Challenge for UK retailers entering China

The recent entry of some of the UK's largest retailers into China and India has underlined growing interest in emerging markets as a means of achieving growth. According to The Retail Bulletin, Andrew Halper, head of Eversheds' China Business Group, stated: "China is currently the largest of the emerging markets and looks set to eventually become the biggest consumer market in the world. However, to date, only some 200 or 250 million Chinese are able to participate in a modern consumer lifestyle, and therefore, a vast under-developed market of another billion or so people remains. This is an enormous retail opportunity.

"Yet, there are many challenges facing international retailers as they seek to penetrate this emerging market. In particular, China is many markets, not just one, with varying consumer tastes. Some international retail operators investing in China have built state-of-the-art distribution centres on a regional basis. Others have concentrated on first or second tier cities only, while others have opted for networks of individual suppliers and retail outlets. The solutions adopted will vary widely, depending on the nature of the products. Distribution concepts that have proven successful in the West may not always be transferable to China."

Chris Wormald, head of Eversheds' franchising practice stated: "Retailers with strong concepts and brands in their domestic markets are often approached by overseas who see the potential in their own market. For some retailers this is a progressive move - they may have mature or "maxxed-out" operations in their home market and international expansion is a new route to growth. "However, retailers should be wary of viewing global expansion too simplistically - while a massive market opportunity, it is made up of many separate, national country-based markets.

Chris Wormald concludes "Franchising is the cloning of a successful business format into a new market using the capital, people resources and management skills of an experienced local operator, who is prepared to invest, and drive the business in its local market. There is no way that operators such as Mothercare who now have some 300 overseas franchised stores in nearly 40 countries, could have achieved such extensive and profitable market penetration without using franchising as an expansion technique.