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University of the Arts London London College of Fashion

An exploratory study of the internationalisation process for European online fashion retailers: the case of Ukraine and Russia MA Fashion Retail – Master’s Project

By Ganna Gavrylova Student ID: GAV12370419 Supervisor: Dr Anna Watson

Date: December 2013


STATEMENT OF ORIGINALITY

I declare that no portion of material in this dissertation has previously been submitted for a degree or other academic qualification of this or any other educational institution, and that to the best of my knowledge contains no material previously published or written by another person except where due acknowledgement is made.

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ACKNOWLEDGEMENTS

First of all, I would like to thank my supervisor, Dr Anna Watson, for her guidance and helpful criticism throughout the whole process of writing this dissertation. My thanks also go out to the ten industry experts who took part in the interviews – their valuable insights made this study possible. Finally, I would like to thank my parents and my brother – they made this challenge so much easier with their support and encouragement.

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ABSTRACT Online fashion retail is increasingly growing globally – especially in Europe, where many online fashion retailers originate – and at the same time e-tailers are facing the challenge of consumers’ demand for physical contact with garments before purchase. This study explores the potential of altering the internationalisation strategy of European online fashion retailers, especially the market selection process, to maximise their sales abroad. This dissertation draws on existing theories of market selection and theoretical frameworks with regard to international expansion of businesses with the use of a website to formulate recommendations to European e-tailers. The focus of this study is the case of Ukraine and Russia because these two markets can clearly illustrate the concept of using a smaller market as a ‘springboard’ before entering a larger market that requires substantial engagement of resources. In other words, this study explores the feasibility of entering Ukraine – in order to accumulate knowledge about the consumer and the local business practice specificity – with further expansion into Russia. The outcome of this dissertation is a decision-making model with regard to the market selection process for European online fashion retailers. It is based on the review of literature and ten in-depth interviews with fashion retail experts from online and multichannel backgrounds who have experience in working with either the Ukrainian and Russian markets or with international expansion of European retailers. Thus, three different internationalisation strategies are proposed, depending on the size of a retail company, its dependence on economy of scale and the level of brand awareness in foreign markets. Moreover, the role of physical presence for online fashion retailers in the Eastern European markets is highlighted among other elements of market entry strategy. Overall,

this

study

contributes

to

the

development

of

theories

of

internationalisation for online businesses and proposes the applicability of the Uppsala model of internationalisation – which is based on sequential expansion and accumulation of knowledge and networks – to those companies the internationalisation of which is traditionally perceived as opportunistic.

Word count: 18,096

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TABLE OF CONTENTS

Statement of originality .................................................................................... 1 Acknowledgements .......................................................................................... 2 Abstract ............................................................................................................. 3 Table of contents .............................................................................................. 4 List of Figures ............................................................................................................6 List of Tables ..............................................................................................................7 List of Appendices .....................................................................................................8

Chapter 1: Introduction .................................................................................... 8 1.1 Context and rationale ..........................................................................................9 1.2 Aims and objectives ..........................................................................................10 1.3 Methodology in brief ..........................................................................................12 1.4 Chapter outline ...................................................................................................12

Chapter 2: Literature review - The Internet for international expansion ... 14 2.1 Advantages of internationalising through a website .....................................15 2.2 Standardisation and adaptation online ............................................................15 2.3 The role of culture in online internationalisation ............................................16 2.4 Localisation of websites ...................................................................................17 2.5 Challenges for fashion retailers that operate online ......................................18 2.6 The potential of physical presence ..................................................................19

Chapter 3: Literature review – market selection .......................................... 21 3.1 Stages of market selection ...............................................................................21 3.2 Psychic distance ................................................................................................22 3.2 The Uppsala internationalisation process model ...........................................23 3.3 Introducing the network model ........................................................................25 3.4 Non-sequential expansion ................................................................................26 3.5 Alternative approach for retailers that expand online ....................................27

Chapter 4: Literature review - Opportunities for online fashion retailers in Ukraine ............................................................................................................. 29 4.1 Brief overview of fashion retail in Ukraine ......................................................30 4.2 Online retail in Ukraine ......................................................................................31 4.3 Similarities and differences between the Ukrainian and Russian fashion retail markets ............................................................................................................32 4.4 Literature review conclusion: indicative research questions .......................35

Chapter 5: Methodology ................................................................................. 38 5.1 Research design ................................................................................................38 5.2 Research philosophy .........................................................................................39 5.3 Approach ............................................................................................................39 5.4 Methodological choice ......................................................................................40 5.5 Strategy ...............................................................................................................40 5.6 Methods ..............................................................................................................41 5.7 Data collection ...................................................................................................43 5.8 Analysis of data .................................................................................................43

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5.9 Reliability ............................................................................................................44 5.10 Validity ..............................................................................................................45 5.11 Ethical considerations .....................................................................................45

Chapter 6: Findings and discussion ............................................................. 46 6.1 Primary research question 1: What are the factors that European online fashion retailers should consider when they internationalise online? ..............46 6.1.1 Factors considered by multichannel retailers ................................................46 6.1.2 Challenges .....................................................................................................47 6.1.3 Physical presence..........................................................................................49 6.1.4 Website adaptation ........................................................................................50 6.2 Primary research question 2: What route to market selection do retailers usually take when they internationalise online? ..................................................51 6.3 Primary research question 3: What is the current situation in the fashion retail market of Ukraine? .........................................................................................52 6.3.1 Challenges and peculiarities ..........................................................................53 6.3.2 Opportunities in Ukraine ................................................................................54 6.4 Primary research question 4: How do European fashion retailers see the link between the Russian and the Ukrainian fashion retail markets? ................55 6.5 Primary research question 5: Can European fashion retailers take advantage of entering the Ukrainian market online in their expansion strategy into the Russian market? ........................................................................................57 6.5.1 Similarities between Ukraine and Russia ......................................................57 6.5.2 Entering Ukraine before Russia .....................................................................58 6.5.3 Implications ....................................................................................................60 6.6 Summary .............................................................................................................62 6.7 Recommendations to European online fashion retailers with regard to entry strategy into Eastern Europe ..................................................................................64

