Market expansion refers to a company's growth strategy to increase its market share, operations, customer base, and overall presence in existing locations or new geographic areas.
A business implements market expansion by analyzing its existing distribution channels, identifying new markets of interest for future operations, and adopting measures to help it expand and increase its sales and reach.
Seeking global market expansion? Get our essential global expansion checklist that provides key insights into developing a global expansion strategy, conducting market research, hiring international talent, and ensuring compliance at every step:
What is an example of market expansion?
Consider the e-commerce giant Amazon and its strategy when expanding into India in 2013 for a real-world example of market expansion.
Amazon leveraged India's economic infrastructure to reach consumers who did not otherwise fit into its business model. At the time, most of the country did not have internet access, and most Indian consumers did not use credit cards.
The challenge: How could Amazon earn market share in a country where most consumers made purchases using paper currency in brick-and-mortar stores?
The solution: Amazon developed the Amazon Chai Cart, which served free drinks to small business owners while touting the benefits of e-commerce. Amazon reached more than 10,000 merchants in 31 cities through the program. It then rolled out the Amazon Tatkal initiative to help the merchants become liaisons for Amazon’s online interface.
Amazon enrolled the business owners as online vendors, powered them with internet connectivity, and trained them to help their customers find products on the website. The store owners collected cash for Amazon, received a handling fee, and served as a customer distribution center.
Amazon remained flexible when expanding into a new market and made adjustments for an India-specific approach.
Why is market expansion important?
Market expansion is a critical aspect of business growth and is crucial to a business's overall development and sustainability. Companies engage in market expansion, often on a global scale, to remain competitive, increase revenue, grow their consumer base, and achieve economies of scale.
Learn more: Understanding the Global Marketplace
What is a market expansion strategy?
Businesses take various approaches to market expansion; however, an effective market expansion strategy typically involves some of the following components:
- Geographic expansion. Reaching new regions or countries where it currently does not operate, including opening new branches, establishing partnerships, or setting up distribution channels.
- Product diversification. Introducing new products or services to the existing market, such as expanding its product line to cater to different consumer needs or attract a more diverse audience.
- Market segmentation. Identifying specific overlooked areas within the existing market and tailoring products to meet the unique needs of these segments.
- Channel expansion. Exploring additional distribution channels to reach a broader customer base, such as partnering with new retailers or utilizing e-commerce.
- Strategic partnerships. Collaborating with other companies to leverage each other's strengths and resources to help enter new markets simultaneously or expand the reach of existing services.
- Acquisitions. Acquiring other businesses in related industries to gain access to their customer base, market share, and technologies for easy and quick growth.
- Brand extension. Capitalizing on brand loyalty and recognition by introducing new services or products under the existing company.
Benefits of putting together a market expansion strategy
Market expansion offers companies many benefits and advantages that help them remain competitive in today’s quickly evolving business landscape.
Some key benefits of putting together a market expansion strategy include the following:
- Revenue growth. Entering new markets allows businesses to boost their sales and revenue. Companies can tap into additional customer segments and increase their overall income.
- Larger talent pool. Companies utilizing market expansion can recruit and hire top talent from a much broader pool. Employers can target a uniquely skilled workforce, leverage local employees for market insights, and reduce the costs of relocating talent.
- Diversification. Businesses can diversify their revenue streams when entering new markets and geographic regions. A company can reduce dependence on a single market or product, serve different customer needs, and become more resilient to economic fluctuations.
- Economies of scale. When expanding operations, the average cost per unit decreases as production and sales volumes increase. This economy of scale can improve profitability, efficiency, and competitiveness.
- Competitive advantage. Entering new markets allows companies to gain an advantage over competitors by offering unique products or services that set them apart.
- Access to new customers. Expanding into a new area is especially valuable if a company has reached its full potential with an existing market or if that current market is already saturated. Companies can leverage an untapped market and access a broader customer base.
- Globalization. Companies entering emerging markets can take advantage of international strategy opportunities, benefitting from varied economic conditions, unique resources, and skilled, global talent.
- Risk mitigation. Expanding into new markets enables companies to spread out their vulnerabilities and reduce risks of economic downturns, regulatory changes, or other market-specific challenges.
- Technological advancements. Technology, communication, and logistics advancements allow businesses to expand into international markets. Companies can leverage e-commerce, digital marketing, and supply chain advancements to make growing on a global scale more accessible than ever.
- Regulatory opportunities. Regulatory changes and trade agreements often create opportunities for businesses. Some regulations may lower the barriers to entry and favor companies entering new countries and expanding operations.
- Strategic alliances. Companies often collaborate with local partners for support and insights to help them successfully enter and navigate new markets.
How to create a successful market expansion strategy
To ensure effective and successful market expansion, a company must thoroughly understand its target market’s dynamics and challenges, effective marketing strategies, and the ability to adapt to cultural and political differences.
Consider the following critical elements for creating a thriving market expansion strategy:
Keep an agile footprint
Hire with a light and agile footprint that balances against risk mitigation to assure long-term ROI. Consider holding off on spending toward infrastructure investments or hard costs until your foreign operation matures. Understand the risks of hiring international contracts and utilize local employees to help you evaluate the market, identify opportunities, and your day-to-day operations.
Develop a clear product strategy
Develop a product that intentionally drives expansion into new markets. Test your product in your target country to troubleshoot, adjust as needed, and ensure long-term success. Develop partnerships with contacts and decision-makers in foreign markets to help you monitor developments and identify new opportunities.
Build revenue and reinvest
Choose a market to expand your product or services where the competition is low to help free up revenue. This strategy will allow you to reinvest in your product, gain market share, minimize outside capital sources, and increase your equity.
Be proactive
Establish a long-term global mobility plan and take a proactive approach when entering a new market. Do your research, assess the potential risks and rewards, and ensure your entire team aligns with your long-term goals.
Partner up
Consider partnering with a global expert well-versed in understanding the potential risks and opportunities associated with market expansion. An employer of record (EOR) can help manage your entire hiring and international expansion process if you are not ready to or unable to establish an entity in-country and ensure compliance with foreign regulations.
Read more: Top 5 Global Expansion Strategies
Simplify market expansion with Velocity Global
Expanding into new markets is a bold step for any business, but it can reap many rewards and opportunities when done thoughtfully and compliantly. A global partner like Velocity Global can help you quickly and compliantly expand across borders.
Our EOR solution increases your speed to market and enables you to compliantly expand globally without entity establishment. Our team of experts has capabilities in over 185 countries to help you assess business environments, regulatory considerations, global hiring, and cultural nuances.
Our suite of global employment and expansion services can assist you each step of the way to ensure compliance no matter where your global footprint takes you.
Ready to expand globally? Contact Velocity Global to plan your path to international success.
