Read the full script of Module 7, Episode 5 of the Global Growth Master Class below. Want to get certified on global expansion? Simply click here to access the complete course today.

Now that you’ve selected what market (or markets) to enter, the next step is to build a strategy. This is the core objective of the Market Entry Strategy Creation step, in the Market Readiness & Strategy Development stage of the Global Agile Methodology. Here you take the work you have done around uncovering and mapping out localizations and build an action plan for Market Entry, prioritizing localizations and categorizing them into implementation stages. In doing so, you answer the question: “How do you build a localization plan and budget for these changes?”

The next step is to decide on the scope of localizations and prioritize them, create a structured go-to-market plan, and answer the question, “How to prioritize localizations?”

First, list out all the localizations being considered and then evaluate the efficacy of each, as well as the alignment with company core values, scalability, and level of importance of each. In the process, create an implementation stage (since not all localizations will be done at once), and then determine the estimated cost associated with the localization.

The output then becomes a prioritized list of localizations, categorized by implementation stage, with estimated costs layered on, all while ensuring core value alignment. 

A note on core value alignment

Before building a prioritized list of localizations it’s important to check whether any of the localizations conflict with company core values or are outside of any guardrails set around what of the validated model can or cannot be changed. For example, LinkedIn had the opportunity to enter the Saudi Arabian market but were asked to add a gender filter for recruiting job applications, given there was a local initiative to get more women in the workforce. LinkedIn, however, saw how this feature could be used to filter out women and only recruit men. Given that would conflict with LinkedIn’s core values and culture, the company decided not to enter the market at that time.

Important: As you have heard us say before, you shouldn’t be thinking about one market as you go through this process, but multiple markets. The scalability of a localization should be a consideration; you may want to prioritize a specific change because it can be used across multiple target markets (recall the Linked Market concept we discussed in the last module). 

The Total Cost of Entry Formula

While in a perfect world, your company could implement all the localizations required to succeed in a new market, the reality is resources are limited. To quantify the financial impact of certain localizations, we created the Total Cost of Entry Formula or TCE Formula. The TCE Formula is important because one of the 4 Commitments for Successful Global Growth is Resource Alignment and so the formula can be used to ensure ample and sustained resources for the launch and growth of each market. Resources need to be dedicated over a long period of time to avoid a “launch and leave” scenario where investment in new market entry is wasted because the investment is followed up with sustained resources to ensure Product Market Fit, and ultimately Company Market Fit are achieved.

Calculating the costs involved is a sometimes overlooked, yet critical stage in assessing the necessary modifications for localizing in a new market. While developing the Localization Premium Analysis is the first step, conducting a qualitative exercise to identify the specific localization requirements is equally essential.

After outlining the required changes, the next step is to evaluate the financial investment required for each change to the current model. To aid in this evaluation, we have developed the Total Cost of Entry Formula, or TCE Formula, which can be compared to the Total Cost of Ownership (TCO) equation used in various industries for purchasing decisions. The TCE Formula provides answers to critical questions, such as the cost of localizing the business for a new market and what constitutes success.

It is imperative to conduct the LPA exercise first, as it can be challenging to assess the cost of entry if you lack an understanding of how to adapt your existing model to achieve a successful launch in a new market. The TCE Formula aligns with each category in the LPA, and each change has an associated cost. Collectively, these changes contribute to the total cost of entry for that particular premium category, such as Sales Premium, Product Premium, Infrastructure Premium, and more. By combining all premium categories, you can determine the anticipated total cost of localizing in a new market. 

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There are various costs that a company may need to consider when estimating the cost of entry into a new market. These may include marketing expenses, administrative costs for setup, investment in inventory, and salaries and benefits for local and headquarters staff involved in the expansion efforts. However, it is important to note that companies selling physical products may face higher up-front costs compared to those selling software-based products. This is because of the costs associated with supply chain and packaging localizations, as well as complying with local regulatory requirements. Software products, on the other hand, may have lower distribution barriers as many of these costs are not applicable.

Examining these expenses over an accurate period is crucial to arrive at the Total Cost of Entry. While the duration may vary depending on the industry and available resources, it's necessary to budget for a minimum of two years of costs. It's also essential to consider a time factor, or Time Multiple, primarily when it comes to the human resources cost for facilitating and sustaining the expansion initiative. The Time Multiple can be indicated in months or years. When incorporating the time factor, it's advisable to differentiate one-time expenditures from recurring or time-dependent costs and only take the latter into account.

Total Cost of Entry Formula Template

[One-Time Entry Costs] + [Ongoing Entry Costs x Time Multiple] = Total Cost of Expansion (TCE)

Or to provide the details of what entry costs consist of (which include the LPA categories):

Entry costs include:

• Sales Premium (SP)

• Product Premium (PP)

• Marketing Premium (MP)

• Administrative Premium (AP)

• Infrastructure Premium (IP)

• Organizational Premium (OP)

Some entry costs are one-time, like making a product feature (software) or packaging (physical product) change, while others are ongoing, like the cost of maintaining a local team. For the ongoing entry costs, a Time Multiple (TM) is factored in (which should account for two to three years of these ongoing costs).

Add the one-time and ongoing costs together to get the Total Cost of Entry:

[One-Time SP + PP + AP + OP + MP + IP] + [ [Ongoing SP + PP + AP + OP + MP + IP] x TM] = TCE 

Once you understand the estimated financial impact of certain localizations, the next step is to finalize your prioritizations and implementation stages for the localizations that are deemed within scope. 

Total Cost of Entry Formula in Practice

Global Class Companies know that some changes will be more impactful in helping them reach company-market fit. In light of this, Global Class Companies prioritize each localization (or premium category), separating them into different tiers. The TCE Formula adds a cost layer to the analysis, guiding decision-making and helping teams answer the question: What would it cost to implement our highest priority localizations?

Successful global companies understand that effective localization strategies require a phased approach rather than trying to make all necessary changes at once. The TCE Formula is valuable in determining the costs of each phase of a multi-phase market entry, enabling teams to answer critical questions such as the cost of completing the first implementation stage in the new market.

Looking back at Apple's expansion in Brazil described in the previous module, the company faced various expenses related to Infrastructure Premium as they had to revamp their retail layout. Additionally, they incurred Org. Premium in terms of recruiting and training new employees, as well as Admin. Premium in navigating the complex tariffs and compliance requirements in the market.

Once the TCE Formula has been calculated, it is necessary to consider the potential of the target market to determine the return on investment and payback period. For instance, when Apple expanded into Brazil, it had to adjust its sales targets and metrics to account for the lower sales volume in its stores, which were primarily focused on device servicing instead of selling new products.

Once you have determined the Total Cost of Entry over time, the focus shifts to the implementation of the localization changes. It is essential to use effective localization discovery, along with the Localization Premium Analysis (LPA) and Total Cost of Entry (TCE) Formula, to ensure that your efforts are directed at localizing the right aspects while being mindful of the resources required. Without these components, the success of any global growth initiative is in jeopardy. Claudia Makadristo from MetaMap stresses the importance of not blindly investing in a strategy that is not tailored to the local market: "You don't want to throw money at disrupting a market that you know nothing about, using a strategy that is not localized."

NOTE: Don't miss out on the next episode! If you want to continue learning about global expansion strategies and dive deeper into the course material, simply click here to access Module 7, Episode 7 of the Global Growth Master Class.