Market Entry
Market entry strategy used to be a relatively straightforward undertaking of evaluating opportunities and risks associated with business expansion into new geographies. Back in the 80's and 90's, a large proportion of these endeavors to rapidly increase top-line growth were centered on entering fast-growing emerging markets, particularly China and its huge domestic market.
We have done our fair share of projects that have helped clients quantify overseas market opportunities and financial returns while navigating the risks inherent with exporting and adapting business models to very different social, economic, and regulatory environments.
But today's globalized and connected business context requires going beyond traditional analyses of country-risk and market forces. Additional critical success factors include leadership and talent management, sustainable development and environmental responsibility, as well as leveraging the power of information technology to anticipate and address fast-changing market needs.
As a result, the strategy of market entry has reached new levels of complexity and differentiation. Proactive moves to preempt competition from capturing market share in your core business or threatening your leadership in extended business segments where you are currently investing may have a higher impact on your company's profitable growth and future viability than expanding your asset base to cover more geographic markets.
Our international team of experienced professionals challenges conventional thinking. As trusted advisers, we provide not only the analytical fire power to think through strategic decisions but also an uncompromising focus on the bigger picture and what's right for the enterprise.
Growth Strategy
Gone are the days of double-digit growth in most sectors and all geographies, including China whose 12%+ average GDP growth over the last 15 years has pulled the world economy... and conditioned a generation of business leaders to look for "bright spots" on the world map to grow revenue.
With the sobering realization that low single-digit growth is the new norm for the foreseeable future, growth strategy takes a new meaning. Chiefly that growth is and will be much more about value creation than sales volume increase. Driving for profitable growth requires challenging conventional thinking. It starts with seeking non-complacent feedback and assessment on the current business and its ability to create and deliver value. Too often, leadership teams rely on internal metrics or expert opinions (so-called tribal knowledge) and fail to embrace an outside-in evaluation from customers and business partners to validate the extent and level of the added value their products and services bring to market. Outside-in perspectives and intelligence include actual competitive positioning and threats, as well as insights to guide innovation and business expansion or diversification.
Once an externally-validated gauge on the level of value creation across the business portfolio (i.e., what are customers willing to pay for, why, how, and for how long), strategic objectives can be developed and quantified. More often that not, this value generation assessment through the lens of external market forces helps identify low or negative value-adding activities (that are typically taken for granted internally as part of business legacy or "business as usual" mindset) and should be re-engineered in order to meet or exceed IRR (Internal Rate of Return) or discontinued if they don't have the potential to do so. This, in turn, will unleash productivity gains throughout the organization that translates in higher asset utilization (ROI) and operating profit (ROS).
This first set of strategic objectives centered on improving return on capital employed and sales by raising the bar on value creation addresses only one side side of the growth equation. The other side has to do with leveraging market and competition insights to identify and pursue areas of business growth. Again, a typically bias in corporate strategic planning is to focus on the "how" question before clearing addressing and aligning on the "what" question. As in: What business do we want to be in... 5 and 10 years from now? What are we best at doing and what else can we do to deliver value to our customers? What will our customers of the future need from us?
Capital Investment
Capital investment is usually intended as an acquisition of fixed assets, from equipment and machinery to whole manufacturing plants and equity stakes in other companies. But, it also involves managing and controlling valuable intangible assets, from technology and know-how to intellectual property and brand equity.
Whether the objective is to replace and upgrade a company's existing asset base in order to ensure the long-term viability and competitiveness of its operations, or to expand its business scope by acquiring all or part of other companies' assets, capital investment is a strategic decision that requires a holistic and balanced assessment of the return on the investment. This assessment goes well beyond the four walls of the enterprise: even replacing old equipment to improve quality and increase productivity should trigger an evaluation of outsourcing options as part of a well-underpinned and calibrated "make versus buy" business strategy.
When it comes to external growth, capital investment aimed at acquiring new capabilities, expanding on the scope of the core business, and conquering new markets, must satisfy a stringent set of analytical requirements. These include: 1. developing different scenarii to support the strategic objectives, 2. thoroughly and realistically evaluating risks and benefits under each scenario, 3. conducting sensitivity analysis by comparing the impact of key external variables (market demand and forecast, technology, competition, supply base, etc. ) under the best scenario, 4. applying stress tests towards meeting or exceeding financial targets like Internal Rate of Return (IRR), and 5. optimizing sources of funding and financing.
The first funding option is always a company's own operating cash flow. However, it may not be enough to satisfy the amount of capital investment required. External sources of capital investment are manifold and can include equity investors, banks, financial institutions, venture capital and other private entities. How much capital is required and over what time period is not just a tactical number's game. Resorting to outside financing, debt or/and equity to complement internal cash flow is a strategic mix decision that has critical implications on ownership and control. As such, optimizing the funding of any sizable capital investment initiative should be viewed as an imperative to support and reinforce CEOs' agendas on growth strategy and change management.
