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Herminio Andres
Last August, I visited Atlanta, Georgia, USA, home to one of the most iconic companies in the world: Coca-Cola®. There, the company has a museum where they showcase the history of the company. The visitor will appreciate the evolution of the company and the marketing campaigns through the years, signaling the epitome of commercialization entrepreneurship and the propulsion of the company from its start to one of the largest and most valuable companies in the entire world.
The last room before the souvenir shop that funnels you out of the museum is the tasting room. Here, more than one hundred beverages from all around the world are at your disposal. You need to be cognizant that after five or six tastes, you will not be able to appreciate the inspiring flavors because your senses will be already saturated. You need to choose carefully before starting.
This tasting room shows how this successful company, despite having a renowned and globally admired product, adapted to the local markets. Companies need to be in continuous motion, in opposition to stagnation, which is the first step to decline in revenue.
Adapting to New Markets
In this respect, many companies turn to e-commerce as a soft approach to the new market. Some opt for cross-border e-commerce (CBEC) because it does not require adapting the labeling and packaging to the local regulations, but the quantities per buyer are small, as it is conceived for personal use. Thus, many companies, after trial, go for in-country e-commerce. In both cases, at least for Asian countries, the brand visibility in e-commerce is low due to the ocean of products offered, requiring heavy marketing and business development action if the company wants to prosper in the space. The aim is not to see but to be seen.
Coca-Cola® and their more than one hundred tastes demonstrate how companies need to adjust to the new markets. Everyone needs to pay tribute to their differences— especially cultural differences. What one considers an aggressive approach, another may find outright offensive. Conversely, a subtle approach in one market may not even register to consumers in another.
At the minimum, a market analysis is needed to understand not only consumer behavior, including taste preferences, but also regulations. Companies need to consider some investment when approaching new markets. This includes firstly evaluating a precautionary approach for IP protection. The next step is to determine whether you should enter the market alone or be supported by others; evaluate the structure you may need in the new market, if structure is needed at all.
The Case for a Local Partner
If you are considering entering the China market, you surely understand its weight as the second-largest market in the world. However, when it comes to countries like China, as well as India, there is even more than meets the eye. Many people think each is only one country, and while that is technically true, with such a large geography distributed across multiple provinces, these countries require multiple strategies to meet the needs of their diverse populations. It is similar to, and perhaps even more heterogeneous than, the fifty distinct states in the United States. Thus, companies may need to deal not only with the difference between these new destinations and their own culture, but they also must learn to navigate the different cultures within one new market. In these cases, a viable alternative is to engage with local partners that know the market and have deployed the distribution net your product needs. This does not mean giving up your rights or locking into unnecessary associations; it means supporting your business with the necessary expertise and getting temporary assistance whenever it is needed.
While particularly relevant when it comes to entering large and diverse markets, local partners can provide invaluable assistance in any unfamiliar setting. ASEAN, for example, is an increasingly attractive investment destination, with a population of nearly 700 million and an area of 4.5 million sq km (1.7 million sq mi). ASEAN generated a purchasing power parity (PPP) gross domestic product (GDP) of around US$10.2 trillion in 2022, constituting approximately 6.5% of global GDP (PPP). This population is approaching the total from Europe and is expected to surpass it soon. A local partner can help you mitigate differences between and within countries in the region, and help you optimize your investment through in-depth knowledge of market trends and regulations specific to your industry.
Reducing Risk to Your Company
Every enterprise has different risk sensitivity. Despite the cautionary call, even today, many trade and FDI decisions are made based on gut feelings. The decision maker “knows” the company has to be in a specific market and activates the mechanisms to move into that geography. In some cases, a market analysis teeming with confirmation bias may be done, so that sales projections extracted from inadequate research or even thin air multiply without cause, giving the impression that the market may absorb anything. It is tempting to think that your product will work in every country the same way it does in yours or those similar, and then to apply this thinking to the game of numbers. For example, an easy misconception is that, if in your country the sales are at a certain level, then in superpopulated countries like China, with more than a billion people, sales will skyrocket, even if only 0.1% make a purchase. Why not, after all? We are talking about our product, an excellent product, and the percentages we apply are lower than what we are seeing in our current market. Rarely does one consider the varying consumer tastes and preferences. In some cases, the results are catastrophic.
When considering entry into new foreign markets, it is imperative to understand if you are ready for the challenges of the new market, as well as to be aware of the many tools available to you to improve your likelihood of success.
What Tractus Can Do
Tractus can help you to analyze the new markets, understand if your product can prosper, and find the appropriate distributors and partners that can move your product in a feasible way and quantities that provide the ROI your business requires. With offices worldwide and more than 25 years of experience, Tractus is the one-stop consulting firm that will help your company expand your business around the world.
Authored by
Herminio Andres is China’s Country Manager based in our Shanghai office.
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