Chapter 7: Conclusion.................................................................................... 66 7.1 Aim and objectives fulfillment ..........................................................................66 7.1.1 Objective 1: To explore the challenges and peculiarities of internationalisation for online fashion retailers.......................................................................................66 7.1.2 Objective 2: To discuss theories and practices of market selection and market entry tools used by online fashion retailers.................................................67 7.1.3 Objective 3: To illustrate the possible opportunities in developing a united international expansion strategy when entering psychologically and geographically proximate markets for online fashion retailers ........................................................67 7.1.4 Objective 4: To develop recommendations for European fashion retailers that expand into Ukraine with further expansion into Russia and discuss the applicability of these recommendations to other market.........................................68 7.2 Managerial implications ....................................................................................69 7.3 Theoretical implications ....................................................................................70 7.4 Limitations ..........................................................................................................70 7.5 Areas for future research ..................................................................................71

Bibliography .................................................................................................... 72 Appendices...................................................................................................... 83

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LIST OF FIGURES Cover page image is available from <http://photos.pcpro.co.uk/blogs/wpcontent/uploads/2011/03/womantyping.jpg> [Accessed 22.11.2013]. Figure 1 Research 'onion' adapted from Saunders et al. (2013) ................................... 38 Figure 2 Suggested model of expansion strategy decision-making for European online fashion retailers when entering Ukraine and Russia .............................................. 65

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LIST OF TABLES Table 1 Objectives and research questions ..................................................................11 Table 2 Comparison of e-commerce indicators for Ukraine, Russia and the UK in 2012 (compiled by author on the basis of Shopolog, 2013) ............................................34 Table 3 Indicative research questions for primary research .........................................36 Table 4 Meaning condensation table 1.1 ......................................................................47 Table 5 Meaning condensation table 1.2 ......................................................................48 Table 6 Meaning condensation table 1.3 ......................................................................49 Table 7 Meaning condensation table 1.4 ......................................................................50 Table 8 Meaning condensation table 2.1 ......................................................................52 Table 9 Meaning condensation table 3.1 ......................................................................54 Table 10 Meaning condensation table 3.2 ....................................................................55 Table 11 Meaning condensation table 4 (questions 4.1 and 4.2) .................................56 Table 12 Meaning condensation table 5.1 ....................................................................58 Table 13 Meaning condensation table 5.2 ....................................................................59 Table 14 Meaning condensation table 5.3 ....................................................................61

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LIST OF APPENDICES Appendix 1: European fashion retailersâ&#x20AC;&#x2122; dates of entry into the Russian and Ukrainian markets ....................................................................................................83 Appendix 2: Example of regional adaptation of ASOS ........................................84 Appendix 3: Indicative interview questions ..........................................................85 Appendix 4: Interview consent forms ....................................................................90 Appendix 5: Descriptive coding .............................................................................91 Appendix 6: Interview transcripts ..........................................................................92 Appendix 7: Meaning condensation tables ...........................................................93

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CHAPTER 1: INTRODUCTION 1.1 CONTEXT AND RATIONALE In todayâ&#x20AC;&#x2122;s retail environment where the Internet plays an increasingly important role, e-commerce and international expansion online have become routine practices for many fashion retailers. In particular, this applies to European fashion retailer companies â&#x20AC;&#x201C; the EU is home to many global key players in fashion retail today, especially those in the online retail segment (for example, the UK-based ASOS and Net-a-porter). Global B2C online sales in general have increased in the recent years (Emarketer, 2013) and online fashion retail is growing in Europe (Mintel, 2013). In some European countries, brick-and-mortar stores are starting to struggle to compete with online retailers (ibid). This naturally leads to saturation of home markets and increase in online retailersâ&#x20AC;&#x2122; international expansion, including the players of the fashion industry. For fashion multichannel retailers there are also many advantages in internationalising through the use of a transactional website, including the decrease in liability of foreignness and reduction of internationalisation costs (Arenius et al., 2005; Sinkovics and Penz, 2005). Yet, it is a relatively young segment with numerous gaps in the research with regard to international expansion. Online fashion retailers are facing a number of challenges today, ranging from the need to establish physical presence in new markets due to an increasing demand from customers to touch and try on products before purchase in some countries (BBC, 2013; Mintel, 2010), to reducing the risk of opportunistic behaviour which can have a negative effect on the performance in foreign markets (Dupuis and Fournioux, 2006). Therefore, it is important to acknowledge these challenges and seek effective strategic solutions in order to overcome them. One of the major decisions online fashion retailers need to make when internationalising involves the process of market selection. The majority of existing theoretical frameworks with regard to market selection focus on either the accumulation of knowledge by companies through entering geographically and psychologically proximate markets (Johanson and Vahlne, 2003) or through cultivating relationships with partners and networks in new markets (Osarenkhoe, 2009; Johanson and Vahlne, 2011). International expansion of companies that operate online, however, is described in literature as non-sequential (Forsgren and Hagstrom, 2007) and this implies an unstructured approach to market selection.

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With a view to exploring the strategic decision from a market selection point of view, the Ukrainian and the Russian markets offer a convenient opportunity for exploring the feasibility of using a ‘springboard market’ (Moore and Fernie, 2004) for online fashion retailers to make their internationalisation process more smooth and structured. Normally, retailers – whether multichannel or pure-play – enter Russia before expanding into Ukraine (Appendix 1); this happens for different reasons: firstmover advantage, economy of scale, opportunistic behaviour etc. However, it might be feasible for retailers to explore the benefits of the obverse strategy: entering Ukraine to test the brand in an Eastern European market with a typical customer and understand the specificity of the region’s business practice with the use of fewer resources, and then invest into the expansion into Russia with the accumulated knowledge and experience from Ukraine. Ukraine in this case is a geographically – and even psychologically, perhaps – more proximate market to that of Western and Central Europe. This ‘springboard’ market strategy might be of use to fashion retailers from different segments, but especially this applies to online retailers because the Eastern European region is only staring to develop this market segment (Colliers International, 2013) and countries like Ukraine and Russia the e-commerce market size and fraction of online retail in total retail are relatively low (Shopolog, 2013). Therefore, the potential of these two markets for online fashion retail, in particular, is very high. In accordance with evidence from Retail Week (2012), expansion into new markets with the use of a website should be treated by retailers in the same that they would approach expansion with a physical store: it requires the same in-depth market research and a level of adaptation no lower than physical expansion. Therefore, this study draws on the experience of multichannel European fashion retailers as well as pure-play retailers in order to explore the possible challenges and changes that can be made to make European e-tailers’ internationalisation strategies more effective.

