Market
When building up a valuable business there are several steps to take, depending on the stage your company is at and the complexity of the product or service and how ready is the market to accept that product or service.
A market type is a way a given group of consumers, services provider and producers interact, based on the context determined by the readiness of consumers to understand the product or service, the complexity of the product or service; how big is the existing market and how much it can potentially expand in the future?
Why does it matter to understand the market type?
A market type is a way a given group of consumers, services provider and producers interact, based on the context determined by the readiness of consumers to understand the product or service, the complexity of the product or service; how big is the existing market and how much it can potentially expand in the future?
Why does it matter to understand the market type?
Challenge
The business development and entry to the new market is a complex process. On any given day, you'll deal with a new challenge, financing, (new) market challenge, customer niche, rules, custom & cultural issues, find a reliable partner, and other headaches.
Your company is unique. Your products, services, people and marketplace all make you different from any other manufacturer. But no matter how successful your business is, you are unknown in the new market. The following five challenges are those we most often hear from forign manufacturers:
Your company is unique. Your products, services, people and marketplace all make you different from any other manufacturer. But no matter how successful your business is, you are unknown in the new market. The following five challenges are those we most often hear from forign manufacturers:
Business model/concept
Every new market has a new language and different culture. you must translate your business model/ concept. (Read more in case study.)
Cultural & communication
In another country, people's language, market culture, customs, and shopping habits are different. The language, customs, habits and culture of the new country is a real challenge. In Germany, for example, the culture and language of northern Germany is very different from that of the south.
You can not enter the new market with the business culture of your country, you can not even manage your employees in another country in the same way (Change Management).
Overseas, people conduct business & life differently. In the West, we expect contacts to be punctual and time-efficient. In some countries, though, meeting times are often guidelines, but here it is often with a pervious appointment. Rather than a quick factory visit, 2-hour breakfast or lunches time and late-night drinking sessions are part of the process. (Read more in case study.)
You can not enter the new market with the business culture of your country, you can not even manage your employees in another country in the same way (Change Management).
Overseas, people conduct business & life differently. In the West, we expect contacts to be punctual and time-efficient. In some countries, though, meeting times are often guidelines, but here it is often with a pervious appointment. Rather than a quick factory visit, 2-hour breakfast or lunches time and late-night drinking sessions are part of the process. (Read more in case study.)
Rules, Politics and regulation
Each new country has its own rules. In some countries, in addition to the same national laws, there are also state or federal laws. (Read more in case study.)
Foreign Policy
In your home country, rules and regulations change regularly. Now, expand that to every nation – eventually, one of your shipments will break a new/updated law. When that happens, your shipments may get held at the border. Even worse, they may get seized. (Read more in case study.)
Financing
Sourcing/benchmarking/manufacturing/developing products or services overseas is not a cheap endeavor. For example, doing a test run can cost you thousands of euros, also other processes such as market research, branding, registration process, change management and....
When the time comes to scale, you'll need even more capital.
When the time comes to scale, you'll need even more capital.
Solution
To successfully develop or set-up your brand and business in Germany, knowing the local market structure and business concept/model, business culture, rules, shopping habits, language, market research and analysis, competitor research and analysis, thorough planning, communication, accurate execution... and reliable partners or joint ventures are essential. Therefore you need a German- based business consultant.
We know the German (and EU countries) rules, culture, market, shopping habits, market language and...;
We build or expand brand and businesses that are compatible with this market and culture.
We know the German (and EU countries) rules, culture, market, shopping habits, market language and...;
We build or expand brand and businesses that are compatible with this market and culture.
25%
Discover
Market Research and analysis
Competitor Research and analysis
Market Sizing
Competitor Research and analysis
Market Sizing
50%
Strategy
EU Market entry Strategy
German market entry Strategy
Market Strategy
Sales Strategy
German market entry Strategy
Market Strategy
Sales Strategy
75%
Design
Market design
Customer journey design
Customer journey design
100%
Deliver
German market expansion
Change management
Road map & Timeline
Change management
Road map & Timeline
Case Study
How Not to Enter the German Market: The Example of Walmart
Wal-Mart is the biggest food retailer in the world and has a presence in several nations. In some nations (e.g. the US, Canada, China), Wal-Mart is a great success. However, Wal-Mart has failed in some countries (e.g. Germany, South Korea). First, we describe Wal-Mart's failure in Europe's largest economy. Second, we use Wal-Mart's experiences in Germany to illustrate some key principles related to product failure and product deletion. Wal-Mart's experiences are also an example of the importance to adapt to culture and rules when starting a business in a new country.
