Structuring a durable strategy for international expansion
When retailers are preparing to enter a foreign market they need to plan long term and structure their business interests accordingly, in order to avoid unforeseen problems in the future. By Dr Mark Abell of Field Fisher Waterhouse LLP.
This is particularly so when a retailer enters a foreign market through some form of partnership with a local party. Whether that partnership is a strategic alliance, a franchise, a licence, a Joint Venture or a subordinated equity arrangement, it will be subject to not only changes in local market conditions and the global economy, but also to changes in the local regulatory environment.
Flexibility is the key to durability. No one has a crystal ball which enables them to foresee exactly what those commercial or regulatory changes will be. However, legal advisors experienced in assisting retailers to internationalise their businesses should have a fairly reliable feel for what those regulatory changes might be and how to build into both the relationship, and the relevant legal documentation, sufficient flexibility so as to allow for necessary changes to be made in a commercially appropriate manner. This is not only because they will have their fingers on pulse of that particular market, but also because they will be aware of the global trends in regulations. These trends tend to flow from one market to another over a number of years and are adapted to the needs of each market.
Retailers who dive into a new market with great enthusiasm, but without appropriate expert advice from lawyers with a track record of taking foreign retailers in to that jurisdiction will most probably be making a very expensive and even fatal mistake.
A good example of such regulatory changes in a market that is currently popular with foreign retailers is Indonesia. Regulation 53/M-DAG/PER/8/2012 was adopted late last year and not only tightens up requirements as regards local employees and registration of franchising and similar relationships, but also makes it mandatory for at least 80% of raw material, business equipment and merchandise to be comprised of local content. Given the protectionist nature of the Indonesian government and current global economic trends this should not come as much of a surprise. However, it clearly presents a substantial challenge to any foreign retailer that has entered into a relationship in Indonesia on the back of a structure and legal documentation that allow little or no room for such substantial changes to be implemented.
So, to help ensure successful international expansion think long term, adopt an appropriately flexible structure and take advice form experts with a proven track record in the target market.
*The Retail Bulletin 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, Hobbs, The Javelin Group, Icon Live, Codex Global, Ogone and more to be confirmed.
Click here for the programme and registration.
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