Retailers choose to expand into international markets for a variety of reasons. They intend to go across continents to expand their business because their domestic markets may be saturated and their expansion could be based only on their potential to expand into international markets. If restrictions are there to expand in ones own country, retailers may look at other markets to enter. When one thinks about legal restrictions in domestic markets, one is reminded of the situation of the French hypermarkets that cannot open new stores in France easily due to regulatory hurdles. Many emerging markets are moving ahead in the growth trajectory with increased consumption. Brazil, Russia, India and China are examples of the emerging markets and retailers have an opportunity to establish their presence in these countries. Consequent to changes in a country’s foreign direct investment policy allowing retailers from abroad to set up shop, the domestic retailers may be facing more competition to expand within their country. Such retailers may look at expanding internationally in other country markets.
Countries like China consistently increased the FDI cap allowing more foreign investment in the retail sector in phases. India too has opened its doors to allow FDI in the cash and carry business in addition to allowing 51% in single brand retailing. India is expected to open its doors to foreign retailers soon with the revision of its FDI policy. When retailers who are established in developed economies like UK and USA, move into countries like China and India, they bring with them their expertise to build good supply chain practices, right merchandising systems and robust operating processes. Many established retailers may have already built a global network of suppliers and vendors with a good deal of sourcing capability spanning across continents and they can leverage this strength when they go global with their operations. The retailer intending to spread into other countries may be having special skills and competencies developed over a period of time, which may be the exclusive strength of the organization. This may not only offer the company the first mover advantage in a new land of entry but such an exclusive strength (such as product exclusivity) may offer monopoly status to anchor its establishment soon. As the mid-segment consumer market developed in India adopting various international food habits, Domino’s Pizza set up shop in India with its special product and delivery competencies and with very limited competition, it continues to grow across India.
International retail entry strategies for organizations have been aligned solely to suit the legal framework available to operate within its boundaries and limits as retailers enter into different countries. In the days earlier to the opening up of the economy in many countries manufacturing was considered to attract foreign investments and hence many retailers moved into other countries initially as manufacturing and retailing companies with a mandate to export merchandise as well. Bata in India set up its manufacturing and retail operations way back in 1932 using this route where it had mandatory obligations to register the company in India and to outsource a fraction of the company’s merchandise requirements from local entrepreneurs to help develop local SME (Small and Medium Enterprises) in the manufacturing sector in the country. The other strategies explored to enter countries that have very stringent FDI norms center around offering operating rights through franchising and licensing arrangements so that the local organizations themselves run the retail operations following the franchise and licensing norms by paying an agreed franchise or license fee. Progressive international brands have done justice in India having entered through the available route and trying to grow over the last twenty years or more.
Wherever limited FDI is allowed, organizations have chosen to enter these markets by a joint venture arrangement where the retail organization entering the new market has stakes to the extent of the allowed investment participation and the balance stakes as per statutes are held by the local company. Such an arrangement often may come with the back-to-back option to increase the stakes of the foreign retailer as and when the law changes in favour of more investments on the part of the foreign retailer. Marks and Spencer is an example of a happy alliance with Reliance Retail to operate in India as a joint venture. Such organizations continue to work with the same stake holding arrangement even when FDI regulations have changed to allow 100% investment in single brand retail recently. Organizations will continue to partner with our domestic stakeholders such as domestic retailers, farmers and above all customers who are served well at the end of it all. Where there was a will, there has been a way so far.
We in India are fast developing our retail formats into big ones to compete with other global retailers and to soon enter the proximal markets of Dubai and other countries in the UAE and Far East. Those days when our retailers will look at various international markets to enter are not far off! We've got to learn to live and let live!!
Dr. Gibson G. Vedamani
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