Uploaded by Pratik Wadivkar

10. Market Entry Cases

Management Consulting and Case Solving
for Dummies
10. New Market Entry Cases
Issac Jojy
PGP 2014-16
In the previous document on “Growth Strategy Cases”, I had mentioned that as part of formulating
the long term growth strategy for a client, Market Development and Diversification are 2 options.
Both of these options involve the client entering new markets using different tactics. This document
will give you a broad framework on attacking New Market Entry Cases. The 5-step framework that I
keep on using (it was compressed to 4-steps in the last document, but I’ll be calling it the 5-step
framework just for simplicity) can be used here as well.
New Market Entry Cases: The client wants to enter new markets as part of its growth strategy. The
client has data available on its current capabilities (What all the client is good at currently, what all
markets the client is actively playing etc). You’ve been hired as a consultant to help the client make
the decision on whether to enter the new market or not and if yes, how to enter the new markets. Let
me discuss the broad approach before going forward using an example.
Background: Assume that you are the CEO of company ABC. Suppose the company is into the tyre
manufacturing and sales business and ABC is based out of India. Now, as part of your formulating
your growth strategy, you get some preliminary data showing that the tyre market in some European
country – Let’s take Spain - is good and you have a gut-feel that you want to try entering the Spanish
tyre industry. But you have share-holders and the board of directors of your company to convince
why they should let you enter the Spanish market. If you were the sole-owner of the company ABC,
you can do whatever you want with your money. But since there are a lot of stakeholders involved,
you just cannot take a decision based on your gut-feel. You’ll have to submit a report to the
stakeholders, who’ll approve the decision to enter the Spanish market or not. Additionally, you’re also
not completely sure whether the Spanish market is worth entering because your gut-feel is based on
one preliminary data source which stated that the Spanish tyre market is attractive. So you need to do
some rigorous analysis before going to your shareholders/board of directors. The board of directors
have agreed to invest in the Spanish market if and only if the CEO proves to them that in 3 years, the
investment will give 5X return. (Invest Rs 100 now and get revenue of Rs 500 by the end of the third
year). You do not have the people or resources in your company to do all this rigorous analysis and
because of the same economies of scale reason (I think this is the third time I’m mentioning this :P),
you get an approval from the board to hire some top consulting firm to help you out with this problem
because a wrong decision can cause the company huge losses and can even take down the company.
Because the economies of scale reason, the consulting firm will know the Spanish market much better
than company ABC’s CEO. So you hire some fancy consulting firm and you tell the consulting firm
“I feel the Spanish tyre market is good, but I’m not sure how good it is. I want you to help me in
deciding whether to enter the Spanish market or not. Just to give you an idea about our company ABC
- In India, we’re in the top 3 when it comes to market share and we’re really good and capable. But
we need to grow to increase our stock price and the Indian tyre market seems to be stagnating with
sluggish vehicle growth rate (hypothetical). We need more revenue generation options and I feel Spain
is a good target. Please help”. It is such a big decision for the client and the consulting firm has to be
as rigorous as possible in the analysis that will be given to the CEO of ABC and based on the analysis,
the CEO will decide what to do. The consulting firm does the analysis based on extensive research,
helps the CEO convince the board, invests in the Spain tyre industry, and gets the 5X return in 3 years
and the head of the team who executed this project for the consulting firm is interviewing you during
your summer placements and asks you the question
“Your client is into the tyre industry and based out of India. They want to enter the Spanish
tyre market. Please help them out to make this decision” You are the candidate being interviewed
and you have no absolutely no idea about the background. Let’s solve try solving this case using the
same approach we used earlier and in the process, I’ll tell you whatever concepts and learnings for
New Market Entry cases that I remember in the process of solving this case. The learnings for New
Market Entry cases will be slightly different from the previous types of cases. So ensure you segregate
and write them all down on your case prep notebook.
