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6 Ways to Break Into Markets to Win New CustomersTuesday, October 04, 2016 > 09:14:47
There are a lot of ways to break into new markets and attract new customers—from selling through a third party to setting up an office on the ground. Below, we outline six global sales strategies, and the pros and cons of each.
1. Selling through distributors
Distributors buy your product and then sell it to their own customers. Despite having no direct control over the selling, branding or marketing strategies they use, using distributors means you’re less responsible for things like customs clearance and credit checks.
By holding an inventory of your products within the market, distributors can shorten delivery time, which can be an important selling point.
They assume responsibility for after-sales service and may be willing to handle warranty issues as well.
Because distributors handle so much of the sales process, you’ll have less firsthand knowledge of market conditions and of your products’ end users.
2. Selling through agents
Agents, whether individuals or firms, don’t purchase your goods from you, but they do sell them on your behalf. In effect, the agent acts as your representative, which means once a sale is made, invoicing and payment is between you and your customer.
Agents are normally paid on commission, which can be an advantage since commission can be a great incentive.
Agents tend to have smaller product ranges than distributors, so they can concentrate more closely on selling your products.
If your products require installation, customer training or possible after-sales service, the agent should be responsible for handling this.
A small agency may have fewer sales resources than a distributorship.
You are responsible for providing agency personnel with the training required to provide after-sales services.
Agents aren’t normally responsible for the marketing, shipping, distribution and delivery of your product, so you’ll have to pay for this. If an agent does get involved here, you’ll be expected to pay them for this, over and above their commission.
3. Buying or merging with a local company
With this approach, your company invests in a new market by buying some or all of a local company’s shares and/or assets. The level of ownership has to be large enough to give you influence over that company’s activities—usually a minimum of 10%.
You secure immediate access to an established market.
You acquire the company’s knowledge base, technology, customers, suppliers and workforce.
Licensing and compliance requirements are already met.
You don’t need to establish a brand.
You may pay too much for the other company’s shares or assets because you’re not familiar with the market.
Cultural differences may make it difficult to manage the new business.
You may need to upgrade the company’s technology, workforce or operational processes, and train both local and Canadian management to run the new firm.
The merger/acquisition process may be long and expensive.
4. Building from the ground up
Starting from scratch can be the most complex and expensive way to set up an affiliate. It involves acquiring real estate, building your facility, hiring personnel and (if it is a manufacturing plant) installing machinery and ramping up production.
You get exactly the facility you need in terms of equipment, marketing, finance, R&D, logistics and purchasing.
You have complete control of the business, its branding, staffing and long-term strategy.
The local government may provide investment incentives such as tax breaks, reductions in real-estate costs, lower import fees and various forms of administrative relief.
It can take a long time to build the facility and make it profitable.
It is expensive and may require hard-to-find financing.
If the government isn’t particularly investor friendly, you may find yourself at a disadvantage compared to local competitors.
5. Setting up a strategic alliance
A strategic alliance is a cooperative arrangement between two or more businesses and is designed to achieve a shared goal. It can take many forms, such as technology transfer agreements, purchasing and distribution agreements, marketing and promotional collaboration or joint product development.
You get immediate access to your partner’s customer base, distribution networks, market knowledge and expertise. As a result, you can increase your market share much more quickly than by going it alone.
Because your partner’s strengths complement yours, you can focus on your core business.
You reduce exposure to market risks by sharing them with your partner.
You’ll have to split the profits, reducing the return on your investment.
The relationship may go downhill, leading to business disputes and/or damage to your position locally.
You may lose control over the direction of the partnership if your partner is the larger company and decides to override your decisions.
6. Setting up a sales or marketing office
If all you need is a basic presence in the market, opening your own sales or marketing office (or branch office) may be the answer. In most countries, these offices are restricted to basic tasks such as market research and identifying customers. Other business activities, such as placing orders, signing contracts, collecting payments or issuing invoices, may be subject to local taxes and corporate regulations, possibly to your disadvantage.
You have greater control of your business activities in the local market.
The office provides a point of communication for customers.
It’s easier to attract customers who want to deal exclusively with a local representative.
Expansion is easier if you already have a foothold in the market.
Local sales offices can be expensive to establish and operate.
If you use local employees, you have to comply with foreign labour codes and standards.
If you send Canadians to work in the office, you’ll come up against immigration issues such as restrictions on using non-local labour. In some markets, setting up a sales office has no real advantages over establishing an affiliate.
Expanding your operations outside of Canada can be expensive, time consuming and somewhat risky. Be sure to consult local and domestic experts because they are familiar with the investment, legal and tax requirements of the country you want to break into.