Everybody working in the overseas development of media businesses will have been involved at some time in discussions about the best time to enter an emerging market. Chief executives return from industry conferences full of excitement about the current flavour of the month. The development team is tasked to "get in there quickly". Received wisdom typically dictates that the first company to stake out a claim on that new market will win in the long run.
During the heights of the dotcom craziness, this was typically termed "first mover advantage". According to wordspy.com, the term may have derived from the board game Monopoly where the first person to move on to one of the high value squares often ends up the winner. Over the years, the demise of a range of high profile ‘first movers’ from the British jet airliner industry through Netscape suggests, however, that the concept does not always translate readily to the business world.
China has intermittently been flavour of the month for the best part of twenty years. India is now receiving a lot of attention after a change in the regulatory environment for publishers and a few high profile deals. How have those who moved in quickly fared compared to their more cautious counterparts?
The first, and probably most important, lesson drawn from the experiences of others is that a company must look very closely at how sustainable the newly-fashionable market is really going to be. Huge investments were made by media companies in IT, telecoms and online businesses in the five years 1996 – 2001. The history of those investments does not need repeating and the impacts are still being felt. Nobody possesses 20:20 foresight but proper due diligence on the real potential of new markets is even more important when entering new export markets.
Doing the homework first
Answering a few simple questions may help to avoid significant pain and expense. These questions should include at least the following:
How big is the market really? In particular for markets like China and India, business people can easily become mesmerised by the numbers of people. "If there are a billion people, surely that’s a lot of readers or buyers for our advertisers. Therefore, this must be a big market", goes the thinking. Detailed analysis will show up that real consumer or business buying power, distribution challenges and competition from existing local titles means that the market is much smaller than had been anticipated. In China and India, this continues to be combined with fierce competition driving down prices as the market grows. Excitement at the long-term potential needs to be tempered with realism about the scale of the market today.
Who are the key players? Don’t limit yourself to your familiar competitors. Make sure that you look at the up-and-coming locals too.
What is the regulatory environment? How can I do business in this market? Look out for markets like China where there is a large grey area between what is clearly and officially allowed and the cutting edge of what people actually do. Within that grey area is where most of the profits are made. Move too far into it and you are liable to get into trouble, not far enough and you will make no money.
Agree on your timing
There is no doubt that investing in an emerging market is an exciting adventure but also a long-term bet for most businesses. It is possible to be profitable relatively early on, but probably not in a major way. Most companies find that a period of investment is required. IDG is without question the most successful magazine publisher in China today. As a private company, it does not break out its finances but its revenues are certainly well into the US$100s of millions. It has been active in China since 1983 and, as such, definitely qualifies as a first mover. The first decade or so, however, were periods of heavy investment.
With a time-line like that, companies need to have a clear view of what constitutes "long term" for them. A very unhappy chief executive once told the author "I’ve always said the we were here for the long term, but heck, we’ve been here fifteen years, we’re still losing money and I think that is the long term". They pulled out.
Where being first can be helpful
If the homework looks promising and the company has agreed on its timing, there are clearly some advantages to moving in first: effective partnerships are at the heart of most successful international expansions for media companies. By moving in first, you get the pick of the best partners. Not all deals are as exclusive as they seem so you will need to be careful that choosing the best partner closes the door to others.
Magazines are powerful brands and you can establish your’s early. Women’s magazines, for example, were very under-developed in China until the early/mid 1990s. Hachette was an early mover with its China edition of Elle which remains the leading title in this category in China. That being said, Hearst, in partnership with IDG, has more recently launched a Chinese version of Cosmopolitan which is already second placed in the market in terms of advertising sales.
Achieving critical mass in circulation can be even more challenging in a newly-emerging market than in developed ones. B2B publishers tend to favour controlled circulation. Even in challenging markets like China and India, lists can be bought and built. Getting your titles on to the news-stands in a new market can, though, be fraught with challenges. In Japan, for example, you have to be in the kiosks at railway stations if you are to achieve good sales. These are dominated by large and very conservative corporations who are not particularly amenable to foreign publishers. In Hong Kong and Taiwan, the street-level news-stands are heavily infiltrated by organised crime. China effectively has no wholesalers and a very under-developed network of retailers.
So again, achieving critical mass takes time and being first into the market may give you that time.
Another benefit of moving into a market early is that a company may put itself in a position to influence the way in which the market develops both commercially and in terms of government policy. Particularly in partnership with a local firm, a western firm has much more influence once it is actually operating in a market, employing staff and paying taxes.
Less positively perhaps, being in early also allows companies to try to influence tighter entry requirements for late-comers. In China, one or two early market entrants have special terms for their businesses which are forbidden to newcomers. The door is unlikely to remain permanently shut to others but time gained while the newer entrants operate on less attractive terms can clearly be a powerful advantage.
| Advantages and disadvantages of moving early | |
| Advantages | Disadvantages |
| You can bag the best partners | The rules may change and better partners may emerge later |
| Establish your brand first | Consumers in emerging markets are fickle and inclined to switch brands |
| Build critical mass of circulation early | Others can catch up faster as circulation fulfilment systems and distribution become more sophisticated |
| Influence market development | Others can follow the path that you open up |
| Close the door to others | The door is unlikely to remain closed permanently |
When being first is a disadvantage
There are definitely times when being in the market first is a clear disadvantage. By their nature, emerging markets tend to move quickly. A number of publishers have found themselves with deals which were cutting-edge at the time they were made but which have subsequently proved restrictive as the market has developed and other, later entrants have been able to take advantage of more flexible terms.
In China, for example, the only possible partners in the mid-1980s were with government departments. They were the only publishers back then. They had influence with the authorities but rather limited entrepreneurial skills. Some major titles are still working with partners they first ‘married’ twenty years ago. The market has moved on and, in some cases, the development of those titles has been hindered by the long-established partnerships.
New markets not only move fast, they are also very fickle. Consumers tend to switch between new brands very quickly, particularly where a large number of purchases are made on impulse at point-of-sale as is often the case with consumer magazines. So, even if you successfully build a new brand, there is nothing to guarantee that your readers won’t switch to a new one when it appears.
We have already addressed the financial strains that an early market entry can entail with companies sometimes having to take losses for years. Emerging markets tend to have choppy growth patterns and the down years can really hurt sales. This year, for example, the Chinese government has been taking measures to slow down runaway economic growth. The macro-economic levers in an emerging economy like this tend not to involve particularly fine adjustments. Some business sectors, such as steel, have come to a grinding halt. If you are unfortunate enough to be addressing these business sectors with your publications, your clients will find their business cut off and they will stop advertising. When the finances are already a bit marginal, this can be a death blow.
So, whether you move in to a new market quickly or not will depend on a number of factors: the brands that you have to offer, the competitive environment in your sector, your judgement of just how important this market is going to be, how deep your pockets are and how much stomach your company has for risk.
