Like Craig Thompson I am being hounded by the press, although in my instance it’s neither painful nor (hopefully) career-destroying.
This article has some quotes/possible insights from an interview I did today regarding international joint ventures.
Enjoy.
It is rare to see an Australian multinational announce two international expansion moves in the same week. And it’s even rarer when said moves are to two different continents.
Shopping centre giant Westfield made two such announcements this week, with joint ventures signed in firstly, Brazil, and today, Italy.
As I wrote about in a book chapter on Westfield a few years ago, the firm has typically been reluctant to seek opportunities beyond the English-speaking world. The firm entered the US way back in 1977, with a portfolio of properties slowly emerging over the coming two decades.
Westfield succeeded in the US by buying run-down malls that no one visited anymore and turning them around through innovative redevelopment projects. Most competitors in the industry preferred building new malls.
By the late 1990s Westfield had emerged as the dominant player on the US scene, and continued to grow right through to the global financial crisis.
In the broader world, they have been more cautious. As we argued in the chapter:
“Westfield’s internationalisation was never a story of extreme risk-taking. Frank Lowy saw little value in acting as the pioneer in environments where the payoffs were too low. As long as there were opportunities to be had in the US, then Europe, Asia and New Zealand could wait. Eventually in 1997 the group took over the management of ten St Luke shopping centres in New Zealand. In 2000 Westfield Trust and St Lukes Group merged and the New Zealand centres were re-branded as Westfield centres. Attempts to enter the UK market in the 1970s and 1980s were unsuccessful. Lowy expressed considerable frustration with the lack of dynamism in the UK investment houses and lack of planning enthusiasm (Margo, 2000). Not until early 2000 did Westfield finally obtain access with a 75 per cent stake in a centre at Broadmarsh, Nottingham. The firm has made considerable headway since, with seven centres on the books, and is set to open the largest centre in Greater London in early 2008. Westfield briefly entered Asia in 1998 with a ten per cent share of Suria Kuala Lumpur City Centre in Malaysia. This investment was short-lived, however, with the company withdrawing in 2000 after the Asian currency crisis.”
So why has the firm moved now?
On the Brazil front, the firm is tapping into one of the most exciting and fast-growing large economies in the world. The firm may see some useful urban similarities to Australia and tthe US (i.e. more ‘wide, open spaces’ in the ‘burbs), and Brazil may also be seen as far less challenging than China and India for example (with much less government intrusion likely).
At the same time the firm may see far fewer prospects in the moribund US economy and its close-to-saturated Aussie home.
Bringing a local, experienced joint venture partner is a very sensible move for a multinational with no experience in the market. While Westfield hasn’t typically hooked up with shopping centre management firms before (preferring instead to court construction firm and funds management partners – i.e. in essence, supply partners), local adaptation is clearly front of mind here. There should also be an appetite for knowledge acquisition on both sides of this equation.
The Italian move looks a little riskier, with patchier economic conditions and a reputation for bureaucratic randomness. There may be an argument for very localised attractiveness here, as the firm is targeting one of the wealthier and more retail-savvy parts of the nation – Milan (also home to some of the oldest shopping arcades in the world). Indeed, this could also be a brand-building exercise in a city/region with no shortage of brand champions, especially in the luxury and masstige segments Westfield is keen to attract across its empire.
The final piece of this strategic puzzle might well rest on the role of individuals in both constraining and driving choices.
Firm founder Frank Lowy finally handed over the reins to his baby about five months ago (stepping down as Executive Chairman). His sons appear to stamping their mark on the firm’s future with these two bold (but tentative) moves.
While we all wait eagerly to see who might buy up the soon-to-be-untangled Foster’s beer business (see this piece for a recent update of the contenders), it is possible that the more fascinating and globally significant acquisition might actually occur on the wine side of the company’s separation.
An Australian article last month got me looking into the prospect of a Chinese takeover of some or all of the forthcoming wine business (renamed as Treasury Wine Estates). The article mentions that China’s Bright Foods, failed bidder for CSR’s sugar business, has sounded out Foster’s about the firm’s “Hunter Valley operations focused on the blue-chip Rosemount brand”.
I was a little unclear on the size and scale of China’s wine market. I have certainly heard the usual extravagant claims that it could be an enormous untapped opportunity for Australian exporters, but what I was unaware of was the actual scale of existing domestic production.
According to this academic study China is already the 6th largest producer of wine in the world (at 13,005m hectalitres in 2008). That’s more than Australia (11,700m), South Africa (9,890m), Chile (7,860m) and NZ (1,700m). Chinese production grew 17% between 2004-8, while pretty much all ahead and around them on the list experienced pretty hefty declines in volumes (e.g. Australia fell 20%, France 25%).
