Today’s marketplace is becoming more and more global. Both niche players and mainstream corporations must develop globally in order to sustain and develop their strategic positioning, as well as to renew their sources of competitive advantage.

Corporations expand internationally because:


  • They need to acquire factors of production that are more efficient than those obtainable in the firm’s home economy (such as cheap labour and natural resources).


  • They seek new markets for their products with the aim of increasing revenue (more sales) as well as to increase efficiency by exploiting economies of scale and scope (lower costs).


In this context, foreign expansion, and in particular the identification of the most appropriate market-entry strategy, has become a priority of most management agendas. Organisations, once they have decided to enter a market, have several options available. These are green field investment, merger and acquisition and strategic partnership.

Strategy selection

A green field investment is the investment in a commercial office, manufacturing plant, distribution facility or other physical company-related structure or group of structures in an area where no corporate facilities previously existed. It is a direct investment of the firm and it normally entails 100% ownership and therefore full control over management.

An acquisition or merger takes place when one company purchases a majority interest or a part of it (the acquisition of a business unit) in another, by stock purchase or exchange. It is one of the most used strategies because it gives instant access to sought-after resources (plants, distribution channels, know-how) and complete control over management. It is important to point out that recent studies demonstrate that the risk of failure attached to this strategy is very high.

A strategic partnership is a formal alliance (a joint-venture, licensing agreement, distributorship or agency contract) between two commercial enterprises, usually formalised by one or more business contracts, where they mutually participate in certain activities (advertising, branding, product development and other business functions). Typically the motivation behind forming a strategic partnership is that each partner possesses one or more business assets that will help the other (production facilities, sales network or greater general knowledge of the local business environment).

All these options have been widely used by organisations and in many cases the same organisation has used them all on different occasions. The question that arises is why a firm would choose to enter one market through an acquisition, another one through a green field investment or through a strategic partnership, while in principle they have all the options available (capital, competences and capabilities, resources). What are the factors determining such choice?

Market-entry mode

ESCP-EAP has been investigating this topic for the past five years, in particular focusing on corporations seeking new markets for their products. The method adopted has been based on in-depth discussions with several CEOs and other key decision makers involved in foreign expansion, as well as through analysis of the multiple market entry cases that have taken place worldwide in the past decade. In many instances the decision on how to enter a market is based on several local market specificities, which are the key drivers behind the choice of the market-entry mode.

  • Market growth represents how the demand of a market is evolving. It is normally measured through a three to five year CAGR (compound annual growth rate). Typically a high growth market displays rates of two-digit numbers where a very mature market has rates of less than 5%.


  • The degree of market consolidation defines the level of consolidation within an industry sector. A market is very consolidated when the first players control more than half of the overall sales (20% of the players control 80% of the sales).


  • Customer/distribution consolidation indicates how fragmented the demand is of an industry sector, both on the distribution side and the end customer base. A customer base is very consolidated when few customers buy most of the product/services within an industry sector.


  • Product/customer fit measures the level of adaptation required to the existing product portfolio in order to be marketable in the new market. There is perfect fit when the existing product portfolio requires only minor adaptations (labelling, packaging).


  • The political, legal and economic (PLE) context indicates how stable and supportive of economic development and freedom are the legal and economic systems of the target market. The PLE is very favourable when a foreign investor can freely choose any option to enter a market (for example, there are no restrictions on maximum amount of shareholding).


How local market specificities have influenced the choice of market-entry mode of some major corporations in the past decade is best illustrated by looking at the cases of the acquisition of Unichem (UK) by Alliance Santé (France-Italy), the green field investment of Cellfish Media in the US, and the joint venture between DuPont of the US and Russkie of Russia.

The case of Alliance Boots is a representative example of international development through a series of acquisitions, which started in the 1980s with the creation of Allianza – a wholesale buying group of dozens of pharmacies in Italy. Allianza then rapidly integrated its French counterpart, Alliance Santé. Afterwards, the company entered the UK market by merging with Unichem in 1997, a leading wholesale drug manufacturer.

Chemical reaction

Between 1999 and 2005, the new group, Alliance Unichem, expanded to Spain, the Netherlands, Portugal and Germany, mainly through acquisitions. In 2006, Alliance Unichem and Boots, the largest chain of pharmacies and beauty brands in the UK and Europe, merged to create a group worth €20bn in sales, positioned as one of the top three European pharmaceutical leaders, in both the retail and wholesale sectors.

These acquisitions have allowed a rapid international development (and then a forward integration into distribution with Boots). Looking now at the market conditions in which all these acquisitions took place, the market growth in the past 15 years had been slightly below 5% per year, with the European market of drug wholesalers and pharmacies showing a medium level of consolidation (a few major players controlling 50% of the market).

