Hi,
lets say that we want to enter a market in X industry. How do you make a parameter so that the hypothesis the industry is attractive is true? I can just think about market growth and market share is high enough depending on each case. Do you have any other suggestions?
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, specific synergies or something else?
2) INDUSTRY. There are three macrovariables here.
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) BEST WAY TO ENTER. Once you know the industry is attractive, you should consider the entry options.
4) COMPANY - TARGET OBJECTIVE FEASIBILITY. Once you verified you can enter the industry, you can move to check the fit between the client and the selected industry.
In the second point, you will probably have to go through a profitability/revenue/cost framework, to calculate the effective result.
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
Hi Anonymous,
assuming that we talk about a for-profit company, there is one single metric to decide on whether entering a market makes economic sense or not: Value creation!
The additional value expected from entering a market has to exceed the corresponding investment over a the company's target investment horizon (which is usually determined by the best alternative options of investing the corresponding money and resources). Moreover, required capabilities should be disposable and risks need to be manageable.
This additional value then needs to be logically and rigorously disaggregated into its drivers and sub-drivers (by means of a logic tree), and there will be a multitude of elements which influence these drivers and sub-drivers (market development and competitive dynamics are just a very small part of it).
As always - when you approach such a situation, it is about the LOGIC and the RIGOROUS THINKING FRAME. You should NEVER start by stating something like "I would like to look at the following 4 areas: ...". This was maybe sufficient 10 years ago when Victor Cheng et al. brought forward their business situation "frameworks", but nowadays this is just highlightsing the fact that a candidate is not thinking rigorously enough and rather hopes to find interesting insights within pre-conceived framework buckets.
Cheers, Sidi
(edited)
It's funny that HBS that introduced the value creation concept 50+ years ago is not teaching it anymore:)
Hi,
There is a lot of things that are still unclear about your question.
Always start with clarifying an objective:
Then I would use the following structure:
Market / industry
Competition
Company (If the case says you have the company that operates in a different / adjacent market)
Entry strategy
Good luck!
(edited)
Hi,
To conclude on an industry attractiveness, multiple dimensions should be evaluted, depending on the context :
- market (or specfifc segment )size
- Growth (past and futur projection if possible)
- competitive environment (very concentrated vs. atomized) and intensity
- profitability
- customer volatility
- Barriers to entry
- various risk (substitution, regulation, etc.)
Best
Benjamin
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