Comment: British businesses consider opportunities overseas
With the UK economy still struggling to escape from the claws of recession, the idea of overseas expansion has become an attractive proposition for many companies. By Tristan Rogers
The benefit of this approach is clear: if a popular UK brand can be extended to customers overseas, the company can enjoy additional revenues and healthier margins by broadening their business beyond the weak domestic market.
Already, there are many examples of businesses that are making this model work, such as Mothercare, Tesco, Marks & Spencer, Clarks and others. Not only are these brands backed by businesses that can support this level of expansion, but they have also proved that they can 'travel' well.
However, with the exception of Tesco, all of these brands have used franchising as their growth model, since this tried-and-tested approach has already proved successful with a large number of well-known brands. On the face of it, the franchise model also seems to carry little risk, since the franchisee will normally pick up the tab and local market challenges of new store openings, HR and taxation, which means that the franchisor is free to focus on bringing its product and brand proposition to the market successfully.
Unfortunately, international expansion is not always quite this simple, especially when it comes to branding. Just take a look at some of the key franchisees in the international market – companies like Alshaya, AlHokair, Al Futaim, Landmark and FIBA, for example – and look at the brands they represent. Now imagine what it must be like from their perspective, managing so many different brands. Unless your brand proposition is crystal clear and expertly managed, it could well be lost on these mega-franchise holders.
Even without the (significant) merchandising challenges to consider, there will be many other aspects of a business that will need to be reshaped in order to align with new markets effectively – the choice of the store's location, a new store fit out, in-store promotions, local marketing, visual merchandising, staffing requirements – and everything else about the brand that touches local consumers in that market.
To be truly effective, brands will need to understand their market, optimise their processes and create efficiencies, so that their established way of working can “localilse” to the local markets requirements without eroding brand values. Getting all of these variables just right is essential, and requires a mix of local market knowledge that can be used to support the brand's unique DNA. After all, if the business isn't able to translate its brand proposition into the local market effectively, then it ceases being a brand, and quickly becomes a shop that just 'sells X' instead. When that happens, the business has a very serious problem.
When it comes to international expansion, there is no 'magic bullet', but a few key tenets nonetheless exist. First, international retailing is still a niche area that requires specialist expertise; the number of people brand-side that really know the market is actually very small. The good news is that these people, on the whole, are enthusiastic and reliant on their network for qualifying key parts of their international expansion programme.
As such, it's important to engage with these individuals early on in the process in order to understand the real-world challenges of international expansion, including key building blocks like trading contracts, partner selection and location, and operational components like replenishment and distribution models. Likewise, items like store execution and fit out, marketing activities and staffing guidelines are also key brand equity components that need to be considered. All of these items will need to be covered initially – and forever more – if the business wants its brand to prevail.
International expansion is about a lot more than just adding shops; it’s about an introduction of a brand to a new market, and the chance to replicate the success that the business has (hopefully) enjoyed domestically. However, the approach that's needed here may be very different to any that the business has taken thus far. Not only will the audience and environment be unfamiliar, but the whole commercial model may be different as well. For businesses that understand this challenge, however – and are willing to work with it – the rewards can be substantial.
Tristan Rogers is Managing Director, Concrete Group
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