The three decisions
Entering a new market, whether a new country, region or customer segment, involves three linked decisions: which market to enter, how to enter and how to fund and manage it. A strong paper treats them in that order and shows that the logic connects. Do not start with a favorite country and justify it afterward.
| Decision | Main tools | Output |
|---|---|---|
| Where | Country screening, PESTLE, market size, distance measures | A shortlist and a chosen market |
| How | Entry mode comparison, break-even, control versus risk | A chosen mode and sequence |
| Whether | Financial model, risk analysis | A go or no-go with conditions |
Screen markets with a weighted scorecard
Begin with a long list and apply filters. Use must-have criteria first, such as legal market access and a minimum market size, and then a weighted score for the rest.
Country scorecard (hypothetical)
Weights: market size 30 percent, growth 25 percent, competition 15 percent, ease of doing business 20 percent, cultural and regulatory fit 10 percent. Scores 1 to 5.
| Criterion (weight) | Country A | Country B | Country C |
|---|---|---|---|
| Market size (30%) | 5 | 3 | 4 |
| Growth (25%) | 3 | 5 | 3 |
| Competition (15%) | 2 | 4 | 3 |
| Ease of doing business (20%) | 4 | 3 | 4 |
| Fit (10%) | 4 | 3 | 5 |
| Weighted score | 1.50 + 0.75 + 0.30 + 0.80 + 0.40 = 3.75 | 0.90 + 1.25 + 0.60 + 0.60 + 0.30 = 3.65 | 1.20 + 0.75 + 0.45 + 0.80 + 0.50 = 3.70 |
The scores are close (3.75, 3.65 and 3.70), which is an important finding: the choice depends on the weights and on facts the scorecard hides. Test the ranking by changing the weights, and use qualitative evidence such as a partner offer or a regulatory barrier to decide.
Measure distance, not just size
Ghemawat's CAGE framework looks at four kinds of distance between the home and target market. It helps explain why similar-looking markets turn out harder than expected.
| Distance | Examples | Impact on entry |
|---|---|---|
| Cultural | Language, religion, social norms, consumer taste | Product and message adaptation |
| Administrative | Laws, tariffs, political ties, currency | Entry mode limits, costs, risk |
| Geographic | Physical distance, infrastructure, time zones | Logistics cost, service delivery |
| Economic | Income, cost levels, resources | Pricing, positioning, cost base |
Add a PESTLE view of the target market for political stability, economic outlook, social trends, technology, legal environment and sustainability. For deeper industry analysis, see our strategy guide.
Choose an entry mode
| Mode | Control | Investment and risk | Speed | Best when |
|---|---|---|---|---|
| Exporting (direct or via distributor) | Low to medium | Low | Fast | Testing demand; high transport value; small markets |
| Licensing or franchising | Low | Low | Fast | Brand or know-how is the asset; local capital needed |
| Joint venture or alliance | Shared | Medium | Medium | Need local knowledge, access or approval |
| Acquisition | High | High | Fast once done | Existing customer base and capability matter |
| Greenfield subsidiary | High | High | Slow | Full control over operations and brand |
There is a trade-off between control and risk. Many firms sequence the modes: export first, then partner, then invest as demand is proven.
A worked comparison: export versus local subsidiary
Where does local production pay off? (hypothetical)
Export: price $100; product cost $50; shipping and tariff $20 per unit. Contribution = 100 - 50 - 20 = $30 per unit. Fixed market costs (distributor support, marketing) $600,000 a year.
Local subsidiary: same price; local production and logistics cost $60 per unit. Contribution = $40 per unit. Fixed costs (plant lease, staff, marketing) $1,500,000 a year.
Break-even volume: export 600,000 / 30 = 20,000 units; subsidiary 1,500,000 / 40 = 37,500 units.
