#1 Waterfall market entry strategy by BalticLegal 16.01.2023 22:22

The waterfall market entry strategy is a sequential business expansion into foreign markets. Its main feature is the use of clearly defined entry levels and the sequential use of experience: the knowledge acquired in one level is used to implement the next.In this case, each tier is represented by a single foreign market. First, a company enters a foreign market, establishes itself, promotes the product and builds a customer base. When the company feels comfortable in that market and its position is stable, the business can be expanded to the next market with the insights gained previously. This is reminiscent of a multi-layered waterfall where water goes through each stage before reaching the final destination, hence the name of the market entry strategy.

The waterfall market entry strategy works best for companies that manufacture products with a long lifecycle or whose products are in the maturity phase. Because waterfall entry means a longer time to build and build a customer base, a long life cycle ensures that the product is not withdrawn from the market before the business prospects are stable. A product in the maturity phase, on the other hand, ensures that the product is ready for sale by the time a company enters a foreign market. If it gains enough popularity, the product's life cycle will be extended across all markets.

Another point to consider in the waterfall market entry strategy is the choice of foreign market. First of all, it is advisable to choose a foreign market that is very similar to a company's home market. This minimizes a number of risks, such as B. The risk of the discrepancy in consumer buying culture and the risk created by different currencies. After a company has established itself in this foreign market, it can take the next step and integrate into another market, which can either be similar to the domestic one or the previous one. Such a phased approach ensures a smooth transition as the business environment of a new market will never be completely unfamiliar. Exotic foreign markets are much more understandable when approached through other markets, gradually transitioning from familiar to unfamiliar.

The waterfall market entry strategy makes it possible to revitalize products in the maturity phase, extending their life cycle while maintaining a stable position in the market. Since only one market is entered at a time, all business expansion resources are concentrated there, minimizing risk. Because markets are chosen so that each next one resembles the previous one, the transition to more distant, exotic markets occurs more gradually without incurring additional risks associated with unfamiliar business environments.

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.
The waterfall market entry strategy is also characterized by accumulating knowledge for business expansion. Business knowledge from the domestic market is used to integrate into the first foreign market. The additional knowledge gained there is used in the market and the process is repeated as often as foreign markets are entered. Such an accumulation of knowledge about business expansion allows to reduce the risks of each entry, which makes the waterfall strategy particularly beneficial in the long run, as it is suitable for companies planning to enter a significant number of markets.

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