International Business

Entering a Market Where

There’s Little Demand for Your
Product
by Lele Sang and Karl Ulrich

December 17, 2021

Helen King/Getty Images

Summary.   Most companies focus their international expansion efforts on

markets with evident existing demand for their products or services. But through a
series of more than 100 interviews with executives and multinational organizations,
the authors found that it is also possible (and potentially quite profitable) to
expand into global markets without clear signs of demand. The authors outline
three strategies that have helped firms around the world successfully launch into
such markets: Start with a small initial investment, find creative ways to introduce
local customers to an entirely new product category, and pivot the business to
meet local needs. While entering a new region without existing demand is risky, a
bit of patience and creativity can help companies preempt competition and find —
or create — substantial long-term demand. close

When it comes to choosing new markets to enter, the safe bet is to

focus on regions with visible, existing demand for your products
or services. Hyundai, for example, only entered China when the
Chinese auto industry was already growing about 20% per year.
Amazon waited to venture into India until the country’s e-
commerce sector was growing at 35% per year. And Uber
launched a motorbike taxi service in Indonesia after the success
of local rivals Gojek and Grab demonstrated the popularity of
similar services in the region.

Clearly, this strategy can be effective. But there is also a downside:

When the potential of a market is no longer a secret, stiff
competition is inevitable. That’s why some companies choose to
take a different approach to international expansion. Through a
series of more than 100 in-depth interviews with leaders at
multinational organizations, we found that while many firms
focus their efforts on markets with strong existing demand, it is in
fact possible to launch successfully in a new market that has
almost no evident demand — and if done right, this can be a
highly effective approach to sidestep competition and establish a
strong market position early.

Specifically, we identified three strategies:

1. Start Small

Without clear evidence of strong market potential, companies

must make educated guesses abound how demand is likely to
change over time. For example, a political shift or technological
innovation might suggest that a certain economy or sector is
likely to grow, social trends might indicate a coming change in
consumer behavior, or a rising middle class might create new
interest in certain products or services. Depending on an
organization’s level of confidence in these assumptions, it may
make sense to test out a market with a small initial investment
before making a larger commitment. Taking baby steps makes it
possible to validate a new market, learn about its idiosyncrasies,
and adjust accordingly…without going bankrupt in the process.

For example, when Italian luxury brand Zegna opened its first
store in China, the country seemed to be an improbable source of
growth. At the time, a Zegna suit cost three times the average
annual salary of a Beijing resident, suggesting that demand would
be miniscule. Nevertheless, the company opened a few small
stores, making it the first Western luxury goods company to
expand into China. These stores operated at a loss for five years,
but because its initial investment was small, Zegna could afford
the losses. The company patiently continued to experiment and
build up their local operations and talent base, even bringing
managers from Italy to train Chinese staff who had no experience
with distributing these kinds of luxury goods.

With essentially no competitors, Zegna was able to build a well-

known brand among China’s elite. At the same time, the Chinese
market steadily evolved. Rapidly growing upper and middle
classes generated increased demand for Zegna’s upscale clothing,
while a relaxation of restrictions on foreign companies eliminated
the requirement to partner with local distributors, further
enhancing Zegna’s ability to profit from the market. In response
to these market shifts, other luxury brands’ interest in the
Chinese market grew, but Zegna had a major advantage due to its
established customer base and well-trained employees. In 2010 —
less than 20 years after Zegna first entered China — it was one of
the top five luxury apparel brands in the country, accounting for
50% of all luxury menswear sales. Today, one-third of Zegna’s
global revenue comes from China, in large part due to its early,
measured entry into the market.

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When the
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Teva

Pharmaceuticals first expanded into the U.S., the American drug

market was dominated by brand-name medicines. There was
limited demand for generic alternatives, especially not from a
small foreign startup like Teva. Nevertheless, the company made
a small initial move: It provided less than 10% of the upfront
capital to form a 50/50 joint venture with a U.S. partner, W.R.
Grace, that was interested in Teva’s technologies and expertise.
This minimal investment enabled Teva to gain a foothold in the
American market, and it quickly paid off when a change in U.S.
regulations eased the approval process for generic drugs and
spurred a market boom. The U.S. is now the world’s biggest
generic drug market, and Teva’s early entry helped the company
to become a market leader despite its limited resources.