1.2 AIMS AND OBJECTIVES The aim of this study is to develop a strategy for online fashion retailers to overcome the challenges in the current retail environment utilising the experience of multichannel fashion retailers on the example of the Ukrainian and Russian markets with a focus on market selection.

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This aim will be achieved by the fulfilment of four objectives provided in the Table 1 below. Research questions corresponding to each objective have been formulated in order to aid the structure of the research.

Table 1 Objectives and research questions

Objectives

1. To explore the challenges and peculiarities of internationalisation for online fashion retailers

Research questions 1. What are the possible effects of changes in fashion retail and consumer behaviour on online fashion retailersâ&#x20AC;&#x2122; international expansion strategy? 2. What are the factors that European online fashion retailers should consider when they internationalise? 3. What are the existing theories of market selection?

2. To discuss theories and practices of market selection and market entry tools used by online fashion retailers

4. What route to market selection do European fashion retailers usually take when they internationalise online? 5. What are the implications that online retailers need to consider when selecting a market?

3. To illustrate the possible opportunities in developing a united international expansion strategy when entering psychologically and geographically proximate markets for online fashion retailers

4. To develop recommendations for European fashion retailers that expand into Ukraine with further expansion into Russia and discuss the applicability of these recommendations to other markets

6. What are the advantages of using one market as a â&#x20AC;&#x2DC;springboardâ&#x20AC;&#x2122; in entering a proximate market? 7. How do European fashion retailers see the link between the Russian and the Ukrainian fashion retail markets? 8. Can European online fashion retailers take advantage of entering the Ukrainian market in their expansion strategy into the Russian market? 9. What is the most relevant strategy for online fashion retailers from the Europe when entering the Eastern European market?

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1.3 METHODOLOGY IN BRIEF This exploratory study took an interpretative philosophical stance since it focused on the insights from industry professionals with expertise in the Ukrainian market and internationalisation of European fashion retailers as a basis for research (Saunders et al., 2012). The research strategy was that of a case study, with the Ukrainian fashion retail market in its relation to the Russian market being the unit of analysis, as defined by the research questions of this dissertation (Yin, 2003) – this strategy was the most appropriate in order to answer the ‘what?’ and ‘how?’ research questions (Saunders et al., 2012; Yin, 2003). Firstly, secondary research was carried out in order to collect information about the theoretical frameworks regarding internationalisation of online fashion retailers through the review of existing literature and primary research. This was followed by monomethod qualitative primary research in order to collect additional information to answer research questions 1-8 (Table 1). Due to the fact that the study is very industry-oriented, it was based solely on indepth semi-structured interviews with industry experts from Ukraine who have sufficient expertise in the local market and the Russian market in order to compare them and with professionals who are involved in international expansion of multichannel or pureplay European fashion retail companies. The interview transcripts were analysed using a combination of coding (Richards, 2009) and grounded theory approaches (Denscombe, 2010). On the basis of the findings of the undertaken research, a new model of internationalisation strategy for European online fashion retailers expanding into Ukraine and/or Russia was proposed. Therefore, the research combined elements of deduction and inductions, resulting in an abductive approach (Saunders et al., 2012).

1.4 CHAPTER OUTLINE The study begins with a literature review comprised of Chapters 2–4. Chapter 2 focuses on international expansion over the Internet and discusses the standardisation vs. adaptation debate, cultural and operational adaptation of websites as well as challenges that online retailers are facing in the current retail environment and the potential of physical presence for pure-play retailers. Chapter 3 explores the existing theories and practices with regard to market selection and introduces an alternative 12


approach for European online fashion retailers. Chapter 4 provides a brief overview of the case of the study â&#x20AC;&#x201C; the Ukrainian fashion retail market; it also discusses the online retail landscape in Ukraine and contextualises the link between Ukrainian and Russian fashion retail markets. Indicative research questions, which form the basis of the primary research, are derived at the end of Chapter 4. Chapter 5 outlines the methodology of this study, based on the â&#x20AC;&#x2DC;research onionâ&#x20AC;&#x2122; by Saunders et al. (2013) and explains the method of analysis used in this study as well as actions used to ensure reliability and validity of data, and compliance with research and business ethics. In Chapter 6, the findings of primary research are discussed and a model of decision-making in international expansion strategy development for European online fashion retailers entering Ukraine and/or Russia is proposed. This is followed by a Conclusion chapter outlining the contribution of this study, its limitations and areas of future research; then - by a Bibliography compiled in accordance with Harvard style rules.

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CHAPTER 2: LITERATURE REVIEW - THE INTERNET FOR INTERNATIONAL EXPANSION With the growing importance of e-commerce, expanding into new markets with the use of a transactional website is becoming an increasingly common practice (Arenius et al., 2005). In the case of pure-play fashion retailers, this is practically the only mode of entry. This chapter sets out to explore the specificity of internationalising with the use of a website in order to understand the factors that online fashion retailers need to consider when expanding into foreign markets. This is fundamental to the current study because it is essential to understand the techniques that retailers use in international expansion online in order to recognise challenges that they may face in the future as the retail environment changes. Thus, this chapter sets out to answer research question 1 (Table 1): ‘What are the possible effects of changes in fashion retail and consumer behaviour on fashion retailers’ online international expansion strategy?’ In addition, it is important to outline the internationalisation strategy normally used by online fashion retailers in order to know which aspects of physical expansion into new markets can be applied in the online environment. It is worth noting that there is little evidence of research of the tools that fashion retailers use when entering new markets online, whether they use their website as the main channel or only as a complimentary one to support their physical presence in a market (Sinkovics and Sinkovics, 2013). The existing literature with regard to international expansion of retailers focuses mainly on the traditional means of internationalisation involving physical presence (Burt, 1995). Even the more recent literature on internationalisation online does not focus on the specifics of the fashion industry (Alexander and Doherty, 2009; Chaffey et al., 2009). Online retailers, in particular, are seen as having a ‘global reach’ by nature (Poloian, 2009: 77), which might be one of the reasons their international expansion is not widely discussed. However, it is important to explore this segment’s internationalisation of fashion retail because there are numerous advantages of using a transactional website to enter new markets, whether a company is pure-play from the beginning or has other retail channels established.

