Different Modes of Market Entry for International Retailers

International Retailing industry being one of the most modern phenomenon, has been the subject of study by various academicians in Europe, US and in Asia. The entire community has put forth several theories supporting the reasons for Companies to set up International Retail operations.

In any international business, the market conditions in the foreign market as well as the political, economic and social environments and their stability happens to be the common factors that shape the expansion strategies of the Companies. In case of international retail business, there are several more complexities including local culture and outlook of people coupled with lifestyle as well as the existence of supplier network that plays an important role in the business plans.

While the international retail Companies choose to expand their operations across foreign markets, they do so as a part of their strategic growth plans. However the methodology adopted for making the entry into the market is dependent upon several factors including the strategy as well as the foreign market conditions as described above.

The retailers internal expertise and management capability coupled with the amount of financial exposure that the Company wishes to have as well as the kind of control that the Company wishes to exert in the foreign operations decide the entry mode and strategy of International Retailers. Generally the industry talks of five modes of market entry as practiced by the International Retailers.

1. Non Controlling Interest

   This approach is generally practised by Companies in their initial stages of expansion. When they do not have extensive experience in setting up international operations and when there is a lack of sufficient market intelligence as well as understanding of the foreign market, the international retailer might choose to invest in an established business in the foreign market and acquire a minority stake with no direct control over the management and operations.

2. Setting up International stores as a part of internal expansion

   This is the approach followed typically by the designer brands and fashion labels. Under this method the Companies choose to open one or two stores in significant market places abroad depending upon the attractiveness of the growing market. By opening a showroom for its brand, it is able to create and promote its brand as well as use the opportunity to limit its exposure to risk and get a first hand feel of the market. Such companies look at the foreign stores as a part of internal company expansion and use it to train and build resources to manage international operations.

3. Merger or Takeover

   Under this model, the Company is able to buy out a local company in the foreign market and gain instant access to the markets and the sales network. It enables the companies to take over existing business and transfer the technology, operational processes and controls in place within a short period of time. In this case the Company is investing a lot of capital in terms of investments. Such a model can be adapted by Companies only when they have sufficient firsthand knowledge of the market and are clear about their strategic options. In affect the Company chooses to buy out existing infrastructure, network and resources already established and convert it into the new brand as desired with least amount of time and thus gain a larger footprint in the market within a short time.

4. Franchise Model

   This model of business has been the most favoured model with the majority of international fashion brands. Under this model, the International retailer engages a local business partner in the foreign market under franchise agreement. Under the said agreement the franchisee is provided with the foreign brand and the marketing formats and ideas for product, brand promotion and sales are guided as per the parent company. The success of the franchisee model is dependent upon the success in engaging the right partner who is interested in growing the business and is able to project the brand as desired as well as the relationship management between the two entities.

5. Joint Venture

   In markets where there exist suitable trade partners who are established and made a mark for themselves, the International Retailer might choose to enter into a Joint venture which works in both the parties favour. The foreign brand is able to access and leverage on the local companies presence and reputation while the local company is able to expand its business and product portfolio based on the brand name of the foreign brand. The nature of JVs varies from case to case. The long term success of this format is dependent upon the relationship of the two parties as well as the business objectives and vision and financial strength of both the parties. Successful JVs are far and few and in most cases after a few years in business the partners tend to grow apart and end their JV for various reasons.

Apart from the above five modes of internationalisation adapted by International Retailers, there also exists the concept of wholesaling in fashion retail. Under this method the international retailers engaged agents or representatives in foreign markets who act as booking agents or commission agents to source retailers and stockists.

In reality, the International Retailers may choose any one of the above or a combination of the above methods to make their entry into the foreign markets, keeping in view of the market realities and environment of the market in the proposed foreign country.