Is Now the Time to Consider New Markets?
According to the National Center for The Middle Market, 39% of middle market companies expanded into new domestic markets in 2021 and about 20% took on new debt to finance the expansion.*
Moving into new markets can be an effective way to leverage your core business to accelerate growth. However, such initiatives are not without risk. In pursuing them, a disciplined process can help your company accurately assess the potential of a new market and avoid costly missteps on entering it.
If your company is weighing new market opportunities, consider the following steps to help guide your strategy:
- Do a “Deep Dive” Due Diligence. Get to know the market as much as possible before committing the resources to enter it. It’s important to understand market growth rates, expected demand, key competitors, and potential barriers to entry. If you are considering expanding into foreign markets, you’ll need to be familiar with local regulations and the regional customs and practices relevant to your product or service.
- Assess Your Existing Capabilities. Success in a new market often depends on a company’s ability to leverage its existing core competencies as part of the expansion. You will need to determine if your current production process is sufficient or identify changes that need to be made to accommodate new product features or increased production levels. You will also need to decide whether you have the sales channels, infrastructure, and relationships in place to ensure successful product distribution beyond your current markets.
- Consider Market Entry Options. In some cases, particularly when entering entirely new markets where internal capabilities are lacking, it may be advisable to consider a joint venture or partnership with a company that has the requisite experience and capabilities to advance your initiative. This may be the case particularly when expanding internationally where local presence and expertise may be critical to success. In such instances, you may need to develop a plan for identifying potential partners, performing due diligence, and negotiating a favorable partnership or acquisition.
- Commit the Resources Required. It’s important to recognize that entering new markets requires the allocation of resources and that returns may not be immediate. Arranging for the right amount of financing at the right terms may be critical to your ultimate success.
For many organizations, expanding into new markets may be the key to remaining on a strong growth trajectory. As you consider your new market ambitions, remember that your Washington Trust Relationship Manager is available to help you ensure the long-term success of your business.
*Middle Market Companies Report a Strong Finish to 2021 with Record Year-Over-Year Revenue and Employment Growth, National Center for the Middle Market, © 2022 The Ohio State University.
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