Wave strategy

Theory

The Wave Strategy [Christoph Lymbersky: (2008) "Market Entry Strategies"; Management Laboratory Press] was first described by Christoph Lymbersky in the book "Market Entry Strategies". This strategy can be employed by a company that wants to expand its business to other countries.

"The wave strategy focuses on cultural differences and clasifies countries/markets in market groups (e.g. A, B and C) that show similar characteristics to the home market of a company." [Christoph Lymbersky: (2008) "Market Entry Strategies"; Management Laboratory Press]

The Wave Strategy is a mix of the Sprinkler strategy where all suitable markets get entered at the same time and the Waterfall Strategy where one market gets entered at a time and several in a row. These strategies are however very theoretical. In the real world, we often find a mixed timing to enter a foreign market. Markets that get grouped into the first wave are markets that are similar to the home market with little variations. Based on the thoughs of *Geert Hofstede and Eduard T. Hall countries that show similar cultural characteristics [Edward T. Hall, Mildred Reed Hall: (1990) "Understanding Cultural Differences"; Intercultral Press Inc.] such as Germany, Austria and Switzerland would be grouped in one group. [Geert Hofsteede: (2001) "Culture's Consequences"; Sage Publishing]

The process

In this first wave (group) the successful concept of the home market can be replicated more easily and differences can be explored. The experience out of these market entries should influence the strategic planning process of the second wave.
Once a secure stream of cash-flow can be generated from the first wave, the second wave can be launched.

The second wave consists of a group of markets that are different from the home market. If one or more market entry of this second wave fail, the cash-flows from the home country and first wave should be able to make up for the loss.

A third wave can be launched once the secure cash-flows from the second wave can be expected. The third wave then consists of countries that are very different from the home country or that are difficult to enter because of high competition or government restrictions.

The country group A indicates a group of markets that are similar to the domestic market. The goal is to minimise the failure of the market expansion due to the similarities in the selected markets. The company uses this first “wave” of entries as a learning experience at this point adoptions can and should be made. Furthermore, the first entry is cost reducing due to the market similarities. The experiences from the first “wave” can be gathered and used for the strategic planning for the next country group.
The entry into the next country group is dependent on the generated cash flow from the first wave. As soon as enough cash flow is generated the product can be launched on the next group of markets.

The country group B is not as similar to the home market as the countries gathered in group A but still show some similarities. However, suitable markets should be chosen in order to avoid entry failures. In the case of a failed market entry the cash flow from the first wave should cover the losses occurred in this second stage.

The country group C is even more different from the home market then the countries in group A and B. These countries can be entered if stable cash flows from the second wave are generated. The market chosen for the third wave differs from the domestic market and is therefore more challenging. This can be due to high competition or government restrictions, cultural differences, different buying behaviour and so on. The main advantages of the wave strategy are that the risk is rather low because the first entry is into markets that are similar to the home market. Therefore, mistakes can be avoided, the risk minimised and costs can be saved for the second wave.

Furthermore, the economies of scale can be explored one by one and the following entries can be refinanced from the previous generated cash flows. This strategy allows high learning and experience effects and these should be documented for further market entries. The only disadvantage is that the company has to pay for all arising costs for the launch of the product in the country group A. [Alessa Witt: (2008) Munich Business School: http://www.munich-business-school.de/intercultural/index.php/Market_Entry:_Timing_Strategies]

After a successful entry of all desired markets, exact documentation of all problems should be produced in order to avoid pitfalls and to transfer the experience gained to future management generations.

Example

An example of the Wave strategy is the catalogue house Witt-Weiden, which is located in Germany and decided to go international in 1992. The management decided to enter Austria and Switzerland before other countries. [Alessa Witt: (2008) Munich Business School: http://www.munich-business-school.de/intercultural/index.php/Market_Entry:_Timing_Strategies] These markets are culturally similar to the German market. However this depends highly on the product as well.

References:

[1] Christoph Lymbersky: (2008) "Market Entry Strategies"; Management Laboratory Press
[2] Geert Hofsteede: (2001) "Culture's Consequences"; Sage Publishing
[3] , [4] Edward T. Hall, Mildred Reed Hall: (1990) "Understanding Cultural Differences
[5] , [6] Alessa Witt: (2008) Munich Business School: http://www.munich-business-school.de/intercultural/index.php/Market_Entry:_Timing_Strategies

References