The German grocery industry
There is fierce competition in the German grocery industry, due to the increasing number of discount supermarket chains (KPMG 2006). As a result, there is low profitability in the food retail sector; profit margins range from 0.5 per cent to 1 per cent which is one of the lowest profit margins in Europe (Frankfurter Rundschau 2007). By contrast, profit margins in Great Britain are 5 per cent, in this same sector. In particular, Metro is a tough competitor, and it already applies some of Wal-Mart's successful strategies (e.g. related to economics of scale and low prices). Of course, Wal-Mart is interested in other metrics beyond profit (e.g. shareholder wealth, market share), but, as indicated above, profitability and margins are of key concern to retailers.
Wal-Mart: strategic concept
Wal-Mart is the world's largest retailer with approximately 6,500 stores worldwide (Business 2006). The main feature of Wal-Mart's business model is to cut costs (continuously) and therefore offer lower prices than their competitors. For instance, Wal-Mart has introduced new logistical technologies such as radio-frequency identification (RFID) to optimize its logistic processes. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. Wal-Mart tries to minimize labor costs by offering minimal health care plans. Wal-Mart pressures its suppliers to cut costs, on a continuous basis. In brief, Wal-Mart's managers are constantly seeking out ways to cut costs, and some of their successes are passed on to shoppers, in terms of lower prices.
Wal-Mart's entry into the German market
In 1997, Wal-Mart acquired over 21 stores from the supermarket chain "Wertkauf." One year later, Wal-Mart bought an additional 74 stores from the supermarket chain "Interspar". As a result, Wal-Mart became the fourth biggest operator of supermarkets in Germany (Lebensmittelzeitung 2006). The objective was to expand to 500 stores in Germany. However, the number of stores never exceeded the 95 stores that were originally purchased in the first two years. Wal-Mart's position in the marketplace deteriorated over the years. In 2002, Wal-Mart had some financial difficulties due to a low turnover which resulted in the dismissal of some employees. At the end of 2006, Wal-Mart was bought out by "Metro", one of Germany's largest retail groups. Finally, Wal-Mart left the German market with a loss of one billion dollars before tax (Manager-Magazin 2006).
Mis-steps in the german market
In general, there are five key issues related to Wal-Mart's ultimate withdrawal from Germany:
- Market structure
- Business model/concept
- Cultural and communication
- Rules, politics and regulation
- Product and service
Wal-Mart is the biggest food retailer in the world and has a presence in several nations. In some nations (e.g. the US, Canada, China), Wal-Mart is a great success. However, Wal-Mart has failed in some countries (e.g. Germany, South Korea). First, we describe Wal-Mart's failure in Europe's largest economy. Second, we use Wal-Mart's experiences in Germany to illustrate some key principles related to product failure and product deletion. Wal-Mart's experiences are also an example of the importance to adapt to culture and rules when starting a business in a new country.
The German grocery industry
There is fierce competition in the German grocery industry, due to the increasing number of discount supermarket chains (KPMG 2006). As a result, there is low profitability in the food retail sector; profit margins range from 0.5 per cent to 1 per cent which is one of the lowest profit margins in Europe (Frankfurter Rundschau 2007). By contrast, profit margins in Great Britain are 5 per cent, in this same sector. In particular, Metro is a tough competitor, and it already applies some of Wal-Mart's successful strategies (e.g. related to economics of scale and low prices). Of course, Wal-Mart is interested in other metrics beyond profit (e.g. shareholder wealth, market share), but, as indicated above, profitability and margins are of key concern to retailers.
Wal-Mart: strategic concept
Wal-Mart is the world's largest retailer with approximately 6,500 stores worldwide (Business 2006). The main feature of Wal-Mart's business model is to cut costs (continuously) and therefore offer lower prices than their competitors. For instance, Wal-Mart has introduced new logistical technologies such as radio-frequency identification (RFID) to optimize its logistic processes. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. Wal-Mart tries to minimize labor costs by offering minimal health care plans. Wal-Mart pressures its suppliers to cut costs, on a continuous basis. In brief, Wal-Mart's managers are constantly seeking out ways to cut costs, and some of their successes are passed on to shoppers, in terms of lower prices.
