23 Sep 2010
For online businesses, low-risk, low-cost expansion opportunities arise out of the ability to replicate the proposition and site functionality easily across various markets.
What’s more, for European online companies growth opportunities are lessening as mature internet markets reach saturation point. A recent report commissioned by Kelkoo with the Centre for Retail Research showed that Poland, France and Spain would experience the fastest growth in e-commerce sales during 2010, ranging between 25-36 percent; whereas the UK, the most mature e-commerce market in Europe, is only set to grow by 12 percent. With this in mind, online businesses are looking to extend operations beyond their local markets, and low-cost international expansion has become an attractive means by which to fuel organic growth.
Whilst on the surface expansion may seem counter-intuitive to dealing with the pressures of a global recession, hedging one’s bets on multiple markets can be an excellent way of spreading risk and adding security. Having multiple sources of income across markets means that if one country suffers, there is another revenue stream for the business to fall back on. Online businesses have the added advantage that they can expand internationally cost-effectively, at minimal risk.
In the beginning
First and foremost a business needs to have a proposition that lends itself to international expansion. Kelkoo’s business model, for example, ticks all the boxes as shopping and travel comparison have a broad audience appeal and universal market potential. It offers consumers a service, to help them find, research, and buy products at the best prices. With 12 million products and 44 million offers from over 10,000 retailers across Europe, our model has breadth and depth, and the business already has ready-made relationships with global retailers – making international expansion a more viable proposition.
Once you have established feasibility, preparation is the key to success.
Do the ground work:
As an online business, research all the markets that have promising investment potential. Initial data gathering helps build a picture that you can form a strategy around, making implementation much easier. One of the first things to establish is whether there is room for another player in your target market. The size of the financial opportunity, the extent of the competition, and factors like internet penetration rates, average broadband speeds, and the degree of consumer interest in your proposition are all key considerations.
Listen and learn:
The internet requires companies to be agile. Try launching basic beta versions of your service in multiple-markets using existing business resources. One of the advantages of operating an existing online business is the potential to manage expansion remotely, from a central location; it’s quicker, cheaper and ultimately poses less of a risk if it is done in a cost effective manner. Remote management should enable you to maximise the company’s international development opportunities without too much detraction from business as usual, which should always remain your main priority.
In six months, you will have a clear indication of which markets are working and which aren’t. You can then use all the valuable local insight you have gained to amend your strategy and product accordingly. Exploit user feedback and business intelligence to continually adapt, fix, improve and promote the right things in each country. Once the service beds into the local market and the case for expansion has been proven, then consider investing further to optimise the site and hire locally if required.
Know your market:
It is important to know your target market, understand the ease of doing business in it, and the complexities of setting up an infrastructure. The strategy also differs depending on the maturity of the market; launching in a mature online territory entails a battle to take market share away from the competition, whereas launching in an emerging market is about education and uptake in your proposition.
The US, for example, is a very mature market but has low barriers to entry and offers an extensive retail opportunity for many online businesses, providing an open door for international expansion. It is the most advanced online retail market in the world, boasting a population five times greater than the UK, and online sales worth $156bn in 2009, equivalent to seven percent of total retail spending in America – this compares to €143.7bn across Europe’s twelve largest markets combined, representing just 4.7 percent of overall retail sales.
China on the other hand, has millions of potential consumers, but there are various legal hurdles to consider. A foreign business needs to be majority owned by a local company (57 percent), and in addition to that, Chinese law demands that all foreign businesses have their servers based there. This is a particular challenge for online businesses, as it means that sites can’t be run remotely from a central location – increasing cost, and therefore risk. Employment issues are another important consideration, particularly if you need to employ a local workforce, as are payment arrangements, and tax implications.
For online businesses, low-risk, low-cost expansion opportunities arise out of the ability to replicate the proposition and site functionality easily across various markets. However, outside of Europe, re-designs can become necessary as language differences can dictate nuances in programming requirements.
When setting up an online business in a new territory, there are several options that offer value for money and speed to market – these are especially relevant to the online price comparison sector.
Receive a feed from another site: As you’re unlikely to have a database of potential local offers or deals in place to power your offering, one option is to work with a leading local player to provide a feed to your website.
Mix it up: If you have existing relationships in place with retailers or brands that operate in your target market, another option is to mix feeds and content from your own site with that of an established competitor to ensure that you have a compelling proposition, and the required breadth and depth to allow you to compete effectively.
Buy your way in: Purchasing an existing player in a new market is an expensive solution, but when considering the various obstacles in more complex countries such as China or India, this may be the best option.
The other alternative is to do it yourself. However, this option can be expensive and time consuming depending on your international expansion ambitions and the territories that you have chosen to target.
Driving traffic and other challenges
Once your business has established a presence in a new market, one of the main challenges you will face will be driving quality traffic to your website. If your initial budget factored in marketing, then PR and Advertising are quick and effective solutions to raise brand awareness and drive spontaneous traffic. However, in the early stages of expansion this often isnít realistic and therefore the main route open to your business will be to implement an effective search strategy, through a combination of organic SEO (Search Engine Optimisation) and bought SEM (Search Engine Marketing) traffic. But in order to make your search strategy a success it is important that you tailor it to suit each market, as regional variations can be substantial.
For example, while Google is the undisputed search leader in Europe, in China, Baidu is the number one search engine controlling 63 percent of the market, while in Russia Yandex has a 64 percent share. So itís advisable to outsource SEO and SEM to a local company to ensure that your search strategy is locally relevant, and has maximum impact. Beyond driving potential customers to your site, there are other issues that you are likely to face, notably a lack of brand recognition and consumer trust. Companies like Amazon and eBay have overcome these obstacles by forming joint ventures in markets where they suffer from lack of brand affinity, low awareness or face other bureaucratic hurdles.
For instance, Amazon started out with a joint venture in China with a company called Joyo, but then acquired them in 2004, deciding to keep the Joyo name alive due to its brand strength until 2007, when joyo.com was rebranded to amazon.cn. In Turkey, eBay, the worldís largest online marketplace, formed a joint venture with gittigidiyor.com in 2007 becoming a minority shareholder of the company. In any case, by partnering with a well-known local company you can kill two birds with one stone, benefiting from immediate brand recognition, as well as overcoming the legal hurdles of entering a particular market.
In summary, expanding an internet based business beyond a domestic market can be challenging, and is not without difficulty, but with the economy facing some turbulent times ahead, online retail businesses are looking at ways in which to secure their future. The good news is that while the retail industry is showing slow signs of recovery, the online shopping sector bucked the trend in 2009, delivering double-digit growth, and is expected to continue to perform strongly in 2010.
There is also evidence that consumer confidence is increasing, and we do not see consumers’ appetite for online shopping showing signs of abating anytime soon. In hard times it is no surprise that shoppers are turning to the internet rather than the high street, especially when you consider that purchasing items online can result in savings of 15 percent or more off the recommended retail price. It is widely acknowledged that the recession boosted the appeal of online retailing, and European online retailers will continue to reap the benefits in 2010, enjoying an average rise in online sales of 20 percent – a rate of growth that would be regarded as unachievable in other retail sectors in the current climate. So if your business has the right combination of ingredients, spreading your wings and expanding outside your domestic market may be a recipe for success.