Market entries can be at the core of a company's strategy for years and involve huge amounts of money. For instance, Uber has raised more than $20bn since it started its international expansion in 2011. And it is likely to raise even more in the future to try to strengthen its foothold in Europe, Asia, etc.
Market entries are uncertain situations and can therefore be quite stressful for executives. They can literally make or break companies. As a consequence, top consulting firms such as McKinsey, BCG and Bain are often brought in to help during these key moments.
There is therefore a good chance that you will come across a market entry case at some point during your consulting interviews and it is important that you prepare for this situation. Let's first analyse what framework you should use in your market entry cases. And let's also discuss a few examples of successful and failed market entries and try to learn from them.
Market entry case framework
There are two broad types of market entry situations companies face:
- Entering a new geography. For instance, Uber entering the Chinese market.
- Entering a new product category. For instance, Apple launching an electric car.
In both cases, partners at McKinsey, BCG and Bain tend to broadly analyse the same four areas in their framework. Let's step through each of them one by one and list the questions you'd want to answer for each category.
The first area consultants typically analyse in market entry cases is the market. This is extremely important because a big part of the success or failure of the new venture will depend on broader market dynamics. Here are some of the questions you could look into:
- Who are the customers? And what products do they buy today?
- How big is the market? And how fast is it growing?
- How profitable is the market? And is its profitability stable?
- How intense is the competition? Are there more and more players?
- How heavily regulated is the market? Are there barriers to entry?
|Note you can get inspiration from Porter's 5 forces for this section of your framework. If you would like more details about it, you can read our case interview frameworks guide.|
Second, once they understand the market in detail, consultants typically try to figure out how hard it will be for their client to win in that market. This is important because a market can be very attractive but the company might not have the required capabilities to succeed in that market.
- What are the main differences between the company's current market and the new market? How difficult is it for the company to develop / hire new capabilities to adapt to these differences?
- Has the company ever done any new market entries in recent years? If so, how successful was it and what has it learned?
- Have other people similar to the client tried to enter the new market in the past? Is there anything we can learn from their attempt?
The third important area to analyse is the financials. Your objective here is to understand how attractive it is financially to enter this new market:
- What's the current financial situation of the client? Does it have spare financial resources to invest?
- How much will it cost to enter the new market (e.g.: setting up new factories, recruiting a team, etc.)?
- What will be the ongoing costs once the market is entered (e.g.: variable cost of manufacturing, advertising to build brand, etc.)?
- What are the expected revenues from the new market? Through which channels / customers will they be achieved?
- What is the overall Return on Investment we can expect from the market entry?
4. Entry strategy
And finally, the last area consultants typically analyse is HOW to enter the market. Planning the exact operational mechanics that will be used is key in order to succeed.
- When should the company enter the market? Is there a first mover advantage or is it better to wait for a few competitors to try first?
- At what speed should the company enter the market? Test a region first, or enter the whole market at once?
- Should the company establish its own entity and have full control? Or should it buy / build a Joint Venture with a competitor?
- Should the company control the market entry from its head office? Or should it give a lot of freedom to the new country manager?
It is almost impossible to cover all these aspects in a 40mins case interview. Once you will have laid out your framework, your interviewer will then typically make you focus on a specific area of the framework for the rest of the case. This is usually the market, or the financials. But can also sometimes be the other two points.
Market entry examples
Now that you know what framework to use in market entry consulting cases, let's take a look at a couple of successful projects, and a couple of failures. As you read through these cases, we'd encourage you to take a few minutes to apply the framework above to the company we are describing.
Success #1: Starbucks in China
For thousands of years, the Chinese have produced and drank tea. When Startbucks announced it would enter the market in 1999 most people doubted it would be successful. Indeed, coffee had always been a distant second beverage compared to tea in the country.
So how did the American brand manage to grow from 0 stores in 1999 to more than 1,500 today? How did it manage to sell coffee to a nation of tea drinkers?
The answer is that Startbucks understood they were not selling just coffee, they were selling an experience. To be more precise, they were selling a "third place" that is neither home nor work, and where one can feel comfortable spending time with friends. And it turned out the Chinese needed this "third place" as much as anyone else.
Success #2: Redbull in the US
Redbull's market entry in the US has been so successful and smooth that many Americans don't realise it is actually a European company (Austrian to be precise). When it first got into the US, the energy drink category was almost did not exist. And giants such as Coca-cola were dominating the beverages industry.
So how did the small Austrian company manage to become a household brand with a strong followership?
The answer is that Redbull knew it would not be able to compete in mass-market advertising and decided to innovate on marketing. Instead of running ad campaigns on TV it started sponsoring extreme sports competitions (e.g.: cliff diving, surfing, etc.) which made it stand out as a very differentiated brand and eventually contributed to its success.
Failure #1: Uber in China
China is one the most attractive ride-hailing markets in the world. It has one of the highest population densities, and about 10 of the 30 largest cities on the planet. This makes it an ideal playground for companies like Uber and in 2013 the American start-up decided it wanted a share of the market and started investing heavily. But in 2016, after 3 years of efforts, it had to pull back and sell its Chinese business to a local competitor.
So why did Uber fail in China? What should it have done differently?
The main reason is timing. When Uber entered the Chinese market, there was already an established and well-funded brand called Didi Chuxing. Uber and Didi faced off for three years but the American company never managed to acquire more than 20% of the market. In 2016, it was already losing $1bn in the country and had to sell to its local competitor to refocus on other international markets.
Failure #2: Fire Phone by Amazon
Amazon was extremely successful with its e-reader Kindle. So in 2014 it decided to try to enter the phone market. This was a risky move but the Seattle company thought it would be able to replicate its Kindle success in a different market. Unfortunately it wasn't and it had to discontinue the production of its new phone only 13 months after it started.
So why didn't Amazon manage to replicate its Kindle success? What was different about mobile phones?
The main reason is the intensity of the existing competition. The Fire Phone was a good phone but a lot of good phones were already available (e.g.: the iPhone). That wasn't the case in the e-readers market where the Kindle really made a big difference when it launched.
Market entries can make or break companies and executives sometimes feel they need support from consultants in these situations. You should therefore expect to come across market entry cases during your consulting interviews.
Getting familiar with the framework we have laid out above is a good idea. But as we have already mentioned in the past, you should not reuse frameworks as is in your actual interview. You should customise them as much as possible to make them relevant to the problem you are trying to solve.
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What's your framework for market entry cases?
What is the framework you use for market entry cases? Do you agree with the one we are suggesting? Let us know below and our team will answer any questions you may have.
The IGotAnOffer team