Market Entry General Question

BCG Case Interview market entry New Market Entry
New answer on Dec 23, 2021
4 Answers
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Anonymous A asked on Dec 08, 2021

Hello 

I often see in all market entry cases (frameworks and Case Solutions) they list Profitability Analysis as something to be analyzed followed by Entry Strategy (esp. in case prompts that does not specify the client's preference) . I do not understand how would you analyze the cost of entry into a market prior to deciding how to enter it. Does not make sense. Merging is different than entering solo: the investment costs are different.  

the logical way is to analyze the economics of the different/possible entry strategies and see which one best fits the company's $$ goal. No?

 

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Sidi
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updated an answer on Dec 08, 2021
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi!

What you outline is not a “Profitability Analysis”, but an investment analysis! This is very important to understand! The costs of entering are not part of “Profitability”. These are Investments. And Investments need to be recouped by operational profits. So what you need to assess is whether:

 

[Additional Operational Profit per year] x [Investment Horizon (in years)] > [Initial Investment + ROI requirement]

 

A “Profitability Analysis” only quantifies the first element of this inequality, but for a solid go or no-go decision, you must quantify all elements.

 

That being said you are of course right with your underlying thought - the investment might very well depend on the mode of entry! If there are different options and there is information on different investments and operational returns, then indeed you need to run the analysis fopr both scenarios and then pick thebest. But tobe honest - itis extremely unlikely that you will actually do this in a 25-30 minutes case interview. Just discussing this logic clearly and concisely would be enough (at least talking about MBB). And then you would probably need to do a very limited analysis on one specific aspect. These case studies are meant to check on your principal logic, your abilitiy to communicate this logic, and your ability to conduct some basic analytical steps from data provided. That's it. Not hard in principle, but still most candidates fail in this because they have a wrong understanding of what they even need to show in these interviews…

 

Cheers, Sidi

 

 

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Ian
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Content Creator
replied on Dec 08, 2021
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

There's a million ways to slice and dice market entry and there are a million types of market entry cases - be careful with this “one size fits all” approach!

Personally, I agree that cost of entry is important, though I don't view it as seperate to “how to enter”. They are one and the same (i.e. need to be thought about and discussed at the same time).

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Clara
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Content Creator
replied on Dec 08, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

The order does not really matter. 

At the end, there are two critical pieces of info to assess whether you should enter or not, and you should have green line in both (you wouldn´t enter a profitable market where you cannot realistically penetrate, the same way as you wouldn´t get into a market that is easy to get into but where you loose money). 

Hope it helps!

Cheers, 

Clara

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Pedro
Expert
replied on Dec 23, 2021
# Bain | EY-Parthenon | Roland Berger | FIT | Market Sizing | Former Head Recruiter

First you have to decide if you want to enter. You wouldn't want to enter a market that doesn't show good market profitability levels.

Then, if you realize that the market is attractive and you want to enter, you have to decide on how to enter. So you move from discussing market profitability to your own investment case considering your unique profitability levels and required investments.

In real life, this is how you do it (and cases try to replicate real life). In this case, you consider a series of “go/no-go” moments that minimize the ammount of work you have in case you have a “no-go” at any time. In other words, if the margins in a market are terrible, it is nonsense to spend 2 months trying to estimate the cost of building a factory there, right? So you look at the margins first, and only after concluding that they are reasonable you start working on the investment financials.

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Sidi gave the best answer

Sidi

McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers
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