Determining the Market of Entry

Which country does a retailer select while looking at international expansion and what forms the basis of this choice is a prime question to be answered. The classical approach to the analysis of international expansion in retailing has been to discuss the push and pull factors. Typical examples of factors that push the retailers are a limited home market and regulatory constraints, both of which may contribute to rapid saturation at home. The owner of a particular retail offering may therefore be forced to look abroad if expansion is to be continued. The pull factors include all the attributes that make a particular foreign country attractive.

Faced with tough economic conditions in the home market, retailers have realized that they can continue to grow only by tapping international markets. These emerging markets are seen as windows of opportunity, a term coined by the global consulting firm, A T Kearney. Over the past seven years, A T Kearny has been presenting a ranking of 30 emerging market economies which it terms as the Global Retail Development Index. It analyses 25 macro economic and retail specific variables to help retailers conceive successful global strategies.

Listed below are some of the factors which affect a retailer’s choice of market.

Proximity to the Domestic Market:

Very often, when a retailer looks at international expansion, he considers markets which are close to the domestic market as it enables the retailer to build on efficiencies in terms of supply chain and logistics.

Similarity in Culture:

Countries close in geographical proximity often share similarities in culture. This enables the retailer to build on the efficiencies in the brand and the similarities in lifestyles.

The Size of the Market:

The size of the market in the country that the retailer plans to enter makes a significant impact on the retailer’s decision to enter a particular market. Retailers wanting to enter the markets of China and India are an example of the same.

The Laws and the Regulations of the Land:

The Laws and the regulations pertaining to retail are of great significance in determining the attractiveness of a market. If a country has restrictions on trade, there is likelihood that retailers may delay their entry into the market. For example, in India entry of foreign retailers is allowed only under a single brand and through the cash and carry route. This has forced many international retailers to put plans of entry into the Indian market on hold.

Trade Relations between the Countries:

Trade and bilateral relations play a significant role in determining the market of choice, as, if good relations between two countries exist, many factors like quotas and tariffs are taken care of. The existence of trade blocs also plays a significant role as it enables and enhances the ability of trade between the nations.

Strength of the Local Players in the Market:

If the domestic players in the market hold a significant control on the market, the market may be seen as one which is difficult to enter. Markets of China and Japan for example, continue to be markets where the domestic retailers hold sway over the international players who have entered the market.

Typically the chain of decisions followed by retailers is determining which market to enter is illustrated below:

Chain of decisions in international expansion:

Domestic / Export Market Expansion? >>

Which Markets? >>

Which Market Entry Strategy? >>

Operating the Market Strategy?

Retailers may adopt different modes to enter a foreign market. Some of the commonly adopts methods of entry are:

1) Supply of goods
2) Franchising
3) Joint Ventures
4) Acquisition of stake (major/minor) in existing retailers
5) Organic Growth.