Marketing Consultancy Division (MCD) Export Consultancy Unit (ECU) Export in Focus. Export Market Expansion Strategies. Rabi-I, 1427 (April, 2006)

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Jemimah Hensley
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1 Marketing Cnsultancy Divisin (MCD) Exprt Cnsultancy Unit (ECU) Exprt in Fcus Exprt Market Expansin Strategies Rabi-I, 1427 (April, 2006) 1

2 Exprt Market Expansin Strategies Intrductin It is clear that glbalizatin and the cncept f freign trade have predminated in mst business literature and practical experience fr the last five decades. Besides that, there has been cnsiderable develpment in terms f methds f cmmunicatin and means f transprtatin. As a result f the decline r remval f trade barriers and the reductin in cmmunicatin and transprtatin csts an rganizatin n lnger has t be large t perate internatinally. Cnsequently, many lcal cmpanies have tried t expand their peratins and btain a fthld in new freign. Reasns fr the expansin in internatinal business can be explained by a rapid increase in technlgy, liberalizatin f gvernment plicies, develpment f institutins facilitating internatinal trade and increased glbal cmpetitin. One f entry mde strategies that available fr SME's is exprting. In fact, the ptin f exprting requires a bundle f issues that shuld be cped t guarantee readiness f SME's fr exprting t freign. After making sure f the readiness f a cmpany fr exprting, the first issue shuld be discussed is type f exprt market expansin strategy. Indeed, the type f market strategy varies frm ne cmpany t anther cmpany. And selecting a particular market strategy depends n several factrs and deep analysis fr the external and internal envirnment. In this reprt, available exprt market expansin strategies and factrs that might influence a decisin f selecting ne f these strategies wuld be discussed. Exprt Market Expansin Strategy Exprt market expansin strategy is defined as the lng-range strategic decisin as t the rate f exprt market expansin ver time and the allcatin f marketing effrts amng different exprt. Market expansin strategy relates t the number f cuntries that a firm want t enter. Basically, the cmpany has tw generic market strategies t chse 2

As a result f the decline r remval f trade barriers and the reductin in cmmunicatin and transprtatin csts an rganizatin n lnger has t be large t perate internatinally.

3 frm, a market cncentratin strategy r a market diversificatin/spread strategy. Market cncentratrs are fcusing n a few selected while rganizatins utilizing a diversificatin strategy are fcusing n a larger number f. Hwever, The rganizatin and the surrunding envirnment affect the chice f a cmpany's market expansin strategy. There are mrever, three dimensins an rganizatin has t cnsider when chsing a market expansin strategy. These dimensins can be described as internatinal spread, internatinal penetratin and internatinal crdinatin. Internatinal spread can be described as the quantity f cuntries the cmpany is engaged in. The secnd dimensin internatinal penetratin is the extent f the turnver, internatinal investments r types f activities in ne cuntry r in the internatinal market cmpared t the hme market. The third and last dimensin, internatinal crdinatin means the synchrnizatin f the internatinal activities. These dimensins and the cmbinatin f them can serve as a base when a cmpany cnsiders its chice f market expansin strategy. Diversificatin / Spread Strategy The main bjective with a market diversificatin strategy is t achieve high rates f return while a lw level f resurces is allcated t each market. Advantages with this strategy include flexibility and the pssibility t diversify risks and investments. A cmpany perating in many cuntries can reduce risks since a dwnturn in ne cuntry can be cmpensated by grwth in anther. This might als stabilize an rganizatins verall earnings. Furthermre, since cmpetitin varies amng prfits in less cmpetitive cuntries can be directed t where the cmpetitin is mre intense. An rganizatin fllwing this strategy usually chses easily available target and the entry mde is likely t be exprting r licensing. The success f this strategy is therefre dependent n the firm selecting the mst apprpriate distributrs and licensees. Furthermre, t make it easier and less expensive t be present in numerus cuntries prduct mdificatins are unlikely t be mre than necessary t meet general needs and preferences in the market. Mrever, the rganizatins are generally seeking high margins and will therefre try t charge high prices. Hwever, in the lnger term sme authrs believe that a diversificatin strategy will result in a reductin in the number f as sme becmes less prfitable. 3

Hwever, The rganizatin and the surrunding envirnment affect the chice f a cmpany's market expansin strategy.

