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Sep, 07 2010

GLOBAL GLORY

As the dust settles from a turbulent 2009, Indian brands are shedding inhibitions and going global.

As the dust settles from a turbulent 2009, Indian brands are shedding inhibitions and going global. What's the best way to expand internationally? What are your options? What criteria need to be in place before you can venture abroad? We have the answers.

GOING global is neither as easy nor as complex as it may seem. The business strategies are basically similar to the ones used in the domestic market. However, major challenges lie in terms of cultural differences besides the legal restrictions, typically referred to as major barriers in the international business. Some main concerns while venturing abroad include scouting for right business partner, devising the right entry strategies, keeping prices under control, deciding on the store layout, merchandise mix, product sourcing, promotional activities, right location, buying or leasing the property and opting for right retail distribution channels to strengthen its reach throughout the region/country.

According to Jyoti Narula, Managing Director, Satya Paul, “The challenge is to find the right franchisee, whose financial strength is strong to sustain long-term relationship. It is also important that the franchisee understands retail norms, best practices of the trade and the brand principles. Also, finding key location is the prime challenge.” As per Shahnaz Husian, Chairperson and Managing Director, Shahnaz Husain Group. “The main challenge lies in selection of franchisees. We have to ensure that our decision of giving franchise rights is based on stringent selection criteria.”

Market analysis

Before venturing abroad, a franchisor should study the market in accordance with various parameters. He should take advice from trade commissions or franchise consultants regarding the countries where there is excessive presence of Indian diaspora. For instance, there are large number of Indians residing in countries such as Canada, UK, Australia and Middle East. Serving to their needs would help them in two ways. Firstly, they will be able to retail their products effortlessly and secondly, they can disseminate their brands in those markets with ease. Even the demand for labels in the food and beverage, apparel, health and beauty segment is huge.

Pradeep Hirani, Chairman and Managing Director, Kimaya, says, “Research starts with identifying the potential of a market and the entry barriers and scalability of it. It also include analysis on the demand, current offerings, timing, competition, demographic parameters, economic condition and norms and international laws prevalent in that country with regard to international investment. A more microscopic study of location, potential partners, infrastructure, cultural difference and the extent of product modification has to be done based on the results of our research.” About food and beverage brands, Anjan Chatterjee, Founder, Speciality Restaurants, which own brands like Mainland China, shares, “The basic rules of the food business are more or less similar everywhere. We did a thorough study with regard to demand for our product, factors that differentiate our product from existing players/competition, location, real estate costs, legal procedures, supply chain details (which are better organised abroad) and input costs.”

Find out about franchise laws

The franchisor must learn as much as he can about the franchise laws of a country before setting foot ashore. Throwing light on it, Hirani says, “In general, franchise laws are quite similar the world over but one would term them strict because there is no loophole in the system. The possibility to ignore a clause or not adhering to a requirement is absent. Stringency and the lack of flexibility is what make it strict. However, with the fast growth of Indian multinationals abroad and the radical changes that they have brought about are working in our favour. The RBI, too, has played an accommodative role in this strategy of internationalisation, with relaxed controls and slew of amendments in the guidelines for investment and processes that were originally a tough wall to break through.”

Globally, the franchise laws are so strict that the franchisor has to present the UFOC (Franchise Disclosure Document) before sealing the deal with the franchisee. Developed economies like Europe and US have clearly defined franchise laws and intellectual property rights. Some countries in Asia and Africa, however, have very ill-defined laws. Chatterjee says, “There are ways and means of securing interest of the franchisor within the existing framework. It is advisable not to venture into any country where franchisors' interest is not well protected and regulation for remittance of fees is not clearly defined.”

Brand customisation

Is it important to customise products for international customers? This is a common question that every franchisor asks when planning growth globally. Before expanding, the franchisor must conduct a customer-centric research about the customer's buying habits, their preferences in terms of lifestyle, taste and right fit and sizing. Indian brands also need to localise their marketing strategies. For instance, an apparel brand would probably consider researching about consumer's lifestyle and based on it, fulfilling the demand of different sizes, colours and offering the customers varied choices to pick from.

Narula states “As far as Satya Paul is concerned, we cater to specific consumer needs. For example, in the US/UK, shopping for Indian sarees is occasion-bound, hence printed and embellished sarees work well. Satya Paul also made a 'trouser saree', which is extremely popular in the international market.”

Pertaining to the food and beverage industry, the franchisor considers exploring the country/ region-specific tastes and customs and does menu planning by adding localised feel into its products. Chatterjee feels, “The fine dining business in each international market is driven by local aspirations and economic prosperity, hence, what is luxury or fine dining has a different definition for each market.”

Partnering it right

The enrollment of potential franchisee, who knows the business and has a hands-on-experience in the industry is considered critical to the success of a brand internationally. If a franchisor picks the master franchisee for the whole country or a region in the country where he plans to establish, then he should have immense knowledge about the local market and customer preferences and in turn, make changes in the brand to make it saleable.

“It is imperative that the partner understands the purpose of the business and treats as its own business. Experience in the industry, knowledge of the market, financial backing as well marketing expertise is a must besides keen interest in managing a luxury brand. The associate must comprehend the brand and its values with a proper understanding of the market as well as the product offer. Constant feedback during product development backed with marketing support is what is expected of a franchisee,” says Hirani.

