According to a survey conducted by Wells Fargo, 87% of U.S. firms believe that international expansion is essential for long-term growth. Expanding internationally might have many benefits for retailers such as achieving economies of scale, risk diversification, attracting new talent and growth. However, some of the biggest retailers have tasted failure abroad, some of which are: Walmart in Germany and South Korea as well as Carrefour in Spain, Belgium, Italy, Poland, and Turkey. International expansion can be very complex for retailers and the challenges might vary from one market to another, however; here are some of the key factors that need to be considered before retailers go with the global extension.
Choice of Markets
Is there is a need for the products offered by the retailer in this market? Can customers in the market afford the products? What is the competition like in the potential market? These are important questions that each retailer has to know their answers before the expansion. Collecting data, conducting market research and surveys are all crucial to understand your potential market and customers. In 1991, Walmart had the choice of entering Europe, Asia or Mexico. At that time Walmart could not afford to enter them simultaneously because of the lack of financial, organizational and managerial resources. Walmart decided to avoid Europe since the market had well-entrenched competitors such as Carrefour in France and Metro A.G. in Germany. The Asian market had a huge potential for Walmart at the time, however; the geographic distance would make logistics very complicated for them. Eventually, after conducting a market analysis, Walmart chose México as the first global market.
Mode of Entry
After choosing the market, the retailer has to decide which entry mode or participation strategy is appropriate for the company and the market. A whole-owned subsidiary, joint venture, strategic alliance and franchising are all possible options for retailers seeking international expansion. For example, Walmart entered the Canadian market through an acquisition since there were income and cultural similarities between American and Canadian consumers. However, when they decided to enter the Mexican market, Walmart chose to form a 50-50 joint venture with a large Mexican retailer, Cifra, to provide operational and managerial expertise in the market. For a smaller retailer such as Sketchers, a performance footwear company, it makes more sense to adopt a franchise model.
Consider the barriers of entry
Knowing every aspect of the new market is significant to retailers. Culture, language, Legal regulations are all factors that a retailer should be familiar with before entering a new market. Making sure that no business attributes or marketing campaigns are considered offensive when engaging with local customers is significant. A lack of cultural knowledge or a translation mistake can cause brand blunders. For example, During the month of Ramadan, a Tesco store in Whitechapel’s East London, where a large Muslim community lives, had an aisle display featuring Smokey Bacon Flavor chips with a message that says “Ramadan Mubarak.” Shortly after a social media backlash, Tesco issued a statement and acknowledged the mistake. A language brand blunder occurred when Pepsi decided to enter the Chinese market and translated their slogan “come alive with the Pepsi generation” to “Pepsi brings your ancestors back from the grave.”
International expansion could be very tempting to retailers because of the potential growth, risk diversification and access to new talents. However, such expansion could be disappointing without choosing the correct market, the ideal mode of entry and considering the cultural, language and legal barriers of entry.