4 Cncentratin / Key Strategy A cncentrated strategy is characterized by a slw rate f grwth in the targeted. Advantages with this strategy include specializatin, ecnmies f scale and a high degree f cntrl. A cncentrated strategy is based n a lnger-term view n pprtunities, prfits and sales in a market. When entering freign a firm fllwing this strategy cmmits a lt f resurces with the aim fr lng-term prfitability thrugh market penetratin. Mrever, the rganizatin tries t establish lng-term relatinships t ensure that the firm's prducts, image and reputatin are handled in an apprpriate way. The cmpany als tries t develp gd relatinships with suppliers, custmers and gvernmental institutins. Further, cncentratin n key market prvides firms with the chice t specific requirements, design and develp fferings adapted t meet buyer needs, establish and maintain a lng-term marketing presence, and minimize csts while maximizing the returns frm individual. Prices are charged n the basis f sales grwth, which increases the chance f gaining a cmpetitive advantage in pricing. Furthermre, the firm is likely t adapt its prduct t satisfy particular needs and preferences in each f the freign. Influencing Factrs Needles t say that, a decisin f market expansin are influenced by a number f factrs. These, factrs can be categrized int cmpany, prduct, market and marketing factrs. Indeed, each factr includes a number f issues that shuld be cnsidered in the frmulatin f a market expansin strategy. With regard a cmpany's factrs, bjectives and gals f a firm and a mindset f management play a significant rle in determining a market expansin strategy. Furthermre, nature f prduct that is intended t be exprted and its stage f life cycle influence the decisin f an expansin strategy. Mrever, characteristics f market such as size f segment and level f cmpetitin have a cnsiderable impact n a market strategy decisin. Finally, marketing activity used by a cmpany such as cmmunicatin and advertisement shape a market expansin strategy. All these factrs shuld be analyzed tgether t select the suitable market expansin strategy. The table belw illustrates framewrk f the situatinal factrs influencing the chice f market expansin strategy. 4

When entering freign a firm fllwing this strategy cmmits a lt f resurces with the aim fr lng-term prfitability thrugh market penetratin.

5 Factrs Favuring Cuntry Diversificatin Factrs Favuring Cuntry Cncentratin Cmpany factrs Little market knwledge Ability t pick best High management risk cnsciusness Lw management risk cnsciusness Gal f grwth thrugh market develpment Gal f grwth thrugh market Internal barriers penetratin Practive exprt stimuli Internal barriers Reactive exprt stimuli Prduct Factrs Early r late in prduct life cycle Middle f prduct life cycle Standard prduct saleable in many market Prduct requires adaptatin t different Few changes in the prductin prcess Nature f the prduct (niche prduct) Many changes in the prductin prcess Limited use Nature f the prduct (general prduct) Lw sales vlume General use Nn-repeated buying behaviur High sales vlume prduct Repeated buying behaviur prduct Market Factrs Small -specialized segments Many similar New r declining Lw grwth rate in each market Large are very cmpetitive Lw custmer lyalty Standardized cmmunicatin in many Lw cmmunicatin csts fr additinal Lw rder handling csts fr additinal High spill ver affects amng cuntries Surce: Adapted frm Hllensen, (1998) Cnclusin Marketing Factrs Large -high vlume segments Limited number f Mature High grwth rate in each market Large are nt excessively cmpetitive High custmer lyalty Cmmunicatin requires adaptatin t different High cmmunicatin csts fr additinal High rder handling csts fr additinal Lw spill ver effects amng cuntries An exprter shuld frmulate a generic exprt strategy prperly t meet with his external and internal envirnment. Als it is recmmended fr an exprter t cnsider pssible influences in terms f cmpany, prduct, market and marketing factrs. In the same cntext, ECU shuld advice any new exprter t determine the exprt market expansin strategy (generic exprt strategy) and apply abve analysis t cme up with the apprpriate strategy, which fit with his situatin. 5

Middle f prduct life cycle Standard prduct saleable in many market Prduct requires adaptatin t different Few changes in the prductin prcess Nature f the prduct (niche prduct) Many changes in the

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