Waterfall market entry strategy
Waterfall market entry strategy is sequential business expansion to foreign markets. Its main characteristic is the use of clearly defined entry stages and the sequential use of experience: the knowledge obtained during one stage is used to enact the next one.
In this case, each stage is represented by a single foreign market. First, a company enters one foreign market, establishes itself, promotes the product and builds a client base. When the company feels comfortable in this market and its position is stable, the business can be expanded into the next market, using the previously gained knowledge. This reminds of a multi-layered waterfall, where water passes through each stage before it reaches the final destination, hence the name of the market entry strategy.
Implementation
The waterfall market entry strategy is best suited for companies, who produce products with a long life cycle or whose products are in the maturity phase. As the waterfall market entry implies longer time of establishing and building up a client base, long life cycle ensures that the product is not removed from the market before the prospects of the business are stable. A product in the maturity phase, on the other hand, ensures that by the time a company enters a foreign market, the product is ready to be sold. If it gains enough popularity, the product's life cycle across all the markets will be prolonged.
Another point to consider with waterfall market entry strategy is the choice of foreign market. Initially, it is advisable to chose a foreign market that is very similar to a company's domestic one. This minimizes a number of risks, such as consumer purchasing culture discrepancy risk and the risk incurred by different currencies. After establishing itself in this foreign market, a company can take the next step and incorporate in another market, that can be similar to either the domestic one, or the previous one. Such a gradual approach ensures smooth transition, as the business environment of a new market will never be drastically unfamiliar. Exotic foreign markets are a lot more understandable, if they are approached through other markets, gradually transitioning from familiar to unfamiliar.
Advantages
The waterfall market entry strategy allows revitalizing products in the maturity stage, prolonging their life-cycle, while maintaining a stable position within the market. As only one market is entered at a time, all the business expansion resources are concentrated there, which minimizes risks. Besides that, as markets are chosen so that each next one resembles the previous one, the transition to farther, more exotic markets happens more gradually, without incurring additional risks connected with unfamiliar business environments.
The waterfall market entry strategy is also distinguished by the accumulation of business expansion knowledge. Business skills from domestic market are used to incorporate in the first foreign market. The additional knowledge gained there is used in the market, and the process is repeated for as many times as there are foreign markets entered. Such an accumulation of knowledge of business expansion knowledge allows making the risks smaller for each entry, which makes the waterfall strategy especially advantageous in the long run, being suited for businesses who plan to enter a significant number of markets.
Disadvantages
As the waterfall market strategy implies entering only one foreign market at a time, it leaves little room for failure. If a business is forced to withdraw from a foreign market at the initial entry stages, the losses are comparatively small. If the company, however, has already invested significant resources in establishing itself, the costs of withdrawing increase significantly, and at the same time the company has no alternatives in other foreign markets. This is somewhat compensated, if a new foreign market is not the first, and the company has a solid background in other foreign markets, but this applies only to highly internationalized companies.
Another disadvantage is that a business potentially loses its first-mover advantage on other foreign markets, as it simply does not enter them. Competitors can enter other markets faster than the business in question establishes itself in a certain foreign market and is ready to expand elsewhere.
Other market entry strategies
The waterfall market entry strategy is only one of the possible options for expanding your business, which is why you might also want to read about other approaches:
