Market entry
Whether and how a company should enter a market where it has no presence, with a realistic ramp-up, local fixed costs, and a choice of entry mode.
Key takeaways
- Build your own three-part structure (attractive, can we win, economics), model the economics with a ramp and fixed costs, and lead with the assumption you think is the real swing factor.
- Interviewer-led versions (common at McKinsey) often walk you through the pieces in order with exhibits.
- The strong answer is tailored, realistic, and quantified, and it answers "how" as well as "whether." The weak one either never reaches a number or reaches one that is far too optimistic.
What this case type is and when it shows up
A market entry case asks whether a company should enter a market where it has no presence yet, and if so, how. It is one of the most common case types, and a clean, tailored structure here signals a strong candidate quickly.
The underlying theory, in plain language
A good entry structure answers three questions in order: is the market worth entering (attractive), can we win in it (ability to win), and does the money work (economics). Only if all three are good is the answer a confident yes.
The money builds over several years. A new entrant rarely reaches its target share in year one, and it carries local fixed costs (a local team, marketing, fees to get on shelves) from the first day. So model a share ramp over two or three years, not a single year at full share.
Then choose how to enter: build it yourself, buy a company already there, or partner with one, for example a local distributor. Each trades speed, cost, and control differently, and the numbers often differ enough to decide it.
Local rules shape entry. For example, packaged food sold in Saudi Arabia needs product registration with the national food and drug authority (SFDA) and Arabic labels, plus a halal certificate if the product contains animal-derived ingredients (most retailers expect one anyway); India limits foreign ownership in some retail formats; the EU has its own labeling and data rules. Ask about rules early, because they can decide the entry mode.
What the prompts sound like, from simple to hard
- Simple: should an Indian snack brand enter Saudi Arabia.
- Medium: should a Singapore bank launch a small-business account in Indonesia.
- Hard: should a European carmaker enter India's electric-car market with no local plant.
Finding and narrowing the real problem
Key idea
Build your own three-part structure (attractive, can we win, economics), model the economics with a ramp and fixed costs, and lead with the assumption you think is the real swing factor.
Frameworks for this type, each as a thinking tool with its limit
- Attractive, win, economics: Three clean buckets that cover the whole decision. Limit: Each bucket still needs real numbers; the structure alone is not the answer.
- Build, buy, partner: Compare entry modes on speed, cost, and control. Limit: The best mode depends on how fast the opportunity is closing, which the framework does not tell you.
Methods for solving this type
- Size the market and a realistic share ramp
- Assess competition and the company's edge
- Model yearly profit (units times contribution, minus local fixed costs) and cumulative cash against the entry cost
- Compare entry modes on the same numbers
- Test the swing assumption with a downside case
The math patterns it relies on
- Market units times share times contribution per unit
- Minus local fixed costs each year
- Cumulative cash versus the one-time entry cost (payback)
Worked cases
Worked case
An Indian snack brand enters Saudi Arabia
The prompt
An Indian snack brand is considering Saudi Arabia, a market of about 500 million packs a year. It expects to reach 1 percent share in year one, 2.5 percent in year two, and 4 percent in year three, earning a contribution of SAR 0.50 per pack. Running the local business (team, marketing, and fees to get on shelves) costs SAR 4 million a year, and the one-time entry cost (setup, product registration, halal certification) is SAR 6 million. Does it pay back within three years, and how should it enter?
Candidate-led: you build the structure, ask for the market facts, and propose the entry mode; the interviewer adds facts only when you ask.
Clarifying questions, with the interviewer's answers
- What is the client's goal and hurdle?Answer: Profitable growth outside India, with the entry cost paid back within three years.
- How big and how crowded is the market?Answer: About 500 million packs a year, growing about 6 percent a year. The top three brands hold about 60 percent.
- Is the SAR 0.50 per pack before or after local costs?Answer: It is contribution, meaning price minus the variable cost of making, shipping, and distributing each pack. Local fixed costs are separate.
A hypothesis to say out loud: The market is large and growing, and the brand is already known to many South Asian residents of Saudi Arabia. My hypothesis is that entry is attractive, and that the swing factor is whether the brand reaches meaningful share fast enough to cover local fixed costs.
The structure
- Should we enter, and how?
- Attractive? Size, growth, competition
- Can we win? Brand awareness, shelf access
- Key: Economics: ramp-up profit versus entry cost
- How: build, partner, or buy
Working it through
1. Attractiveness
A market of 500 million packs a year growing about 6 percent a year is attractive. Three brands hold about 60 percent, so it is competitive but not closed.
2. Ability to win
Many South Asian residents already know the brand, which gives a starting customer base. The weak point is shelf access, because large retailers favor brands they already stock.
3. Year one, building alone
1 percent of 500 million packs at SAR 0.50 each, minus SAR 4 million of local fixed costs: a loss.
Year 1 profit (SAR):500,000,000 × 0.01 × 0.5 - 4,000,000 = -1,500,0004. Year two
At 2.5 percent share.
Year 2 profit (SAR):500,000,000 × 0.025 × 0.5 - 4,000,000 = 2,250,0005. Year three
At 4 percent share.