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2.1 ADVANTAGES OF INTERNATIONALISING THROUGH A WEBSITE There are several reasons why companies – pure-play or multichannel – use the Internet as an alternative path in entering new markets. Firstly, it is argued that this helps to lessen the liability of foreignness arising from costs of transport and setting up physical stores, unfamiliarity with the host market and other restrictions of either the host or home country environment (Arenius et al, 2005). It gives companies the opportunity to have a direct relationship with their new market without turning to third party entities (Alexander and Doherty, 2009). In addition, entering foreign markets online decreases resource scarcity, as it is a relatively easy way of expanding due to the low costs and resources it requires (Arenius et al., 2005; Sinkovics and Penz, 2005). This is especially relevant in the case of smaller firms with limited resources (Alexander and Doherty, 2009; Sinkovics and Sinkovics, 2013). When we talk about the internationalisation of retailers online, the debate around standardisation and adaptation comes into focus because the decisions made by retailers with regard to the level of adaptation to foreign markets in many ways reflects their overall strategy.

2.2 STANDARDISATION AND ADAPTATION ONLINE The standardisation vs. adaptation debate has been on-going in marketing for several decades (Sinkovics et al., 2007). Levitt’s (1983) globalization theory put a start to this debate: it defines consumers as homogenous across all markets and stresses the advantage of economy of scale when operating globally. This theory that argues in favour of standardisation is based on the notion of a world without borders where global citizens live (Ohmae, 1989). Opponents of Levitt’s theory argue that marketing strategy requires adaptation to local markets (De Mooij, 2000; Douglas and Wind, 1987). As Kahn (quoted in Keller, 2003: 692) argues, ‘global branding does not mean having the same brand everywhere’ – it is possible for brands to have a global strategy and optimize it to fit the needs of local markets. Another hybrid approach is suggested by Das (1993): brands can apply their experience from operation in local markets to their global strategy. Keller (2003) also supports the argument that international companies can unite

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adaptation and standardization successfully because modern technological advances make it possible to adapt at lower prices. It has been reasoned that cultural adaptation of websites to local markets can be beneficial to multinational companies (Brashear et al., 2009; Lynch and Beck, 2001; Oracle, 2011; Shneor, 2012; Sinkovics et al, 2007). This is partially due to the fact that on the Internet, consumers can easily avoid commercial messages on purpose, and therefore, sending the right message tailored for the target audience is crucial (Singh et al., 2005).

2.3 THE ROLE OF CULTURE IN ONLINE INTERNATIONALISATION Cultural aspects explaining consumer behaviour online in different markets have been widely researched in the recent years (Gong, 2009). The framework that is explored the most is the one by Hofstede (1980, 2001, as cited in Gong, 2009) based on five dimensions by which nations differ: power distance, uncertainty avoidance, the level of individualism or collectivism, femininity or masculinity, and long-term or shortterm orientation. Two dimensions from this framework have been shown to affect the behaviour of consumers online: the level of collectivism or individualism since it reflects a population’s ability to embrace innovation, and uncertainty avoidance because it can reflect consumers’ levels of trust towards online shopping (Gong, 2009). Uncertainty avoidance, in particular, is seen to be most relevant in the discourse (Chai and Pavlou, 2004; Gong, 2009). Therefore, it is important for online retailers to consider these dimensions before expanding into new markets. Among other cultural concepts that have been discussed with regard to ecommerce are Hall’s (1978, referenced in Gong, 2009) low- and high-context theory and the theory of monochromic and polychromic cultures (Gong, 2009). The former reflects Hofstede’s (2001, as cited in Gong, 2009) idea of individualist and collectivist cultures: a high-context society relies on verbal communication and people derive information mainly from personal connections, just like in a collectivist society; whereas in a low-context society people do not rely on context to this extent – their sources of information generally include reports, databases etc. Due to the fact that the Internet is a medium for socialising, it is now becoming easier to introduce e-commerce to highcontext societies, despite the web being traditionally considered a low-context medium (Gong, 2009).

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The latter Hall’s theory that is put into the context of e-commerce is based on the notion that in monochronic cultures people prefer to act in a linear way, whereas the polychromic societies are more prone to multitasking (Gong, 2009). A study by Lee et al. (2006) has shown a positive relationship between the use of Internet medium and polychronicity and Internet skills: the more skilful users who are also multitaskers have a more positive Internet experience in general, and it can be assumed that they are more prone to prefer shopping online. Therefore, online retailers need to consider the type of society in their new markets and tailor their priorities accordingly.

2.4 LOCALISATION OF WEBSITES The Internet environment has shown to be culturally sensitive (Singh et al., 2005), therefore, as Lynch and Beck (2001) argue, consumers need to feel culturally engaged even in the online environment. This is also supported by Luna et al. (2002: 408), whose study demonstrates that ‘the congruity of a site with a visitor’s culture is a key site content characteristic that influences a visitor’s likelihood of experiencing flow’. This argument links back to the standardisation and localisation debate in support of the latter. In this context, firms take different approaches to internationalisation. Singh and Pereira (2005, referenced in Chaffey et al., 2009: 404) touch upon this topic in their classification of the localisation levels of transactional websites. In accordance with their framework, websites range from standardised, serving customers globally without any localisation, to the highest level of adaptation – culturally localised websites, tailored for every culture in a company’s markets (ibid). Adapted websites, most importantly, feature times, addresses, currencies and languages that are appropriate for each individual market (Retail Week, 2012; Sinkovics et al., 2007). These websites are featured in URLs specific for each market (Sinkovics et al., 2007). In addition, cultural differences between countries affect the difference in layout, design and content of the local websites (Cyr and Trevor-Smith, 2004; Shneor, 2012; Yip, 2000). However, some studies have shown that international companies do not adopt pure localisation instead opting for flexible standardisation – the so-called ‘glocalisation’ (Shneor, 2012: 354). Standardised websites, on the other hand, do not change the aforementioned elements to fit their host market. Yip (2000: 11) distinguishes between websites that are ‘global from somewhere’ – not adapted locally but with a very clear culture of origin - and ‘global from nowhere’ – the ones that are culturally neutral. 17


