Managing Market-Entry Decisions

Friday, December 1, 2006
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The following is an excerpt, posted with permission from Hay Group, from a 2006 report published by Hay Group Insight, Hay Group's survey research division, on what the Global Most Admired consider as they make market entry decisions.

Along with determining how to compete, global companies also have to determine where to compete. Accordingly, market-entry decisions become important considerations. For Global Leaders, our findings suggest that access to local resources, access to local talent, and access to local buyers are all important considerations in decisions to enter new markets. Indeed, each of these three factors was cited with equal frequency as the most important priority.

Also important for global companies are the political considerations associated with entry decisions. Host-country governments can create considerable uncertainty where political instability exists in a particular market. But even where governments are more stable there can be significant political risks, given that the interests of a global company may not be aligned with the interests of host country governments.

A global company taking a position in a local market is likely to evaluate the investment in the context of a broader organizational portfolio of business units and subsidiaries. The host-country government, however, will be inclined to view it in terms of the potential benefit for local constituencies. There may be concerns that the investment will crowd out or challenge established domestic firms.

Likewise, there may be concerns that the company will not bring its full technology and capabilities into the local market, but instead locate tasks there that have lower potential for economic development. Notably, Global Leaders report that they are more effective than their peers in assessing and negotiating the political risks associated with entering new markets.

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In entering new markets, global companies also face risks in terms of return on investment, given that the costs associated with start up are often substantial. Our past research has consistently shown that Most Admired Companies are more effective than their peers in balancing long- and short-term demands.

Consistent with these findings, Global Leaders are more likely to take a long-term perspective in evaluating the returns on investments in new markets and "stay the course" in the face of initial challenges.

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