This article gives a first estimate of these investments based on your type of offering and the complexity of the market entry. This will help you to set up your budget.
The type of offering determines your market entry costs
Your costs of market entry typically depends on your type of offering. To be able to quickly make an estimate I have defined five broad categories.
- Standard product, perhaps differences per country, but no customisation
- Service that can be provided electronically or from your homeland
- Product with installation, integration or training requirements
- Customised product
- Customised service or solution (e.g. with local consultancy)
Charateristics and possible approach per type
1. Standard product
- Not client specific, possibly country or region specific
- Can easily be sold through a distributor, no additional service
- Create awareness with potential foreign distributors: internet marketing and trade shows
- Sell directly to the distributor and support its customer marketing where needed.
2. Remote service
- Delivery is not different from local customers
- Sales process is relatively straightforward
- Choose internet sales, local distributors or agents, or a combination
- Set up payments or partner incentives and marketing tools
3. Product with Installation
- Product is relatively standard, possibly country or region specific
- Distributors need training before selling or delivery
- Identify and select potential distributors
- Train, support, manage and evaluate them
4. Customized product
- Client specific and made to order
- Distributors channel your customer contact
- Choose distribution or agency
- Define exclusivity, margins and sales training
5. Customized Solution
- Strong client interaction is needed, although standard components may be used
- Consultative selling process
- Use a dedicated specialist local partner
- Provide sales support and project staff
- Create a joint marketing and sales plan
The other factor is the complexity of the market entry
The other factor is the complexity of the market, seen from your home country. This complexity depends on distance, language and cultural differences. For example:
- From Germany to Austria complexity is low
- From the UK to Turkey the complexity is medium
- From the USA to China the complexity is high
How important each of the factors are, may differ for consumer products and for business-to-business.
Market entry complexity aspects
| Simple | Average | Complex | |
|---|---|---|---|
| Distance | Nearby | Far | |
| Language | Same language | Other language | Other writing |
| Culture | Comparable | Totally different | |
| Formalities | Open | Bureaucratic | |
| Size | Small | Large |
The combinaton gives a first estimate for market entry costs
If you combine these two aspects, offering type and market entry complexity, you can get a first estimate for your market entry investments, up to the moment of the first sales.
These estimates give a good first indication if you choose to work through local distribution partners. If you choose to work with your own sales office, costs may be considerably higher.
Market entry costs estimate
| Nr. | Offering | Market: Simple | Average | Complex |
|---|---|---|---|---|
| 1 | Standard product | 20,000 USD | 50,000 USD | 80,000 USD |
| 2 | Remote service | 30,000 USD | 50.000 USD | 80,000 USD |
| 3 | Product with installation | 70,000 USD | 100,000 USD | 150,000 USD |
| 4 | Customized product | 70,000 USD | 100,000 USD | 150,000 USD |
| 5 | Customized solution | 100,000 USD | 150,000 USD | 250,000 USD |
What should be included in your budget?
When we build business cases and make these budgets for clients, we typically include the following:
- Travel to the country and some market research
- Searching and approaching the right local partners
- Partner selection and contracting, including legal fees
- Setting up logistics, giving training
- Product adaptions or certifications where needed
- Packaging translations and manual translations
- Website translations, setting up the payment process
- Marketing costs or contributions to the partner’s marketing
Using the proper benchmark data is key here. Even an estimate build up from other elements may be more precise that just a guess.