Year 3 profit (SAR):500,000,000 × 0.04 × 0.5 - 4,000,000 = 6,000,0006. Cumulative after three years
Start with the SAR 6 million entry cost and add the three years. The total is only just positive, so the plan barely meets the hurdle.
Cumulative cash after 3 years (SAR):-6,000,000 - 1,500,000 + 2,250,000 + 6,000,000 = 750,0007. Downside: share stalls at 3 percent
If year-three share is 3 percent instead of 4, the plan misses the hurdle.
Cumulative cash, 3 percent case (SAR):-6,000,000 - 1,500,000 + 2,250,000 + (500,000,000 × 0.03 × 0.5 - 4,000,000) = -1,750,0008. Partner instead of building
A local distributor would take SAR 0.10 per pack (contribution falls to SAR 0.40) but local fixed costs fall to SAR 2 million a year because the partner already has a sales team and retailer contracts. Buying a local brand would be fastest, but the interviewer says it would cost about SAR 60 million, ten times the entry cost.
Cumulative cash with a partner (SAR):-6,000,000 + (500,000,000 × 0.01 × 0.4 - 2,000,000) + (500,000,000 × 0.025 × 0.4 - 2,000,000) + (500,000,000 × 0.04 × 0.4 - 2,000,000) = 3,000,0009. Partner downside: share stalls at 3 percent
Run the same downside on the partner route. Year-three profit falls to SAR 4 million, and the plan still pays back.
Cumulative cash with a partner, 3 percent case (SAR):-6,000,000 + (500,000,000 × 0.01 × 0.4 - 2,000,000) + (500,000,000 × 0.025 × 0.4 - 2,000,000) + (500,000,000 × 0.03 × 0.4 - 2,000,000) = 1,000,000
The recommendation
Enter Saudi Arabia through a local distribution partner rather than building our own sales force. First, building alone only just pays back in three years, with SAR 0.75 million of cumulative cash. Second, building fails if year-three share reaches 3 percent instead of 4, at minus SAR 1.75 million. Third, with a partner, lower fixed costs give SAR 3 million of cumulative cash by year three, no loss in year one, and still SAR 1 million if share stalls at 3 percent, while buying a local brand would cost about SAR 60 million, ten times the entry cost. The key risk is the share ramp, so agree share targets with the partner and review after year one; consider buying a local brand only if share stalls.
Risks: Year-three share of 4 percent may be optimistic against three strong local and international brands; A partner controls shelf access, so a weak partner slows the ramp; Incumbents may respond with promotions in year one.
Next steps: Shortlist and interview three distribution partners; Test the brand with shoppers in Riyadh and Jeddah to check the share assumption; Confirm registration and halal certification timelines.
A strong candidate
Covered attractiveness and ability to win briefly, modeled a share ramp with fixed costs, tested the downside, and let the numbers choose the entry mode.
A weak candidate
Multiplied full target share by profit per pack for year one, found a payback under one year, and said yes without asking how to enter.
Worked case
An Australian pet-food maker enters Japan: build, partner, or buy?
The prompt
An Australian maker of premium dog food wants to enter Japan. The table below shows three ways to enter, with the interviewer's estimates. Which should it choose?
Interviewer-led: the interviewer shows the table and asks for year-three profit, then three-year cash, then the risks, and then your recommendation.
Clarifying questions, with the interviewer's answers
- What does success look like?Answer: Positive cumulative cash within three years. The board has capped the entry budget at JPY 2,000 million.
- How big is the market?Answer: About 30 million bags of premium dog food a year in Japan, growing slowly.
- How fast does volume build?Answer: If we build or partner, year one sells a third of the year-three volume and year two sells two thirds. A bought brand already sells its full volume.
A hypothesis to say out loud: Japan is a large premium pet market, but new brands find it hard to reach shelves there. My hypothesis is that partnering beats building, because a partner cuts local fixed costs while the brand is still unknown.
The structure
- Which mode gives the most cash within the budget, and holds up if share is lower?
- Is the share assumption realistic?
- Key: Year-three profit and three-year cash for build and partner
- Buy: price against profit and against the budget
- Downside: share one quarter lower
The exhibit
| Entry mode | One-time cost (JPY m) | Contribution per bag (JPY) | Local fixed cost (JPY m a year) | Bags sold in year 3 (millions) |
|---|---|---|---|---|
| Build own sales team | 400 | 900 | 300 | 1.2 |
| Partner with a distributor | 100 | 700 | 120 | 1 |
| Buy a local brand | 15,000 | 900 | 500 | 3 |
Working it through
1. Sense-check the share
Building assumes 1.2 million bags in year three, 4 percent of a 30 million-bag market. For a new foreign brand that is ambitious but possible.
Year-three share if we build (%):1.2 ÷ 30 × 100 = 42. Build: year-three profit
1.2 million bags at JPY 900 is JPY 1,080 million of contribution, minus JPY 300 million of local fixed costs.
