Market entry: breaking into a new country, and why so many companies come home

The stores that opened before the shelves could be filled

In March 2013 Target began opening stores in Canada, in leases it had acquired. Behind them was a brand-new supply-chain system that nobody at Target had run before.

The problems were known before the first store opened. The system launched with wrong and missing product data, wrong sizes, weights and quantities, so warehouses overflowed while store shelves sat empty.

Target could have waited until the system worked. It didn't, because waiting meant paying rent on empty stores. Opening them would at least bring in some revenue against that rent.

On January 15, 2015, less than two years later, Target announced it was leaving Canada. It expected about $5.4 billion of pre-tax losses, and Target Canada went into creditor protection. Operating losses alone had passed $2.5 billion, more than triple what Target had projected.

The opening date was set by the rent, which was the thing costing money. It should have been set by the supply chain, which was the thing that had to work. Every company in this guide had a reason for when and how it went in. The ones that came home mostly had reasons that came from headquarters, not from the market they were entering.

What market entry is

Entry looks like the safe kind of growth. The product already works, the market is large, and the money can be spent in stages. The record says otherwise: once a company is in, adjusting is expensive and leaving is public.

Why it is so hard

On paper, entering a market is a plan with a budget and a timeline. In a real company, three things work against it.

The ways companies did it

The entries on record take four shapes. Each answers the same question, how much of the home business to bring, in a different way.

What 30 companies did

Here is every decision on record, placed by the year it was made and marked by how it turned out. Hover a mark, or open the table, for the company and the outcome.

Of the 30 decisions that can be judged, 19 were never undone, 5 were reversed and 6 were kept only in part. The partial ones include entries that worked while something around them broke: McDonald's entry into India succeeded while its partnership ended in court, and Uniqlo's U.S. business turned profitable only after years of losses.

This set is broader than its name. Several records are not entries into a new market at all: Medtronic's move to Ireland for tax, HSBC's move of its headquarters to London, and Alibaba's decision to stop publishing its Singles' Day sales. They are counted in the totals above, but this guide draws on the entries.

The walk-backs

Put the entries that were undone side by side and a pattern shows. Each was built on an assumption made at headquarters: that the standard product would sell, that American managers could fix German stores, that a new chain would break even in its second year, that stores could open before the system behind them worked.

These were not small bets. Target's total investment in Canada exceeded $7 billion, and Tesco planned up to £250m of capital a year for its US chain. In each case the money went in before the assumption had been tested, and Target opened knowing its supply chain was not working.

The entries that lasted changed something big before they opened. KFC brought managers from Taiwan and built its own supply chain. Walmart let a Mexican partner adapt the format, then bought control once it worked. Nestlé built the dairy supply before it sold the milk.

The entries that lasted changed something before they opened. The ones that came home changed it after.

How to run this decision

If you are weighing a version of this choice, here is what the record suggests doing, in order.

1. Name the one thing that has to work, before the plan

   A supply chain, a local partner, a product change, a license. One sentence. If the list has five items, you do not yet know what the entry depends on, and any date you pick will be arbitrary.

   Seen in: Target, 2013
2. Set the opening date from that thing, and nothing else

   Not from the lease, the fiscal year, a rival's launch or what the board was told last quarter. Target's date came from rent. Its supply chain was not ready, and the stores could not be kept stocked.

   Seen in: Target, 2013
3. Decide in advance what you will adapt and what you won't

   Write down the two or three parts of the model that can change and the ones that cannot. Aldi refused to change its format and closed the store that did not fit it. IKEA kept its standard range and spent 12 years finding out Japan would not buy it.

   Seen in: Aldi, 1977 · IKEA, 1974
4. Bring people who know the market from the inside

   KFC ran China with managers from Taiwan who understood the culture. Walmart let CIFRA adapt the format in Mexico before it took control. In Germany it sent American managers to fix the stores the American way, and left.

   Seen in: KFC, 1987 · Walmart, 1992
5. If you buy your way in, know exactly what you are buying

   Mondelez bought routes and shops, and said so. Walmart bought two weak chains in Germany. Caterpillar pushed through its purchase of a Chinese mining-equipment maker after two profit warnings, then found accounting misconduct and wrote off about $580 million.

   Seen in: Mondelez, 2022 · Caterpillar, 2011
6. Write the exit condition down on the way in

   The number, the date, and who reads it. Tesco expected Fresh & Easy to break even in its second year; it was still losing money six years later. When nobody agrees in advance what failure looks like, every quarter is arguable.

   Seen in: Tesco, 2006 · L'Oreal, 1992

To work the numbers for your own case, read Expansion plan: how fast can a rollout actually go?.

Warning signs

What it has looked like when this decision was going wrong.

• The opening date was fixed before the thing it depends on was tested.Target, 2013
• The date is justified by a cost you are already paying, not by being ready.Target, 2013
• The product is going in unchanged because changing it is against policy.IKEA, 1974
• The plan is to win the biggest segment on price against the local leader.L'Oreal, 1992
• The company you are buying issued profit warnings before the deal closed, and you went ahead.Caterpillar, 2011

All 30 cases

Each case is one company at one decision: what was on the table, what it chose, why, and what followed, with every fact sourced.

Questions

What is a market entry strategy?

The plan for how a company starts selling in a market where it has no business yet, usually a new country: whether to bring its home formula, rebuild it for local customers, partner with a local company, or buy one that is already there.

What are the main ways to enter a new market?

Exporting the existing model unchanged, adapting it to local conditions, forming a joint venture with a local partner, or acquiring a local business. KFC in China rebuilt its model, Walmart in Mexico partnered, and ByteDance bought Musical.ly to reach US teenagers.

Why do market entries fail?

In the cases on record, usually because the plan rested on an assumption made at headquarters: that the standard product would sell, that managers from home could run local stores, that a new chain would break even quickly, or that stores could open before the systems behind them worked.

What are famous examples of failed market entries?

Target in Canada, which opened in 2013 and left in 2015; Tesco's Fresh & Easy in the US; Walmart in Germany; and IKEA's first entry into Japan, which it abandoned in 1986.