Professor Dr Jonathan Reynolds, academic director of the Oxford Institute of Retail Management (OXIRM) at the Saïd Business School, University of Oxford, is speaking at Internet Retailing Expo 2014 (IRX 2014). We caught up with him ahead of his presentation.
Internet Retailing: What kind of retailers should be thinking about developing an international strategy and why?
Dr Jonathan Reynolds, academic director of the Oxford Institute of Retail Management: The opportunity is different for different sizes and categories of retailers: let’s focus on two or three examples.
One way to think about it is through push or pull: are you being pushed into developing an international strategy online or being pulled by the opportunity? On the push side, many retailers facing the question of where growth comes from have grown overseas; they’ve run out of road in their domestic market and are looking to expand into faster growing international markets, spreading the risk. For online retailers, growth is still pretty impressive in the domestic market – at what point do you say we’re motoring quite well domestically, we now see an opportunity to do the same thing elsewhere. It’s judging when is the right moment to do this for that kind of firm.
Secondly, there are retailers that are capable of filling a global niche, whether there’s a common demand across potential markets for what they’re selling, or whether they can demonstrate a UK country of origin effects – brands that are attractive to overseas markets but not yet physically present in those markets. Online might provide a mechanism for doing that, with a slightly lower overall risk, though there are still risks.
Finally, turning to size, we often say ecommerce creates a more level playing field for small firms. While we shouldn’t overestimate the SME opportunity, I think we also shouldn’t underestimate the financial or operational risk of internationalising for a small firm. There are issues around the firm’s capabilities, its ability to borrow to fund that kind of operation, and its operational risk in terms of supply chain – can those small firms actually manage a highly distributed international network for home delivery or delivery to pick up points?
IR: What’s a useful first step for retailers, whether they are considering selling overseas for the first time or reevaluating their existing strategies?
JR: It’s to remind themselves that just because they’re internet retailers or multichannel retailers doesn’t mean to say the same rules don’t apply as they do to physical retailers internationalising. Probably the most important one is not to assume because you’re a runaway success at home this will necessarily follow overseas. Sometimes hubris carries some brick and mortar retailers overseas and it’s a complete disaster because the market isn’t ready for them, because the infrastructure isn’t appropriate or because there are very strong local competitors.
Thinking about that due diligence is absolutely critical. Specifically, you’d be asking, whether you’re bricks and mortar or internet-only, do your brand and your business model travel? For example, if you’re selling diaries does the culture you’re going to actually buy diaries? Do they think about time management in the same way as in the UK? In the food sector, do they buy convenience food? There may be different attitudes to brands, different product purchase characteristics, different preferences on different business models: do those travel?
Other questions to ask include how you will take into account local preferences, local competition when you’re working at a distance as an online retailer. How will you deal with on the ground questions, even though you have a virtual presence in the market online. Then, can your capabilities and resources stretch? Local teams on the ground or liaison with third party distributors may require a lot more support than you think. Are consumers in the target market ready? How do they shop?
Although we tend to assume all websites are the same and all ecommerce interfaces the same, the research is starting to show that expectations differ, from the level of detail in imagery to how they expect to pay or return goods.
The final question is around the quality of local infrastructure. Have you done the due diligence on the last mile from ordering to shipping to distribution to the individual’s home? Do you have the right local partners in place? Are you dealing with global distribution partners? Is the quality of that local infrastructure appropriate for you to be able to make promises about delivery times and so on? Retailers generally, and especially the best local competitors in overseas markets, are very quick learners. They learn fast from your experience, particularly online but they are also often closer than you are both physically and psychologically to the customer, so they can move faster sometimes. That’s a bit of a challenge.
IR: What, in your view, is the one biggest opportunity and the one major challenge to successful international trade?
JR: The opportunity is really, while we can, to trade off the distinctive UK advantage in this field. We’re well ahead of the field at the moment, in terms of our ability to develop scalable and transferable online propositions. We’re highly regarded from outside the UK. People are visiting all the time to find out how we do it. In many respects we’re superior to the US sector in terms of our ability to internationalise – perhaps because in the US there’s a lot of domestic market to go at first. The opportunity is partly our distinctiveness but also the size and potential of markets in emerging economies, in particular, that are very attractive.
Then, in a nutshell I suppose the biggest challenge is working at a distance. For all we say ecommerce is a lot easier because you haven’t got physical stores, working at a distance, without stores or boots on the ground, creates enormous challenges in terms of understanding local infrastructure or dealing with problems that might arise at short notice.
Understanding things like regulation is important. Across Europe, the single market for services is very problematic. There are very different regimes in different member states. Understanding the quirks and peculiarities of the local market is much more difficult when you’re working at a distance.
At IRX 2014, Jonathan Reynolds will give the keynote address in the International and Cross Border conference. His session, What does a successful international multichannel strategy look like, will be at 10.30am on Wednesday March 26. Find out more about the conference and register for free here.