2. Introduce New Product Categories

While it’s often easier to sell a product if your customers are

already familiar with similar products, there’s a lot to be gained if
your company manages to be the one to introduce people to an
entirely new category of products. That means first
understanding the local market and then developing a novel
value proposition that will resonate with local customers.

For example, when Italian cruise line Costa Cruises first entered
the Chinese market in 2006, most Chinese tourists had never even
heard of cruising — ships were thought of only as a means of
transport. But Costa identified an important market trend: a
growing interest among Chinese elites in anything that felt novel,
foreign, and in particular, European.

The company launched just one small, 1,000-person ship in

Shanghai to test out the market (exemplifying the start small
strategy, too). While such a relatively small ship might not have
gotten much fanfare in the U.S. or Europe, where travelers were
more accustomed to cruising, its novelty and foreignness ignited
excitement among Chinese customers. Costa offered a brand-new
vacation experience: comfortable guest rooms, international
cuisine, Italian opera performances, wine-tasting classes taught
by European sommeliers. It was a huge hit. Since then, many
other cruising companies have entered the Chinese market, but
Costa’s early entry and effective branding have enabled it to
maintain a strong position.

Of course, not every venture will be an immediate success. When

Indonesian food distributor Tolaram first entered the Nigerian
market with its instant noodle product Indomie, the company
initially struggled to gain traction. Many customers in Nigeria had
never eaten or even seen noodles, and so the product’s popularity
in Asia failed to translate to this new market. Tolaram soon
realized that without existing demand for noodles, a new
approach was necessary: The company focused its marketing on
Indomie’s low cost and nutrition, which resonated with a
customer base that was low-income and interested in healthy
foods. Despite its rocky start, Indomie has now become a
household name in Nigeria, and accounts for more than 70% of
the country’s instant noodle market.

3. Pivot to Meet Existing Demand

Of course, not all pioneers benefit from favorable market shifts or

a warm response to a novel type of product. LinkedIn, for example
encountered scarce demand when it first entered China. The
company initially offered the same professional networking site
as it did in other countries — but despite its success elsewhere,
the majority of Chinese users found the entire idea of the site
strange and unappealing. Displaying resume-like profiles on a
social media site made people uncomfortable, and in a culture
that emphasized building relationships before doing business,
using public profiles to facilitate business through weak ties felt
unfamiliar and inappropriate. At the same time, regulatory
restrictions on social platforms made it increasingly challenging
for LinkedIn to operate.

In response, LinkedIn shifted the focus of its China operations

from the site’s primary social function to its recruiting features.
Chinese customers were familiar with other job-hunting sites, and
LinkedIn’s global network of top companies and recruiters offered
an advantage that competitors couldn’t match. LinkedIn realized
that it was much better positioned to meet this existing demand
than to create new demand for its core product among consumers
who were lukewarm on the very concept of a professional social
network. So, earlier this year, the company announced it would
shut down its social service in China and instead launch a new job
application site.

Of course, only time will tell if this shift will pay off. But at least
on paper, it seems to align a lot more closely with the cultural and
regulatory landscape of the Chinese market, as well as with the
ways in which LinkedIn’s limited customer base had already been
using the app. If you’re having trouble getting new customers to
adapt to you (but the market still seems worth pursuing), you
might be better off pivoting your business to meet them where
they are.

...

Entering a new market without existing demand is risky. That risk

deters many global companies, who would rather pursue markets
with greater certainty and a higher chance of immediate returns.
But with a bit of patience and creativity, it is possible to venture
into an untapped market and find — or create — substantial,
sustainable demand. Whether you just dip a toe in with a small
exploratory investment, leverage your brand’s unique features to
establish an entirely new product category, or pivot your own
business to more effectively meet the needs of local customers, a
seemingly demand-less market may have more potential than
meets the eye.

LS
Lele Sang is Global Fellow at the Wharton
School of the University of Pennsylvania. She is
co-author of the book Winning in China: 8
Stories of Success and Failure in the World’s
Largest Economy (Wharton School Press, 2021).
 KU
Karl Ulrich is CIBC Endowed Professor at the
Wharton School of the University of
Pennsylvania. His research is focused on
innovation, entrepreneurship, and design. He
is co-author with Lele Sang of Winning in
China.