What needs to be considered when entering or exiting an international market?
There has been a shift toward globalisation in retail over recent years, driven by larger retailers such as Carrefour and Walmart. But there have also been a number of high-profile failures, including Tesco’s likely withdrawal from the US and Best Buy’s retreat from the UK.
These failures offer many lessons for retailers mulling an international expansion, says AlixPartners managing director Sanjay Bailur. He adds: “The size of a country’s retail market and its potential is not a proxy for market attractiveness or the likelihood of success.”
Bailur says it is critical to establish a clear competitive advantage at the outset, whether that is a differentiated value proposition tailored to local customer needs, or through a clearly articulated product assortment that transcends boundaries. He says: “A lean and agile supply chain will also help to reduce costs while helping retailers to be responsive to local trends.”
The classic route is to buy an established local player, such as Walmart’s Asda acquisition, but other options include a joint venture with an established local operator, or finding a franchise partner, which is how Marks & Spencer has gone into Russia and Waitrose into Dubai.
Withdrawing from international markets if a venture proves unsuccessful can be very challenging, particularly when it comes to reducing headcount. Bailur says: “This is particularly true in Europe, which is essentially made up of individual countries with their own HR legislative framework.”
But, he adds, every country will have different processes and those will also depend on the extent of a restructure.