Till now, barring a few exceptions, most Indian retail chains have stayed close to home, basing their expansion plans for the vast Indian populace and the Indian middle class consumer’s seemingly growing appetite, but today Indian retailers are setting their target bigger and overseas markets are looking very compelling to Indian retailers. The mantra for foreign expansion for Indian retailers has not only to be based on scale or replication alone, but also on how to be flexible in the new market.
International destination - but where?
For retailers the growth curve to reach the foreign territory is a debate between entering a developing or developed market. Research stresses that establishing operations in a portfolio of countries comprising both developing and developed offers the best path to global success for retailers. While developed markets have more established retail systems and mature customers, the competition too will be more intense. Developing countries on the other hand, with their burgeoning more-affluent, middle-class population, driven by rising disposable incomes, urban population growth and infrastructure investments, have been featuring on retailers’ radar for the last few years. Those retailers who are setting foot aboard for the first time prefer closer destination where one can explore an already well-developed supplier base in the home market. It serves the objective much better.
Globally acknowledged reports and statistical data can form a good basis to evaluate the market initially. For example, the 9th annual Global Retail Development Index (GRDI) by AT Kearney acknowledges the Middle East and North Africa (MENA) region to be most exciting retail growth opportunities for international retailers.
Indian retailers are also strategically setting eyes on those foreign regions where there is a comparatively substantial Indian population resides. According to C. Trina, Vice President, WealthTree Partners, “Dubai is the most preferred destination, followed by Singapore, US, Australia and Africa. The above arrangement is done taking into consideration Indian retailers’ sentiments, which is mainly focused on regions with greater population of NRIs and those markets which are geographically close to India. Such markets are culturally close to India and easier to approach.”
The important developed international markets include UK, Middle East, Europe, South Africa, and Australia, with focus on more cities that are more cosmopolitan in the demographic mix. Further, the emerging markets are avenues that the Indian retailers must exploit since they offer maximum ROI.
According to Hemchandra Javeri, Co-Founder and Executive Director, Forum Synergies India PE Fund Managers Pvt Ltd, “The attraction of a market to the Indian brands or retailers depends on the product category and brand. For example, for a fashion brand, Europe and the US will be the priority markets as these are the markets where a brand’s future is decided. Similarly, for organic, herbal, or ayurvedic products, the West is the best market. Markets like Singapore, the Middle East and South Africa, where the Indian diaspora is present in numbers, tend to be good markets for Indian food and allied products.”
The route for entering the market
Retail chains can either grow in foreign markets organically by opening company-owned stores, or venturing overseas via licensing deals and joint-venture partnerships. Gaurav Marya, President, Franchise India comments, “Typically, most retailers would develop one of these growth formats accompanied by a uniform business system for international markets as it allows the brand to coordinate its overseas businesses under one centralised global management structure. From this centre, the company controls the activities that support its brand’s identity, typically merchandising, the development of new products, knowledge management and marketing. An increase in profits, not increased store count, should be the goal when going international.”
Foreign entry for any business would also depend on the ‘type of the businesses’. In recent times significant success with the adoption of franchise strategies - and in some cases license strategies - to break international markets is a good route for apparel brands. Usually companies involved in technology, engineering products and projects enter a JV with a local company and later on may decide to establish themselves in the market. Franchisee option is more relevant for the retail companies whereas partnerships can be formed by the company in order to promote business and market themselves through a local partner in any country. However, the cumulative results of the above factors ultimately decide upon the mode of entry in any foreign market.
Regulatory aspects and government policies, if favorable to a new retailer, also have a large impact on the business foraying in a new country.
Market survey
Deep study of the product and the market is indispensable both at macro and micro level. It is very essential to look at the competition and the competitors in the market.
For example, Kimaya, a luxury apparel brand in Dubai, has undertaken an in-depth research of the market at various levels to bring its retail presence successful. According to Pradeep Hirani, Chairman, Kimaya Fashions Pvt Ltd, “An analysis has to be done on the demand, current offerings, timing, competition, demographic parameters, economic condition and norms, and international laws prevalent in that country with regard to international investment. Also, the scalability and the scope for further growth are important for any brand foraying overseas.”