Another very important factor to consider in the context of adaptation to new markets – one unrelated to cultural aspects – is the preference in payment method (Retail Week, 2012). For example, the most preferred payment methods in the UK are debit and credit cards, whereas in China they are Alipay and cash on delivery (Econcultancy, 2010, as cited in Wightman, 2012). PayPal is not commonly used in the Far East, while it remains one of the most popular payment methods in European and North American countries (ibid). Therefore, online retailers have to provide the appropriate choice of payment methods in each market in order to be successful (Wightman, 2012).

2.5 CHALLENGES FOR FASHION RETAILERS THAT OPERATE ONLINE With this in mind, today, there are a number of challenges faced by retailers especially pure-play fashion retailers that use Internet exclusively for their international expansion. First of all, operating solely via the Internet may make retailers detached from their host markets since they would operate with only the knowledge obtained from interaction with customers online – this may lead to the so-called ‘virtuality trap’ and result in poor performance (Yamin and Sinkovics, 2006, as cited in Sincovics and Sinkovics, 2013). In-store experience is vital for customers in some countries – for example, France and Spain – therefore, it is important for online retailers to offer as good a customer service on their transactional websites as is expected of them in an environment of a physical store (Oracle, 2011). In addition, the challenge faced by fashion retailers in particular is that there is evidence that consumers in different countries are increasingly demanding physical contact with garments before purchase. For example, a study of the UK market had demonstrated that British consumers prefer to try on the garments before they buy (BBC, 2013). In some countries – like Italy, for instance – consumers traditionally prefer to touch clothes before purchase (Mintel, 2010). Earlier studies have also shown that the need to avoid risk and have physical contact with product before purchase in different markets is directly related to cultural differences (Lynch et al., 2001; Gefen and Heart, 2006, as cited in Gong, 2009). Moreover, one of the biggest challenges faced by retailers from different sectors that operate in new markets online is related to logistics (Retail Week, 2012). Online shoppers have high expectations in terms of rapid order fulfilment and convenience of delivery times (Xing and Grant, 2006, as cited in Fernie and McKinnon, 2009: 219). Having established presence in a region as well as having previously built networks 18


with logistics partners might make expanding into other countries of that region easier (Retail Week, 2012). Finally, fashion retailers who operate online retailers are challenged by the fact that branding tools that form a competitive advantage of websites can be easily copied (Yamin and Sinkovics, 2006, as cited in Sinkovics et al., 2007). With this accessibility to competitors and increasing spread of IT technology in all sectors of business activity, the competitive advantages of companies operating online might be hard to sustain (Carr, 2003) and they would need to seek alternative means of gaining competitive advantage in new markets.

2.6 THE POTENTIAL OF PHYSICAL PRESENCE These challenges pose a question of whether pure-play retailers or multichannel retailers who use their websites to enter new markets need to consider establishing physical presence in new markets when they choose to expand. One of the ways to do it can be derived from a challenge faced by brick-and-mortar stores in the UK: customers are increasingly using them as ‘showrooms’ to try garments on before purchase (BBC, 2013). This approach is described by Brynjolfsson et al. (2013) as a successful one short-term strategy for e-tailers operating in omnichannel environment. Traditionally, showrooms are used as an effective B2B communication tool by fashion companies (Lea-Greenwood, 2012), yet the same principle can be applied to deliver the brand experience to consumers in the case of pure-play retailers. Another tool that retailers might consider for introducing their brands in new markets online is the use of pop-up stores. The two generations that are becoming increasingly active online shoppers are Gen X and Gen Y (PwC/Kantar Retail, 2012). Van den Bergh and Behrer (2013: 225) stress that the younger consumers influence opinions about brands, and that Gen Y consumers develop bonds ‘during consumer interactions with the store’s physical environment and atmosphere, its employees and its offerings’. With this in mind, retailers – especially the ones that target younger consumers – might find it useful to establish a presence with pop-up stores in order to gain recognition in new markets as part of their entry marketing campaign or to strengthen their positions in existing markets. The review of the strategies used by online retailers in the international environment and the consideration of the challenges they face leads to a conclusion that pure-play fashion retailers could utilise experience of multichannel retailers in the 19


markets they are entering. This especially applies to online retailers who face the challenge of establishing a temporary form of physical presence in new markets. One of the actions that online retailers might consider useful is reviewing the market selection process and criteria in order to test their brand in culturally similar markets because the Internet has proven to be such a culturally sensitive media. The next chapter will explore the theoretical framework with regard to market selection in depth.

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CHAPTER 3: LITERATURE REVIEW â&#x20AC;&#x201C; MARKET SELECTION The second focus of the this study is related to market selection because the research undertaken as part of it will attempt to demonstrate an innovative approach that might prove to be more effective for fashion retailers than the one that is often followed today. Market selection has been a widely discussed topic in marketing and internationalisation literature, and fundamental theories that were relevant in the previous century have seen some developments in the recent years. Internet-based businesses, in particular, have been actively researched because they seem to follow a new pattern of internationalisation from the market selection point of view. This chapter summarises the main developments in the theory regarding market selection decisions by fashion retailers in order to highlight the implications for online retailers, in particular, and thus aims to meet objective 2 of this study by answering research questions 3, 4 and 5 (Table 1).

