Production investment in new geographic market

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Key Points

There are five key questions to answer:

1. What can you afford?
2. How critical is the market to the success of your business strategy?
3. What are the unique competences you need to be in direct control of?
4. What is the extent of the opportunity for you in the market (the greater the opportunity, the more costly will be import/export, all other things being equal)?
5. Are there major barriers to importing products, such as tariff barriers/import quotas, or short notice customisation requirements?

In more detail…..

If you are planning to enter a foreign market, the first question to ask is what you can afford/obtain financing for. The solution that requires the least investment is dealing through agents, then through distributors, then joint marketing, then licensing, then joint venture, and finally merger & acquisition. Local manufacture will be towards the top end of the investment spectrum, depending on how you actually go about it – developing your own manufacturing facilities, joint venturing or acquisition.

Assuming that you can afford to do all these things, the next question is how core the market expansion is to your overall business strategy, and what your core competences are. The so-called make or buy decision comes down to ownership and direct control of critical resources/expertise, and outsourcing of the rest. Is manufacturing or R&D what you are uniquely good at for this market place, or is your real strength in sales & marketing, branding or logistics? It is quite possible that you might use one strategy for your premium products/services, and another for more commodity offerings.

Other considerations are the potential level of business – the greater the business, the more relatively costly it is to import; the requirement for short notice customisation; and tariff barriers/import quotas.

To take the different options:

1. low capital cost approaches, such as sales through agencies/distributors using imported goods, will mean higher costs in logistics, and in sales & marketing/branding investments if you want to control the market. Even in your home market, there is a tendency for distributors to dominate manufacturers. This is even more likely to be the case in foreign markets
2. medium investment approaches, such as licensing require significant investment in management and monitoring processes in order to police licensee/franchisee activity. There will be a tendency for their activities to reflect their business style rather than yours if you are not very careful, which will damage your brand. They will also learn a lot about your modus operandi that they can copy and use elsewhere
3. long term investment approaches, such as building your own manufacturing capabilities, may be a significantly greater commitment, but may also have considerable advantages in terms of direct control over expertise and quality, and local government support for local industry. Indeed, the capital cost of setting up manufacturing facilities may not be all that high – several factories in Ireland have been built effectively for free by foreign investors because of the government grants available for companies providing significant local employment. However, if the environment is volatile on any of the STEEP factors (Social, Technological, Economic, Environmental, and Political), then you may be a hostage to the fortune of wars, nationalisations, strikes, roller-coaster economies, and so on.

So, there are five key questions to answer:

1. What can you afford?
2. How critical is the market to the success of your business strategy?
3. What are the unique competences you need to be in direct control of?
4. What is the extent of the opportunity for you in the market (the greater the opportunity, the more costly will be import/export, all other things being equal)?
5. Are there major barriers to importing products, such as tariff barriers/import quotas, or short notice customisation requirements?

Luckily, you are just seconds away from some very smart brand marketing solutions. Click here!

For further information, please contact enquiries@mudvalley.co.uk

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