Studying the competitor effectively also gives sincere advice to the retailer on various aspects. If you want to open a pizza chain in Germany, retailer must look at the success story of the pizza chain company in the country to note the business model and its marketing strengths, the channels to apply in its business model.
Financial assistance
Role of capital, whether for native or international markets, is indispensible. Even if opportunities look attractive, the question of funding is always hovering at every stage of business. The financial institutions and banks help the small and medium retailers to expand their businesses abroad. The RBI has played an accommodative role in this strategy of internationalisation, with relaxed controls and a slew of amendments in the guidelines for investment and processes that were originally a tough wall to break through. Javeri points out, “The important thing is to ensure that the payment is serviced appropriately either in the form of paying debt interest on time or then meeting expectations of equity investors.”
Legal assistance
Taking a legal advice is also important as the legal system of the country is different from the native country. There is also a need to hire a consultant to assist you while you become comfortable with your new business abroad. For instance, law firms with international contacts will likely to guide you to an attorney, who is based in where you hope to do business. Try finding people who’ve already done business there for their valuable suggestions.
Selecting vendors
Retailers must find the right balance between central and local control for all back and front end functions. Accordingly businesses should source from suppliers who provide quality products that suit the tastes of the local market at prices that are considered reasonable, combined with reliable delivery and after-sales service. The geographical location of the suppliers is secondary. But definitely, finding a local vendor who can meet the quality standard of the product in question would always be cost-effective.
Deciding upon vendors can work both ways. Cost would be the crucial factor for deciding upon a vendor. If local vendors in the target country are cost effective and meet the quality standard with satisfactory lead time then one can definitely choose a local vendor over an Indian vendor. Hirani of Kimaya suggests that some basic evaluations are required as given below:
- Store Location - If the store is owned, leased or rented along with the deposit involved
- Interiors and furniture of the store
- Initial PR to create awareness in the new market
- Advertising, marketing and branding expenses
- Staffing and recruitment
- Inventory related expenses that include stock costs, insurances, taxes prevalent, etc
- Licenses and other miscellaneous expenses
Shweta Shetty, President - International Business, Café Coffee Day informs, “Our cafes in Vienna & Czech Republic are company owned and are operated pretty much in the same fashion that we do so in India. Operations in our overseas cafes do rely on the resources, efficiencies and support available in our India operations. We have teams deployed in various parts of the world that are a mix of the local as well as employees transferred from India. The world is a much smaller space today with information sharing being just an email away.”
Platforms are available to meet various vendors to seek each other support and do the businesses further in different parts of the world. “Trade shows particularly unleash a platform for brand owners from different countries to come together and find suppliers to do business overseas “, confirms Loretta Wan, Regional Director, South East Asia & India, Hong Kong Trade Development Council (HKTDC). “An online portal for buyers to find trusted and third-party verified suppliers, and also product magazines, each focused on a single product category, such as watches, toys, or electronics, are available to promote across the border business initiatives”, she adds.
Think global, work local
Retailers looking to going abroad should learn to tweak their value proposition as far as possible to local preferences without damaging their core business system and brand image. McDonald’s, for example, offers a McRye burger in Finland, curry potato pie in Hong Kong, aloo tiki in India and the kiwiburger (actually based on beef) in New Zealand, but the retailer’s value proposition in every market is low-cost and quality fast food comprising of hamburgers, Coke, and french fries. Making substantial changes for local tastes would alter the company’s format and operational system and this can topple retailers’ cost benefit balance in scale and simplicity. “The rule of the thumb for international retailers is about 70 per cent of the merchandise has to be universal while localised offerings should account for 30 per cent balance”, says Marya of Franchise India.
Ideally retailers should need to adapt to the needs of each local market and link the format to a standardised back-end processes and systems. To localise offerings, there should be the proper understanding of the tastes and preferences of the local consumers. In the initial months localised offerings will bring customer retention, which will be extremely important because of its potential impact on the future stream of cash flows.