The product fit between the portfolio of the company (Alliance in its various stages of growth) and the market needs of the country to enter was high as the company was mostly distributing drugs from large global manufacturers (which at worst necessitated re-packaging to the local drug name). Finally, the PLE context was stable in the countries involved in this case (initially the UK, France, Germany, the Netherlands, Italy, Spain and Portugal).

Such market conditions led Alliance Unichem to favour acquisitions as a key pillar of its development in the past 20 years. The driving factors here are the high maturity of the markets (limited market growth and existence of strong wholesale players would mean few chances to succeed by starting from scratch) as well as local stable environments that made acquisitions of established players non-risky moves.

Interestingly, the company recently expanded through green field investment in Russia and several eastern European countries characterised by a less certain political and economic context.

Cellfish Media illustrates a different situation. This is a case of a market featuring high growth and strong fragmentation of players across the value chain in a stable political and economic context, with an intermediate level of product adaptation required. The company started its operations in the late 1990s in the fast-growing market of digital content for mobile telecommunications, creating and marketing ringtones, wallpapers, screensavers and chat services – any type of mobile content that phone users can buy from their handset.

Surfing on the rising wave of mobile telephony, it successfully developed its operations to become one of the top players in Europe, expanding from the domestic French market into the UK and Spain though green field investments. In 2003, Cellfish Media decided to enter the highly competitive US market.

At that time this market was still highly fragmented with many fast-growing players, some viewed as future ‘stars’ of the mobile web, others seen as merely piggy-backing on the hype of mobile ringtones.

For Cellfish, a key decision was therefore how to best enter the US market. In spite of several potentially attractive targets for acquisition and promising opportunities to partner with local distributors (due to the quality of its content in Europe aimed at mobile phones and not just re-purposed from other media), the company decided to go for green field organic growth.

Starting with a project team of five, the company built a team of more than 100 within two years. With hindsight, its market-entry strategy, like that of Alliance Unichem, can no doubt be seen as successful. Indeed, four years after incorporating in the US, Cellfish is a well-respected leader in the mobile content market with users having purchased tens of millions of downloads so far.

The green field approach enabled the company to build a differentiated offer by addressing the market in a superior way, using finely tuned targeted segmentation. Leveraging its in-depth understanding of consumer lifestyles, it created original content specifically designed for mobile media targeting selected high-value segments (as opposed to a mass approach offering mobile content through undifferentiated categories such as cars or pets). The result was the successful launch of branded channels such as hip-hop Blingtones or Latin Barrio Mobile.

Muddy playing field

The underlying reason why the company decided not to proceed through acquisitions or partnerships was the non-maturity of the market (it had a low degree of market consolidation). It was unclear as to which existing player could be the right horse to bet on, and there was also still enough time to build a strategy from scratch with a sustainable competitive advantage.

The third case illustrates a market-entry strategy through partnership. The company, DuPont, already present in more than 70 countries in various fields such as transport and construction, was recently trying to expand its automotive system operations into Russia and eastern Europe.

In January 2006, the company created a joint venture with Russkie Kraski, the Russian Federation’s largest manufacturer of automotive coatings and resins. The new venture was aimed at supplying automotive coatings to car manufacturers in Russia and eastern Europe. According to Dupont, this investment is part of its strategy to grow its business in emerging markets.

The salient factors that led Dupont to follow a partnership strategy here are twofold. First, the strong market growth of these new markets, as illustrated by major investment by local players such as Romanian carmaker Dacia (a subsidiary of Renault) and by global car manufacturers such as Toyota, Nissan and Renault (these latter two operate a global alliance).

Second, and probably most important, is the low level of stability in terms of political, legal and economic environments. The consequences are that catching up on the local experience curve, such as dealing with complex administrative processes, cannot be achieved easily by green field expansion. In addition, the limited local stability would make an acquisition a risky move. Indeed, legal or economic constraints can change and all of a sudden drastically depreciate the value of a deal. In addition, the absence of total clarity on who are the real decision makers can result in large contracts being cancelled. In such a context, partnerships with local established players become the obvious choice, at least as a starting move.

Local considerations

Therefore, these examples show that market-entry strategies are heavily driven by local market specificities. This does not mean that company internal factors such as financial power, international management experience and other types of resources are not important drivers influencing the strategic process. (Interestingly, in the case of Dupont, the company could obviously afford at least several times to acquire a Russian partner with sales of less than $100m).

Yet the point is that in many cases the choice of market-entry strategy is ultimately set by factors such as market growth, level of consolidation, degree of fragmentation of the distribution channels and customers, requirement for product adaptation, and the local political, legal and economic environment. By thoroughly considering these factors, managers can easily identify the most suitable entry strategy in most cases.

Dr Jerome Couturier is affiliate professor of strategy at ESCP-EAP, European School of Management, and Dr Davide Sola is associate professor of strategy and management and director of ESCP-EAP London.