As per Husian, “The eligibility of the franchisee is discussed and decided after a personal interview, where several aspects are taken into consideration, like the city/town, sound finances, etc. The franchisee has to sign a franchise agreement and also complete a beauty diploma course, as well as an advanced course in cosmetology and Shahnaz Husain’s specialised treatments.”

Chatterjee clarifies, “While we largely work through a reference system, we have in place our own franchisee evaluation system largely based on socio-economic parameters.”

Location loop

Throughout the world, owing or leasing a space for a different retail format such as exclusive/multi-brand outlet or shop-in-shop is entirely the franchisee's responsibility as he/she is familiar about the market. They are required to shortlist three to four properties from which the franchisor can pick any.

Chatterjee says, “Leasing or owning space is dependent on the local real estate market. Ideally, we do not recommend a cost of over 10-15 per cent as lease/cost of ownership of premises.”

Husain says, “We do not have any financial involvement in the franchisee's business. However, we do specify the requirement in terms of location, area, interior décor, etc.” As per Narula, “Leasing is done by our franchisee. Satya Paul is present through multi-brand outlets in the US, London, Canada. In Kuala Lumpur, Satya Paul has standalone stores.”

Dilip Kapur, President, Hidesign, says, “Leasing space is the responsibility of the franchisee. At times, we have been involved in setting up in Russia and South Africa, but we leave it to the franchisee.” Internationally, Hidesign is retailed through its exclusive outlets and multi-brand stores.

Depending on the demand of Indian products abroad, the company plans about manufacturing the products in their own country and then selling to the global markets. For example, Satya Paul exports products from India to the respective markets. Chatterjee says, “We source most, if not all, the required products locally as far as possible to cut down on costs. However, if any ingredient is not available locally, we make arrangements to source it from the nearest possible source, including India, if required.”

Publicity & PR

Setting up an outlet in the competitive market in proximity to foreign labels is a big challenge for any Indian franchisor. For instance, Specialty Restaurants largely work through word-of-mouth publicity, driven by pre-opening trials. However, in most cases, there is a post-launch PR and advertising campaign after the restaurant has run at least for a period of 90 days. Satya Paul has often partnered with NGOs, contributed through charity shows in markets like US and UK.

“Our fashion shows are covered by the international press, so consumers get every update about the latest happenings of the brand. Through social media platforms like facebook, we constantly upgrade information about the brand and also run special offers like free shipping for a specific period,” says Narula.

Following franchisees' growth

While sitting in India, the franchisors can keep an eye on their franchisees by interacting with them on a daily basis. Hidesign has a dedicated team that deals with international franchisees, handles new inquiries, franchisee development, sample developments, corporate orders and production. In case of Specialty Restaurants, they have a set system of reporting and conversing with their franchisees abroad, based on quality and financial parameters.

For opening a store, the franchisee requires area, capital investment and a high footfall location that brings in good returns. Chatterjee says, “We work on a 4,000 to 5,000 sq.ft of carpet area format for our fine dining restaurants. Investments typically depend on the interior design and cost of the materials and equipment as also health and hygiene norms in each market.” Kimaya's basic requirement is a good location, preferably in the heart of the city, posh locality where other fashions brands are also present. Also, it should be surrounded by complementary institutions and accessible by our target group. “A minimum of 2,000 sq.ft for a store and investment based on city, location and size is our requirement from a franchisee. An approximate bracket for the investment ranges between USD 0.2-1 million,” says Hirani.

Eyeing success internationally

Though slowdown did affect the retail business, it didn't completely shut it out. As says Kapur, “The past few years of slowdown has led us towards newer opportunities. While the established markets shrunk, we grew rapidly in new economies like Malaysia, Vietnam and India. We strengthened our presence in India, where we have grown by about 30 per cent consistently over the past few years by exploring new market segments through new partnerships such as Holii and Sloka.”

In case of Kimaya, its international franchisees will commence operations soon. Hirani adds, “We are looking at marketing in the US, UK and Europe with focus on cities that are more cosmopolitan in the demographic mix.” At present, the Shahnaz Husain Group operates in more than 100 countries where it has franchise salons, spas, beauty training institutes and direct product distributors. The Shahnaz Husain Group continues to pursue its strategy of international expansion. “The group continues to consolidate and strengthen its international presence in terms of franchising and distributorship of products and services. The growing demand for herbal products continues to generate potential buyers, distributors and agents to establish business links with the Shahnaz Husain Group in the US, UK, Europe, Middle East, South East Asia as well as several other countries,” adds Husain.

Hidesign is currently available at 16 exclusive stores internationally and over a thousand multi-brand outlets. Hidesign is also interested in rapidly growing new economies. Satya Paul has standalone stores in Kuala Lumpur but the key factor is that Satya Paul enjoys a huge brand recall in the international market. On his plans, Narula says, “Currently, we are focusing on South Africa, as Satya Paul would be participating in a fashion show there soon.”

Specialty Restaurants have only one operational store internationally while the company is undergoing various stages of execution of five other stores. “Our target countries are the US, Canada, Australia, UK, France, UAE, China, Singapore, Malaysia, Sri Lanka and Spain,” adds Chatterjee.

Kimaya, Sagar Ratna, Moti Mahal, Havmor Group of Ice-Creams, Shrenuj, Go Chaatz and Catmoss are all set make an entry into the global markets. These brands are just leading the pack, the rest will follow suit soon. Global expansion is possible through a variety of means. What clicks is a mix of the right team, planning, products and perceptions about the countries you're expanding to.

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