The fifteen key components to draw up an internationalization plan
Getting a brand to work outside of its local market is a challenge that involves many difficulties, so in choosing the right markets, the experts have put forth fifteen critical variables.
1. Time is a fundamental element in the fashion industry. It is when it comes to designing collections, which must be meet the ever changing demands of consumers. The term “time to market” is also fundamental in the current system of large distribution, in which it is essential to have the right product at the point of sale at all times. Still, time plays an important role when starting internationalization: the moment in time in which the company is located. According to experts, a company cannot start its internationalization as an escape route in the face of a bad situation in the local market. It must have a solid foundation and undertake the move abroad when it has the human, economic and operational capabilities to do so.
2. The strength of the brand is another key element to consider when dealing with international expansion, especially in a sector in which, as in fashion, intangible factors play a central role. In an environment with fierce competition, a strong brand is an essential instrument to differentiate itself from other operators, positioning itself in the right segment of the market and building a competitive value proposition. In this sense, establishing the identity and the message of the brand in the local market will also help to transmit their values abroad.
3. When going abroad, the total volume of the target market to is an aspect that must to be taken into account by companies in the internationalization phase. A country with a larger population generally offers more chances of success for any company, since it concentrates a greater number of potential consumers. This would explain, in part, why Germany, with just over eighty million inhabitants, the United Kingdom, with 64 million, or France, with 66 million, are some of the most attractive markets in Europe for fashion companies. The investment there is more likely to yield higher returns for companies in a shorter period of time, whether you decide to venture alone or do it with a local partner.
4. In addition to the total volume of the market, it is important to have a clear idea of the population profile in each market. Factors such as the Gross Domestic Product (GDP) per capita, the average purchasing power of households or the average annual spending on fashion items are of critical importance when choosing one country or another abroad. The company will have to compare this data with the sale price of its products and see if its positioning and offer fit with the consumption preferences in these markets. Also, statistics such as the degree of Internet penetration in homes can help determine if it is appropriate to make an entrance through ecommerce. In addition the change in the volume of people going to department stores can indicate if these locations have potential.
5. The distribution of inhabitants of a country is also essential when choosing in which foreign market companies should start operations. If the collections of a particular company are aimed at a largely urban audience, the number of medium and large cities in a country can clearly determine success.
Likewise, the number of cities and their respective population will define whether the expansion in a certain market will take place through points of sale throughout the country or if it should be limited to only those cities which meet minimum requirements of population and density of inhabitants per square kilometer. For example, the Catalan city of Vic, with little more than 43,000 inhabitants, has shops such as Mango, Stradivarius or Bershka, just as other municipalities that triple or quadruple their population. Companies should also analyze which urban area is the most appropriate.
6. In addition to consumer habits and the distribution of the population in a target market, companies seeking opportunities abroad must also address variables such as transport costs or tax legislation when opting for one country another. A higher rate of Value Added Tax (VAT) in a given country will imply that the product must have a higher final price to obtain the same sales margin. The existence of tariffs and taxes to be paid at customs will also decisively influence the final cost of the product, which is why companies must carefully gauge their profitability expectations by taking these entry barriers into account. Likewise, knowing the trade agreements in force between the target market and the domestic one is of vital importance to know if the country where we want to set up shop offers any competitive advantage fiscally speaking with respect to other destinations or implies any restriction.
7. What product will the company sell in the target markets? Here is yet another key area in any internationalization plan. Companies that seek to extend their borders must decide what changes to make in their collections to adapt to the climate and the prevailing tastes in the foreign country. The classification can be carried out following criteria of quantity, relevance, novelty, differentiation and / or price of the product. In regards to the latter, the company must analyze whether it offers prices above or below those of its domestic market, depending on purchasing power or currency exchange. Also, companies must determine if they can play with the margins to offer, in a first phase, lower prices and, as the popularity and desirability of the product increases, raise its price. On occasion, adapting to the local fashion tastes and needs may require the company to design collections or independent communication strategies exclusively dedicated to clients in certain geographical areas, such as the Middle East.
8. The costs of implementation in a certain market are another point to keep in mind. Companies that aspire to operate abroad through their own stores must analyze the costs of occupation involved in the rental or purchase of office spaces and / or sales, the constitution of a company or the expenses and qualification of the personnel necessary to act in that territory. The costs of implementation require companies to possess a robust financial state, given the risks of default and the frequency of delays in international operations.
9. Although social networks offer international visibility while acting locally, it is a requirement that companies have a clear strategy of commercial promotion and advertising when it starts operations in a target market in order to increase its popularity. The formulas are diverse ranging from increasing participation in benchmark industry fairs, to trade missions, advertisements in sector magazines, printed catalogs in the language spoken in the country, or having your website available in their language. Social networks can be an incredibly useful tool to give visibility to a company abroad by publishing content that is attractive to the target audience of your product.
10. How to get the product to the target audience? The habits and favorite places of consumption in the target market will mark the strategy of distribution and marketing to follow. In countries with colder average temperatures or whose security levels on the street are not very high, having stores located in shopping centers are the primary choice for fashion companies, since they offer a safe environment that encourages the local population to visit. On the other hand, in markets with good weather, street level locations are usually the best option.
11. Any planning of internationalization would be in vain without previously considering the state of affairs in the target country. If the local economy is in a recession phase, with a decrease in employment and a loss of purchasing power of households, the company may choose to postpone development in that market and wait for the situation to improve. On the other hand, if the economy is in an expansionary phase, in which liquidity flows and access to credit is easier, the chances of success will be greater and companies will have it easier when it comes to borrowing to finance their growth. However, positive circumstances can raise competition and trigger higher implementation costs.
12. The perception a host society has of a foreign company with respect to its country of origin can also tilt the scales of success one way or another. British and Italian high-end fashion companies have carved out a significant share of their business in Asian markets such as China or Japan. The reason? Western culture has an aspirational component for the societies in both countries. European brands are for them, are a guarantee of quality and craftsmanship for which many consumers are willing to pay high amounts. Spain has undoubtedly very attractive values for many regions on the planet and, in addition, it is known by millions of people who come as tourists in the country every year.
13. Any company can take the international leap alone, but professional consultancy provides a competitive advantage that can help maximize investment and obtain a greater return. Immersed in the era of globalization, many countries have built a network of national and regional organizations to support entrepreneurs who want to enter foreign markets. In Spain, in addition to the ICEX Spain Import and Investment, many autonomous communities and municipalities also have their own economic promotion entities, which can often help companies ready to enter a new market.
14. Despite the kindness that the place of origin of the company in the new market may arouse, companies must have extensive knowledge on the number of local actors that operate in their sector and who the major players are. An in-depth study of local competition will allow the foreign company to enhance their virtues in the areas where its competitors are weak. In the case of the fashion industry, useful strategies to strengthen the clientele of a new country can range from offering more competitive prices than the rest of the actors to providing more personalized customer service than the rest, among many other. Analysis of the competition can also show that a certain market is oversaturated by actors with profiles similar to that of our company and thus to avoid an investment without return which would only compromise their income statement.
15. The possibility of having local partners can be key: the entrance in various foreign markets can become a path of suffering for many Spanish companies, especially those more distant from the own culture. In these cases, a lack of knowledge of local actors in key areas such as logistics, transportation or procurement bring companies to ally themselves with local partners. These partners usually assume the distribution and marketing of their company's products within a specific territory. For companies that are committed to distributing through department stores or the multi-brand channel, it is also essential to know who and how are the most strategic operators.