International market entry costs and investments
If you want to sell your products or services in a new market, you will need to invest in setting up your distribution and marketing. You may also have to adapt, certify or import your product first.
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)
Use our expertise in estimating your market entry costs
No one better than international marketing and partnership specialist Alfred Griffioen can advise you on the steps to enter the market and the related costs for your target country.
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
–Trade shows - Sell directly to the distributor and let him approach customers, support with marketing where needed.
2. Remote service
- Delivery is not different as for local customers
- Sales process is relatively straightforward
- Choice for internet sales, local distributors/agents or a combination
- For internet sales: set up payment process
- For local distributors/agents: set up an incentive structure and provide them with marketing tools
3. Product with Installation
- Product is relatively standard, possibly country or region specific
- Distributors need to be trained before they can sell or deliver the product
- Identify potential distributors and select one or a few
- Train the distributors and help them market your product
- Manage and evaluate your distributors
4. Customized product
- Client specific, made to order (bespoke)
- Distributors serve as the channel for your contact with the customer
- Decide upon distribution or agency agreement
- Set up exclusive distribution per country/region/market segment
- Negotiate a distribution margin
- Train distributors in the sales process
5. Customized Solution
- Although standard components may be used, strong interaction with the client is needed to get to the right results
- Consultative selling process
- Work with a dedicated and specialised local sales partner
- Fly in or relocate own sales support and project delivery staff
- Work on a joint marketing and sales plan that involves presentations, exhibiting at trade shows and collaboration with industry organisations
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 I build business cases and make these budgets for clients, I 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
For all of these I have benchmarks and experience from a range of clients.