Read the customer
Finding out what consumers want and adopting formats accordingly is usually tough and time-consuming task but will eventually have its payback in the long run. Locally hired marketing teams must first find out exactly what the consumers want across the board pre-launch, and then a combination of conformity and creativity is needed if retailers are to find new growth opportunities in an international market. Post-launch, hosting local brand-building events, launching foreign language website and tailoring your marketing to the region (for example, using pictures of native models for product promotion ) shows more commitment and will play a bigger role in increasing consumer loyalty.
Customers in India are different from that sitting in Dubai or US. Along with in-depth research, read the customers. Customers require relevant add on services besides products. A retailer must therefore be clear that after the purchase how customers can receive after-sale services in their home country.
Customer loyalty can be ensured through:
- Improving communication between customers and employees
- Supporting the customer by rectifying errors and replacing products if necessary
- Apprising him about new schemes & promotions through membership cards, etc
Realising results overseas
An ongoing strong association with the growing business overseas is vital. It is not easy to be present everywhere but it is possible to make your presence felt in every store. Retailers must develop performance metrics that monitor the management activities that really create value in the overseas business.
Quality audits or a periodic review is done by means of surprise visits from the head office at each of the stores through which the overall functioning of the store including operations, merchandise, etc is evaluated; video conferencing removes all the bars against communicating with those who are sitting in other part of the world. Mystery visits help to take sincere feedback of the operational costs and maintain smooth functioning. CCTV checks can help to know in-store activity.
Opportunities are present at large for the aspirers. It is the will to meet the challenges and comprehensive recce at every stage of planning that is required.
Important international markets
Important international markets include UK, Middle East, USA, Europe, South Africa, and Australia, with focus on more cities that are cosmopolitan in the demographic mix.
Emerging markets have become critical to global retail and consumer goods companies, which are seeking low-cost sources of goods and high-growth sources of revenue. Such countries constitute approximately 86% of the global population, and represent about 20% of the world’s economies. These emerging markets are avenues that the Indian retailers must exploit since they offer maximum ROI. These markets include Cairo, Lebanon, Istanbul, Ho Chi Minh, etc. and they are sure to be top retail hubs of the coming decade as they have witnessed accelerated growth over the last few years.
Today, every successful retailer aspires to go international and the RBI has played an accommodative role in this strategy of internationalisation with relaxed controls and a slew of amendments in the guidelines for investment and processes that were originally a tough wall to break through.
Selection parameters
Kimaya is extremely particular about its placement and ensures that every international store is in coherence with the brand’s current image. Before launching Kimaya in Dubai, a detailed research was conducted there with a thorough analysis on the demand, current offerings, timing, competition, demographic parameters, economic condition and norms and international laws prevalent in that country with regard to international investment. Also, the scalability and the scope for further growth are important for a dynamic brand like Kimaya.
Further to this, a more microscopic study on the location, potential partners, infrastructure, cultural difference and the extent of product modification has to be done based on results of our research.
The success of an outlet depends on various factors like the product, customer service, marketing message supported by the brand, price, store location, etc.
Kimaya being a strong brand with all of the above, it is extremely crucial to make the right choice of store location. We have a dedicated team that does an in-depth analysis before a decision is taken to open a store.
As told by Pradip Hirani, Kimaya
Presence across the global and customisation of services
Café Coffee Day has presence overseas in Pakistan, Austria and Czech Republic. The format of Café Coffee Day is one that provides for a great ‘hangout’ over coffee that triggers conversation. People come to the café to meet friends, network, etc. The need for a space like ours is felt almost anywhere in the world. We serve the coffee that we grow at our coffee plantations in over 10,000 plus acres in Chikmaglur, Karnataka. Our offerings too are standardised. Of course, our menu allows for 20 per cent customisation by the regional operations managers to offer city / region specific favourites.
Market winning strategy
We believe there exists a global culture of sorts and while it is true that different markets require different kind of treatment, however, if we adhere to quality standards, we are bound to achieve good status in any market.
As told by Shweta Shetty, Café Coffee Day
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