Discussion

managing it in government, business & communities
Chapter 17 - The Internationalization Efforts of Small Internet Retailers
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed) 
Idea Group Publishing 2003
Brought to you by Team-Fly

The case companies revealed a multitude of viewpoints and considerations in their efforts to expand their operations regionally and globally. All three companies have adopted some form of internationalization strategy, varied along their strategies and needs for global integration and local responsiveness. The strategic issues identified from the experiences of these e-tailers have been classified into the following categories: market access, infrastructure and localization.

Market Access

The case companies identified access into a foreign market as a key issue, as well as gaining appropriate and relevant market information for their e-tailing needs. The companies approached this issue in a variety of ways, including forming strategic partnerships with in-country companies, which can ease the transition into a foreign market, as well as increase the efficiency of operations, while providing an e-tailer with a sustained source of information. A physical retail outlet location in the country would also serve that purpose, while providing an organizational presence, generating consumer awareness and confidence.

In adopting a global strategy, an executive from Company A found that "the biggest issue is market access and the unique value proposition." The company believes the first step is to find partners in foreign markets that can provide relevant market intelligence, allowing them to ultimately decide if the location is suitable for access, and then to slowly customize their Web site and operations to incorporate the new market. "We're going to establish partnerships with partners doing very focused work our next target is to offer local currencies for these countries and use these partners to do our marketing."

Company B leverages off its parent company's international market experience and information to launch e-tail capabilities in Australia and Malaysia. The fulfillment centers in these countries play critical roles in acquiring sustained market information: "They should know the local conditions better than us, so we rely on them for a lot of market feedback and reports. We are dependent on them to a large extent without their eyes and ears on the ground, we're operating fairly blind."

However, the company still finds difficulties in planning access to new markets, given its organizational objectives. "Each individual country's market is different. We'd like to use the same model all this takes a lot of time."

To avoid start-up and promotion costs, Company C extended its influence in China through a series of strategic partnerships first by investing in leading operators in the same industry, then by creating a strategic alliance to establish itself through joint marketing and co-branding. The partnership will, in effect, optimize the company's opportunities in China, reduce start-up and access risks, and enable the company to leverage off existing and established physical and online networks, domain knowledge, and market information.

The global e-tailer would find many advantages from forming strategic alliances with in-country partners to help minimize and handle the effects and complexities of communications with a new language and culture, local laws, financial issues; and to also provide an avenue for the e-tailer to monitor what happens after the transaction occurs in that country. Partners can provide quick and reliable market access information. E-tailers can adopt strategies with suitable local partners, such as co-branding, or can merge with or acquire the local partner as well. However, in choosing a partner, e-tailers need to ensure the partners have sufficient financial and personnel resources, demonstrated success, a willingness to form a partnership, familiarity with the e-tailer's practices, and knowledge about the obstacles to the e-tailer. The partner should also have good reach and reputation. Only then will the e-tailer be able to gain insight and access into the new market, and effectively localize itself at a more rudimentary level. Company A selects partners based on these: "The criteria is that they have something that is complementary with us, and they share the same vision with us, same passion, and certainly have very good knowledge about their markets."

Infrastructure

The issue of pure play and click-and-mortar retail modes frequently surfaced in each company's internationalization strategies. Would a physical outlet be critical in a foreign market regardless of its existence in the local market? The issue was reliant on two factors: the function played by the physical outlet, and the supply chain and logistics capabilities of the e-tailer. Companies A and B rely strongly on a virtual strategy, the advantages of unlimited "shelf space," and low infrastructural costs and risks. Company C, on the other hand, claims success with a multi-channel perspective.

Company A operates on a completely electronic JIT (just-in-time) strategy. The moment an order is placed on their Web site, it is placed electronically to the closest supplier worldwide and delivered via courier to the customer. The electronic integration with suppliers is deemed as a critical factor in increasing efficiency and lowering operating costs significantly. In effect, Company A does not maintain any warehouses, nor does it carry any inventory, keeping its operating expenses low. Furthermore, the electronic integration speeds up order processing, and ensures the flexibility needed to change processes easily. The organization believes this is sufficient at this point of time, using its partners to handle customer access. However, in moving full-scale into a foreign market, it believes the physical location is imperative. "We could use our partners' addresses to handle access for us. But when we're ready to move into other countries, we'd certainly need the physical office space. How else would we support our customers?"

