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Cost of Entry: New Country Expansion

By: Greg Seminara,Export Solutions
Topics: Cost of Entry

There is a cost of doing business in each country in the world. Retail shelf space is viewed as valuable real estate and owners want to extract the maximum productivity from each centimeter of space. A frequent question is “What is an appropriate spend level” to enter a new country. Read below our tips at identifying an appropriate spend level for your brand.

Determining Category Sales -“Size of the Prize”
A first step is to estimate size of your category in the country that you plan to enter. Data may be sourced from syndicated data providers such as A.C. Nielsen, Government reports, projecting sales from one local retailer, or local distributors. Category sales normally grow through the excitement generated by the entry of a new player.

Align Brand Development Expectations
Exporters must identify their brand development expectations for the market. Normally, there are three different scenarios:
Category Leadership         Top 3 Category Brand         Niche Player
Each of these scenarios requires a different spending strategy.

Evaluate Existing Category Spending
Data exists to show media spending. Current retail customers can share input on standard category spend levels. Retail store visits will reveal discounts, special pack, and promotional campaign activity. Remember, as a new entrant, you will be expected to spend at a level higher than existing competitors. Additionally, existing brands often increase spending to thwart competitive entrants.

Identify Fixed Costs of Entry
Each country has certain fixed costs that are routinely paid by all new brands. This could include Product Registration Fees, Slotting Fees/Listing allowances, Shelf Space rental etc. Your local distributor can usually provide an accurate estimate for your category. It is important to separate which of these costs are negotiable.

General Guideline- Look at Your Home Country
Another useful benchmark is to look at the costs to enter your home country. Imagine what spending would be required for a new entrant to gain traction in your home country. Look at the 3 different scenarios: Brand Leadership, Top 3 Brand, and Niche Player. Take this projected spend level for your home country and adjust for population. For example, if you have a Preserve/Jam brand in France ( 64 million people) and estimate that it would take a competitor 500,000 euros to become a niche player in “Preserves” in France. This equation could suggest that it would take roughly 125,000 Euros to achieve similar results in the Netherlands, a country with 16 million people, or 50,000 euros to enter Paraguay, a country with 6.8 million people. Please note that certain markets (Italy, Hong Kong) feature a notoriously high cost of entry, while others (Middle East/Central America) have more modest requirements.

Good Distributors Stretch Marketing Budgets
Many Distributors ( Importers/Brokers) are masters at stretching marketing dollars to secure the maximum results based upon your allocated budget. Entrepreneurial distributors will accept a limited budget and create a plan to optimize your available investment, even if it is below thresholds. It is important to set approval/tracking mechanisms in place to insure transparency in marketing/trade spending.

Final Step: Calibrate Expectations to Spend Level
This is the cardinal rule. It is acceptable to set aggressive sales objectives when you are backing a brand with a serious investment level. On the other hand, it is unfair to expect miracles or category leadership with a modest spend level. Calibrating expectations usually involves some negotiation between partners. Trust your instinct as well as the expertise of your local distributor !