The FINANCIAL — Taking a local brand to the global arena requires a focus on ‘only a few things’: start with one country at a time, lots of cash and a good distribution partnership.
These were the words of advice from Justin Letschert, CEO of Union-Swiss, a leading South African producer, distributor and exporter of skincare products, most notably Bio-Oil. He was addressing a large audience at the University of Stellenbosch Business School’s (USB) regular free monthly Leader’s Angle talk series (Friday 27 June).
Union-Swiss, which Letschert and his brother David bought in 2000, has since been rolled out internationally to 17 countries and across five continents. The company has notched up the number one selling product in its category in 14 of these countries. The company’s global activity is controlled from its Cape-based head office, and the Letscherts’ efforts have encouraged the growth of product retail sales from R3 million in 2000 to R661 million in 2007.
“There are 193 countries around the world to choose from if you want to go global. When you leave the shores of South Africa all you have is a product that no one knows about; you do not have a brand. This means you will have to launch your product 193 times as if starting from scratch in each country,” said Letschert.
Speaking from experience, he explained that people get attached to their product and think it is impressive, but he advised that unless a product is superior and in a completely new category the chances are slim that the producer will make it.
“It is important to realise you don’t make money at first, you lose it. People think there is this trajectory of initial incremental income, but there are incremental expenses instead. Launching in another country ‘vacuums’ cash. A global company should also be careful because it takes so much cash that the share price could go south.”
“It typically takes us 5 years to break even,” said Letschert, but once this point has been arrived at, the resulting profits that are generated are substantial.
He warned South African companies intending to launch globally that “no one is waiting for you overseas”. Competition is fierce. Letschert experienced this firsthand when entering the USA market a few years ago. “When we launched Bio-Oil 1 783, other companies’ skincare products were being launched in the same year.”
Another aspect to consider is the regulatory environment in other countries, which is very different to that of South Africa. “In the first world they have the laws and they police them.”
The Letschert brothers developed a system for identifying potential countries to launch their products. They look at aspects such as the top 10 countries according to GDP as well as GDP per capita and the size of the population. Countries are then ranked and the top 20 potential countries are listed.
He warns that these are not the only factors to consider.
“It seems daunting [at first], but [you soon find that] most of the 193 countries are a waste of time. It depends on what business you are in, but if you look at China in terms of population size it ranks first and sometimes you want people not money if you have a cheap product. The USA is at the top of the list, but aspects such as advertising which costs about R3-million per television advert needs to be considered.
“I advise [aspiring exporters] to start at a well-respected market – one at a time – such as the UK, which is easier to launch into and would give you credibility when launching into bigger markets such as the USA.”
He lists duties as another huge factor to consider. Duties are non-negotiable and could make launching into a country challenging. An example is Brazil which has lots of people who love skincare products but duties make up 40% of the cost of the product.
A key in launching globally is to find a good distributor with well-established relationships in that particular country.
“You are looking for a distributor; a distributor is not looking for you! We do a due diligence on distributors because it is their job to get you into the local market. Your job is to supply the cash. It is cash and distribution which is 75% of the effort.”
In terms of the structure that a South African company must have, Letschert advises that the business needs to be set-up in such a way that there is a global head office.
“If you go global you need to look back at your SA business and less of your income should come from here. It is about staffing; the people who make your current business successful will make your global business successful.”
He says business owners must be prepared to fly – economy class at first – more than four times per year to each country, depending on the phase of the launch in that country.
The Leader’s Angle talks on all aspects of leadership are an outflow of the USB’s strong focus on leadership development in its MBA and executive education programmes, and its research on leadership. Through presenting the Leader’s Angle, the USB shares leadership know-how with a broader audience.
The Leader's Angle series of talks is presented by the University of Stellenbosch Business School (USB), the USB Alumni Association, USB Executive Development Ltd (USB-ED) and the Institute for Futures Research of the University of Stellenbosch, in association with Finweek.
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