Certainly China is not currently a significant exporter of wine (unlike most of the other major producer nations), and the initial focus of any foreign acquisitions will likely be on servicing the Chinese market with higher quality imports.
The longer-term picture is where it gets interesting, however. Picking up a firm with strong international brands (which Bright Foods would certainly be doing if they secured some/all of Treasury) would allow the Chinese firm to build up much-needed expertise in marketing and distributing beyond Chinese shores.
This could well be the birth of a new wine giant.
(As an aside, there is an unfortunate irony to the possibility of a big chunk of Foster’s shifting into Chinese hands, as the firm had a very torrid time from 1993-2006 trying to build a beer presence in the country).
So, despite my repeated naysaying it seems not only is US ragtrader The Gap definitely coming to Australia (their first store will open in Melbourne next month), but they may well be leading a serious onslaught of entrants into the Aussie market.
According to this hype-heavy piece, the list of fashion retailers eying off Aussie wallets now includes Banana Republic (a Gap brand), Forever 21 (from US), Topshop (UK), and Uniqlo (Japan). While I am still taking this talk with a big grain of salt, there is certainly a long tradition of follow the leader amongst multinationals.
This behaviour may reflect several underlying motivations. Rivals may be concerned about early movers locking up resources and this limiting the scope for late moves.
In the retail domain there are grounds for concern that early movers may secure prime store locations, although this is much more of an issue in groceries and fast food than in fashion. Indeed in fashion, it is more likely any early advantage comes from building stronger relations with landlords and property brokers as anchor tenants.
Unlike fastfood, the franchising model used is only likely to be rolled out at a country-level (i.e. companies are awarded the right to run all stores in a state or country, rather than companies that then sub-franchise to individuals store-by-store), so there is a less of a race to secure franchisees and/or build reputations.
Interestingly two of the most successful internationalisers H&M and Inditex (i.e. Zara) remain very tightlipped about any Aussie plans. Both firms are much less inclined to franchise (mainly because they control their value chains much more tightly than the others on this list). They’ll need a lot more convincing that Australia represents sufficient bang for their buck/Euro/krona. I suspect they still see Australia as small fry.
But I’m reluctant to say never anymore. The performance of their international rivals down under may well play out as the demonstration effect (that this is a market worth seeking) that is a further key aspect of following.
Aussie shopping centre powerhouse Westfield (the world’s biggest shopping centre operator) announced a curious brand extension last week. The firm is reportedly planning to use its website as a virtual shopping mall, hosting e-commerce interfaces for a variety of retailers (with fashion being the rumoured kick-off).
So, is this a good move for Westfield?
As I’ve argued elsewhere, Westfield has five particularly powerful competencies: (i) property selection; (ii) redevelopment; (iii) financing; (iv) retailer relations; and (v) branding and marketing . The first three have no relevance to this venture, so the firm is only left with retailer relations and branding/marketing.
Source: Daniel Austin (d)Not
The retailer relations is partially about Westfield’s capacity to offer a more extensive suite of locations relative to rivals and the resultant bargaining power they wield as a landlord. It is also about Westfield’s extensive monitoring of tenant sales and sophisticated contracting processes.
Westfield already carries some information about tenants on their website, and because of their prominent landlord status can certainly attract the attention of these firms. I would be stunned if any of the retailers would grant Westfield exclusive rights to host/direct traffic to their e-commerce portal. Indeed, e-commerce is a substitute to the physical interface, and a mechanism these retailers can use to more effectively negotiate with Westfield as a landlord. Westfield will need to tread much more carefully in these e-relationships.
The counterbalancing angle may spring from the final competency – branding/marketing. Westfield was a global pioneer of using a common brand for their malls (indeed, my post title reflects the reported source of this brainwave – a founder heard a shopper saying they were “heading to Westfields”, and saw the scope for differentiation).
It may well be the case that online shoppers welcome the ‘browsing’ capacity of a virtual Westfield mall. New/small retailers with limited capital to expand their bricks and mortar footprint across Westfield’s 119 malls, may relish being next door to Zara, The Gap and Gucci on the Westfield website. It may also be a mechanism for virtual internationalisation. This could be a chance for Aussie retailers to test the waters in the US, UK and NZ without crossing an ocean. Presumably solely e-commerce retailers could also tap into this spillover effect. Getting this right could also extend consumer awareness of Westfield beyond their current whitebread Anglo markets.
The big challenge is making the site sticky enough. Westfield will need to fill the competency gap in build a user interface that is engaging, exciting and innovative. If they don’t get it right quickly someone could easily build a rival (Google perhaps?).
The uspide for Westfield is that there isn’t much downside here. I wouldn’t think there is an enormous investment required here. It is just a mechanism to augment an already profitable business (and perhaps distract some investors from the firm’s exposure to property price and finance risk).
Verdict? Interesting experiment that could conceivably secure some first mover/network effect advantage.
