These are two of the most commonly used and successful global growth strategies, but they are quite different in terms of implementation. The most effective approach for your business depends on factors like your company’s resources, the nature of the markets you’re entering and the products or services you offer.
What is market development?
Market development focuses on carving out new markets for your existing products or services. This strategy allows you to leverage existing company resources and product lines while expanding your potential customer base.
What is diversification?
Diversification involves creating entirely new products or services that are tailored to fit the unique demands and requirements of your new target market. Companies that succeed have developed offerings that are customized to appeal to local tastes and preferences.
Diversification as a global strategy: New products for new international markets
Product launches are challenging and risky. This is especially true when creating new products for foreign countries, with linguistic and cultural differences to account for. If all goes well, the risk is worth it: diversification can be incredibly successful. Rewards include a more diverse product portfolio and less dependence on your existing markets, increasing resilience.
There are a few different tactics companies can use to diversify, but all start with a thorough understanding of the target market, including local culture and customer preferences.
Extending an existing product line
This approach involves creating new products or services that are variations of an existing product line. By adjusting UI/UX, language, and other product features to suit the market you’re entering, you can better appeal to potential customers in that market.
A key advantage of extending a product line is that you can leverage existing expertise while still offering products tailored for success in the new market.
Delicious consumer goods diversification
Food manufacturers do this well. Since food preferences are strongly influenced by culture, it’s not uncommon for food manufacturers to succeed by extending their existing product lines by redesigning popular snacks and beverages to appeal to local customers.
Would you eat a soy sauce-flavored chocolate bar? How about wasabi? Kit Kats in Japan come in a range of exclusive seasonal flavors. These are often limited editions and are not available in any other countries. Variations include cherry blossom, green tea, white chocolate sake, and, yes, even soy sauce.
Similarly, Oreos in China come in flavors like green tea ice cream and orange mango to appeal to local palates. China is also the only place in the world where you can find Oreo cream wafers sold alongside the familiar sandwich cookies.
Microsoft has created localized versions of its software products and operating systems. For example, they provide language packs and regional settings customization to cater to the local needs of various countries.
Adobe’s creative software suite, including Photoshop, Illustrator, and InDesign, supports multiple languages and character sets. They also adapt their marketing and user interfaces to cater to the preferences of different regions.
Google’s search engine, as well as Google Maps and YouTube, have been adapted for various countries. For example, Google Maps provides localized maps, directions, and place names.
Apple adapts keyboard layouts, date formats, and language options to provide a tailored user experience for users in other countries.
SAP, a provider of enterprise software, offers localized versions of their software to cater to the specific business and legal requirements of different countries. This includes accommodating various tax laws, reporting standards, and business practices.
Autodesk’s software for computer-aided design and drafting, AutoCAD, supports various languages and measurement units to cater to the global engineering and design community.
Brand extension: Leveraging a trusted brand name to extend into new products and categories
If you have a well-known, successful brand with international star power, you can capitalize on it by creating and marketing new products and services that fit your current brand identity. Piggybacking on an established brand’s reputation encourages international customers to trust these products, even as your company branches out into new categories.
For example, Samsung has taken advantage of its well-known global brand to offer an array of products worldwide, beyond the high-tech products they are known for, including air conditioners, refrigerators, biopharmaceuticals, and life insurance.
Another brand extension tactic is via acquisition: purchasing a local business, rebranding it, and folding it into your company’s own brand.
Expanding into adjacent markets
In this strategy, a company ventures into a new but related sector in an overseas market. The new sector should be closely connected to one in which you’re already successful, so the organization can utilize the organizational expertise and brand recognition you already have.
Market development: Creating a new market for an existing product
While diversification involves creating new products for new markets, market development involves introducing existing products to new markets. This approach allows businesses to grow their customer base without investing in additional product development.
Meta is an excellent example of a company that succeeded with market development. Facebook, their flagship product, is available in 190 countries and 111 languages.
The stages of market development
As companies prepare to expand into a foreign market, they must pass through five stages of market development to ensure long-term success.
Stage 1: Establishing the domestic market
Before you consider finding new markets for your products, establish a baseline of success in your home market. Focus on building brand recognition and a loyal customer base and develop effective marketing strategies to maximize sales and gain market share domestically.
Expanding into different countries will not compensate for lackluster performance at home. Underlying problems with your strategies and processes will follow you wherever you go, and the more markets you operate in, the harder it will be to correct them. Avoid this by fine-tuning your domestic strategy first, and you’ll lay a strong foundation for international growth.
Stage 2: Research and planning for entering new markets
Thorough research and planning are the foundation of a successful market entry strategy. Without a deep understanding of cultural norms and preferences in the new country, there’s no way to accurately predict how your products will fit into the market there.
Remember, you may be selling the same products, but you are going to have to sell them differently, taking linguistic and cultural differences into account. Local laws and regulatory compliance may also be an issue.
Sometimes, it’s easier to dip your toes in the water by starting with countries that are similar to your home market. It’s often less complex to sell a U.S. product in Canada or the United Kingdom because they all share a common language and some cultural elements.
Stage 3: Testing the market
When entering a new market, starting with a limited-scale test run is a great way to gain valuable insights before the actual launch. Testing the market first gives you opportunities to make necessary adjustments while the stakes are still relatively low.
Stage 4: Expanding international sales
A successful stage 3 is a green light for further expansion and additional market research to uncover new growth opportunities.
At this stage, you’ll solidify your company’s presence in the target country and work to increase sales by fine-tuning your strategy and your marketing efforts. This iterative process will help you continue to expand your market share over time.
Stage 5: Further investing abroad
If your market development effort has been successful, you’ll see:
An established presence in the new market
Sizable sales and revenue from the new customer base
A lasting competitive advantage
Once you have achieved this success in your target market, further investment can cement your company’s foothold in the new territory. And it doesn’t have to stop there. A victory in one new market can be a stepping stone for further international expansion.
Next steps with diversification or market development
Businesses can harness a number of different strategies for international growth. Choosing the right global expansion strategy is crucial for businesses that seek continued international success. As we’ve discussed, diversification and market development can create opportunities for global growth. However, both strategies require a deep understanding of the target market and its culture.
Diversification is the riskiest of the two strategies, but when businesses take the time to understand the market and develop new products that align with the culture, it can be highly successful.
Businesses wishing to expand through market development should approach the process of creating new markets for existing products methodically. Start by establishing a solid domestic base, research potential new markets, test these markets, expand sales, and eventually make further investments if the initial ventures prove successful.
To learn about how companies like Microsoft, Starbucks, Meta and Klarna succeeded in their international expansion, you can check out this companion blog post.
Global growth is easier with a translation partner
No matter which strategy you choose, knowledge of the target market and its culture will be foundational to your international growth efforts. A strategic localization partner can help provide these insights and assist you in developing and implementing a winning strategy.
At Acclaro, we simplify these concepts for you and enable you to scale growth and create lasting value for your customers through language services and localization engineering. We’ve created strategies that help the world’s leading companies succeed across markets, and we’re ready to help you as you expand your business internationally.