Strategy & Organization Viewpoint

Heading for New Shores
A Pragmatic Approach for the Strategic Assessment of Foreign Markets

China has become the world’s second-largest economy – and is still on the rise, with double-digit growth rates. India’s
middle class is expected to reach 250 million people by 2015. The Brazilian unemployment rate is at historical lows, itsqualified workforce rare and its thirst for consumption big. The figures are well known, but still impressive. And they
are an indicator of a growing, not yet fully saturated demand for products of high quality and mature market standards.
Many companies have recognized the growing demand in growth markets, but not all of them have taken the initiative
to assess and enter these markets. Many are facing a simple obstacle: lack of market know-how due to different cultures,
heterogeneous market structures and complex competitive landscapes. Arthur D. Little has developed a proven pragmatic
approach and strategic toolbox to create transparency in regions where little information is publicly available.

Growth acceleration – but how?

recent years, these countries still have huge backlogs regarding
per-head expenses and per-head investments. The current
growth is partly due to increasing demand for products withquality standards equal or almost equal to those in mature
markets. This pattern can be observed in different countries andacross various product groups, such as automotive, consumer
goods, building material and many more. In some sectors – e.g.
automotive – the massive potential is already being exploited byinternational corporates. German cars, for instance, have beensold in Asia, the Middle East and the Americas since the 1980s.
Other industries – such as consumer goods – are far behind and
now recognize that attractive customer segments for mediumto high-quality products are surging in high-growth markets such

Growth can be achieved along different dimensions: within thecore business, through exploitation of new market & customer
segments and product and technology innovation, as well as inwholly new business segments (see figure 1).
Until now, most companies with origins in mature markets havegenerated the bulk of their revenues in developed countries.
Significant growth potential can be found in the developmentof new geographical markets, specifically high-growth markets
such as BRIC1 and MENA2. Despite remarkable growth rates inBRIC - Brazil, Russia, India, China
MENA - Middle East, North Africa

Figure 1: Priorities of growth and innovation leaders
Markets / Customers

12

NewNew
GrowthMarket development

Adjacent
Existing

Legend: Growth & innovation leaders put
significant more investment into indicatedareas

InnovationCorebusiness
Existing

Source: Arthur D. Little Growth and Innovation Survey; Study of over 400 companies

Modified/enhanced
Products / Services / Technologies

NewStrategy & Organization Viewpoint

Figure 2: Growth rates in selected categories 2013 - 2016
Growth rates, [Volume in kg/liters, year-on-year growth rate in %]181614121086420Example

17,9%

BRIC
10,3%

10,3%

9,7%

Mature1)
8,3%

7,5%

7,0%

4,3%
12,3%

2,5%

1,3%

2,1%

0,9%

5,7%

2,9%

5,2%

4,6%
2,4%

1,5%

4,4%

4,0%

0,9%

Spreads

Source: Euromonitor, Arthur D. Little research

Pasta

Mineralwater

SnacksFrozen Functional CarboFoods
Drinksnates

3,4%

2,6%
0,5%0,1%

0,3%-0,1%
Soups Fruit/Vege- Coffee
table Juice fresh

3,8%-0,1%
Dairy

IceCreamInstant Confect- Bakery
Coffeeionary1) Mature markets includes Japan, Canada, USA, Austria, France, Germany, Italy, Netherlands, Sweden, UK

as Brazil, Saudi Arabia and China (see figure 2). These markets
embody a latent growth potential for a variety of companies
seeking expansion possibilities.

Different geographical markets – similar problems
One of the major obstacles in the way of companies entering
foreign markets, especially growth markets, is lack ofappropriate and reliable market intelligence. The decision toenter new markets requires a comprehensive assessment ofmarket structures, customer demands, local competitors andpotential business partners along the value chain. Three mainquestions have to be answered:nn

Is the market attractive to my business/product?

nnWhat are appropriate market-entry options for my business?

nn

What does a potential roadmap for an effective and efficient
implementation look like?

Step 1: Gather market insights
At first, our strategic market assessment approach is aimed
at identifying the rationales of if and why market entry isviable. The respective markets will be assessed according tomarket dynamics such as market size, growth and trends,
the competitive landscape and profitability levels, customer
requirements, and regulatory conditions. The goal is an
overall assessment of the current attractiveness and future
developments of the respective markets and targetedsegments.
Growth markets often require triangulation between various
data sources to provide a valid decision-making basis. Therefore,
the market assessment is often based on macroeconomic
data, expert opinions and first-hand consumer information.
Based on segmentation, for example, relevant consumers canbe identified and interviewed, thereby revealing information
on current demand for the product, desired requirements, anddifferentiating factors in the current product landscape.

Valuable insights through a consistent approach

The key element allowing decisive insights into foreign
growth markets is the use and integration of local teams tocollect data from industry experts and customers. A physicalpresence in the target market allows for in-depth discussions,higher engagement of interviewees and, hence, much more
information depth and quality.

Figure 3: Structured three-step strategic assessment
1

MarketInsights

2

Attractiveness2

Heading for new shores

EntryOptions

Potential Partner Assessment
Overall Fit

Arthur D. Little has developed a pragmatic, time-efficient andconsistent three-step approach (see figure 3) for structured
strategic assessment of markets for which little data ispublicly available – a characteristic many growth markets havein common. The approach centers around two strategicallyessential dimensions from a company-specific point of view:Market attractiveness and strategic fit to the overall corporate
and business strategy and the company’s corporate culture.

