The Best Time to Enter a Second Market Is Before You Need One
MARKET EXPANSION · GROWTH STRATEGY
Depending on one market or a few accounts changes how a company invests long before revenue shows any strain. This four-part framework explains why a second growth engine is cheapest to build while the first is still healthy.
The four-part framework
Room for the dip. Opening a new market costs money before it earns any, and a strong core can carry that early dip as a planned investment.
Cheaper funding. Lenders and investors charge more for concentrated revenue, so paying for expansion gets more expensive the more a company depends on a few buyers.
Better choices. Firms under pressure tend to expand faster, wider and less predictably, while a healthy company can pick one market and test it properly.
A window that closes. The appetite for expansion peaks with modest shortfalls and fades once problems become severe, which means the capacity to act shrinks just as the need becomes obvious.
22% is roughly the drop in risk-taking for each standard deviation rise in customer concentration, in a study of 1,579 Chinese listed companies
27% of sales from major customers, the level above which firms in that study became noticeably more conservative about investing
10% of revenue from a single customer is the level at which listed companies must disclose it under IFRS 8
Why this matters now
Most leadership teams treat a second market as a response to a problem. The core market softens, growth slows, and expansion lands on the agenda. By then there is less cash to absorb a slow start, less management attention to spare, and a board that wants results within two quarters. Smaller firms have been found to see profits dip when they first invest abroad and recover as their commitment grows (Lu and Beamish, 2001), which is a dip a healthy core can fund and a struggling one has to fight to justify.
The research also points to a behavioural effect underneath this. Firms that depend on a few large customers take fewer risks, and lenders and investors price that dependence into what they charge (Campello and Gao, 2017; Dhaliwal and co-authors, 2016). A study of 772 Taiwanese listed firms found that companies with spare resources but below-target performance expanded abroad quickly, across a wide range of countries and in an irregular rhythm (Lin, 2014), which is what a rushed decision looks like from the outside.
Southeast Asia shows why the choice of market matters as much as the timing. ASEAN's own statistics put 2023 growth anywhere from 1.1% in Singapore to 5.5% in the Philippines, and GDP per capita from about US$1,100 in Lao PDR to about US$85,000 in Singapore. A company sitting in one of those markets is exposed to conditions that barely apply next door.
Where most companies fall short
Two gaps show up most often. The first is treating the second market as a rescue. Expansion started under pressure gets a short timeline and a thin budget, and a wrong bet is hard to stop once so much has been spent on it. The second is choosing a second market that behaves like the first. Asian Development Bank research on the region points to trade and financial links as reasons economies move together, so a neighbour with the same buyers and the same cycle adds less protection than a market whose demand comes from different places.
Focus has real benefits, and research on suppliers with a few large customers has found they can be more efficient and more profitable (Patatoukas, 2012). Building a second source of demand while the first is strong keeps those benefits and removes the risk of having nothing to fall back on. A small test with one named owner, a fixed budget and stop criteria agreed in advance costs little next to a rescue.
Key takeaways
The cheapest time to build a second growth engine is before you need one, because a strong core can fund the slow start and lenders and investors charge less for a less concentrated business.
The warning signs show up in pipeline and behaviour before revenue. Watch for a rising cost of winning new customers, deeper discounting, and fewer new bets being started.
Choose a second market whose demand comes from different places than the first, and start with a small test that has an owner, a budget and agreed stop criteria.
Call to action
Wondering where your second growth engine should come from? Let's talk. Afinitiq can help you check how concentrated your growth really is and shortlist markets before you need them.
