Strategy for International Expansion and Market Entry

2

A systematic approach to frame international expansion plans

Why grow? How to grow? Where to grow?

How to support growth?

A structured approach for identifying viable growth options will enable the organization to

— Identify relevant targets for profitable internationalization — Define actionable implementation plans

3

Key steps when thinking through expansion plans

Options for market entry Make vs. partner

vs. buy

Own brand vs. new brand

Organizational design

Timing

Assessment of attractive markets New products vs.

new customers vs. new markets

Strategic markets

Rationale for growth Revenue /

profitability targets

Competitive dynamics

Market potential

Scale economies

IPO story

Key Topics

Why grow? Where to grow?

How to support growth?

Key Analysis High level business case

Assessment of own capabilities

Market analysis

Competitor analysis

Revenue potential

Cost and profit calculation

Target prioritisation

Options for growth Fast growth vs.

profitable growth Ground rules Network design

(structure, development, etc.)

Operations/production management issues

How to grow?

Benchmarking

Risk assessment

Review of market entry strategies

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Why grow: Different motivations

Rationale for growth for incumbents:

Competitors enter home market – Expected losses in market share in home country can only be compensated

abroad

Growth of low cost competitors – Increasing competition might entail market share losses in the (international)

market

Leverage own asset base – Experience from past operations – Take advantage of opening windows in various countries – Leverage own brand name recognition

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Growth Options vs. Risk and Return (Illustrative)

Issues / questions

Return (Operating

profit, market potential)

Risk (Fixed costs, investments)

What are the correct risk / return-relationships?

What triggers choice of higher level option?

Which option fits best to the overall strategy?

How to grow: The approach to internationalization determines the risk involved

High Low Low

High

JV for small

operations 1 country

Own small operations 1 country

Several own

operations 1 country

Several JVs for

operations several

countries

Several own

operations several

countries

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Make Partner Buy

Full force

Staged development

Opportunistic

1 4 7

2 5 8

3 6 9

Mode of entry

Scale of

entry

How to grow: Options to enter a new market

Select suitable options based on company objectives and/or resources available

Describe attractive options in detail

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Outspending – New entrant has and is

willing to use superior resources

Redefinition: – New entrant re-defines the

competitive scope of activities – Redefined scope different from

incumbent

How to grow: Generic approaches for market entry

Reconfiguration: – New entrant innovates in the

way it performs activities – New entrant re-configures the

value chain

Possible Market Entry Strategies

Cost-control, price Superior service Fun customer experience New product development

(e.g. internet on-board) Innovative marketing, brand

communications Movement along value chain

Target and specific segment only

(e.g. 1st class, business only) Limit offer to route “archetype”

(e.g. high volume, leisure, geography) Industry scope

(broaden to related industry)

Only successful if outspending yields a lasting competitive advantage and incumbent would be unable / willing to keep up

Examples

1

2

3

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How to grow: Review of various market entry strategies (examples from transportation industry)

Possible Market Entry Strategies Description Observed so

far? Examples Rationale

“Point-to-Point Long-Distance Only”

“Cherry pick” attractive point-to-point routes based on high volumes, average prices, etc.

Yes Connex Rhenus

Keolis

Focus on most attractive / vulnerable routes

Low marketing leverage

“Regional-Base Expansion”

Create dense local / regional presence and use as base for expansion

Yes, limited Connex Possible:

Hamburger Hochbahn, Albtal, etc.

“Safer” entry into market, guaranteed income

Build critical mass, share of mind

“Public / Private Alliance”

State rail competitors seek “foothold” through nimble private competitors – Public / private combined

Yes, limited Georg traffic (with Swedish SJ)

Combination of local market knowledge and operational scale effects

“Market testing”

“Hub-Based Long-Distance Only”

Offer point-to-point city connections from central hub station

Not yet in railroads

Southwest Easyjet

Population-dense areas to serve as operational base, good demand

Marketing efficiency

“Add-On Passenger Services”

Market expansion on existing or new routes from cargo-service only basis

Not yet in railroads

BASF Eko Stahl Ikea

Gaining operational experience with “easier” type of service

Overview of Range of Likely Intra-Modal Market Entry Strategies

Note: Options are not discrete; competitors may utilize a combination of described entry strategies

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How to grow: Key questions of how to approach a new market

Market entry strategy

Current strategy

Market development Competitor strategy

Stakeholder strategy

Franchise evaluation

What are the objectives for market entry?

What is the necessary “platform” of capabilities to be successful in the new market?

What management resources are necessary to support the strategy?

What is the roadmap for a successful market entry?

What is the franchise situation?

Which franchises should be targeted? What are strengths

and weaknesses of current / potential franchisees?

Who are potential partners?

What are the levers to convince the local stakeholders?

What are requirements for successful franchise bids?

Who are potential partners?

How has the market evolved?

What is the likely future development?

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Selection

Analysis of Market Potential and Feasibility

Analysis of Competition and Market Entry Strategies

Where to grow: A structured selection process can identify most attractive target markets

Prioritize markets, where market entry appears feasible and competition seems favorable

Initial country list

Selection

Phase 1

Phase 2

Revised country list Prioritize regions, franchises, potential partners in selected countries

Gather and assess competitor data to benchmark competitor strategies

Assess market specific entry options

Prioritized list of targets Market entry strategy

“Masterplan” for internationalization

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Choices

JV with own brand

Acquisition

JV with other brand

Description

Acquire local company with attractive operations

Immediate additional capacity and market insights

Options

International takeovers, bids and franchises

Switch capacity from less attractive operations

Sharing the risk for the new operations

Build on perceived strengths

Organic

Get access to operations in order to gain market experience

Leverage (local?) brand

Partner

Buy

Make

2

3

4

1

How to support growth: Options to access capacity in order to support growth strategies