Going International – What Are the Options?
There are many ways for a company to go international, and it is important to select the path to market that is best for you.
Selecting the right market entry strategy is critical to the success of a company going international. Get it right, and a young company could establish itself as an industry leader. Get it wrong, and key markets might be lost forever.
The choice of market entry strategy will depend on the technology, a company's resources and the target market. Companies will often use a mix of strategies, because one approach will rarely be the best choice for every country. There are typically five ways to enter a foreign market:
Selling via the web. This is a low-cost way to test the international waters. It is most effective with products that cost less than $200.00, can be easily installed by the user, do not require much support, and are not language-intensive. The biggest challenge is getting paid, because there are many countries where credit cards are not widely used. This can be solved by using organizations such as Digital River to process payments.
Establishing a subsidiary. Setting up an office or buying a company with an existing presence in the market is more often done by companies that have serious plans for international, and the resources to make it work. This can also be the most effective path to market if the product is expensive, extremely complex, and support intensive.
Indirect channel partners. Organizations that manage the entire sales process, i.e., they market the product, handle the demos, close the sales, and provide after-sales support. Examples are manufactures reps, resellers, VARs (Value-Added Resellers) and distributors. The discount structure can range of 15-50% depending on the product, but well worth it when they are properly trained to handle sales and tech support with a minimum of vendor involvement.
Marketing partners. Organizations that influence the purchase decisions, but don't control the sales process, such as marketing agents, consultants, systems integrators, etc. They can get the product in the door, but usually need the vendor to come in and provide pre-sales support, installation, and after-sales support. The advantage is that the initial cost of marketing is low (10-20% commission), but the hidden cost of participating in a complex sale can be significant.
OEM agreements. Also called licensing or bundling agreements, they can be an excellent way to generate revenues through sales of a product under someone else's name, if they have a large client base that are ready customers. Some of the potential risks include the possibility of being reverse-engineered, loss of independence if they become the largest source of revenues, and the lack of brand awareness for one's own product.
Each path to market has its distinct benefits and potential hazards. Management must carefully evaluate the course of action that is most appropriate for them before launching an international initiative. When it is well thought-out and carefully implemented, an international roll-out can be a catalyst to accelerated growth and value creation.
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