Market entry could be a possible solution that may not be obvious in the beginning of a case
Market entry problems have two variations, according to the Ansoff Matrix
- Introduction of an existing product in a new market (market development)
- Introduction of a new product in a new market (diversification)
As you know from the Ansoff Matrix, usually growth questions require a market entry strategy for the case interview solution. “Our business model is currently stagnating. What should we do ?”
Use the following five steps to approach a market entry case
1. Paraphrase and clarify the objective in the beginning (same as all other cases)
As usual, take good notes! Start with paraphrasing the problem and clarify all questions to make sure you understand the problem. Take a minute to structure your thoughts and decide the questions you want to ask based on the structure. In short, in order to have market entry strategy, you need to:
- Understand the company and its current market, and also the new market the company wants to enter.
- Evaluate the financial aspects.
- Evaluate the economic implications of entering the market. If it makes sense, decide how: Through organic (independently) or inorganic (inter-dependently) ? If inorganic, then would it be through a Joint Venture or M&A?
Frameworks such as Porter's Five Forces can help you structure thoughts and systematically uncover key information. But, in an interview, avoid saying that you are using Porter's Five Forces or any other standard framework as you run the risk of portraying yourself as force-fitting a framework.
2. Understand the client's company
Understand why the client wants to enter the new market and identify the key issue. Knowing this piece of information will be important making the final recommendation.
Other important information:
- What are current revenue streams?
- What are the client's key strengths and weaknesses? (SWOT)
- What is the product mix? How many and what types of product lines, brands, variations of products does the company have? What is the lifecycle of each product? Also, how closely related are the current products?
- Who are current customers and how are they segmented?
- What are the current distribution channels?
- What is the client's current financial situation?
3. Understand the market of interest
Understand the market the client wants to enter and evaluate its attractiveness. Start by estimating the market size if that information is available (it is implied that you would first need to estimate market size in such cases).
Always be prepared to size the market yourself if you ask the interviewer what its size is.
- What is its growth rate?
- At what stage of the lifecycle is it? Emerging, Mature, Declining?
- What are the customer segments and what are their respective needs?
- Is there a key technology involved? If so, how quickly is it likely to change?
- What are current trends in the industry?
- Who are the key players in the market? What is their market share? What are their differentiating factors?
- What is their response to the determined key trends?
- Are there substitute products?
4. Evaluate the financial aspects
5. Evaluate the economic implications of entering the market
Remember you do not need to investigate all these questions but you do need to evaluate and understand what questions are important by considering the reasons the client wants to enter the market.
If you decide that entering a new market is a good idea, it would make sense to recommend the client how to do it.
Entering a new market can be generally done in three key ways:
- Start from scratch
- Through a Joint Venture
- Through M&A
Based on the data, if you decide that the venture is not a good idea, recommend an alternative plan (product differentiation, cost cutting, international presence etc.). Since you now know the company structure, the “old” and the "new" market, make sure to structure your recommendation.
- Competitive advantage: Can you apply the same business strategy as in your current market or do you have to adapt the product, marketing or even sales channels to reach customers?
- Timing: Can you lever a first mover advantage or would you rather let the competitors try their luck first?
- Speed of entry: Define whether you want to test a single store or region or whether you want to cover the entire market at once.
- Entry mode: How much commitment are you looking at? Would it be a simple export strategy, where you can exit easily but have less control OR a wholly owned subsidy, where investment costs are high but you also have more control?
- Organizational structure of the new branch: Do you want to decide centrally or leave lots of freedom to the individual manager of the country?
Once you have all your answers, synthesize them to give a recommendation based on the facts you collected. Don't forget to take another minute to structure your answer but make sure to provide your answer first and then the reasons! Check out our article about the pyramid principle for more details regarding communication.
Key takeaways and further reading for market entry cases
- Market entry cases are often hidden in other case types such as cases involving increasing revenues of a company.
- Look for the most critical success factors for the client.
- When developing a market entry strategy, focus on how the new market fulfils the success factors sought by the client.
- Make sure to layout several different market entry strategies and evaluate those against each other.
- Further reading from McKinsey.
Watch the solution preview of one of PrepLounge's market entry cases: Argentinian toy manufacturer
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Market Entry cases often involve strategic questions such as: ‘Your client Company Z is currently manufacturing and selling coffee machines. It is now considering to enter the microwave market. Should they do that?’ In some cases, the answers to these questions are simple YES-or NO-answers, but in other cases the client might also want to know HOW to enter a specific industry or market. Either way, both questions follow the same structure in the beginning. The market entry framework used in this example covers a company characteristics analysis, industry analysis and an entry-mode vehicle selection.
You want to start off with some general questions about your client’s company. Why is it that Company Z is thinking about entering a different market? Do they have excess money to invest? Is Company Z’s current business stagnating? Or are they simply looking for new ways to grow? By asking this question you will find out more about the motives of your client. Secondly, you could ask when entering a new market is considered successful? Is there a certain market share the company wants to conquer or are they already satisfied when their business would make a profit in the first year? Answers to these questions would make it easier for you to quantify the case objectives in terms of market share (% of the total market size) or profits (expected revenues−costs). If needed you could also ask about the company’s current business (e.g. core capabilities, product mix, revenue stream, customer segment). It would for example help if Company Z’s current customers have overlap with the customers it would be targeting when entering a new industry. Don’t take too long for these kind of questions, but do make sure that you have a good impression of what your client looks like.
Market and industry analysis
This is the main part of your analysis. Here you want to determine how much potential the industry your client is thinking about entering actually has. You could start off with the market size. In some case interviews, they will ask you to estimate the size of the market yourself. This could be done by multiplying the amount of customers in a certain area by the average price of a product × the average amount of products that are being bought a year by a single customer. In addition, it is very important to ask about trends: has the market size changed over time? In what life cycle stage is the industry at the moment: emerging, mature, declining? You don’t want to enter an industry that is already declining massively. Next you could ask about the major players in the industry: the competition. Is the industry consolidated (a few large players) or fragmented (many small players)? And how are all players differentiated from each other? Don’t forget to also take into account potential new entrants, substitute products, entry barriers and supplier power. A great framework for this part of the analysis is Porter’s Five Forces. Consequently, you could look at the customers. What are their needs and how loyal to existing brands are they? Is Company Z able to capture some of these clients from rivals in that industry? This is also where you need to think about positioning Company Z in the current competitive landscape. As extra option you could also do a quick PESTEL Analysis to determine what macro-environmental factors could affect your business in the long term.
Figure 1: Porter’s Five Forces Model
In case both the company analysis and the industry analysis above turn out to be favorable for a market entry, your client might want to know HOW it should enter the focal market. There are multiple ways in which a company can enter a new market. During an interview it is often enough to mention the three most common vehicles: starting from scratch yourself (greenfield investment), forming a strategic alliance or joint venture with a local player, or acquiring a competitor in that specific industry. It is important to know the pros and cons of each vehicle compared to the other options. An acquisition for instance is a faster market entry vehicle than starting from scratch yourself. A drawback of an acquisition however is the integration process and possible cultural clashes. A strategic alliance would sound like a great middle ground alternative. However, even with strategic alliances there can be cultural clashes and so called learning races. For a more exhaustive list with pros and cons of organic growth, acquisitions and alliances, you could look here and here. Other entry-mode strategies you could consider are licensing, exporting or franchising. In order to decide between these options and foreign direct investment (greenfields, acquisitions and joint ventures), you could use the Eclectic Paradigm (or OLI Paradigm).
Figure 2: Eclectic Paradigm/OLI Paradigm