3.1 STAGES OF MARKET SELECTION A number of studies in internationalisation point to the importance of having a rational and scientific approach to market selection (Alexander and Doherty, 2009; Hodgson and Uyterhoeven, 1962). According to Alexander and Doherty (2009), there are two distinctive stages of market selection: market scanning and market research. The former consists primarily of secondary data gathering and is aimed at eliminating markets rather than selecting them; the latter is the more complex and expensive process, which includes secondary and primary data collection and is carried out for a limited number of markets (ibid). Market scanning can involve an analysis of different factors, ranging from economic development and purchasing power of the population to the factors concerning political environment (Terpstra, 1993, as cited in Alexander and Doherty). These factors include quantifiable indicators - such as per capita GDP/GNP, population size and growth, urbanisation levels, consumption patterns, level of internet access etc. â&#x20AC;&#x201C; and qualitative factors, including bureaucracy, political stability and corporate ethics (Alexander and Doherty). Dichtl and Koglmayr (1986, as cited in Alexander and Doherty, 2009) suggest using rating scales to analyse potential host markets against these criteria. The importance of different factors, however, depends on the type of 21


business and the region of potential entry (Wood and Robertson, 2000). For example, economic development is ranked higher in importance when expanding into developed countries in comparison to developing markets (ibid). The second stage of market selection – market research – is based mainly on primary research, both quantitative and qualitative (Alexander and Doherty, 2009). Qualitative research, in particular, gives an in-depth understanding of consumer behaviour in the new market and can involve observation or research based on past experiences in similar markets (ibid). This implies that market selection is a highly structured process, yet often this process is less structured in practice, being based on non-systematic criteria involving ‘personal beliefs, experiences, or network groups that may influence market selection’ (Alexander and Doherty, 2009: 242). One of the research questions of this study, therefore, regards the procedure of market selection process undertaken by fashion retailers when they expand online.

3.2 PSYCHIC DISTANCE Fundamental studies in internationalisation point to the importance of experiencing the market before entry (Luo, 1999) as well as the decisive role of psychic distance in selecting markets for expansion (Moore and Fernie, 2004). The latter has been frequently discussed in literature regarding internationalisation, and its central role in many theories of internationalisation makes it important to define it. There have been many different interpretations of the term psychic distance since it was first used. Alexander et al. (2007: 430) summarise it as ‘cultural distance plus levels of experience and trust’, thus implying that psychic distance is decreased for experienced firms. Psychic distance is even separated from cultural distance, being defined instead as a range of ‘obstacles to information flows between countries’ (Hornell et al., 1972, as cited in Johanson and Vahlne 2003: 91). The concept of uncertainty is included in the term psychic distance by O'Grady and Lane (1996, as cited in Evans et al., 2000b). International companies can minimise risk associated with uncertainty by entering markets that are geographically and psychologically similar to their home markets, and thus move from low-risk to high-risk host markets (Burt, 1995). This is due to the fact that less distant markets are easier for companies to understand and develop their strategy there accordingly (Nordstrom and

22


Vahlne, 1994, as cited in Evans et al., 2000). Erramilli (1991) suggests that ‘uncertainty reduction is a prime driving force in market selection’. Evans et al. (2000), however, argue that there is a positive relationship between psychic distance and performance in foreign markets because in the case of culturally distant markets companies put more effort into gaining in-depth knowledge about the market and understanding it, as opposed to when they expand into close markets. Ignoring subtle differences between the home market and the foreign markets with small psychic distance can lead to poor performance of firms (O’Grady and Lane, 1996, as cited in Evans et al., 2000a). Alexander et al. (2007) argue that cultural distance is among the defining factors in market selection process. Wood and Robertson (2000), however, demonstrate that culture, the most important component of psychic distance, is not as important a factor for international managers as economic development indicators or legal factors, for instance. Cultural proximity factors were ranked sixth by the level of importance in market selection (ibid). Overall, empirical research up to date does not conclusively support either a positive or a negative relationship between psychic distance and firms’ performance in foreign markets (Evans et al, 2000a). Therefore, the roles of psychic distance and cultural differences remain debatable. This study will use the definition of psychic distance by Evans et al. (2000: 377) – they summarize it as ‘the distance between the home market and the foreign market resulting from the perception and understanding of cultural and business differences’ because it provides a balance between the analysis of differences in consumer preference and differences in business practices. In the case of Eastern European region – the focus of this study – it is important not to leave out the difference in the way business is run in comparison with the European retailers’ home markets. The business practices in Ukraine and Russia in particular are very specific, and this is one of the reasons these two markets can be united in companies’ expansion strategy – retailers’ operations can be ‘tested’ in Ukraine before applying them in Russia on a larger scale.

3.2 THE UPPSALA INTERNATIONALISATION PROCESS MODEL The conventional model of sequential expansion that is cited frequently in marketing literature is the Uppsala internationalisation process model, in accordance with which internationalisation connects two processes: learning about international 23


operations and committing to the markets where companies have presence (Johanson and Vahlne, 2003). A company begins with expansion into markets that are geographically similar to the home market as well as those with short psychic distance, and then uses the developed knowledge to enter more distant markets (Moore and Fernie, 2004). Therefore this theory argues in favour of a negative relationship between psychic distance and operations in foreign markets and its positive relationship with the liability of foreignness (Johanson and Vahlne, 2009). The original model, which was developed in 1977 by Johanson and Vahlne and was based on ‘commitment to markets’ (Johanson and Vahlne, 2011: 489). The initial idea of this model is underpinned by two assumptions: the first being that the main obstacle for companies in entering foreign markets is the lack of knowledge about the host market, and the second being that companies can overcome this obstacle through practice, i.e. reducing the uncertainty through their own operations in the new markets and basing investment decisions solely on this (Forsgren and Hagstrom, 2007). This is supported by the study done by Eramilli (1991): companies that have high uncertainty and little experience tend to enter markets about which they can acquire a lot of information, and as they build experience, they expand into more distant markets with high uncertainty. This internationalisation model has been characterised as behavioural rather than economic, and several studies have demonstrated a positive impact on company performance when this theory is applied (Johanson and Vahlne, 2009).

