Marcel Corstjens

Rajiv Lal

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <p>Many companies, especially those in the developed world, have tried to grow faster by investing abroad, and retailers are no exception. But it’s tough to make money overseas, particularly for retailers.</p>
  <p>Local retailers still dominate most markets, and almost every chain that has ventured overseas has tasted failure. In fact, the data suggest that traditional globalization strategies don’t work well in retail.</p>
  <p>Research also shows that the extent of internationalization doesn’t contribute significantly to either retailers’ revenue growth or their profit margins; the home market’s growth is the major driver.</p>
  <p>Retailers face serious obstacles in going global: It takes time to break into foreign markets, returns accrue only over time, and foreign entrants have to take on well-established local incumbents.</p>
  <p>Some retailers’ experiences suggest that to succeed abroad, firms must bring new things to market; focus on differentiation, not synergies; and enter at the right time.</p>
 </div>
</article-ideainbrief><p>Globalization’s lure is almost irresistible. With the U.S. economy struggling to expand and Europe on the brink of recession, fast-growing markets in the developing world offer the best opportunities for boosting revenues and profits today. Many companies in the developed world are keen to follow in the wake of corporations in a variety of industries—such as Boeing, Coca-Cola, DuPont, General Electric, Hewlett-Packard, IBM, Oracle, Unilever, and Disney—that appear to have succeeded in going global.</p>

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<p><span class="reprint">Reprint: R1204G</span> </p>
<p>Most companies assume that the easiest way to grow is by investing overseas and that the developing world offers the best opportunities for boosting revenues and profits today. However, success abroad varies widely, and research shows that it&#8217;s often tough to increase profits by investing abroad. </p>
<p>A new study of the grocery retail industry reveals that with a few exceptions globalization&#8217;s benefits have not accrued to retailers. Local retailers dominate most countries, and international players are absent from the largest retail markets. Moreover, every retailer that has ventured overseas has failed as often as it has succeeded. On average, the extent of internationalization doesn&#8217;t have a significant effect on either retailers&#8217; revenue growth rates or profit margins. Rather, it&#8217;s the home market&#8217;s growth that is the primary driver of profit margins and sales growth. </p>
<p>A few retailers have succeeded in going global by developing strategies that apply four retail-specific rules for globalization. Rule 1: The home market is the linchpin. Retailers can generate the resources they need to go global by applying innovative growth strategies at home. Rule 2: Always bring something new to market. Without an element of novelty, it will be difficult for retailers to overtake entrenched rivals. Rule 3: Differentiation is more important than synergies. Leveraging synergies globally and allowing each country unit to adjust to local needs is a critical balancing act. Rule 4: Timing is critical. </p>
<p>Retailers would do well to stop planting flags and focus instead on a limited set of opportunities where they can establish operations of scale.</p>

Retail Doesn&rsquo;t Cross Borders: Here&rsquo;s Why and What to Do About It

Reprint: R1204G Most companies assume that the easiest way to grow is by investing overseas and that the developing world offers the best opportunities for boosting revenues and profits today. However, success abroad varies widely, and research shows that it’s often tough to increase profits by investing abroad. A new study of the grocery retail industry reveals that with a few exceptions globalization’s benefits have not accrued to retailers. Local retailers dominate most countries, and international players are absent from the largest retail markets. Moreover, every retailer that has ventured overseas has failed as often as it has succeeded. On average, the extent of internationalization doesn’t have a significant effect on either retailers’ revenue growth rates or profit margins. Rather, it’s the home market’s growth that is the primary driver of profit margins and sales growth. A few retailers have succeeded in going global by developing strategies that apply four retail-specific rules for globalization. Rule 1: The home market is the linchpin. Retailers can generate the resources they need to go global by applying innovative growth strategies at home. Rule 2: Always bring something new to market. Without an element of novelty, it will be difficult for retailers to overtake entrenched rivals. Rule 3: Differentiation is more important than synergies. Leveraging synergies globally and allowing each country unit to adjust to local needs is a critical balancing act. Rule 4: Timing is critical. Retailers would do well to stop planting flags and focus instead on a limited set of opportunities where they can establish operations of scale.

Retail Doesn’t Cross Borders: Here’s Why and What to Do About It

Summary.

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