четверг, 26 апреля 2012 г.

Global retail: can it work?

Here's English version of Helen Edwards' article, published on Forbes Russia. The original Russian version you can find here.

Many businesses dream of going global, reaching new markets by expanding into new countries. As western populations age and demand decreases for many types of consumer products, it becomes more and more important to acquire new customers. In Being Global: how to think, act and lead in a transformed world, business school academics Angel Cabrera and Gregory Unruh set out the theory of the opportunities awaiting potential global entrepreneurs. They define entrepreneurship as "applying resources and assuming risks to create new value." Global entrepreneurs bring together people and resources from different regions of the world to create new value. This is done by strategies focusing on convergence, divergence or networks.


Convergence refers to what people have in common, meeting the needs people have everywhere, but in a new market. Globalization has already increased standardization in certain classes of products, especially IT and the internet, industrial machinery, athletic equipment and fashion and many commentators believe this consolidation is set to continue. Divergence takes advantage of different cost structures and demand patterns in different parts of the world. Globalization of sourcing has now taken off and many products travel through several countries during the course of their construction, to take advantage of cheaper costs and labor markets world wide. The iPhone is an example of both convergence , in its iconic status everywhere, and divergence in its manufacture.

Retailing, on a global scale has proved to be more difficult to achieve than either designing products to appeal to global markets or multi region sourcing and manufacture. There have been many expensive failures. Few retailers can cross the Atlantic; either a US retailer to Europe or a European to the US. No global retailer has yet emerged from the emerging economies.

This makes the success of IKEA, the Swedish furniture retailer, all the more surprising. Anders Dahlvig, former CEO of IKEA tells the story in The IKEA edge: building global growth and social good at the world’s most iconic home store. IKEA creates and sells its own line of Swedish style furniture aimed at people with average incomes It utilizes "Swedishness" from its color scheme based on the Swedish flag to the Swedish food in its restaurants to reinforce its brand. The IKEA challenge was to create convergence, that is to make Swedish taste in home decoration and furnishings and the IKEA value proposition "better everyday life for the many people" have global appeal. IKEA also focused on benefitting from (or at least accommodating) divergence, the different levels of competition, cost structures and labor availability in different regions. IKEA also aimed to create networks by establishing local production and in other ways supporting the communities with which they intend to do business.

Dahlvig shares his insights into the issues faced and the strategies adopted as IKEA established itself in very different markets. These include:
• a focus on smaller cities in western Europe where a new IKEA could be a destination event and a welcome source of new jobs.
• creating shopping centres as well as standalone stores in Russia and making use of the plentiful natural resources to establish production.
• setting up factories in China to take advantage of cheap materials and labour; building multi level stores, stocked with inexpensive ranges.
• facing the challenge of the traditional lack of consumer interest in home furnishings and stringent quality regulation in Japan. This last was turned to advantage as IKEA reduced the formaldehyde level of its products to meet Japanese standards and was then prepared when its other markets later adopted the same regulations.
• persisting in USA, the most competitive retail market in the world, despite initial problems with both the business environment and consumer demand.

Walmart based its international expansion on the seemingly universal premise that consumers everywhere want inexpensive goods. Following on from its success in USA, Walmart turned its attention to another huge country, Brazil. But its early attempts to introduce its big box model in Brazil were unsuccessful. Brazilians preferred local products. Furthermore Walmart's skills in stock and logistics management were less effective in Brazil where the country's geography of city sprawls and poor rural area did not fit Walmart's model, thus keeping prices higher. The company was forced to regroup, acquired two local retailers with smaller stores and is developing a new model for wholesale supply to its outlets.

The success of fast food companies provides further insight into how globalisation can be achieved. McDonald's has established itself in many countries, including India where the dietary preferences of the people would make it an unlikely market. Kentucky Fried Chicken also has many global outlets, including by mid 2011, three times as many restaurants in China as McDonald's.. Analysts point out that these fast food chains are not really in the business of selling the stereotypical American meal of hamburger or fried chicken and fries. Instead they offer consistency of service in a fast, affordable and clean environment with a predictable product. Both Macdonald's and KFC use local managers with a deep understanding of their regions and vary their menus to local tastes.

Dahlvig offers his thoughts about the challenges of global retail. First plenty of money is needed, best provided by a profitable home operation, so enabling the company to afford to wait - sometimes for years - for profits from the new regions. It is the success of its US operation which allowed Walmart to at first fail in Brazil and then return with a new plan,. It is important to have the kind of values which fit different cultures either by meeting universal needs or by adapting to local culture. An agenda of contributing to new markets in ways other than just enriching itself can help a company to establish itself. McDonald's encourages its local owners to invest in sports teams and community projects, IKEA has its community and sustainability initiatives. However the difficulties should not be underrated. Businesses which understand one region very well can easily overestimate demand and fail to identify the necessary shifts in business model and pricing required for different regions.

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