Although Company B does not utilize a completely electronic logistics and supply chain, it is not convinced that a physical infrastructure is necessary. "Rental for a retail outlet is exorbitant, and there's never any guarantee that the location would be profitable...and then if inventory gets damaged, lost or outdated, you have to write it off. [The warehouse] has to be well-maintained and air-conditioned. And that's expensive just the day-to-day operations cost is too expensive." However, the issue partly lies in the organization's priorities and implementation. Company B believes in minimizing physical asset costs and passing the savings on to the consumer. Its physical infrastructure in Australia and Malaysia act as points for reverse logistics, order consolidation and breaking bulk, with minimal staff at each location.

Company C, on the other hand, operates in synergy with its existing physical retail outlets around Asia to provide promotions on Web site activities, personalized customer support, and an access point for customer service. "Our offline and online integration offer our customers avenues to reach us. The physical and virtual businesses are inter-dependent for us. Without the physical facilities, we can't do the fulfillment, customer service and offer the warm human touch We have counters at the physical stores to help our online customers who choose to pick up their [orders] or make exchanges." One executive attributes the lack of cannibalism to a close relationship between the physical and online stores: "Channel conflict is not an issue at all. We are after all the same shop and there's profit sharing between the two operations."

An internationalization strategy requires that e-tailers consider the implementation of physical infrastructure in the foreign markets. Offline assets affect customer service, branding, reverse logistics, and warehousing functions. With a physical store, shoppers can enjoy the ability to see, touch, and try merchandise and have instant gratification on purchases, and the ability to interact with in-store personnel (Rao, 1999; Calkins, Farello, and Shi, 2000). E-tailers adopting a click-and-mortar approach must find synergies between their Web sites and stores in each country, as well as customer service.

However, the economic issues of a physical infrastructure pose a large tradeoff, as does the issue of channel management and cannibalism (Katz and Rothfeder, 2000). Considering these issues, e-tailers must decide on an approach in each foreign market. Leveraging off a partner in a foreign market may provide the e-tailer with a "best-of-both-worlds" solution. However, finding a capable strategic partner may be difficult. In the case of Company A, it does not deal with many distributors for the sole reason that they lack sophisticated system integration capabilities. Similarly, for Company B, its supply chain is not electronically integrated because "some of [the suppliers] do not even use e-mail, how on earth would we integrate systems?"

Localization

Each e-tailer faced difficulties customizing their strategies, Web sites and systems to foreign market conditions. Economic, political, and cultural considerations, as well as localized content and technical implementations, have to co-exist harmoniously with the e-tailer's unique value proposition for success.

An executive from Company A expresses the importance of a unique value proposition: "What is unique about your product establishes you, and who you reach out to effectively." In providing value to a customer, the organization stresses on the importance of localization of Web site content, including currencies displayed on the Web storefront and the language used. "We can view over 30 currencies right away. The key thing is the localization of the content and language, and the knowledge about the customer locally you can have a global market, but the local customization [is important]. The processes and methodologies can be global, but the last leg is that of personalizing it the knowledge of your local customers is a problem."

The company also includes numerous "extras" in its value proposition, including the option of delivery to convenient locations, such as petrol stations located worldwide.

Company B, too, emphasizes the need for a differentiated identity: "You've got zero visibility you're just a URL. You have to differentiate yourself." But the company also stresses on the need for political sensitivity and legal knowledge when entering foreign markets. For example, the company realized the necessity to register a separate organizational entity in Malaysia, while not in Australia. Similarly, some items sold to Australia are not charged taxes because they are considered imports, putting the e-tailer at an advantageous position.

Company C chooses to localize its content by decentralizing its Web site, based on the foreign market it serves. In this way, content can be localized, and the Web site easily maintained.

Entering a foreign market can provide the e-tailer with a number of advantages over traditional retailers because economic and legal restrictions and barriers are not effectively enforced over the Internet. However, e-tailers must be wary of political and cultural sensitivity, as well as manage risks in new and unfamiliar markets. All three companies agree that the key to a successful entry to a foreign market is to promote value and localize Web site content to the needs of the market, but each company differs on the extent of its localization measures.

Brought to you by Team-Fly


Managing IT in Government, Business & Communities
Managing IT in Government, Business & Communities
ISBN: 1931777403
EAN: 2147483647
Year: 2003
Pages: 188

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net