Step 1: Understanding a bit of the client business context:
1. Clarity on the objective: Unlike profitability cases or growth strategy cases, where the objective
functions are very clear (Profits and Revenue respectively), in this case the objective function based
on which the client will be making the decision is not clear when you listen to the case question.
It is based on this decision metric that we’ll have to reverse engineer from the objective function
to solve the case. So I believe the first question the candidate should ask is with regard to what
the objective function or decision metric for the client is. It can be something like
Candidate: “Before proceeding with structuring my thoughts and solving the problem, can I
know what our objective is for solving this problem or what the key decision metric is based on
which our client will take this decision to enter the Spanish market?”
Interviewer: “The investment should give the client a 5X return in 3 years. This is your objective”
Please note that this is just an example. There are a lot of possibilities when it comes to the
objective function / key decision metric for new market entry cases. Few of them are
• Break-even the investment at the end of 2 years
• Be the top player in the Spanish market by the end of 5 years
• Capture 40% market by the end of the 3rd year. These are all just examples, but the point of
giving you this is to make you realize that unlike profitability and growth strategy cases, the
objective function in new market entry cases is something you will have to ask in case the
interviewer doesn’t make it clear in the case question.
2. Then as usual you need to know a little bit about our client. So the candidate asks permission to
understand the client context before proceeding with structuring and problem solving, post which:
Candidate: “Thanks for making the objective clear. I’d like to know a little bit about our client
and the context in which the client is currently functioning. When you mention that our client is
in the Indian tyre industry, can you give me some more clarity on our client’s business scope –
Whether the client is into only manufacturing OR manufacturing and sales etc. Also, I’d like to
know about the capability level of our client in the Indian industry”
Interviewer: “Client is into tyre manufacturing, sales and marketing in the Indian market. The
client is really capable. They’re in the top 3 in the Indian market”
3. Why the new market? - This is something that needs to be understood early. Just because the
interviewer says Spanish market doesn’t mean that you need to accept it. You can probe a little
Candidate: “Ok. That gives me a lot more clarity. Another question I have is why the client wants
to enter the Spanish market. Do we have any data from the client indicating why the Spanish
market is a potential target and not any other market. What about the Indian market itself?”
Interviewer: “The Indian tyre industry is slowing down and the client does not see more growth
here. There’s a preliminary report the client had access to which showed the countries which will
be growing fastest when it came to tyre selling. And Spain was on top (hypothetical). That is the
reason the client is interested in the Spanish market. Nothing else” please note that there could be
several other reasons as well depending the Background.
In all the cases I’m writing here (ABP, Park&Eat, ABC tyre company etc). I myself am creating
the data hypothetically. So I’ll naturally know where to draw the line between Step 1 and Step 2 in
terms of probing about the client context. When you actually solve cases, this judgment on where
to draw the line is something that will come ONLY with practice. So anyway, here the basic client
context is understood by the candidate. So the candidate moves on to Step 2
Step 2: Set the objective(s)/goal(s) function
Candidate: “So before proceeding further, let me just summarize our objective – Our client, a top
indian tyre company into manufacturing and sales of tyres wants to evaluate whether entering the
Spanish tyre industry is worth it. The decision metric is whether the client will be able to make 5X
return in 3 years. Is that the only objective? Else can I proceed forward, take a few seconds, structure
my thoughts on how to solve this problem?”