Wal-Mart's entry into the German market
In 1997, Wal-Mart acquired over 21 stores from the supermarket chain "Wertkauf." One year later, Wal-Mart bought an additional 74 stores from the supermarket chain "Interspar". As a result, Wal-Mart became the fourth biggest operator of supermarkets in Germany (Lebensmittelzeitung 2006). The objective was to expand to 500 stores in Germany. However, the number of stores never exceeded the 95 stores that were originally purchased in the first two years. Wal-Mart's position in the marketplace deteriorated over the years. In 2002, Wal-Mart had some financial difficulties due to a low turnover which resulted in the dismissal of some employees. At the end of 2006, Wal-Mart was bought out by "Metro", one of Germany's largest retail groups. Finally, Wal-Mart left the German market with a loss of one billion dollars before tax (Manager-Magazin 2006).
Mis-steps in the german market
In general, there are five key issues related to Wal-Mart's ultimate withdrawal from Germany:
- Market structure
- Business model/concept
- Cultural and communication
- Rules, politics and regulation
- Product and service
Market structure
A retailer that wants to follow Wal-Mart's strategy of low prices needs to expand rapidly. In Germany, there not enough appropriate locations to support such expansion. As previously mentioned, Wal-Mart did not build their own stores but took over 21 existing "Wertkauf" supermarkets that had a totally different business model. The stores themselves were very small and had a limited range of goods. A related problem is that these stores were located far apart, which resulted in high logistical costs.
When entering a new market, it is important to anticipate competitors' reactions. In Germany, Wal-Mart's biggest competitor, Metro, wanted to expand their stores; at the same time, Metro wanted to prevent Wal-Mart from executing their expansion plans (Senge 2004). Many times, a product has to be deleted because the competition is too strong.
With the strategy of "Every day low prices," Wal-Mart is very successful in the United States and also in many other countries. In Germany, there is extreme competition in the retail food sector. Therefore, the German customer is quite accustomed to the low prices that are offered by numerous discount supermarket chains. For this reason, Wal-Mart's strategy of offering low prices did not create sufficient competitive advantage.
When entering a new market, it is important to anticipate competitors' reactions. In Germany, Wal-Mart's biggest competitor, Metro, wanted to expand their stores; at the same time, Metro wanted to prevent Wal-Mart from executing their expansion plans (Senge 2004). Many times, a product has to be deleted because the competition is too strong.
With the strategy of "Every day low prices," Wal-Mart is very successful in the United States and also in many other countries. In Germany, there is extreme competition in the retail food sector. Therefore, the German customer is quite accustomed to the low prices that are offered by numerous discount supermarket chains. For this reason, Wal-Mart's strategy of offering low prices did not create sufficient competitive advantage.
Business model/concept
There is fierce competition in the German grocery industry, due to the increasing number of discount supermarket chains (KPMG 2006). As a result, there is low profitability in the food retail sector; profit margins range from 0.5 per cent to 1 per cent which is one of the lowest profit margins in Europe (Frankfurter Rundschau 2007). By contrast, profit margins in Great Britain are 5 per cent, in this same sector. In particular, Metro is a tough competitor, and it already applies some of Wal-Mart's successful strategies (e.g. related to economics of scale and low prices). Of course, Wal-Mart is interested in other metrics beyond profit (e.g. shareholder wealth, market share), but, as indicated above, profitability and margins are of key concern to retailers.
Cultural and communication
When products are introduced, it is important to consider cultural factors. In this case, corporate culture played a key role. Wal-Mart's top executives decided to operate the German locations from their offices in the United Kingdom. Thus, Wal-Mart's "corporate language" was English. However, many of the older Wal-Mart managers in Germany do not speak English. As a result, there were often breakdowns in communication. Some managers of the acquired stores did not stay on after the Wal-Mart acquisition. Key business connections were lost. As a result, several key suppliers (e.g. Adidas, Samsonite, Nike) declined to work as suppliers for Wal-Mart. Wal-Mart did not just lose important suppliers; they also lost an important part of their range of goods (Senge 2004). The situation could have been improved by retaining and communicating effectively with the German managers who had know-how about the local market.