Build year-three profit (JPY m):1.2 × 900 - 300 = 7803. Partner: year-three profit
The distributor takes a share, so contribution is JPY 700 a bag, but local fixed costs are only JPY 120 million.
Partner year-three profit (JPY m):1 × 700 - 120 = 5804. Build: three-year cash
Volume ramps 0.4, 0.8, and 1.2 million bags. Subtract three years of fixed costs and the JPY 400 million one-time cost.
Build cumulative cash, 3 years (JPY m):(0.4 + 0.8 + 1.2) × 900 - 3 × 300 - 400 = 8605. Partner: three-year cash
Volume ramps from a third of a million bags to 1 million. Lower fixed and one-time costs give more cash in the first three years.
Partner cumulative cash, 3 years (JPY m):(1 ÷ 3 + 2 ÷ 3 + 1) × 700 - 3 × 120 - 100 = 9406. Buy: price against profit
The local brand would earn about JPY 2,200 million a year, so the price is about 6.8 times profit. That may be fair, but JPY 15,000 million is seven and a half times the JPY 2,000 million budget, so it is out for now.
Price as a multiple of yearly profit:15,000 ÷ (3 × 900 - 500) = 6.827. Downside: build at 3 percent share
Interviewer: "What if share reaches only 3 percent?" Year-three volume falls to 0.9 million bags, with the same ramp.
Build cumulative cash, downside (JPY m):(0.3 + 0.6 + 0.9) × 900 - 3 × 300 - 400 = 3208. Downside: partner
Partner volume falls by the same quarter, to 0.75 million bags in year three. Low fixed costs protect the cash.
Partner cumulative cash, downside (JPY m):(0.25 + 0.5 + 0.75) × 700 - 3 × 120 - 100 = 5909. After year three
Interviewer: "Is there any reason to build?" Candidate: "Yes. At full volume, building earns more each year, so it may pay to run distribution ourselves later."
Extra yearly profit from building at full volume (JPY m):(1.2 × 900 - 300) - (1 × 700 - 120) = 200
What the exhibit shows
Building earns more per bag, but partnering costs far less up front and each year. Buying is far above the budget.
The recommendation
I recommend entering Japan through a distribution partner. First, it gives more cash over three years, about JPY 940 million against JPY 860 million for building, for a quarter of the one-time cost. Second, it holds up better if share disappoints: at a quarter less volume it still gives about JPY 590 million, against JPY 320 million for building. Third, buying a local brand costs about 6.8 times its profit, far above the entry budget. The main risk is that building earns about JPY 200 million a year more at full volume, so the contract should allow a later takeover of distribution.
Risks: A partner with many brands may not push ours hard enough; Contract terms may make a later move to our own sales team costly; The share assumptions may be too high for an unknown foreign brand.
Next steps: Interview three distributors that already serve pet shops and supermarkets in Japan; Test the brand and price with Japanese dog owners before signing; Draft contract terms that allow a later takeover of distribution.
A strong candidate
Checked the share assumption, compared year-three profit and three-year cash, ruled out buying on budget, tested a downside, and still named the case for building later.
A weak candidate
Picked building because it earns the most per bag, without looking at three-year cash, the downside, or the budget.
Prompt: "Should we enter this market?"
Weaker answer
Lists customer, company, and competitor with no numbers, or uses full share in year one and no fixed costs, then says yes.
Stronger answer
Builds an attractive, win, economics structure, models a three-year ramp with local fixed costs, shows the plan fails if share stalls, and picks a partner route that makes the numbers work.
Why the stronger answer wins: The strong answer is tailored, realistic, and quantified, and it answers "how" as well as "whether." The weak one either never reaches a number or reaches one that is far too optimistic.
Common mistakes, traps, and curveballs
- Using full target share from year one
- Leaving out local fixed costs
- Skipping whether the company can win
- Forgetting how local brands will respond
- Ignoring local rules or distribution barriers
Interviewer-led versions (common at McKinsey) often walk you through the pieces in order with exhibits. Candidate-led versions (common at Bain and BCG) usually give you the prompt and expect you to drive the whole structure and ask for data. Formats differ by office and change over time, so check the current process for your target office.
Practice
A market sells 200 million units a year. You expect 3 percent share at EUR 0.60 contribution per unit, with EUR 2 million of local fixed costs a year. What is yearly profit, in EUR?
A Singapore bank plans to enter Australia. Its local fixed costs would be AUD 12 million a year, and each customer contributes AUD 150 a year. How many customers does it need to break even?
A market sells 50 million units a year. An entrant expects 1, 2, and 3 percent share in years one to three, earning EUR 2 of contribution per unit. Local fixed costs are EUR 1.5 million a year and the one-time entry cost is EUR 3 million. What is cumulative cash after three years, in EUR?
An entry model shows a payback under one year, using full target share in year one and no local fixed costs. What is the biggest problem?
Building your own sales team earns more per unit than using a distributor. When does partnering usually still win?
Buying a local company is the fastest way to enter. What must you check before recommending it?
Model entry over several years with a share ramp and local fixed costs, test the downside, then let the numbers help choose between building, partnering, and buying.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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