Interviewer: “Yes. Please go ahead”
Step 3: Reverse Engineer from this objective function ONLY based on data, ensuring MECE
at each stage to drill down to the core problem(s)
The approach is exactly same – Reverse engineer from the objective function. But the tool that is most
commonly used for New Market Entry cases is different as compared to the other cases. Think about
it objectively – Imagine you had a company and you were deciding whether to enter a new market,
the parameters that you’ll evaluate can be broadly classified under 2 verticals – Market Attractiveness
and Competitive Positioning
Market Attractiveness: As simple as it sounds – We need to evaluate whether the market is
actually attractive to get into and invest. This has broadly 2 components which have to be evaluated
together to describe whether the market is attractive
Market Potential: First and foremost, the market should have enough potential. That is evaluated
as part of understanding the attractiveness of the market. The Indian Cigarette industry has
immense market potential. In an actual consulting assignment, the market potential is evaluated
by doing this exercise called Market Sizing. I did a market sizing exercise during my internship and
it took me a week to complete it. Market sizing is part of the reverse engineering from the objective
function. For example, suppose our client wants to evaluate whether to enter the Indian Cigarettes
industry, the market sizing would involve calculating (based on data-based assumptions) an
estimate of the total revenue available in the Indian cigarette industry. Market sizing is extremely
important in new market entry cases, because it provides the start for all the further analysis.
Anything wrong in the sizing can screw up the entire analysis that follows and naturally the
recommendations will also be screwed up. In consulting case interviews, the ability of a candidate
to do the market sizing is tested using something called “Guestimates”. Broadly the intent of
giving guestimates is to see whether the candidate has the ability to think sequentially using data
and numbers to arrive at market sizing figures. In the Indian cigarette industry example, a simple
guestimate question that can assess a candidate’s ability could be “How many smokers are there
in India?” It sounds like an open-ended question but just by multiplying this number with the
average price of a cigarette, you can size the entire Indian cigarettes industry, which can be used
by say a European cigarettes company to evaluate the market potential of the Indian cigarettes
industry. But the point is first and foremost, market potential of the industry/target segment needs
to be assessed. Analyzing the market potential in actual consulting assignments might take
days/weeks. It is crucial and hence guestimates (back of the envelope calculations) are given as
consulting case questions during interviews. Guestimates are covered in more detail in the next
document. In addition to market sizing, certain other important parameters that are assessed in
this section are growth rates of the segment (in actual assignments, this data usually is captured
from various industry analyst reports that market research firms generate), profit margins in the
segment (in an actual assignment, this data can be captured by checking the industry average profit
margin available in analyst reports, highest competitor profit margin from their annual report) etc
Industry Forces: The next part is that the effects of prevailing competition and effects of industry
forces of the new market should be evaluated (Porter’s 5 forces will be taught in Competition and
Strategy – Term 2 – Read the revolutionary HBR article - This was discussed in brief in Document
8 as part of External factors affecting an industry) The Indian cigarette industry is an example of
an industry with immense market potential, but due to the Industry forces like government
regulation giving almost a monopoly for 1 company and preventing entry of new players, the
attractiveness of this market is reduced bigtime, although the market potential is extremely high.
So even if the European company mentioned in the previous sub-section understands that the
market potential is high in India as a result of the data from market sizing, the evaluation of the
Industry forces make it clear to the European company that the attractiveness is low. In an actual
consulting assignment, market sizing and evaluation of effects of industry forces might happen in
parallel and not necessarily sequential depending on the client context.
So after evaluating the market potential and effects of industry forces, the market attractiveness is
assessed. This a qualitative assessment based on data. It is not like we can say the market is 20% or
80% attractive. Based on the data as part of the above analysis, we usually say that the market
attractiveness is high or low. This is a basic way of defining market attractiveness. There are more
advanced ways using different theories. It is a little complicated and for the purpose of this document,
we’ll just categorize markets attractiveness to be just high or low based on the above data based
analysis of Market potential and Industry forces.
Client’s Competitive Positioning: Just because a particular market or segment is attractive
does not mean that the client should get into that market. Here is where the client’s current
competitive positioning comes into picture. One needs to analyze what the current capabilities of the
client, which can help the client tap into the attractive market. Say for instance, hypothetically we have
a Indian client who is into the soap industry wanting to invest in the Spanish tyre industry and another
client (ABC company which we had discussed earlier) who is an Indian tyre company wanting to enter
the Spanish tyre industry. The capabilities that the client has in both these cases are extremely different.