Rules, Politics and regulation
The managers of Wal-Mart were not sufficiently familiar with the laws and regulations in Germany, as they violated them several times. One of Wal-Mart's fundamental principles is to stay union free. However, in Germany, unions have a powerful position. Through collective bargaining and related tactics, they can have a strong influence on political decision making. Ver.di is a German union in the service sector. With 2.4 million members, it is one of the largest independent, trade unions in the world (Ver.di 2008).
According to the German Commercial Code, all incorporated companies are obligated to publish a financial statement, including a profit and loss statement. Due to the fact that Wal-Mart refused to publish their financial statements for the years 1999 and 2000, Ver.di sued in a court of law. Wal-Mart was sentenced to pay a fine. The coverage of this law suit in the German press led to a negative public image for Wal-Mart.
After the expansion strategy failed due to the lack of suitable store locations, Wal-Mart began a price war to drive small competitors out of business. The intention was to take over the stores of the insolvent supermarket chains and convert them into Wal-Mart stores. One part of the price war was to introduce a private label called "Smart Brand" and sell most of these products below manufacturing costs. The reaction of many competitors was to decrease their prices, which led to a profit setback for the entire industry. However, the Federal Cartel Office interceded and stopped the price war because there is a law in Germany that enjoins companies from selling goods below manufacturing costs on a continuing basis (Knorr and Arndt 2003).
According to the German Commercial Code, all incorporated companies are obligated to publish a financial statement, including a profit and loss statement. Due to the fact that Wal-Mart refused to publish their financial statements for the years 1999 and 2000, Ver.di sued in a court of law. Wal-Mart was sentenced to pay a fine. The coverage of this law suit in the German press led to a negative public image for Wal-Mart.
After the expansion strategy failed due to the lack of suitable store locations, Wal-Mart began a price war to drive small competitors out of business. The intention was to take over the stores of the insolvent supermarket chains and convert them into Wal-Mart stores. One part of the price war was to introduce a private label called "Smart Brand" and sell most of these products below manufacturing costs. The reaction of many competitors was to decrease their prices, which led to a profit setback for the entire industry. However, the Federal Cartel Office interceded and stopped the price war because there is a law in Germany that enjoins companies from selling goods below manufacturing costs on a continuing basis (Knorr and Arndt 2003).
Product and service
Wal-Mart planned to introduce a sophisticated customer service program which threatened many of its competitors because German discount supermarket chains often do not provide good customer service. Therefore, good customer service, combined with low prices, could have been a new market niche in Germany. One part of Wal-Mart's customer service program was called the "ten foot rule". Every ten feet, a service employee offered some help to the customer (Knorr and Arndt 2003). However, the customer reaction was rather negative, because customers who normally do their grocery shopping in discount supermarket chains are used to self-service. They do not necessarily expect to talk with employees.
Notice: This example/text/information is just for a better understanding of the page subject. We assumes no liability for the information given being complete or correct. Due to varying update cycles, statistics and datas can changes or up-to-dates.
Start a Business
What is the missing piece in your business?
To successfully set-up or develop your business, knowing the local business culture, market research and analysis, competitors analysis, business concept, roadmap strategy, thorough planning, accurate execution... and reliable partners or joint ventures are essential. Therefore you need a German based business consultant.
Our approach is a integrated 360-degree review at all aspects of your business, including your business, brand, services, products, and market, that reaches customers at all possible points of contact.
For a better results, we suggest that you participate in our strategy session in which we understand more about you, your business and business vision; and accordingly offer you the most optimum business strategy.
Please, fill out the form here, that we are better prepared when we contact you back.
To successfully set-up or develop your business, knowing the local business culture, market research and analysis, competitors analysis, business concept, roadmap strategy, thorough planning, accurate execution... and reliable partners or joint ventures are essential. Therefore you need a German based business consultant.
Our approach is a integrated 360-degree review at all aspects of your business, including your business, brand, services, products, and market, that reaches customers at all possible points of contact.
For a better results, we suggest that you participate in our strategy session in which we understand more about you, your business and business vision; and accordingly offer you the most optimum business strategy.
Please, fill out the form here, that we are better prepared when we contact you back.
SOLUTIONs
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