Potential Partner Long-List

3

PartnerAssessment

Strategy & Organization Viewpoint

Gathering market insight to develop a regionalcommercial vehicle strategy for a leading German
OEM in six target markets in the Middle East (UAE,KSA, Iraq, Qatar, Kuwait and Oman)
Challenge: The six target markets lacked reliable data
sources (e.g. market reports, official registration data) for acomprehensive and valid market assessment.
Solution: Arthur D. Little developed a market modelbuilding on economic drivers (GDP), industry- and segmentspecific trends and product mix. Furthermore, selectedproxy data (e.g. insurance data in lieu of registrationdata) and expert interviews (customers, manufacturers,government, regulatory) were used to triangulate therequired information and forecast the market. To enhancethe overall quality of the model’s upselling potential, market
figures were calibrated with historical market shares.
Furthermore, in this step the current brand perception andproduct value proposition will be clarified and mapped with
consumer requirements in order to identify gaps, misconcep­
tions and other potential pitfalls. At the end, a clear picture of theattractiveness, market structure and dynamics, and buyer andcompetitor landscape is developed – as well as its capabilities
and resources to serve these markets and their requirements.

Strategic alliances have been proved as an effective andoften-selected instrument in our strategic market assessment
assignments. In order to find the right strategic partner, a long
list of potential partners is created for the developed marketentry scenario, including partners for distribution, marketing,production or other parts of the value chain.

Developing market-entry options in China
for a leading European construction material
manufacturer
Challenge: Development of market-entry options in aregion where no reliable data sources (e.g. market reports,published industry data) were available for the specificmarket and products.
Solution: Arthur D. Little defined a go-to-market framework
along all strategic dimensions (e.g. product, service
offering, positioning). Using pragmatic identification ofstrategic options for each dimension of the framework –e.g. premium/upper, middle/lower, middle/commodity for
product and home owners/developers/distributors/installers
for target channels – Arthur D. Little was able to build viable
and impactful go-to-market options through an in-depthanalysis of the ability to win. Evaluation of cost and benefitsof different strategic options led to the preferred pathway
for the client.

Step 2: Develop market-entry options
After the market attractiveness assessment, a review of thecurrent distribution and marketing channels indicates if andhow market entry can be conducted successfully. An analysis
of a competitor’s value chains and distribution structures brings
forth relevant insights. Combining these with expert opinions
on possible other channels, as well as good- and best-practice
examples of market entries, several scenarios of entry routes
are developed. The market-entry options for a company canvary from an organic entry to a strategic alliance, a joint venture
or acquisitions. Arthur D. Little possesses a large international
network that helps identify the most promising market-entry
options and the “ability to win” according to brand, product,service, distribution/logistics and channels.

Step 3: Identify potential partners
After the market attractiveness is assessed and potential
entry options are developed, partnering options are evaluated.
The long list of potential partners and options is screened
and ranked, based on a range of selected criteria according to
the market-entry scenarios. The most promising partners areevaluated in detail and finally contacted for an initial meeting anddiscussion of the specific entry scenarios (see figure 4).
Again, local insights from experts serve as the most importantpart in this step. As only expert and customer opinions canprovide information regarding subjective perception and cultural
fit of potential partners, publicly available information is only
partially suitable to gain an in-depth view.

Figure 4: Partner selection process
Long List

3

Heading for new shores

Geography

ChannelAttractiveness & Fit

Short List

Strategy & Organization Viewpoint

Identifying potential partners for a market-entry
strategy to Brazil for a leading European beverage
manufacturer
Challenge: Identification of potential expansion partners inBrazil, where reliable data sources for the beverage market
have been rare (e.g. market reports, consumer demand andpricing data).
Solution: In the first step, Arthur D. Little developed partnerarchetypes, i.e. integrated beverage companies, beverage
producers, distribution partners and retailers/commercialpartners. Afterwards, Arthur D. Little evaluated thepartners according to attractiveness/strategic fit to derivea comprehensive ranking, and then performed an in-depth
profiling of short-list partners. Furthermore, Arthur D. Little
formulated value propositions to partner archetypes (e.g. atechnology proposition to beverage producers/bottlers – inthis case, special cold-aseptic bottling). Short-list partners
were contacted and the discussions were moderated
during the partnering process.

ContactWilhelm Lernerlerner.wilhelm@adlittle.com
Central Europe

Petter Kilefors
kilefors.petter@adlittle.com
Nordics

Kurt Baesbaes.kurt@adlittle.com
Benelux

Antoine Doyon
doyon.antoine@adlittle.com
China

Assessing markets with local insights time efficiently
The success of market entry is, to a great extent, built before
the actual process starts. Our experience shows that it is not
sufficient to analyze macroeconomic factors such as market
size and development or segmentations; companies must reallyunderstand the difference of new customers, competitors andpartners in the targeted region. Therefore, it is crucial to deepdive when it comes to information gathering, assessment ofstrategic fit and selection of local partners. A strong informationbasis is the foundation for the following assessment steps,and requires local knowledge. Hence, suitable insiders andcustomers need to be identified and contacted, and the rightquestions have to be asked to make their knowledge usable.
However, with the “right” tools and methodologies, a valid
information basis can be built within a short period of time.

Possessing the “right” tools for market assessments
During recent years, Arthur D. Little has supported numerous
clients in their attempts to assess foreign markets and develop
appropriate market-entry strategies in the consumer goods &retail, food & beverages, automotive and construction industries
in countries such as Brazil, China, Saudi-Arabia and other MENA
countries. Arthur D. Little has successfully brought light into
unknown markets in a resource- and time-efficient manner,building the foundation for valid decision-making. The success of
our projects has always been based on local market insights, ourpragmatic market models and the multidimensional evaluationof strategic partners. Our mission is always clear: to createtransparency about the new “shores”.

Authors
Manuel Bender, Daniel Koob

Arthur D. Little
As the world’s first consultancy, Arthur D. Little has been at
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