For the soap company, you can expect the capabilities that it currently possesses to be very different
from the capabilities required to succeed in the Spanish tyre industry because it is a completely
different industry, where for ABC company, there will be a lot of its current capabilities that it can
utilize if it decides to enter the Spanish tyre market. So, the point is that market attractiveness is only
one component. The other important component is the current client capabilities (current competitive
positioning of the client). More on this will be discussed in your Competition and Strategy course
(term 2) as part of a concept called the resource based view of a firm. This part of the course might
happen only after your summers, so I’ve just covered the very basics here that you need for your
summer placements. If you’re interested, you can read up your Competition and Strategy text book or
just google about the resource based view of the firm. So, broadly depending on the above 2 analysis
of Market Attractiveness vs Competitive Positioning, a 2X2 matrix. Consultants love 2X2 matrices.
Lol. The main reason they love 2X2’s is that they ensure MECE of all options possible in a very simple
elegant manner. So, I don’t really blame them for having a fascination towards these matrices. I myself
use a lot of self-created 2X2’s for different purposes.
In the next page, I’ve given the screenshot of a framework to handle market entry cases that I got
from an ICON document (attached Document 15) The above 2X2 matrix along with the framework
will give you a clear direction on what all questions to ask in Step 3 as part of drilling down. The only
thing missing in the below framework is a details of current competitive positioning of the client.
Hence, I discussed about that in the previous paragraph and explained why the above 2X2 will be
useful. After this 2X2 analysis, what comes out is whether to enter the market or not – Whether it is
a yes or a no. You’ll get more clarity in the next section.
Step 4: How to Enter the Market (Again, the 5-step framework is modified here to tailor it to the
New Market Entry Cases). Coming back to our tyre industry example
1. Suppose the market attractiveness itself is extremely low, the decision to enter would be NO.
2. Suppose the consultants do a market sizing and industry analysis, understands that the Spanish
market is really attractive. That means that there is a possibility to enter the market. Then, to
proceed forward, the consultant does a competitive positioning analysis to see what the current
capabilities of ABC Company are in entering the Spanish market. - what follows as a result of
this 2 X 2 is Step 4 – which is the answer on How to go about entering the market.
a. Suppose the current capabilities are too less and the investment involved in building the
capabilities to the required level is expected to be huge, the recommendation might be NOT
to enter the market.
b. But if that gap is not too less, there are multiple paths through which that gap can be bridged.
Some of the most common paths include the following and the decision to go for which of
these paths is again based on a cost-benefit analysis of investment vs return on investment.
You don’t have to worry about having to do all this analysis during your 20 minute case
interview but you should know broadly how to do it, in case the interviewer asks you a broad
i. Starting from Scratch – The tyre company decides to invest a lot of money directly in the
Spanish market by building capabilities in Spain itself. For example, the Indian company sets
up its own manufacturing plant, employees people and managers, sets up sales and
distribution channels and does everything from A-Z
ii. Joint Venture: Partnership of the Indian tyre company with some other company in Spain.
For example, the Indian tyre company can export its tyres to Spain. The Spanish company
(which was probably already into sales and distribution of various products in Spain and
tyres was one product) can assist with sales and distribution in this partnership and the
revenue can be shared on some agreement basis.
iii. Acquisition: Indian tyre company can acquire a loss-making tyre company in Spain, revamp
the processes of the loss making company and ensures that the Spanish market is tapped
into. The below is the framework from the ICON document which kind of captures all that
has been discussed above. The 2X2 is not captured directly in this below framework. Use
the learnings from whatever I’ve discussed above and the learnings from this below
framework and practice cases to create your own framework.
That’s about it when it comes to New Market Entry Cases. All major concepts have been discussed
above. All that’s pending for you – practice. What I did not cover in detail is how to do guestimates
which is the core basis of market sizing which is extremely important when it comes to evaluating the
market attractiveness.
So, next up - Guestimates