5 Greenfield investmentA greenfield investment is when a company sets up operations in a foreign country. The use of the word “green” refers to the new facilities the company will construct. This strategy requires more capital investment than the ones previously mentioned. The main advantage of a greenfield investment is having complete control over the company. Many emerging markets welcome foreign investment and allow full foreign ownership of companies. Note, however, that there are restrictions for foreign ownership in some industries. Market entry strategies: capital investment and foreign ownershipMarket entry strategies differ in terms of capital contribution and foreign direct investment. Some strategies do not require any foreign direct investment. Without Foreign Direct Investment Exporting With Foreign Direct Investment Joint Venture Additionally, the higher the capital contribution, the more control you have over foreign operations. Exporting, licensing, and franchising requires little to no investment on your part. In line with this, you will also not have much control over the business, if any at all. Joint ventures and greenfield investments require more capital. But you will have partial or full ownership of the business. Setting Up a Company in Emerging Markets in AsiaAllowed Foreign Ownership in Companies in AsiaEmerging markets in Asia welcome foreign investment. In fact, some countries allow full foreign ownership of businesses in many industries. The table below shows some examples of industries that allow full foreign ownership in selected Asian countries. CountryIndustries that allow 100% foreign ownershipIndonesiaTrading (wholesale and retail), IT, manufacturing, hospitality**For hotels, the hotel must be at least 4 starsVietnamTrading (wholesale and retail), IT, manufacturing, education, hospitalityPhilippinesIT, business process outsourcing (BPO), education* *Teaching in higher education or training outside of the formal educational systemIndiaIT, biotechnology, e-commerce Emerhub’s consultants can advise you on allowed foreign ownership for your planned business. Minimum Capital Requirements in Emerging MarketsSome countries, like Vietnam and India, do not have a minimum capital requirement to set up a company. Other countries have specific minimum capital requirements for businesses with foreign ownership. This table gives a brief overview of minimum capital requirements in some of the biggest emerging markets in Asia. CountryMinimum capital requirementIndonesiaIDR 2.5 billion (approx. USD 170,000)**Companies with full or partial foreign ownershipVietnamNone, but must be realistic for planned business activitiesPhilippinesUSD 200,000* or PHP 5,000** *Companies with more than 40% foreign ownership **Companies with less than 40% foreign ownershipIndiaINR 500,00 (approx. USD 6,000)* *For Public Limited Companies; No minimum capital requirement for Private Limited Companies Company RegistrationIndonesiaThe requirements to set up a company (PT PMA) in Indonesia are as follows:
VietnamTo establish a limited liability company (LLC) in Vietnam, you must meet the following:
PhilippinesThe domestic corporation is a common legal entity in the Philippines. Despite the name, this type of legal entity is open to foreigners. The requirements to set up a domestic corporation are as follows:
It is also possible to set up a One Person Corporation in the Philippines. As the name suggests, this type of corporation only has one shareholder. The requirements for this are the following:
IndiaTo set up a Private Limited Company (Pvt Ltd) in India, you must meet the following:
Emerhub can help you establish a company in Indonesia, Vietnam, the Philippines, or India. Fill out the form below and one of our consultants will get in touch with you. Alternatives for Market Entry in Emerging MarketsOutsourcing Business Processes in Emerging MarketsSetting up a company overseas is very costly. It is possible to test the market without establishing a legal entity by outsourcing. You can delegate business processes to a third party like Emerhub. This will allow you to carry out tasks without putting up a company right away. Some process you can outsource include:
Outsourcing not only allows you to enter new markets with minimal risk. You can also outsource tasks overseas so you can focus on your core business activities. Emerhub can help you enter the biggest emerging markets in Asia. Fill out the form below and our consultants will get in touch with you. Related posts from Insights
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What is the term used for when one company enters markets before its competitors?A first mover is a service or product that gains a competitive advantage by being the first to market with a product or service. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena.
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