Overseas expansion is a great opportunity but needs careful preparation
Venturing overseas is widely recognised as presenting a great opportunity for revenue growth but retailers should be aware that there are many potential pitfalls to expanding into international markets. By Glynn Davis
Ahead of speaking at The Retail Bulletin International Expansion Summit 2013 on March 26th, Dr Mark Abell, partner at law firm Field Fisher Waterhouse – which specialises in helping retailers develop international strategies, highlights how much more complex it can be to internationalise a business than most retailers initially envisage.
“There is a huge amount of ignorance but retailers do not want to admit to this,” he says, adding that this is lethal when combined with some of the advice that retailers are frequently given by lawyers and advisors.
“There are some things you should not do, some you clearly should do, and others that need to be thought through. Retailers are often given a cookie cutter approach to all the different markets, whereas each market is different,” he says.
Abell says the initial structuring of an overseas venture is crucial if retailers are to get the maximum benefit out of the move. Whereas previous simple “vanillas” structures involved agreements with local third-parties to open a specific number of shops identical to those in the UK or they allowed the overseas operator to open a certain number and to then sub-franchise other outlets, he says there are more sophisticated approaches that should instead be taken.
He recommends creating a subordinate equity partnership where the retailer takes a stake in the local business structure – but it is done differently to a joint-venture as Abell says these typically “do not last for long”.
The next consideration is how retailers approach each market. Do they give their partner various countries in each region and following that, how is quality control managed? The legislation will be radically different in each market, with Abell citing the illegality of importing cotton into some countries as they will have protected this part of the market.
“In Malaysia and Indonesia there are ethnic quota regimes, which means you have to have certain shareholders,” he explains.
The structure of the partnerships Abell develops is for multi-channel businesses as this gives the flexibility for the operation to grow even if it starts as a single channel proposition. “You can cause huge problems by pumping out an online approach if you have given no thought on how it will impact on your business – having taken the traditional approach [into new countries].”
As well as having the flexibility to develop as a multi-channel business he says it is vital that the partnership structure also allows for other changes that inevitably happen: “You need a structure to develop as a market develops. Retail concepts develop in one direction, products in another, and consumer habits also change. All this needs to be taken into account.”
Abell says some well known high street brands in the UK that have a presence in “not very promising overseas markets” are shackled to more than one partner, having given different rights out as their products have changed.
The product mix also plays an important part in how retailers should approach each market. There are different considerations to be taken into account for Harvey Nichols and Selfridges compared with Fortnum & Mason and Agent Provocateur as the former pair stock predominantly licensed brands, for which the retailer will have different rights in various countries.
He recommends retailers do not make the mistake of regarding international expansion as solely a commercial exercise without any legal implications because this can cause serious problems. It may also close off some of the opportunities available within the overseas markets. The sooner expert advice is brought on board the better, according to Abell.
The International Expansion Summit 2013 will look at how retailers can successfully leverage their business internationally through practical and achievable strategies to achieve profitable overseas expansion. Dr Mark Abell joins an impressive list of speakers from George International, Alliance Boots, Bench (Americana International Ltd), Mothercare Group, Austin Reed, The Hamleys Group, Costa Coffee, The Javelin Group, Icon Live, Codex Global and more to be confirmed.
Click here for the programme and registration.
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