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Expanding Your Automotive Business Into New Markets: 4 Essential Factors

Matthias Schweiger
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If a vehicle startup successfully launches in one market, the business might soon be asking whether the same can be done in a different market. And with EVs continuing to rise in demand with no signs of slowing down, both startups and established OEMs are aiming to introduce and expand their EVs to new markets – the sooner the better.

This article will cover some essential factors businesses should take into consideration when expanding into new markets.

TABLE OF CONTENT:
> Factor 1: Why expanding into this particular market?
> Factor 2: How should the market be entered?
> Factor 3: Which partners are needed/beneficial for expanding into new markets?
> Factor 4: What unique challenges does the market present?

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FACTOR No. 1: WHY EXPANDING INTO THIS PARTICULAR MARKET?

The first questions should be why a business is looking to expand into a new market. While each business may have different motivations, the two common reasons are:

  1. Their home market is oversaturated and no longer provides sufficient growth.

  2. Their target markets are promising, have an available market niche and/or lack competition.

In both cases, a business should only enter a new market if the motivation behind this strategic action is based on and validated by in-depth market studies.1

For example, the global vehicle market is currently experiencing profound changes as the number of EVs on the road continues to increase. This increase has led to local new entrants and startups seeking to establish themselves in some of the many new niches created by e-mobility, software-defined vehicles, or other trends. These developments are transforming both local markets and the global automotive network.

What’s the best time to enter a market?

At the moment, the shift from classic internal combustion engines to electric vehicles is opening up new niches, as the hurdles for market entry decrease. Nevertheless, entering a new market requires considerable resources and commitment over several years.

As such, a business should only take this step if their existing markets are sufficiently stable, so that the required resources, manpower, and finances do not threaten the standing of the business in existing markets.
Other than that, there is no specific time when market expansion would be considerably more favorable than at another time.

While special opportunities may arise, such as a key player in a branch suddenly disappearing from the market, it is still always smarter to take a balanced and thought-out approach. Even during especially promising windows of time, a new market should not be entered without first having the necessary strategy, budget, and partners.

Is a global release feasible for startups?

Of course, it’s possible for startups to aim for a region-wide or even a global release with their automotive business. The advantage of this is that it allows for a considerably larger target audience, and a larger audience means there could be an increased production volume. Aside from the potential to generate more revenue, larger production volumes also benefit from economies of scale, which makes it the more efficient long-term solution.

However, startups often prioritize short-term establishment over long-term revenue and given the sharp increase in costs and project complexity, such a step should only be taken with caution.

FACTOR NO. 2: HOW SHOULD THE MARKET BE ENTERED

Later success in the market is rooted in a good market entry strategy. This strategy should be based on both a comprehensive market analysis and awareness of the business’s own values and goals. The two biggest questions that need to be answered are how the new market should be entered, and which partners are necessary to do so, both for the distribution network and localization.

Localization and choosing the best market entry scenario
First, it is essential to establish how many tasks of the production processes should be set up into the new market. Body-in-white, painting, general assembly, and certification may all be kept in the country of origin, depending on the existing conditions.

Production volume, supplier networks or customs/tariffs vs. set-up costs all need to be factored in when considering how much the new market should be tapped into.

We have highlighted four different market entry scenarios in more detail in a separate document. 

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What skills should be brought into the new market?

It is possible that certain important skills for the automotive project don’t yet exist in the target market. In such cases, it may become necessary for specialists from the market of origin to oversee operations and/or train new employees at the new site.

This need for specialists is not restricted to technical skills either. If a business expands into a new market, its business culture comes with it. To bridge the gap between local workforces, customers, and partners on one side and the newly arriving business on the other, experts on business culture are required. HR departments, sales, and purchasing skills are also needed to ensure a mutual understanding of one another.

FACTOR NO. 3: WHICH PARTNERS ARE NEEDED/BENEFICIAL FOR EXPANDING INTO NEW MARKETS?

Getting the right partners on board is beneficial (and sometimes necessary) for succeeding in expansion efforts. Local partners provide valuable insights into the specifics of the market, while global partners provide the capacities and knowledge required to set up an automotive business in a new region.2

Choosing suitable local partners

First, local partners are often essential for getting a clear picture of the market. Understanding all necessary legal guidelines, standards, and conventions of a country or region can only be done if the team seeks the support of local specialists who can assist them with the necessary research and paperwork.

