Saturday, January 10, 2009

Success factors for foreign market entry

I was reviewing a 10 year old publication I wrote for the Australian government this week. (http://www.dfat.gov.au/publications/catalogue/eaaubp10.pdf). And while the data is dated I was struck by the fact that the success factors and pitfalls I listed remain timelessly relevant - no matter which foreign market you're trying to enter:

Success Factors ...The basic ingredients for successful entry into any market are especially valid when targeting Japan. In particular, companies have failed in Japan because they did not devote sufficient time to preparation (ie, gaining an understanding of the market and developing an appropriate market entry plan). This is especially crucial for entering the Japanese housing market.

Long-Term Vision, Long-Term Strategies
A long-term perspective with targets and strategies to:
· know the market, the competitors, the competitive advantage
· identify and qualify opportunities, target market segments, develop specific goals and tactics
· meet long-run goals by achieving short-run rolling plans
· develop team vision for the whole enterprise or project.

Capabilities
Measure resources and risks to identify and ensure:
· adequate capital to sustain market penetration and setup costs
· necessary human resources with the appropriate leadership and creative ability, technical, interpersonal and language skills, and willingness to adapt to client's culture
· reliable network of materials suppliers and sub-contractors (whether in Australia, Japan or
elsewhere) to meet demands and scale of operating in Japanese market.

Commitment
Recognise necessity to have:
· expectation that establishing a market position and achieving profits may take several years
· an ability to interpret short-term results in the longer-term perspective
· ability to evaluate, refine and continue to monitor market information with the aim of constant improvement.

... and Common Pitfalls and Problems
Not surprisingly, there is a wide range of pitfalls and problems that can impede a foreign company’s successful entry into the Japanese market, quite apart from the regulatory and technical issues referred to earlier. However, the majority of these can be minimised or avoided by proper research, planning and preparation.

Some of the most common pitfalls and problems include:
· inexperience in dealing with a foreign culture and in particular the Japanese business environment, as well as lack of suitably skilled staff, leading to misunderstandings with Japanese clients and contacts
· unfamiliarity with, and insufficient research beforehand into, the basic processes of exporting, resulting in delivery delays, errors and mishaps
· insufficient attention to proactively managing transport and logistics to ensure safe and timely delivery of products to Japanese client
· delay in responding promptly and fully to all communications from Japanese client
· insufficient flexibility and preparedness to modify one’s products and services to meet the precise specifications and high quality standards of Japanese customers
· over-reliance on a competitive price alone as the principal selling point of one’s product or service
· insufficient understanding of the high minimum quality standards expected in Japan for any product or service, regardless of low price
· insufficient differentiation of one’s product in terms of design, materials, novel features or functions, and assembly techniques and packaging
· inability or reluctance to meet after-sales service expectations
· insufficient staff with necessary skills to satisfy high Japanese standards and expectations of customer service
· difficulties in training Japanese labour in construction methods and material usage.

Some Australian companies have already encountered a number of these problems, including cases where the problems put an end to an Australian company’s efforts to tackle the Japanese housing market for the time being.

The Fundamental Pitfall - Inadequate Financial Planning
Probably the most common and fundamental problems encountered are financial ones, ranging
through:
· insufficient basic capital allocation for a long-term market entry strategy and all the costs involved, with sometimes a two or three year wait before making a profit
· unpreparedness for the many hidden costs that can arise, most commonly in shipping and warehousing, as well as in developing and maintaining a commercial relationship with the Japanese partner
· strong pressure from Japanese customers/partners to reduce prices, which can significantly erode the foreign supplier’s profit margin
· failure to plan around a considerable range of possible foreign exchange movements - for example, the yen has moved from Y80:US$1 in mid-1995 to almost Y130: US$1 by late 1997 (and from Y60: A$1 to as high as Y90: A$1 during the same period).