What is foreign market penetration?

Question

What is foreign market penetration?

Answer

Market penetration is a measure of the market share a product has gained within a market. It is also a strategy that focusses on maximising this measure. Market penetration can be measured using sales volume or share of revenue; for example: If a company is launching a new brand of tablet computer, their objective may be to have a strong advertising campaign that will introduce the product to the market. This would be a penetration strategy – and they may set a target to achieve a certain level of penetration, such as controlling 20% of new tablet sales in the market after the first six months. Foreign market penetration is the application of this approach to a market which is not in the firm’s domestic market – for example a UK company seeking to enter a Japanese market with their product. Foreign market entry is more difficult than domestic (home) market entry. This is mainly because the company may have less knowledge of the market and the behaviour of consumers in that market, and because there may be barriers to accessing the market. An example of lack of knowledge could be not understanding the culture of consumers in the market. A barrier could be import tariffs making exporting to the country more expensive. The entry strategy taken will affect the ease of foreign market penetration. Exporting goods to the market will add cost and could limit the volume of goods, it will also be harder to advertise and interact within the market. Franchising or licensing will cause some control to be lost, but could make penetration easier by using franchisees/licensees that have knowledge of the market. Foreign direct investment (setting up in the country) is expensive in the short term, but could be the best long term option if it is successful.

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