The removal of trade barriers between countries and the rise of consumerism are two factors that have aided the rise of international retail trade. In this article we examine the concept of international retailing and the methods by which a retailer can enter a new market.
As has been discussed earlier international retailing is more than just replicating the retail store in other markets. Retail internationalization has been defined as the management of retail operations and markets which are different from each other in their regulation, economic development, special conditions, cultural environment and retail structures.
Typically retail formats have evolved in response to social and economic developments in the economy. Typically, retailers start as local or regional players. As they expand in size, they develop operational efficiencies. Many retailers then expand to a national presence. The growth in size also gives them financial resources. In most cases, international expansion happens when the retailers have reached a level of dominance in the domestic market. Saturation of the domestic market may also be reason for the retailer to look at international expansion.
When taking a decision to enter a new market, a retailer needs a sharp focus on that market. He needs to understand the culture and the buying habits of the local population. He should also be able to use technology and the systems and processes that he has developed in the domestic market. The population levels, the expected growth rates, density of the population and the income levels are important factors to be taken into consideration.
Export is the selling of domestically manufactured products in a different country. A retailer who has a distinct product, such as an on brand which may be attractive to customers in other markets, may look at exports as an option. Marks and Spencer did this successfully with its St Michael’s band, as did The Body Shop. If the response to the exported product is good in the market, it is a good indication that retail stores for that brand could also do well in that particular country.
Franchising / Licensing:
This arrangement permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks patents and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
This strategy of market development has been the rapid expansion of many chains across the globe. McDonald’s owes a great deal of its success in the international and national markets due to successful franchising. The strategy enables a retailer to build a strong identity in the market. For franchising to be successful, it is necessary that the partnerships be with people who share the organization’s vision and understand the market equally well. Systems and procedures also need to be in place with the parent company, so they can be successfully duplicated.
Acquisitions and Mergers:
Acquisitions as the word suggests implies one organization acquiring another organization. A good example of a retail acquisition is that of Asda by Wal-Mart. In the UK, Wal-Mart operates under the name of Asda. Close home example would be that of Shopper’s stop acquiring the bookstore chain Crossword. While acquisitions are an easy way of entering a new non-domestic market, it is not without its complications. Various aspects like the management structure new operating culture and the financial burdens of the company need to be taken into consideration.
Mergers on the other hand, imply two organizations coming together to form a combined entity. The merger of retail giant Carefour and Promodes in Europe is an example of the same.
A joint venture is a strategic partnership between a local retailer and an international /foreign player. This arrangement allows the international retailer to learn from the expertise of the domestic partner, while the domestic retailer can learn from the international practices of the partner.
The key issues to consider in a joint venture are ownership, control length of agreement pricing technology transfer local firm capabilities and resources, and government regulations.
Most joint ventures involve one local partner and one foreign partner. However, retailers may also form a company to enter into a new market. The expansion of US toy retailer Toy’s R Us to the Japanese market is an example of the same. For entering the Japanese market, Toys R Us teamed up with McDonald’s which already existed in Japan.
Organic growth is replicating the retail format in the non domestic market, within the regulatory framework of the new market. While on one hand, it gives the retailer the kind of control required is also a great deal of investment.