SMEs: Market Entry Strategies and Applicability in a Pandemic

By Timi Olubiyi, Ph.D

The business environment is currently going through radical changes globally due to the damaging effect of the novel coronavirus (COVID19).

Therefore, to cope with this situation, businesses need to adjust and develop strategies to rise to the occasion.

A typical decision businesses’ particularly Small Medium Enterprises (SMEs) can make at the moment to achieve sustainability, and valuable competitiveness is by considering new market entry strategies.

Many firms expand their business geographic scope from domestic to nationwide or even foreign markets through this means.

With the harsh impact of COVID19 and the limitations in financial and human resources, companies can still leverage on a new market entry strategy to stem the tides.

Market entry strategy is a planned distribution and delivery method of goods or services to a new target market.

In simple terms, a market entry strategy refers to a detailed plan of how to successfully berth and run a profitable business in a new region.

Market entry strategy will help companies to assess markets’ readiness for new offerings and gain detailed insights into the new market. In short, it allows businesses to gather comprehensive insights into lucrative opportunities, industry developments, and competitive scenarios of an unknown market. This strategy makes it easier for companies to successfully establish their foothold and gain a leading edge in the new market and gain good market access.

With a market entry strategy, companies get access to important information and thus, they can increase their productivity and competitive position. It is important to note that the market entry strategy will help businesses at this time to efficiently enter new markets.

For example, a business located and operating in Ikeja, Lagos State can conduct market entry research and gather data from other states of the country (Kano, Enugu, Kwara, Osun, Rivers, Nasarawa, Taraba)  or around the West Africa region (Republic of Benin, Togo, Ghana   Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Senegal) or beyond for market expansion and new market entry strategy.

With adequate research to guide the decision, businesses can achieve increased sales, improved brand awareness and business sustainability with a new market strategy to gain market expansion.

The new market entry strategy, when implemented, can sustain the success of a proactive business due to the negative challenges created by the COVID-19.

In building a market entry strategy, time is a crucial factor, and consequently, in my opinion, the pandemic has provided good timing for new market entry and the opportunity for companies to expand easily.

It is much easier now for cross-border expansion or at the least expansion beyond the geographical location of business operation because governments are encouraging and supporting businesses to stabilize due to COVID-19 impact.

More so, we are likely to see policy responses to decrease trade barriers and improve globalization. Therefore considering new market entry strategy at this time is one of the most important ways for businesses to grow profitability and sustain competitive advantage.

By entering into new markets, businesses, particularly SMEs, can enjoy several benefits, including broadening their customer base and improving market share beyond the business location.

Consequently, if a domestic business is willing to go nationwide and/or across the globe with world-class products and services, the best option is through a new market strategy and the time is now.

Invariably, these following benefits can be achieved: economies of scale, earning foreign currency, gaining global customers, increasing brand awareness and improving market share.

Further to this, it is important to state that the ease of entry into a new market is characterised by the available financial resources, the ownership structure, managerial styles and managerial resources of the domestic businesses.

However, the relevant factors that must be considered when deciding the viability of entry into a particular market include trade barriers, customer preference, pricing, competition, and export guidelines and restrictions.

The liability of newness is another hindrance, as a new business in a new market could encounter difficulties, and this can lead to increased risk, as there is usually a lack of legitimacy in any new market.

For this reason, vigorous brand awareness and advertainment need to be accounted in other to legitimizing the business in a new market.

Significantly, the entry mode choice is one of the most important decisions a business has to make in the effort of new market entry strategy because it determines the number of resources to be committed.

Therefore, businesses have to find an entry mode that allows them to deal effectively with the risks that arise in the target destination.

There is no one specific mode of entry an organization can adopt to enter into a new market or go internationally. Businesses can consider some of the most common market entry modes, which are: directly by the setting up of an entity in the new market, directly exporting products to the new market, indirectly exporting using a reseller or distributor, and producing products in the target market.

The most common modes, however, to go into a foreign market entry are licensing, joint venture, partnering and strategic alliances, acquisitions, exporting or establishing new, wholly-owned subsidiaries, also known as greenfield ventures.

For SMEs, the option is usually to start transferring/exporting via an agent or a foreign representative. This option is a non-equity mode that requires fewer resources and provides flexibility, but the target market knowledge may be lacking.

Each mode of market entry has advantages and disadvantages. Firms need to evaluate their options to choose the entry mode that best suits their strategy and goals.

Significantly, the mode of entry is a crucial factor to be considered for a business entity to be successful in a new market.

However, all the modes of market entry involve resource commitments of some kind. Because entering the market properly is one of the most important steps a business must consider.

From context observation, business expansion starts with the movement of goods and services to neighbouring states or countries that are close to business facilities. This is usually because of the lower transportation costs involved and the often greater similarity between geographic neighbours.

To be effective and successful, with new market entry strategy, businesses need to support the decision with a well-thought-out plan. One that is based on the analysis of potential competitors, understanding of the focus market environment and its inner workings, the regulatory expectations, consumer behaviour, and possible customer base, among other key factors.

A typical market entry strategy can take a few months to implement due to intensive preparation. However, it worths the effort because it will reduce business failure risk. It will also ensure an informed decision on the launch of the right product or services that align with the expectations of the customers.

More so, with new market entry strategy, adequate attention should be paid to the political and institutional environment of the target market, where businesses are likely to encounter different market conditions different from the home market.

That said, the context of digitalization has evolved over the last years and pushed further communication technologies much easier, such as the internet and mobile telecommunication. Therefore, digitalization can also be leveraged upon when considering the market entry options.

Besides the impact of the COVID-19 on businesses globally has encouraged the effective use of technological innovations. Innovation in the context of this article can be defined as ‘the introduction of something new that positively impacts businesses and mankind in meaningful and contextually specific ways.

Therefore, introducing new market entry modes to business operations at this time might just be the innovative move required to stem the impact of the pandemic on business operations. By so doing, market innovativeness, behavioural innovativeness, and strategic innovativeness would have been achieved. This will greatly improve the performance, market expansion and logistics method of businesses.

To have a winning market entry strategy plan, businesses need to set clear goals, study the target market and the competition, know the customer needs and preference.

Extant literature suggests barriers of entry to new markets, particularly foreign markets to include lack of financial, physical or technological resources; the lack of opportunities and insufficiency of managerial skills.

Another is inadequate useful information to analyse the target market and also identify business opportunities. It has also been observed that a strong brand identity or customer loyalty, and high customer switching costs can be barriers of entry to new markets.

Others include the need for new companies to obtain proper licenses or regulatory clearance before the operation. Some of the risks incurred when entering a new market and start domestic or international trade include weather risk, foreign exchange risk, and cultural risk

While the idea of entering a new market might seem viable on paper, when put to practice, organizations are challenged by several uncertainties and barriers aforementioned.

Though some companies prefer to develop their market entry plans, other outsource to specialized individuals or companies.

The engagement of knowledgeable professionals can mitigate trade risk in the target market and also improve the chances of discovering adequate market opportunities. Good luck!

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Dr. Timi Olubiyi is an Entrepreneurship and Small Business Management expert. He is a prolific investment coach, Chartered Member of the Chartered Institute for Securities & Investment (CISI), and a financial literacy specialist. He can be reached on the twitter handle @drtimiolubiyi and via email: [email protected], for any questions, reactions, and comments.