When the popular casual shoe brand Crocs entered the India market in 2007, it assumed the conditions for rapid and profitable growth were in place. Crocs struck an exclusive joint venture deal with a local partner, which subsequently evolved into a franchising arrangement as leadership wanted to capitalize on an opportunity to expand quickly. However, despite preliminary enthusiasm, the arrangement was far from successful. After eight years, the brand only had 30 stores in India. Because sales didn’t meet expectations, Crocs was forced to cancel the exclusive franchising agreement and recently announced the closure of 12 stores.
“We planned out a strategy of having a few, but strong, franchisees and shedding some of the partners that don’t, can’t, or won’t want to grow with us whatever reason.” – Nissan Joseph, GM of Crocs India
Crocs India still has a presence in 100 cities across the country through its ecommerce channel, its exclusive stores, department stores, footwear chains, and mom & pop retailers. However, the company wasted several years and significant marketing investments. Crocs India now must focus on building more reliable distribution channels, making more effective marketing investments, and re-engaging Indian customers through local subsidiaries. So, where did they go wrong?
“Here lies one who meant well, tried a little, failed much: surely that may be his epitaph, of which he need not be ashamed.”
– Robert Lewis Stevenson, Across the Plains
The Traditional Approach to Global Emerging Market Entry
For decades, many multinational brands have tried to venture into emerging markets. To limit risk, companies often partner with a local distributor, a critical first step to market entry success. In most cases, distributors achieve quick wins and rapid sales growth by placing the products in their existing network. The novelty of having new offerings in the channel leads to initial success. However, rapid revenue growth often turns into disappointment soon thereafter. Why does this happen?
To minimize their risk, brands only invest a tiny percentage into local marketing. They assume the distributor will pay marketing and brand building from its share of the profits. This challenge presents itself as the company attempts to sustain the growth and the “blame-game” starts between company managers and the distributor.
Faced with declining sales, the company terminates the distribution agreement and blames the failure on the distributor and its lack of product knowledge, hands-on involvement, or financial ineptitude. This is often a hasty, misinformed decision that leads to compounding mistakes. Because the company blames the distributor for mediocre performance, it then believes it has the market knowledge and capabilities to launch its own subsidiary in the country. This is an expensive and disruptive process that often leads to market exit as the company overplays its hand, fails to recognize its blind spots, and overestimates its understanding of the market.
This is a common phenomenon for multinationals expanding into new emerging markets like India. In our experience at TopRight, we have witnessed too many multinational brands rush to sell and scale, and then fail. Successful global emerging market entry requires a step-by-step, disciplined emerging market strategy that establishes a foundation for sustained growth. The graphic below illustrates the traditional approach that multinational brands take for entering an emerging market.
Following this traditional approach, the negative outcomes are predictable:
- Local market doesn’t understand the brand story and the core values of the brand
- Overly complicated communication strategy confuses the market
- Marketing investment is focused on closing deals rather than conditioning the market
- e-Commerce channels are misused – failing to educate and serve customers
- After sales customer service is insufficient – leading to customer dissatisfaction
- Negative word of mouth spreads quickly in emerging markets
- Distributors cut prices to liquidate and dump excess inventory in the market
Not surprisingly, initial sales success is rarely sustained and the potential to tarnish the brand image is high.
The Transformational Approach to Emerging Market Entry
Let’s examine a multinational brand that successfully penetrated the India market and fared much better than Crocs.
In 1997, Faber saw an opportunity in the developing Indian market. The company made an entry through a local distributor by exporting just kitchen hoods. It increased brand strength by expanding its offerings to other products like built-in hobs and premium cooking ranges in early 2000. Through a joint-venture, Faber later established a decorative chimney manufacturing plant.
Today, Faber is India’s No.1 Hoods and Hobs brand. Over 250 employees produce more than 300 products in the local plant with current production capacity of 150,000 hoods, 100,000 hobs, and 50,000 other kitchen appliances per annum. Recognizing the importance of an extensive network towards building a long-term success story, Faber has over 2,000 retail counters for sales and service across the country. It has achieved economies of scale and has been able to sustain a competitive edge against most of the cooking equipment brands worldwide.
Unlike Crocs, the Faber leadership team identified the right local partner who was the right fit for the company’s global emerging market strategy. The company collaborated with the local partner, encouraged the distributor to lead all initiatives, and made investments in a disciplined, phased manner. Faber retained control of the marketing strategy from the beginning and actively anticipated market changes, resulting in a better brand image, less crisis, and consistent growth. Here is a graphic representation of the transformational approach that Faber took as they entered the Indian market.
In contrasting these two brand examples, there is an important lesson to be learned. Emerging market entry mistakes are not just related to selecting the wrong distribution partner. You could select exactly the right partner and still fail. Success relies on your marketing mindset and the discipline that you exercise as you enter a new market. To increase the likelihood of success, multinational brands should embrace a transformational marketing approach from the beginning. The winning strategy lies in continuous changes during and after market entry by anticipating and adapting to challenges.