Direct-to-market vs. partnership: a business mindset or a financial decision-making?
You are the top executive of a retail brand with revenues over the 100 million USD, a solid position in your domestic market and a strong international presence in most of the Western capital cities. Your company grows at an average 20% yearly and you need to pilot the next round of expansion into the promising "developing" Asian markets.
Next week you have an important meeting with your CEO and you need to present him/her your plan of what to do in China during the next 5 years.What would you suggest him/her to do? Would you recommend to follow a direct-to-market approach or would you rather consider a strategy turning around the idea of a local partnership?
Let me quickly highlight what you could expect from each of the options. To start with, below an hypothetical example of a 5-year expansion plan:
In today's context if you are successful retail brand with a proven sales track record and catchment in important international markets you can achieve to form a China JV with a local group that will definitely accelerate your growth and bring in most of the investment.
On the contrary, if you decide to follow a direct-to-market approach you will have full control over your brand and expansion, margin will be fully yours, but you won’t be able to match the speed of development as if you had chosen to work with a partner.
If you have been raised in Europe or the US most probably you have grown up under an environment surrounded by the constant warnings on the many perils of trusting your brand to a Chinese group. "They will cheat on you", "You cannot trust a Chinese company”, “They will copy your brand, improve it and exit the deal”. How much of that is judgemental and therefore biased, and how much rational and well-founded?
Based on our last 10 years of China retail experience partnerships are the most efficient way for international brands to develop their brand/distribution in a market with the features of the Chinese. Great candidate profiles can be found reaching interesting deal structures for (both) the brand (and the partner).
At Oriental Retail Ventures we advocate for new partnership formulas during your market-entry stage, marrying your brand with best-in-class Chinese retail partners and making sure that the execution of the business plan follows the agreed strategic commitments.
What’s your experience? Any thoughts on this?