Exporting Retail Brands to New Markets

With the advent of globalization brought about by the new economy and technological advances, the once demarcated business world has suddenly become a large borderless and continuous market. While this may not be news to large manufacturers such as Cola-Cola and Pepsi-Co, who prior to the dawn of the new economy had already established manufacturing facilities in low cost producing Asian countries such as China, Malaysia, Thailand and Taiwan, it is still relatively new to large retailers.

So, what issues and challenges do large retailers face when they expand or introduce their products or brands into international or regional markets?

In “Retailers to the World,” Incandela, McLaughlin & Smith Shi identify five ways for retailers to expand across borders. The five ways are:

• Choose your sliver
• Get comfortable partnering
• Invest in intangible assets
• Keep expenses and capital requirements low
• Exploit opportunities to arbitrage

Choose your sliver
In the manufacturer to retailer to consumer value chain, retailers should identify where their core strength lies and capitalize on those strengths. They do not need to own all the parts or slivers of the value chain. For e.g. Carrefour and Tesco, recognizes that their strength lies in store operations i.e. product inventory and logistics management. Hence, they focus on offering a vast assortment of everyday products and rely on their suppliers to develop and brand most of the products they sell.

Get comfortable partnering
While many retailers may be adverse to the idea of partnerships and joint ventures with foreign companies for fear of losing management control, leading global companies have shown possible ways of forging successful partnerships. For e.g. Coca-Cola who has a global presence yet do not own majority interests in the foreign companies. Coca-Cola is able to create new ownership and capital structures to control their alliances with their foreign partners.

Invest in intangible assets
Brands and reputation; proprietary technology, know-how and tools; and people, talent and skills are the key intangible assets. “A global platform is built on powerful brands,” says Incandela, McLaughlin & Smith Shi. The key arguments about brands are – brands must have a customizable value proposition appealing to a variety of consumers at certain price points. Next, brands must have identifiable personalities relevant to consumers, and these personalities must be continuously reinforced with consumers. Thirdly, brands must be totally visible in the marketplace.

Keep expenses and capital requirements low
The business structure and processes should be kept at low operating cost, as high overheads will cause retailers to become uncompetitive. Centralization and computerization can help contribute to efficient and cost-effective operations.

Exploit opportunities to arbitrage
Market factor cost varies globally, hence retailers should exploit arbitrage opportunities to source from suppliers in low manufacturing cost countries and sell at premium prices in mature markets.


Furthermore, note that the above five approaches results in one objective – the success of the retailers in new foreign markets, which means building and establishing its identity – its brand name. For e.g. most consumers will remember Carrefour, but not the name of the packet of sausages.

However, according to Child, Heywood & Kliger in “Do Retail Brands Travel?” presenting a strong brand image is not sufficient to assure success for retailers in a new foreign market: “But retail chains have found that although they can hang out their signs anywhere, consumers respond differently in every country. Understanding those differences is the key to building a successful retail brand across borders.”

So, in addition to having a strong brand identity, that brand must be able to appeal to a cross-section of consumers in different countries. Again using Carrefour as an example, it would need to be able to appeal to affinity customers in one market and service/quality customers in another market.

For affinity customers, the social association of shopping at Carrefour instead of the neighbourhood grocery store is an important consideration, while variety, product performance and service levels will appeal more to service/quality customers. In markets where consumers are concerned about spending their money wisely, retailers could position their products with attractive price/value propositions.

In “Brand Building in Emerging Markets,” De Abreu Filho, Calicchio & Lunardini argue that: “companies perform best in the vast low-income segment by adopting local branding and organizational strategies.”

For e.g. a retailer like Tesco to enter a new emerging market, it could consider acquiring the local competitor. In essence, Tesco is buying access to established local supply and distribution channels and existing value chains, which Tesco can grow upon.

Having immediate access to established local brand name products can maintain the associative and comfort levels with consumers. Later, the strategic introduction of Tesco’s own brands or even other foreign brands can build upon consumers’ associative and comfort levels to try other products by Tesco, since the consumers’ trust is acquired.

Hence, global companies should develop two different marketing strategies to approach emerging markets. In high-income emerging markets, it should pursue premium brand building strategies to achieve high profitability. Whereas in low-income emerging markets, it should position itself to meet local standards of quality, technology and pricing defined by the purchasing patterns and purchasing power of the local consumers.

Two other factors to consider in order to win in the new emerging markets are (a) acquiring or retaining the best local managers and (b) avoiding full integration with the locally acquired company or competitor if acquisition was the mode of entry used.

Employing the best local managers i.e. homegrown management help ensure closeness to and understanding of the local consumers’ behaviour, instead of importing managers from advanced markets who lack the local market knowledge. Avoiding full integration with the locally acquired company enables the global parent company to focus on the group’s core strengths, for e.g. international sourcing and logistics functions, as argued by Incandela, McLaughlin & Smith Shi in “Retailers to the World.”

In conclusion, global retailers must be able to adopt the right business structure and strategies for a particular country or market in order to be able to build and position their brands to appeal to consumers around the world, and profit handsomely.


References:

Incandela, Denise; McLaughlin, Kathleen L. & Smith Shi, Christiana. (1999). "Retailers to the World." The McKinsey Quarterly. Number 3, pages 84 – 97

Child, Peter N., Heywood, Suzanne & Kliger, Michael. (2002, January 1). "Do Retail Brands Travel?" [Electronic Version] The McKinsey Quarterly

De Abreu Filho, Gilberto Duarte; Calicchio, Nicola & Lunardini, Fernando. (2003). "Brand Building in Emerging Markets." [Electronic Version] The McKinsey Quarterly. Number 2 – Organization