The two options earn equal profit where 30Q - 600,000 = 40Q - 1,500,000, so 10Q = 900,000 and Q = 90,000 units. At 90,000 units, each earns 2.1 million. Below that volume export is better; above it the subsidiary is.
| Annual volume | Export profit | Subsidiary profit | Better option |
|---|---|---|---|
| 40,000 | $600,000 | $100,000 | Export |
| 90,000 | $2,100,000 | $2,100,000 | Equal |
| 150,000 | $3,900,000 | $4,500,000 | Subsidiary |
This shows why firms often export first and localize later. Add what the numbers miss: control over quality and brand, tariff changes, currency risk and the value of learning.
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Get an instant quoteCurrency exposure, worked
Entering a foreign market creates currency risk even if the plan is sound. Quantify it.
Currency effect on margin (hypothetical)
A product sells for 4,000 local currency units. At the planning exchange rate of 40 units per dollar, the price is $100, with a unit cost of $70 and a margin of $30.
If the local currency falls 10 percent, so that $1 buys about 44.4 units (the rate 40 divided by 0.9), the same 4,000-unit price is worth 4,000 / 44.4 = $90. With costs in dollars unchanged at $70, the margin falls to $20, a drop of one-third.
To restore the $100 dollar price, the local price would need to rise by 1 / 0.9 - 1 = 11.1 percent, which may not be possible in a competitive market.
Responses include pricing in dollars where customers accept it, sourcing costs locally so that costs also fall, hedging with forward contracts and negotiating price adjustment clauses with distributors. Discuss which fits your case.
Choosing a local partner
| Criterion (weight) | Distributor X | Distributor Y | Joint venture partner Z |
|---|---|---|---|
| Market coverage (30%) | 4 | 3 | 5 |
| Reputation and trust (20%) | 3 | 4 | 4 |
| Financial strength (15%) | 3 | 3 | 5 |
| Alignment of goals (20%) | 3 | 4 | 3 |
| Cost and control (15%) | 4 | 4 | 2 |
| Weighted score | 1.20 + 0.60 + 0.45 + 0.60 + 0.60 = 3.45 | 0.90 + 0.80 + 0.45 + 0.80 + 0.60 = 3.55 | 1.50 + 0.80 + 0.75 + 0.60 + 0.30 = 3.95 |
Partner Z scores highest but gives up the most control, so the paper should discuss whether the firm accepts that trade for coverage and financial strength. Due diligence on any partner should cover legal standing, other relationships (including competitors), references and the exit terms in the contract.
A staged entry plan with decision gates
| Stage | Action | Investment | Gate to proceed |
|---|---|---|---|
| 1. Test | Export through one distributor to one city | Low ($150,000) | 12-month sales above 60 percent of plan |
| 2. Build | Local sales team and marketing in three cities | Medium ($900,000) | Contribution positive in two of three cities |
| 3. Localize | Local assembly or subsidiary | High ($4 million) | Annual volume above the crossover point calculated in the model |
Link the last gate to your break-even analysis: if the model says the subsidiary pays off above 90,000 units, set the gate near that number with a margin of safety.
Marketing, operations and risk
After the mode is chosen, show how the firm will compete. Decide the target segment, positioning, local adaptation of the product and price, and the channels. Describe operations: sourcing, logistics, staffing, partners and the legal structure. Our marketing management guide covers positioning and the mix.
| Risk | Example | Response |
|---|---|---|
| Currency | Local currency falls against reporting currency | Natural hedges, pricing clauses, forward contracts |
| Political and regulatory | New import rules or ownership limits | Partner with local firm; stage investment |
| Demand | Slower adoption than planned | Pilot in one city; milestones before scaling |
| Competitive | Local rivals respond with lower prices | Differentiate; avoid direct price competition |
- Screen before choosing Show why this market beat the alternatives.
- Link mode to strategy Control, speed, cost and risk should match the firm's goals and resources.
- Phase the investment Use stage gates tied to measurable results.
- Include numbers Break-even, payback and sensitivity.
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