Open Up New Markets Fast and Flexibly

Action recommendations to speed up internationalization projects in multichannel retail business

Foreign markets offer numerous opportunities to generate further revenues. That is why the desire to internationalize online business is a key strategic element for many retail enterprises. Often, however, the move requires more than just translating the contents of the online shop and a few adjustments to the local look and feel, including preferred payment methods in the target country. International rollouts pose considerable challenges, especially for multichannel retailers.

Internationalization of online business is often a complicated undertaking for which there is no one-size-fits-all patent recipe. In deciding on the right way to go about it two factors in particular must be taken into consideration:

1. Which business strategies is the company pursuing in the context of internationalization?

• How strongly does the company intend to be represented by employees of its own in the target country?
• Are certain tasks to be outsourced to third-party service providers?
• To how many and which countries is online business to be extended in the future?
• …

2. What preconditions does the company already have in place in the target country?

• Is the company managed centrally from its group head office or does it have relatively independent country companies?
• Is the company also active in stationary, over-the-counter business in the target country, and if so, which strategy has it previously pursued?
• Are systems already in place for different business processes in the target country that are to continue to be used?
• …

These questions are of considerable importance, especially for larger multichannel retailers. Unlike pure online retailers, they are usually not breaking entirely new ground by internationalizing their online business. They often have existing over-the-counter outlets in the target country so that the online channel will follow an internalization of their stationary retail business that has already taken place. There may even be an existing country company that not only manages business relatively independently in the market in question and pays taxes in the target country but has also set up teams and processes of its own. In these cases systems may already be in place for requirements such as financial accounting or merchandise management – systems that cannot or are not intended to be simply discontinued. Furthermore, systems used in, say, Poland are not necessarily the same ones as are in use in the company’s German domestic market.

Instead of being able to develop online business from scratch, as it were, framework conditions are frequently already in place that the company must bear in mind in its planning. The different starting points in the different countries lead to a complexity that can perceptibly increase the input, duration and cost of the internationalization project and make swift rollouts in many different countries more difficult.

The aim must be to eliminate the complexity from the internationalization project in order to secure a swift market entry.

Nonetheless, multichannel retailers in this situation naturally also want to internationalize their online business swiftly and inexpensively in order to keep pace with the competition. It is, after all, often the online pure players who set the pace because their system landscape is much less complicated than that of multichannel retailers due to their concentration on a single channel. Many multichannel retailers are correspondingly keen to increase the speed of international rollouts. So their initial aim must be to eliminate the complexity from their internationalization project in order to keep their costs to a minimum and thereby secure a swift market entry.

In my experience large retail enterprises have two options in this situation. For one, they can set up a digital company of their own alongside the country companies that manage the over-the-counter business and deliberately let it develop the online business “from scratch” separately from the existing system landscape. Online business no longer needs to fit into existing framework conditions, which reduces the complexity significantly and enables the digital company to achieve a fast time to market.

Alternatively, the online business can be embedded into the existing system landscape in the target country despite the complexity that this involves. To ensure a swift market entry, however, ways to reduce complexities must also be found in this scenario. One way would be to devise a Minimum Viable Product (MVP) that is limited to the essentials and initially excludes many complexities that might slow down the internationalization project. Once the MVP is successfully in place in the market further functionalities can be added iteratively.

A Flexible ERP Makes Strategic Flexibility Possible

But how can the speed of an internationalization project be increased if different preconditions apply in every target country and the retailer is resolved to take these different framework conditions into account? A key aspect of projects of this kind is the Enterprise Resource Planning (ERP) system. ERP’s classical task is to map all areas of the company’s activities in order to make planning and controlling the business easier. On account of this claim to be comprehensive ERP reflects many of the above-mentioned complexities. At first glance it might therefore appear to make sense to design an all-encompassing ERP system that not only integrates all segments – such as CRM, financial accounting or merchandise management – but is also designed for use in all countries. This ERP could then replace all existing systems in the target countries and thereby reduce complexities.

An approach of this kind would, however, fail to take into account the different needs in individual countries. The country company in France, for example, might already have developed its own system of logistics that is suitable for online business whereas the UK company lacks this foundation entirely. Valuable beginnings would then already be in place and ready to use in France, whereas setting up an entirely new logistics system in the UK would make internationalization much more complicated in Great Britain because knowhow, personnel, storage and delivery capacities would first have to be established.

The ERP should therefore be seen as a hub that provides all functionalities but offers the option of linking up with existing systems and third-party providers.

Rather than to develop an all-encompassing ERP system that is to be imposed on every country company regardless of its starting position, the ERP should allow the country companies as much flexibility as possible so that they can adapt it to their requirements with as little complication as possible. The ERP should therefore be seen as a hub that provides all of the essential functionalities of an ERP in individual modules. At the same time it should be an open system that offers the option of linking up unproblematically with the existing systems in use in the countries as well as with third-party providers. The flexible ERP enables the retailer to apply strategies flexibly.

This strategic flexibility could, for instance, be applied to logistics in the above-mentioned example. In France the retailer could use the same ERP as in all the other countries while continuing to use its established individual logistics system. At the same time there would be suitable options for the situation in the UK. The UK company might decide with the aid of the ERP’s logistics functionality to set up a logistics capability at the outset of the internationalization project and run the risk of the complexity that would involve. Alternatively it could link up with a third-party logistics service provider that already knows the target country and has the resources required. In this way the retailer can reduce the complexity of his internationalization project considerably and step up the pace of market entry, albeit with the disadvantage that a part of the margin will go to the service provider and the retailer will gain no in-house experience in this area.

An ERP that makes this approach possible must fulfill several requirements. For one, it must be possible to connect the service provider’s totally externalized storage facility while leaving inventory management, which is of central importance for inventory evaluation and stock reporting to the shop, in the ERP. For another, the retailer must be able to sever the connection with the logistics provider swiftly and without complications – be it because the service provider fails to meet expectations, the model in use in another country is to be copied with another service provider at no great expense, or, finally, the retailer intends to bring the logistics in-house.

Conclusion

Especially for large multichannel retailers the internationalization of online business can often prove to be an extremely complex challenge due to different system landscapes in individual countries. In order nevertheless to gain a swift foothold in the target market it is advisable to reduce expenditure at least in the initial phase of an internationalization project. A modular ERP system seen as a hub that incorporates all of the functionalities required while also permitting links with third parties gives the retailer flexibility to determine the degree of complexity and to adjust it to local circumstances.

That alone is not enough. If, after a swift market entry, the retailer reaches the conclusion that his online business has a future in the target country he will also be able to bring in-house step by step tasks that were initially performed by third-party service providers in order, for example, to improve his profit margin or to achieve learning effects at first hand. In the above example the retailer can set up his own logistics at a time of his choice once his online business is operating profitably. A step-by-step approach of this kind reduces the risk factor of an internationalization project considerably.

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