Market Entry Framework: How to Use It + Consulting Case Example
- Last Updated September, 2020
Former McKinsey Engagement Manager
Company X wants to know if they can profitably introduce their widget to the Chinese market.
Company Y wants to leverage its knowledge of the North American fast-food market to introduce a new restaurant format. How should they do it and how long will it take to reach profitability?
Have you read case interview examples that sound like these?
Of course you have, because all successful businesses want to become more successful by expanding into new markets, so there are many case interview questions on this topic.
Because of this, it’s important that you have a thorough understanding of the market entry case framework.
We’ve got you covered!
In this article, we’ll:
Let’s get started!
Our Ultimate Guide to Case Interview Prep goes through everything you need to know about consulting case interviews and how to pass them, so if you have general questions, that’s the best place to turn.
But if you’re ready to move on to market entry cases, read on.
If you’re asked a market entry case question, there’s a lot of information you’ll need to cover. You’ll be better prepared if you practice this type of case.
A market entry case starts with a company deciding to enter a new market.
Whether a company is contemplating entering a new geography or a new product-space, the decision is a big one. The CEO will face complicated questions like:
The high stakes and complexity of market entry decisions are the reason corporate executives facing these decisions often turn to consultants for help.
Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.
Assessing the market is step 1 because if the new market isn’t profitable (or won’t be profitable in the future), there’s no point in going further with this case.
Questions to ask during the assessment of the target market include:
Questions to ask during the assessment of the client’s capabilities include:
Questions to ask while analyzing the client’s resources relative to the cost of market entry and expected ROI:
You’ve decided the client in your case should enter the market.
Again, the decision of whether to enter the new market is only part of the answer. The company must decide how to enter it.
For a new product or service, they should ask whether they should:
For geographic expansions they need to ask whether they should:
Questions to ask when determining the best entry strategy:
Today, KFC has over 5,000 fast-food restaurants in China. It’s the most popular fast-food chain in the country.
How did the company enter the market to achieve this success?
When KFC first entered the China market, the success of southern-style American fried chicken in the China market was no guarantee.
The restaurant needed to transfer its successful North-American business model to the new market.
But it also needed to take into account different consumer tastes, find promotional advertising that would appeal to the Chinese consumer, deal with regulations that required that Western companies to partner with Chinese-owned companies in order to enter the market, and more.
Let’s look through the KFC China example using the market entry framework.
Yum! Brands first entered the China market in 1987. At that time, the China market was growing quickly. The country’s middle class was expanding and was receptive to western brands.
The Chinese restaurant market was dominated by a large number of street vendors and small, family-owned, single-location restaurants.
In comparison, growth in the North American market was slowing and there was a high level of competition from McDonald’s, Burger King, Wendy’s, Domino’s Pizza, and other restaurants.
The Chinese market provided an opportunity to enter a market without well-entrenched national chains of fast-food restaurants and capitalize on the market’s growth.
KFC was positioned as the second-largest fast-food chain in the U.S. by number of stores. It had a winning formula of providing high-quality food at a competitive price and marketing it well.
But KFC knew nothing about the China market.
The company had to answer important questions like:
The challenge facing KFC can be seen by the fact that when they first entered the market, their popular slogan “finger lickin’ good” was mistranslated as “eat your fingers off.”
Gaining insight into the Chinese consumer was a critical hurdle to success in this market.
At that time, western companies had little experience with dealing in the Chinese communist government. But because the government required western companies to enter the market through joint ventures with Chinese-owned companies, KFC knew they would find help with these decisions by finding the right partner.
KFC considered entering the China market to be an important strategic investment to maintain its revenue and store growth despite high levels of competition in the North American market.
Their success in North American meant they could allocate substantial funds to the market entry in China despite the fact that it would take years for their investment to pay off.
As mentioned above, KFC was required to partner with a Chinese-owned company. They found a partner that had strong connections with the Communist government to ensure that they would be able to overcome regulatory problems.
Their partner also helped KFC to identify its target market as the middle-class consumer who was interested in western culture. Their sit-down restaurants had a reputation for cleanliness which helped to set KFC apart.
In the early days, KFC restaurants also leveraged the fact that they were a unique and exciting experience, a view into American culture.
KFC China’s menu includes many items an American customer would not be familiar with, such as lotus roots, congee, and soy sauce wings.
The restaurant had a 40-page menu because of the Chinese consumer’s preference for variety.
Their promotion was tailored to focus on elements that the local culture valued, such as respect, love, and support for the elderly.
The chain’s success in China depends not only on the taste of its food and its advertising, but also on the speed and convenience of its service. These attributes were as important to winning in the China market as tasty chicken.
Yum China has been so successful that it has been spun off from YUM! Brands as separately listed stock on the New York Stock Exchange.
If a company is looking for growth, market entry is one way they might achieve it, so your revenue growth case could turn into a new product or new geographic market case.
Market entry cases require a lot of data–market growth, cost of entry, client capabilities. You’re likely to miss important information if you try to solve the case just through brainstorming and your own knowledge of the industry. Don’t be afraid to ask questions.
Look at all 4 elements of the market entry framework. Entering an attractive market without the right capabilities will lead to substantial losses and a CEO being fired.
For example, compare the advantages of a greenfield operation (full control over the business model and quality) versus partnering with a company with a presence in the local market (knowledge of the local consumer, speed). The comparison of one entry strategy to another can make the best choice clear quickly.
This McKinsey article: Beating the Odds in Market Entry is a great resource for those who want to dig deeper on this subject.
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In this article, we’ve covered:
Still have questions?
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