The Right Distribution Partner Can Help Avoid Hard Lessons in International Expansion

Apr 5, 2012

Topic: Policy

Selling to emerging markets comes with risks and costs. There are currency risks, political risks and regulatory risks, just as there are in developed markets like Europe. But there are also greater risks of counterfeiting, and the cost of having to do special production runs to cater to the unique body sizes and color preferences in various countries. Yet it is the cultural risk that can be the greatest source of consternation.

Consider the fate of the Breeze GTX, Vasque’s top-selling hiking boot in the United States. The boot, which retails for about $160 in this country, has yet to catch on in China, where consumers and outdoor dealers tend to view mesh as an inferior material prone to fail, said George Brown, who heads up international sales for the brand. Vasque is working with its distributor to change that through education, but there is one other aspect of the Chinese market Vasque knows it will never be able to change and that is the connotation of the color green.

“You cannot sell green shoes in China,” notes Brown. “Anything green means that your wife is cheating on you. Everyone who goes out with green shoes is laughed at.”

While it can be extremely difficult to overcome such cultural barriers, executives say they can be minimized in advance by selecting the right local partners — a process that is particularly fraught with risk in China, where retailing is evolving rapidly.

This has made even some big companies hesitant to invest significantly in China.

“There is a lack of stability in that market, in terms of distribution models,” notes Brett Jordan, CEO of the equipment business at America Rec, which owns the Kelty, Sierra Designs and Wenzel brands. “There are companies that set up with distributors who had several hundred locations only to find out their partner decided to be in another business overnight.”

Brown said that one of the biggest mistakes young U.S. companies make in China is oversized expectations and undercapitalized partners.

“You have to go out and travel and visit retailers and see how they do business and who you can do business with and who you can’t,” Brown said.

Brown estimates only about half the country’s 600 outdoor specialty dealers are willing and able to build outdoor brands. The rest are not committed to building participation, and some even sell counterfeit product. He advised brands that use Gore-Tex in their products to consult with W.L. Gore & Associates, which shares intelligence on the Chinese distribution network with its partners.

When scouting partners in China, it’s important to know that many sell direct through their own retail operations. This can undermine their commitment to independent specialty retailers that are critical to building the brand long-term.

This potential conflict becomes particularly important for equipment brands given that participation in core outdoor activities is still in its infancy in China.

“In China, retail distribution capability preceded participation,” said Perry Dowst, owner of Jetboil. “That drives apparel and footwear, but equipment makers like us rely on participation, which is why it’s important to have a strong distribution partner who will work with retailers and is in it for the long term.”

Both Vasque and Jetboil attribute much of their success in China to Jack Lin of Shenzhen Himalaya Trading Co. Ltd, which has played a key role in building participation in climbing, trail running and other outdoor activities since the mid-1990s. Last month, Black Diamond Equipment honored the company as its 2011 Distributor of the Year for growing its sales in China 39 percent from 2010.

Sometimes the best way to find a good distributor is to let them come to you. The best Asian distributors attend the Outdoor Retailer shows in Salt Lake City to scout and approach brands.

Josh Fairchild of Oboz Footwear suggests younger brands partner with a distributor already carrying other, preferably larger, outdoor brands.

“The last thing we want to do is go into a foreign country and have distributor do long-term damage to the brand,” Fairchild said.

The lessons learned from China can provide guidance when looking to expand into other international markets. The takeaway is that companies must familiarize themselves with each country’s unique cultural landscape before making assumptions about what will work.

“Part of our success is due to having a dedicated sales and marketing team in each country,” said Jordan. “It’s a very unique marketplace in each country, and each country has its own demographics. Where many people fail is trying to take U.S. products and fit a square peg in round hole.”

Compare demographic and economic data for emerging market countries.