Retailers: Look to emerging markets

To fight the UK downturn, retailers are looking abroad for growth. This could be a good move, says Matthew Cushen - if shops watch how they manage the IT.

In the same week that Europe's largest indoor shopping centre opened at Westfield in London (270 stores in 1.6 million square feet), the new Dubai Mall opened (1,200 stores over 3.8 million square feet) and Wal-Mart announced that, for the first time, it would be allocating more of its investment billions to emerging markets such as Brazil and India rather than to mature markets such as Canada and the UK.

In addition, Marks and Spencer's international sales have gone up 24 per cent in comparison to the UK, where the retailer's sales have dropped.

Right now expanding internationally looks like a welcome distraction from the challenges at home.

Tech Hotspots: The list

1. Silicon Valley
2. Bangalore
3. London
4. Tokyo
5. Boston
6. Cambridge
7. Shanghai
8. Tel Aviv
9. Seoul
10.Beijing
11.Chennai
12.Pune
13.Singapore
14.Helsinki
15.Moscow
16.Hong Kong
17.Hyderabad
18.New York
19.Sydney
20.Shenzhen

While trade in the UK is tough and the value of sterling is falling against some currencies, the attractions of international markets are accentuated. This can be an exciting step for all involved - but one for which eyes should be kept wide open to the technology risks as well as to the rewards for the wider business.

International strategy should be developed methodically and executed with military precision. First of all retailers need to understand, prioritise and make choices between markets; and decide how much a brand and its positioning needs to adapt to the local consumer. They then need to weigh the risks and rewards of their chosen business model: organic, acquisition, joint venture or franchise. Decisions about systems and IT infrastructure will depend upon, but also can influence, the route selected for growth.

For example, taking the organic route will demand that systems used in home markets are adapted for new markets, which could result in language, currency and infrastructure translations. However, these problems may be less daunting than trying to integrate domestic systems with those of a joint venture or franchise partner.

Making the right decision is dependent upon understanding how processes are split between each partner - for example, who is responsible for range selection, inventory management and ordering? It should also take into account the capabilities of the partner organisation to co-ordinate development and implementation of projects with the lead partner.

While a chief executive could reasonably expect joint ventures or franchises to reduce risk, the IT function might argue the opposite.

Irrespective of the way a retailer expands internationally, the programme management of IT systems needs to be closely supervised. Two different business and country cultures are likely to result in different methods and standards in this area.

With any level of systems integration it is likely that a programme manager from each side of the partnership will be needed and the relationship between them will be essential for success. So picking the individual is key - a broadminded and personable individual, flexible and happy to travel is going to be more important than a techno-whiz.

When project teams are formed, time, effort and cost invested at the outset in encouraging strong relationships will be more than paid back during the integration period.

Workshops to discuss how projects will be run and to reconcile differences in management disciplines will present some surprises that are better spotted earlier rather than later. Having a visible high level of sponsorship and collaboration from senior management will also set the tone for the teams working together.

Growing and consolidating markets offers huge opportunities, with consumers that are desperate for Western brands and a sophisticated retail experience. With sterling returning to a more historic level against the dollar, buyers are going to have a tough time maintaining gross margins in a UK faced with increasing import prices. But for those repatriating profits made in the many countries that peg their currency to the dollar, the returns have just grown by around 15 per cent, so we expect IT departments to be pretty busy over the next 12 months.

Expanding internationally is not easy to do, not least as the overseas competition is getting increasingly sophisticated. I have noticed that my local franchise-run Debenhams in Riyadh has better standards than I've seen under that fascia for a long time - even if it is a little disconcerting that all the perfume counters are staffed by men.

Matthew Cushen is senior manager at consultancy Kurt Salmon Associates