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Regarding market entry

Anonymous A

Hi,

I have found that it is quite hard to use a specific structure when it comes to a market entry case as the context matters a lot. Given that market entry case appears quite commonly during case interviews, I would like to know if anybody has a good structure I can follow?

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Francesco replied on 11/20/2017
Ex BCG | MBB Specialist | #1 Expert for meetings done (1000+) and recommendation rate (100%)

Hi Anonymous,

this is how I would structure a market entry analysis:

1) Goal clarification. It is always good to start with the end in mind – thus what is the specific reason why you want to enter the market? Is it revenues, profits or specific synergies?

2) Industry. There are two macrovariables here.

  • Key industry numbers/facts. This includes for the market and potential subsegments the following
    • Growth
    • Size
    • Barriers to entry (BTE)
  • Key industry players. This includes:
    • Customers segmentation
    • Competition
    • Occasionally for some cases: suppliers and substitutes.

You should present this area connecting with the goal, and not purely listing the elements to analyse as if it was a laundry list. The best way to do so is explain how a certain variable will help you to achieve you goal. Eg, if your goal is to increase revenues, don’t simply say “I want to look at growth, size and BTE”, rather “I want to look at growth and size – this will tell me if the market has the potential to provide enough revenues for our client. I would also like to check BTE, to understand which are the obstacles in entering such a market and thus increase revenues”.

3) Company - Target objective feasibility. Here you want to check the fit between the client and the selected industries.

  • Can our specific client reach its objective in the selected market (eg profits, revenues, market share, etc)?
  • Are there positive or negative synergies in such industry?

In the first point, you will probably have to go through a profitability/revenue/cost framework, to calculate the effective result.

4) Best way to enter. Once you know the industry is attractive and you can reach you goal, you should consider the entry options.

  • Which are the possible ways to enter the market? Usually you should consider (i) starting from scratch; (ii) M&A; (iii) Joint Venture or licencing
  • Which option meets better our capabilities to enter the market? Each specific way to enter will require some different capabilities. If you start from scratch you may need skilled people in all the phases of the value chain; if you buy another company you may need less people, but more upfront capital, etc.

5) Risks and next steps. What are the major elements that we should further analyse based on the previous points (eg regulator decision, unexpected competitor reactions, potential wrong pricing in the new market, etc)?

Hope this helps,

Francesco

Anonymous B replied on 12/05/2017

What I like to do is approach a case through key questions, instead of any particular framework.

This has several benefits. First, it addresses the problem with the client's concerns as the starting point. By starting a decision branch with a question, you make it clear to the interviewer exactly what problem you are trying to solve, and establish the purpose of a particular line of questioning. Second, it helps you cover all the bases. A question-led solution makes it easy to keep track of where you are in the case, and exactly what information you need in any particular sub-branch. Finally, it helps make your answer sound more natural, as you structure a framework around the questions.

For a market entry case, a question-led approach would look like this:

1. Why are we (the client) entering?

Objectives. Are they trying to maximise profit or market share? Are we trying to strengthen our brand, or transition away from a sunset industry?

2. Should we enter?

Market attractiveness. How large is the market? Is it growing? Is it profitable? What are the market segments?

3. Can we enter?

a. Entry barriers. What are the demand barriers (loyalty, switching costs)? What are the supply barriers (upstream, downstream, lateral)?

b. Capabilities. What are our financial abilities? What are our technical abilities?

4. How to enter?

a. Organic entry. Existing product mix? New product mix?

b. Inorganic entry. Acquisition? JV?

5. At what cost?

Costs and risks. What is the upfront investment? What is the operating cost? Are there any other risks to entry?

___

As you can see, this style of approaching a case covers exactly the same things that a traditional framework would suggest. However, it is much more hypothesis-driven ("If the market is attractive, are there any existing barriers that may make it difficult to pull demand from existing players?")

It also makes it very easy and natural to transition to a different 'framework'. Consider for example if you decided to enter the market by organic means. You can ask the following questions:

1. What gaps might exist between the business and the market?

a. Product gap. Is there any mismatch between customer needs and what our products can offer?

b. Awareness gap. Are we marketing our product sufficiently and efficiently? Are customers able to find our products with our chosen distribution strategy?

c. Competitive strategy. Are we competing on price? What additional non-price factors may differentiate us?

d. Capability gap. Are our internal resources and processes sufficient to support this new demand?

2. Should we develop a new product?

What are the advantages and disadvantages of our new product? How replicable is our product? How substitutable is our product? (If no, abandon this branch and go inorganic)

3. Can we develop a new product?

Do we have the financial and technical abilities to develop a new product? (If no, abandon this branch and go inorganic)

4. How to grow?

Pricing strategy. Distribution strategy. Marketing. Capabilities. Use the gaps you found out earlier to create actionable conclusions.

___

This approach is not perfect or fool-proof, and I am still working on refining the approach. If you have any suggestions, I'm happy to hear.

(edited)

Georgy replied on 12/13/2017

Hello,

very shortly when preparing the structure for the market entry case, in my opinion, in most cases it is required to concentrate on the two most important questions:

1) Is that enough capital to finance the entry?

Do we have required resources for considered entry

2) Is that market atractive?

Profit = Market size * Market share * Profit/Unit - Fixed costs (we need to calculat future cash flows for several years)

Here, it is imortant to reveal the entry barriers, possible competitive responses, forecast the growth of the market for future periods and our possible market share. After that, assess target indicators as NPV and Payback period.

Best regards,

Georgii

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