For international retail expansion, foreign businesses might intuitively aim for markets like China, India and Indonesia – three of the world’s most populous countries. However, a new EC Harris’ report reveals that these markets are in the bottom half when it comes to ease of rolling out new stores.
The annual Retail International Programme Expansion Index ranks 40 important international retail markets according to five factors that have a major impact on successful retail expansion, including: quality of infrastructure; capability of the construction supply chain; legal framework; quality of project delivery and business environment.
The countries where these factors are most favourable ranked highest on the index. Taiwan, Japan and Australia fared best in the rankings in Asia-Pacific. EC Harris said this is largely due to a better business environment, which includes higher prevalence of foreign ownership; more business, labour and trade freedom; and more freedom from corruption.
The three markets also ranked highest in terms of the quality of infrastructure they provide to facilitate business, including roads and the supply of electricity.
Despite China’s emergence as one of the world’s largest consumer markets, the country remains around the midpoint of the global Index, ranked 23rd, and is only 8th out of 12 in Asia-Pacific.
The Philippines, Vietnam and India fared the worst among Asian countries. These markets scored low for having difficult business environments in general and poor infrastructure. India, for example, ranks last out of the 40 markets when it comes to the retail business environment, due to lower corruption, freedom of trade and ease of business.
Globally, while many of the top-ranking countries are those with established markets, strong infrastructure and a well-developed consumer base, those that rank lower include developing BRIC nations where the likelihood of risk and reputational damage to a retailer is far greater.
“China, India and Indonesia are more difficult for retailers to expand into than Western markets due to a restricted supply chain and low project delivery capability. This creates far greater risk and potential reputational damage for retailers. But despite these challenges, the number of international retailers expanding into emerging markets continues to grow,” said Jonathan Moore, Head of Property, Asia, at EC Harris.
“Western brands looking to secure new revenue to underpin lower return in home economies and drive brand loyalty in new markets are increasingly looking to implement expansion programmes in countries such as China. This is to take advantage of its rapidly growing consumer market. Success in this kind of market relies on a high quality store end-product and pace of delivery. Retailers must assess and retain the best programme capabilities in order to mitigate risk and reputational damage,” he added.
With renewed focus on compliance, ethics and business governance arising from the Bangladesh factory incident in April, retailers are also increasingly putting proactive measures in place to protect the brand from direct and indirect damage and to minimise reputational risks. The likelihood of risk and reputational damage to a retailer is much greater in emerging and developing markets and the report highlights the need to maintain brand protection whilst retaining quality and speed when entering new markets.
“No matter where retailers are looking to expand, property development programmes must be streamlined to ensure efficiency. In today’s volatile market, the competitive advantage will come to those retailers who implement practical solutions throughout the supply chain to expand faster and save money, whilst protecting the brand,” Moore concluded.
Taking Stock is Retail in Asia’s fortnightly column dedicated to showcasing opinions from experts in the retail industry.
To download the full report, click on the PDF attachment.