Going Native
Finding the right vendor for a foreign market takes a lot of research, due diligence—and patience
By Linda Punch
Opening a web site in a foreign market is a major undertaking for a retailer. Just ask Office Depot Inc. Even though the office supply retailer operates 1,444 stores in 42 countries, launching a web site in a foreign market still requires an intensive effort, says Karim Hadchiti, vice president of global e-commerce.
One of the difficulties: finding the right vendors for essential functions such as fulfillment, delivery and payment processing. “Common challenges such as logistics, delivery, customer service, telecommunications and technology all play a part in the selection process of a new market,” Hadchiti says.
Foreign language e-mails
As any retailer knows, bad customer service or a substandard delivery system can translate into lost sales. That’s especially true when launching a web site in a foreign market, where consumers may be unfamiliar with a retailer and reluctant to make an online purchase. In that situation, selecting the right vendors is crucial, experts say.
“You have to ask how are you going to handle customer support when you get e-mails in a local language you don’t understand, if you have no one in-house that understands that market or who can speak the language?” says John Yunker, president of Byte Level Research, a research and consulting firm that specializes in global web sites.
The language issue, though, is only the start; the challenges to understanding how to do business in a foreign market are myriad. “The mistake companies make is to assume that people in other markets are a lot like Americans, are going to purchase like Americans and have the same price sensitivities as Americans,” Yunker adds. “It’s just not true.”
For Office Depot, meeting those challenges means taking a collective approach to international expansion that includes its direct business, contract business, and, in some cases, retail business. To address the specifics of e-commerce, Office Depot puts in place a local e-commerce team prior to launch, Hadchiti says. The global e-commerce team in North America drives the overall global e-commerce strategy.
Office Depot has more than 30 web sites outside North America, including in Austria, Belgium, Costa Rica, El Salvador, France, Germany, Guatemala, Ireland, Italy, Japan, Luxembourg, The Netherlands, Portugal, Spain, Switzerland, and the United Kingdom.
A team effort
Office Depot doesn’t use consultants to evaluate or select vendors, relying instead on employees in the local markets who are active participants in selection and vendor-relationship management, Hadchiti says. “It is a team effort directed by the corporate team with implementation on the local level,” he says.
Because it has extensive global operations, Office Depot mainly relies on its previous experiences and relationships when entering markets, he says. “The best thing you can do is rely on a set of vendors with global expertise that you have had a relationship with in the past,” he says.
But not every retailer looking to expand globally has the resources of an Office Depot when searching for vendors in a foreign market. In those cases, Hadchiti’s advice is to rely on vendors that have a global presence and expertise. “You should leverage the management consulting firms that have regional offices in the markets you are targeting,” he says.
Whether to select a vendor with international experience or a vendor local to the market depends on the services the retailer is targeting, Hadchiti says. “The safe thing is to identify a vendor with international experience that has a presence and in-depth knowledge of the market you are entering,” he says.
In some cases, Yunker notes, local vendors may be the best choice. For instance, although there are U.S.-based services that deliver overseas—such as FedEx Corp., United Parcel Service of America Inc. or DHL Holdings Inc.—they may not be a good fit for some countries. “Japan is a tough market to do door-to-door deliveries because it’s very decentralized. You need a lot of market knowledge to be very successful at delivering in that country,” he says. “You’re not necessarily going to have a one-size-fits-all for each market.”
The key to finding the best local vendor lies in looking closely at the prospective customer, Yunker says. “The first thing I tell companies looking to expand overseas is before they focus on how to get the product there and how to handle payments, focus on the prospective customer and work outward from there,” he says.
What the consumer wants
Determining consumer preferences is especially important when it comes to payment processing since overseas customers often are not comfortable using the credit and debit cards favored by U.S. consumers, Yunker says.
Indeed, shoppers outside the U.S. often are reluctant to make any online payments, often for cultural reasons. A recent Forrester Research Inc. study found that while 56% of European Internet users regularly shopped online last year, not all paid for purchases using an online payment method—24% used only offline payment methods, 64% used only online payment methods, and 13% used a mix, Forrester says. By contrast, virtually all of U.S. online purchases are paid for online.
In addition, the preferred method of payment varies from country to country. In the United Kingdom, 60% of online shoppers prefer to pay with credit cards, while in Germany—Europe’s second largest online shopping market—56% prefer electronic bank transfers, according to Forrester. In the U.S., 36% of online payments are credit cards; 26%, debit cards; 22%, cash and checks; and the balance, others, Forrester says. “When you go global, you have to look at all the options and at what people are comfortable using when they purchase online,” Yunker says.
One shortcut to finding a vendor is by using local partners, such as distributors, Yunker says. “If you find the right one, you have minimal upfront costs and they know the market,” he says. “You don’t get as much in terms of margins but you don’t have to worry about all the due diligence that you would if you were going to do it yourself.”
Another critical step to selecting vendors in foreign markets is ensuring they are operating within the laws of the country. “You can’t assume anything,” says Brian Carpizo, CEO at e-commerce platform vendor Junction Solutions, which has operations in Canada, Mexico and the United Kingdom. “Every country has a whole set of business laws, so you need to have good legal representation in those countries to help you navigate all the different rules. You can’t underestimate the differences in the countries and their rules about foreigners holding operations in those countries.”
Tune in to the culture
A good resource for any retailer looking to do business in a foreign market is that country’s consulate, Carpizo says. “They’re used to working on some of these issues,” he says. “It’s a first good way to understand what the administrative/legal climate is.”
Retailers also should make sure that the management of the vendor they hire speaks fluent English, Carpizo says. “You can’t afford to have communication gaps between yourself and the local management,” he says.
Yunker says retailers should answer the following questions before using a vendor to manage their e-commerce operations in foreign markets:
— Do you already offer e-commerce for the domestic market? If you have already sunk costs on a U.S. e-commerce site and feel it is successful, you need only examine what it would cost in time and money to develop and manage localized e-commerce sites. There is no reason that you cannot continue to manage the domestic site while outsourcing the global sites.
— Will you spend more than $100,000 on a localized e-commerce site? If so, it makes sense to do the math on potential savings of using a hosted solution, even if the hosted solution is used only by the non-domestic sites.
But even with hosted e-commerce, a retailer will need people to manage the relationship with the vendor and a learning curve on both sides is inevitable, Yunker says. And there is a certain amount of risk associated with bringing on any new vendor.
Perhaps the soundest advice is offered by Hadchiti and echoed by Yunker and Carpizo. “Be sensitive to the local culture and do your research on the market, economy and competition in advance,” Hadchiti says.
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