In recent

years, however, there has been a major shift in theory with regard to market selection. Traditionally, international expansion was viewed as sequential (Burt, 1995), as described by the Uppsala model. Spanish fashion retailer Zara followed this route, for example, especially in its early stages of expansion – Portugal and France were among the first markets the company entered, gradually acquiring knowledge before expanding into more distant markets (Lopez and Fan, 2009). However, in reality, many companies’ approach to internationalisation has been described as ‘non-systematic, strongly personalized and essentially belief driven’ (Alexander et al., 2007: 424). In addition, due to the fact that some types of companies – including online businesses and the so-called Born Globals (Lu and Sternquist, 2011) – often take a non-traditional route to expansion, the Uppsala model and the role of psychic distance in market selection have been questioned (Evans and Mavondo, 2002; Evans et al, 2000; Forsgren and Hagstrom, 2007). Therefore, a new perspective was explored, involving business networks of companies in different countries, and a

24


new model was developed that brought focus to these business ties as central to market selection.

3.3 INTRODUCING THE NETWORK MODEL With increasing globalisation and stronger connections between different markets, an alternative to the Uppsala model has been developed, namely the network approach; it is based on the idea that markets do not exist in isolation, and international expansion relies strongly on social networks of firms which is based on concepts derived from theories of social exchange (Osarenkhoe, 2009). The development of the Internet technology has made the networking approach much more widespread in international expansion strategy of firms (Barrutia and Echebaria, 2007). The central idea in the network model lies within ‘interorganisational and interpersonal relationships’ (Osarenkhoe, 2009: 289). Social relationships are viewed as a set of nodes – the actors, such as companies or individuals – and ties ‘representing some relationship, or lack of relationship, between the nodes’ (Brass et al., 2004: 795). Firms are likely to develop new knowledge by interacting with their partners, and this knowledge is an advantage to the members of the business networks because networks are ‘opaque unless you are inside’ (Johanson and Vahlne, 2011: 487). This results in liability of outsidership, thus making it impossible to develop a business in a foreign market where a company is not an insider of any networks (Johanson and Vahlne, 2009). A firm’s success in a market is determined by it being an established member of one or more networks (ibid). The authors of the original Uppsala model responded to these developments in theory by integrating the networking approach into the traditional knowledge accumulation through market presence (Johanson and Vahlne, 2003). In addition, experiential learning is now established as one of the central concepts in numerous studies on the topic internationalisation (ibid), therefore, it is relevant to include this concept in emerging theories. The adapted version of this model, which takes into account the modern shifts in international business activity, relies on ‘commitment to business networks’ (Johanson and Vahlne, 2011: 489); it offers a combination of the traditional knowledgebuilding concept and the network approach because it stresses the importance of building relationships in the geographic region where the company is planning to expand and identifying opportunities on the basis of the knowledge derived from these 25


relationships with other market actors (Johanson and Vahlne, 2009). The adapted model also stressed the importance of building trust with actors in the business networks and the role of knowledge derived from networks in recognising new opportunities in markets (ibid). However, sequential expansion that is described by the adapted Uppsala model is also challenged by a new type of market selection underpinning the rapid expansion of some companies today.

3.4 NON-SEQUENTIAL EXPANSION Online businesses, in particular, are described as following an unconventional route of non-sequential and fast expansion (Forsgren and Hagstrom, 2007), which involves skipping some of the steps that are present in the traditional step-by-step expansion based on the sequential models (Osarenkhoe, 2009). A study by Forsgren and Hagstrom (2007) demonstrates that psychic distance is not necessarily considered by online businesses a primary factor in market selection, whereas Internet penetration of the potential host markets and market size plays a significant role. This non-sequential expansion especially applies to the so-called Born Globals â&#x20AC;&#x201C; companies that initially start business with international expansion in mind and use their home market as supportive of their international activity (Lu and Sternquist, 2011). To them, social capital is extremely important in order to expand quickly, whereas firm size and experience do not play a decisive role (ibid). Although this type of retailers is not limited to online retailers, the studies regarding the Born Global concept are relevant to the analysis of businesses that operate via the Internet because, essentially, online retailers, too, have the potential to internationalise from start-up and they require little resources to do so. The network model is applied as the most relevant for this type of retailers: networks directly affect their internationalisation by providing market knowledge (Arenius, 2005). A phase model has been developed describing the process of Born Globalsâ&#x20AC;&#x2122; expansion into foreign markets: in Phase 1, their concept is formed but they have limited resources, and therefore, weak ties are extremely important for accumulating knowledge at this stage; in Phase 2, the retailers grow and expand internationally, they do not invest a lot of resources into market research because it is supplied to them by their network connections; Phase 3 is characterised as the breakout phase when retailers can apply all the accumulated knowledge and resources to become independent of their connections and build their own global marketing strategy (Gabrlielsson et al., 2008 in Lu and Sternquist, 2011). Therefore, networks are 26


especially important for Born Globals at early stages of operation. In Phase 3, their absorptive capacity – the ability to value and evaluate external information and apply it using prior knowledge (Cohen and Levinthal, 1990) – ‘can be transferred from one market to another’ (Petaraf, 1993, as cited in Lu and Sternquist, 2011: 95). Oviatt and McDougal (1997, as cited in Arenius, 2005) suggest that the reason why Internet-based businesses select markets in a non-sequential manner is the fact that they have managers with international experience who do not require the gradual acquiring of knowledge. This, essentially, supports the network approach because the international managers rely primarily on their previous connections in the new markets (Crick and Jones, 2000). In this case, the Uppsala model becomes irrelevant because the psychic distance between markets is not a decisive factor. In addition, first-mover advantage has been described as a key influential factor that determines the markets online businesses enter (Barrutia and Echebaria, 2007). This is especially relevant in the case of the so-called tippy markets – the ones where consumers have a tendency to favour one company (ibid). Ries and Ries (2000, as cited in Barrutia and Echebaria, 2007) go so far as to claim that the first Internet company to build a sufficient customer base in a new market will remain the leader in the category, whereas other firms will have low chances of succeeding because for them it would be much more expensive to gain visibility. This factor challenges the Uppsala model which claims that a company should not expand into a market where the risk is ‘intolerably high’, because if there is an opportunity for first-mover advantage in an industry with high uncertainty, not entering a market with high psychic distance might pose a higher risk for a company (Forsgren and Hagstrom, 2007: 300). This implies that many factors that are normally taken into consideration by brick-and-mortar retailers are ignored by online retailers when they select markets for expansion. This calls for an investigation of the factors that are considered important by pure-play retailers. Moreover, a more structured and sequential market selection has a potential to be useful for online retailers in the current retail environment in different countries.