Second, local customs and work conditions differ significantly between markets. Wage levels, benefits, unions, or culturally specific needs can all pose different challenges. This can be the case even if the source and target markets are located close to each other. Getting a local partner on board therefore becomes necessary as soon as a larger local workforce or target demographic is part of the market entry strategy.

Teaming up with well-matched global partners

While local partners can help a business to become familiar with region-specific customs and conventions, a global partner like Magna can aid in the entry process itself. From obtaining permits to site selection and ramp-up to complete vehicle development, a partner with international standing and expertise may provide a significant boost in speed and efficiency for the technical side of things.

Magna would, of course, be a prime choice for such a global partner. Our century-long experience in automotive manufacturing, combined with our worldwide network of facilities, partners, and suppliers, provides startups with assets they would otherwise miss out on while establishing their new site. Additionally, Magna’s one-stop shop service for complete vehicle projects supports every step of the vehicle’s development, from the drawing board until it goes on the road, anywhere in the world. For customers, the one-stop shop means an immense reduction in complexity, as they have minimal interfaces and can focus completely on building up their sales volume.

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FACTOR No. 4: WHAT UNIQUE CHALLENGES DOES THE MARKET PRESENT?

The global automotive industry is extremely diverse – every market provides its unique challenges and conditions, which expanding businesses need to get familiar with before they implement their entry plans.

Which local customs and conventions shape the market?

When entering a new market, a business naturally enters a new social world as well. Social standards, family structures, religious or ideological beliefs, and even business culture or working standards may all be very different in a new market. As such, a business may find vastly different standards than what they are used to in terms of what their customers value, what their partners expect, and what their workforce demands from them.

Likewise, the culture of the business itself will also become part of a new market. New employees and partners will need to familiarize themselves with the values of the newly arriving business.

What does the overall legal situation look like?

Each region is also unique due the specifics of its overall legal environment. For example, sustainability standards and guidelines are usually considerably stricter in Europe than in most other regions.
Similarly, some regions may be economically friendlier than others in general. The US, for example, not only has a sizable market, but its membership in numerous free trade zones allows access to vast supplier and vendor network potential extending from the Pacific Ocean to the Mediterranean Sea.

How established is the competition?

Finally, it’s important to consider the existing market competition. However, this goes beyond simply analyzing the market shares of a business. Rather, what should be examined is how strongly those brands are ingrained in the local identity.
Take Germany, for example. The home country to several global automakers has a particularly well-established automotive industry. German vehicle brands make up a sizable portion of the country’s total economy. These brand names not only enjoy an established position, but are also deeply ingrained into the German mindset. Germans are proud of their long-standing automotive history, which makes it very difficult for new players to gain significant traction.
However, things look quite different just across the border. Poland is heavily influenced by its neighboring industries, but it does not have the same kind of ingrained self-perception as a “car making” nation. As such, new car businesses may find it easier to score a larger share of the market there.

WHAT'S NEXT?

To summarize: Before entering a new market, four factors should be taken into account:

  1. Why should a specific market be entered?
  2. How “thorough” should the market entry be?
  3. What local and global partners are needed for market entry?
  4. What unique challenges does the market present?

There is, of course, much more to this list than meets the eye. For example, the process of establishing a suitable market entry strategy usually takes anywhere from several months to years before it’s completed. But what’s important to remember is that expanding a business is much more than just opening a new facility in a location some 200 to 10,000 km away.

Once a business enters a new market, it opens itself up to what is essentially a different world. From legal standards to local mannerisms, every new market brings its own set of new challenges and opportunities. Good business leaders realize that expanding does not only mean tapping into a new market. It also means that they will become part of a completely new business and social culture. And likewise, some of their own culture will also be brought into the new market.

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1: Read more: “Build Your Own Car – Magna’s EV Startup Guide for Realizing Your Automotive Vision”
2: Read more: “Let's Get Started - the Search for Manufacturing Partners”

 

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Matthias Schweiger

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