Luxury brands are currently racing to expand their business into Middle Eastern countries, due to being one of the worlds rapidly emerging markets. This is no effortless achievement however, being much more complicated than simply opening a new store in a brand’s home country. How can retailers expand and operate in markets in which there are often huge differences in business etiquette and culture?
The need for a local partner
For this reason it is a legal requirement in many areas of the Middle East for businesses expanding into the area to have a local partner who will not only help develop the brand, but also provide benefits such as investments and information about market risks and laws. Successful entry to a new market is dependant also on an inherent understanding of the consumer culture, preferences and general market specificities. An effective local partner will help to steer the business in line with these aspects, saving it from a potential painfully embarrassing and public death.
Despite this requirement of a partner, there is a freedom in the different ways of entering into the market, along with the choice of partner. Indeed this may be one of the most important decisions a brand could face, as it could consequently affect decisions made afterwards. There is no perfect archetype for brands to use. Rather, retailers must employ a method that balances between speed and control, which although are both highly important factors, also often conflict.
The two most common ways of expanding is through franchise and joint venture, which provide different trade offs between the speed and control aspects.
Expanding through franchise, a license to operate under the franchisee’s name, will in general allow for a faster expansion, but which will as a result often decrease the level of control the brand has when operating here. This option may seem more attractive for mass and premium brands who want to expand quickly to make the most of this rapidly emerging market. For example H&M expanded into Dubai in 2006 through a franchising agreement with the group Alshaya.
For luxury brands however, this loss of control could be detrimental to the brands image. For this reason, joint ventures are often deemed more attractive, as it allows for greater control, aligning the financial interest and risk of both parties. Prada is an example such a brand, entering the Middle East in 2011 through a Joint Venture agreement with the UAE based luxury group, Al Tayer Insignia. Prada is only one of the 36 brands in its impressive portfolio, others including Saint Laurent, Jimmy Choo and Balenciaga.
There are occasionally difficulties with this option however, the businesses being found to be difficult to manage. This can mainly be due to partners disagreeing on what values each are bringing to the brand, as well as the roles and responsibilities each has.
It is evident therefore that expanding business into this market is not something that should be taken lightly, but that the choice of partner and method of entrance should be carefully considered in order for organic growth to take place and brand image to be maintained.