The Challenges of Cross Border Expansion

Any ambitious retailer looking to grow their business will, sooner or later, have to consider entering new markets and address selling cross-border. But what are the key challenges you will face by expanding into new international markets, and how can you solve them?

Our Non-Executive Director, Paul Spinks, has over 20 years’ experience in the retail market, currently as Managing Director of LuLu Guiness and has an exceptional track record in senior roles working for some of the biggest international retail names there are including Adidas, Carphone Warehouse and Cath Kidston.

All of these businesses wanted to expand internationally in order to grow and diversify –but they faced very different scenarios, from government-owned competitors to specific local competition.

Paul Spinks presented, “Up Close and Personal: The Challenges of Cross-Border Expansion” at our User Conference last week. Here are some of the key lessons to consider when taking your own business into new territories:

 

Be Aware of Local Legislation

It should surely be obvious that you must comply with all the relevant legislation in the markets you expand into – but it may not be obvious what ‘relevant’ legislation covers. In China, for example, legislation is extremely strict and multi-levelled, with specific requirements at national, provincial and city levels. Similarly in Japan all products must meet the Japanese quality assurance standard – which must be adhered to by both the retailer and the entire supply chain.

 

Work to Understand Local Customs and Practices

Daigou Culture in China

It is important to properly understand local customs and practices and adapt accordingly.

For instance, in China the prices for luxury goods can be on average 30 to 40 percent higher than abroad. This has bought about a channel of commerce called Daigou, which literally means “to buy on behalf of”. This practice is where a Chinese person or Personal Shopper overseas will purchase commodities (mainly luxury goods) and sell these onto customers in mainland China at a profit.

 

Daigou sales across sectors total $15 billion annually. In 2014, the value of the Daigou businesses just among luxury goods increased from $8.8 billion to $12 billion.

A 2015 survey of Chinese online Luxury Shoppers found that 35% have used Daigou to purchase luxury goods online, while only 7% used the brand’s website. What’s more, approximately 80% of Chinese Luxury purchases are made abroad (businessoffashion.com).

 

To avoid shoppers being hired to go to other markets to find the items cheaper and then resell them domestically, consistent prices international are worth considering. LuLu Guinness decided to adopt consistent pricing when opening 39 stores across Asia.

 

Carphone Warehouse

Likewise, when working to launch in Spain, Carphone Warehouse assumed that, in keeping with tradition, it would be wise to close for a lunchtime siesta. However disappointing sales led to closer inspection of this custom and research revealed that its competitors all remained open during the siesta. In response they stayed open during this period, resulting in increased sales by 42%.

 

 

Imitate Competitors’ Successes, and Learn from their Struggles

When Adidas first wanted to enter retail it had no experience of the space and couldn’t showcase its brand. It was competing against Nike Town – a model that was, however, making a loss. Turning this on its head, Adidas opted for smaller ‘Adidas Originals’ shops. A concept store in Berlin was a rapid success and quickly rolled out across other countries, with a flagship store in Beijing.

 

Cath Kidston: Recognising Customer Demands

Cath Kidston’s Japanese store was turning a profit, but suffering from limited product range and brand awareness. After researching the local market, the business released a ‘mook book’ – a promotional magazine used for marketing in Japan – which sold a huge one million copies. They also added two new bags to the product line, which increased turnover by £10 million.

 

Later, Cath Kidston herself wrote a book to boost awareness further and the firm opened a branded tea shop connected to a Cath Kidston store, taking £125,000 in its first week of trading. Overall, this locally-informed strategy led to 25 stores in Japan and further rollouts across Asia.

 

To make these decisions, you need really in-depth local knowledge – it is absolutely vital to spend plenty of time in your target markets, to understand how both shoppers and competitors work. You will need to hire true local specialists, who can guide you through not only the legislative and regulatory frameworks but also the ‘softer’ cultural aspects of retail in that particular country. You will need to spend time with local suppliers and partners as well as customers, and really get to grips with what your competitors are doing ‘on the ground’. Observe what works, and doesn’t work.

 

 

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