For manufacturers of fast-moving consumer goods (FMCG), expansion abroad is an interesting organic growth strategy, but not only: in addition to topline growth, other advantages of expansion include positive economies of scale, for example through larger quantities produced, and risk diversification.
Internationalization in the consumer goods sector is not just reserved for large companies, however. This strategy can also be attractive for medium-sized companies.
The only prerequisite is that
- a suitable target group and demand for the product on offer exist - at least latently - in other countries, and
- it is a differentiated product or a differentiated brand with high consumer relevance.
Internationalization is a comprehensive transformation
However, for the expansion project to be a success, it must be viewed as a long-term investment. After all, break-even is usually only achieved after five years. On the other hand, resources such as personnel or the budget for the expansion must be made available, which should not be adjusted in the short term. For example, it is always tempting to cut marketing budgets if sales fail to materialize. However, continuity is the top priority in the entry and development phase of a brand. After all, a "young" brand is a delicate plant that withers very quickly if it is not nourished. And this would quickly wipe out the marketing investments previously made.
And finally, it should be clear that internationalization triggers a wide-ranging transformation of the FMCG company. This affects structures, workflows and processes, but also the company's self-image. This means that internationalization is a matter for the boss: it must be the responsibility of the management. In addition, an internationalization strategy must be planned from the outset as a comprehensive transformation.
1. Identify relevant markets.
To prioritize countries for international expansion, you should first divide the countries into clusters according to their size ("Size of The Prize") and barriers to entry ("Low and High Hanging Fruits"). The market size and dynamics can be determined quite easily using secondary data (e.g. Nielsen). Barriers to entry, on the other hand, are about synergies with the domestic market, for example with regard to consumer behavior, trading partners or the legal framework. The intensity of competition and access to distribution channels also play a role. Here I recommend using Porter's Five Forces model.
The result is a compilation of relevant markets in terms of their priority and the way in which they are to be cultivated.
2. Define the entry strategy.
Entering a new market can be achieved in different ways. Examples include
- working with local partners or distributors,
- establishing a subsidiary,
- das E-Tailing,
- the establishment of a joint venture or
- the acquisition of a local partner or a local brand.
Each entry strategy has advantages and disadvantages and is subject to different conditions for success. For example, if you decide to build a global brand by acquiring a local brand that you then want to integrate via brand migration, you should consider its similarity to your own brand in terms of quality and price.
An entry strategy is not static, but can change over time, for example if you switch from working with a local distributor to founding a subsidiary. Every company should therefore always re-evaluate which path is the most favorable depending on the situation. In any case, the result of this process is a market entry strategy at company organizational level.
3. Create the business case.
Internationalization is a - significant - investment in the development of new sales and growth potential. In order to prepare a decision on how to proceed, you should evaluate this investment on the basis of a business case. This must contain at least two things:
- A preliminary investment and cash flow plan that would be continuously reviewed and adjusted as the project progresses.
- A feasibility study that identifies the resources and capabilities the company needs for international expansion and also confirms that these can be sourced.
Based on the business case, you can then decide for - or against - international expansion.
4. Build capabilities and resources.
Now it gets serious.
We are now in the implementation phase and it is time to build or acquire the resources and capabilities identified in the feasibility study. This could mean, for example, setting up a subsidiary, building a local sales team, hiring marketing staff with appropriate language and cultural skills, adapting the supply chain, defining processes and the like. The result must be a clearly defined team that is responsible for market entry and whose work is already taken into account in the processes and organizational flow.
5. Adapt the marketing mix to local conditions.
At an early stage, it is advisable to carry out first market research in order to get to know the target group and current trends in the target market better. You can then use the insights gained as a basis for adjusting the marketing mix. The rule here is: "As little adaptation as possible and as much as necessary."
- In the food sector, for example, the adjustments can relate to recipes that may need to be adapted to local consumer needs.
- In packaging, the challenge of local language must be solved via individual SKUs or language groups.
- A global pricing strategy is also required to counter possible price arbitrage by retailers.
- Suitable channels must be selected for communication and the campaign adapted to the conditions of the target market.
- It is essential to pay attention to the compliance with country-specific regulations, laws and environmental standards - an area that particularly affects formulations and packaging. In this context, it is also necessary to examine how product traceability and reporting can be ensured via individual SAP or GTIN-/EAN codes.
The result is a marketing mix, consisting of the product portfolio - i.e. the recipes and packaging -, the EIAs, the communication campaign and the sales strategy, which has proven itself in corresponding market research (in a full-mix test).
6. Market entry: Try - Learn - Succeed - Roll out
International expansion will not happen in a straight line! Rather, it is a process of trial and error and learning. The experience gained must not only be used as best practices for further expansion, but also integrated into the approach on the domestic market.