3.5 ALTERNATIVE APPROACH FOR RETAILERS THAT EXPAND ONLINE With this in mind, there are several reasons to suggest pure-play retailers consider the traditional sequential route to expansion. Apart from the challenges that retailers who operate online are currently facing described in the previous chapter, fast 27


expansion puts companies at risk of opportunistic behaviour, which can result in underperformance and withdrawal from the market (Dupuis and Fournioux, 2006). There is evidence that fashion e-tailers, for example, adopt a structured strategy when they build a long-term strategy for a specific market: a good example of this is the careful expansion of ASOS into China (Financial Times, 2013), yet these strategic decisions remain poorly researched. A study by Alexander et al. (2007) confirmed that companies expand internationally from large home markets and they give preference to markets with short psychic distance and to the markets less developed in comparison to their home market. They also note that the language factor plays an important role in market selection (ibid). This further supports the need to practice a structured approach in the current retail environment. Moreover, it is worth exploring the sequential approach because the adapted Uppsala model offers a strategic and rational decision-making process that reflects the importance of networks in the modern international business environment. Therefore, this model might be applicable and useful for online retailers despite their ability to expand rapidly in a non-sequential manner as well as multichannel retailers that use their websites as a means of international expansion. This alternative market selection approach will be explored further in the next chapter using the example of Ukraine and Russia as two markets that have small psychic distance and can potentially be linked in online fashion retailersâ&#x20AC;&#x2122; expansion strategy in the Eastern European region by European online fashion retailers.

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CHAPTER 4: LITERATURE REVIEW - OPPORTUNITIES FOR ONLINE FASHION RETAILERS IN UKRAINE This chapter aims to contextualise the opportunities for online fashion retailers in the Ukrainian market in terms of demand and its connection with the Russian market and explains further the reason for choosing Ukraine as the case for this study. As a result, this chapter sets out to answer research question 6 by contextualising the concept of using one market as a ‘springboard’ for entry into a larger market, and research question 7 by establishing the links between the Ukrainian and Russian markets (Table 1). Developing a market entry strategy for the Ukrainian market is likely to be on the agenda for many online fashion retailers in the near future. It became an attractive market for investors following the Orange Revolution in 2004 (Retail Week, 2005), yet it has been receiving less attention in the recent years. There is very little evidence of research on the Ukrainian fashion retail, e-commerce and consumer demand. However, there are several reasons this market may be an attractive destination for foreign companies. First of all, it is a country with many opportunities for key online fashion retailers because it can offer the first-mover advantage for some segments and product categories since e-commerce is not well-developed in the Eastern European region overall, yet it is predicted to grow (Colliers International, 2013). Moreover, Ukraine is an attractive market for investment in accordance with the frontier market concept (McCormick, 2013). In 2011, Citigroup listed it as one of the 15 countries with ‘markets smaller than they should be’ (ibid). However, since this applies to the Ukrainian economy as a whole, further research and analysis of the push and pull factors (Hollander, 1970, referenced in Alexander, 1995) is necessary in order to establish the demand and opportunities in fashion retail specifically. Secondly, taking into account the geographical and cultural proximity of Ukraine with Russia, it is worth exploring the possibilities of adopting a sequential expansion strategy for online fashion retailers. In other words, Ukraine can be used as a ‘springboard’ market in order to enter the Russian market (Moore and Fernie, 2004). Russia is a very important market for many fashion retailers at the moment and it is considered a market with the greatest potential for retailers in Eastern Europe alongside Ukraine (Colliers International, 2013) – it is growing at a high pace like the other BRIC economies. Moscow, in fact, has been listed third among the top ten most attractive cross border retail destinations in Europe (Jones Lang LaSalle, 2012). 29


However, Russia is now becoming a relatively mature market (McCormick, 2013), and therefore, it is more difficult to enter without the relevant experience and an established local network (Dupuis and Fournioux, 2006). Ukrainian market, as has been mentioned, is emerging, and it can be an attractive destination for retailers where they can gain the experience on a smaller scale than the Russian market requires, and enter Russia later.

4.1 BRIEF OVERVIEW OF FASHION RETAIL IN UKRAINE Fashion retail is a very competitive business segment in Ukraine, and its annual growth is estimated at 15% (Liga, 2013). There are many foreign premium brands with strong presence in the market (ibid). Fast-fashion retailers are also popular due to their low price range (ibid). Overall, the Ukrainian market is said to repeat the European consumer trends with a several month-long delay, according to CEO of a retail company representing Esprit and River Island in Ukraine (Forbes Ukraine, 2012b). This might be a useful feature to consider when expanding into this market. Consumers are buying a lot more from stores, as opposed to their habit of buying from markets a few years ago (ibid). In addition, there is a distinct movement from high streets to shopping malls: in 2012, five new shopping malls opened in Kyiv alone (ibid). One of the peculiarities of the Ukrainian fashion retail markets is the fact that it experiences increase in prices despite the global price decrease in this sector (3e Consultants, n.d.); this is caused by inflation in the domestic market and high clearance charges and rent (Depo.ua, 2012).

In addition, Ukrainian retailers operate on

extremely high margins, and prices of apparel - even in the mainstream segment â&#x20AC;&#x201C; remain higher than those in most European countries (ibid). This increases popularity of online retailers and discounters where consumers can get their value for money (ibid). In Ukrainian retail on the whole, traditional formats such as markets are still highly prominent outside of the main cities (Mintel, 2011). This is linked with another feature of fashion retail in Ukraine, in particular: there is a high level of smuggling from China and Turkey that is sold in street markets, especially in smaller towns and rural areas (3e Consultants, n.d.). However, the quality of the apparel sold in traditional markets is not up to the modern consumersâ&#x20AC;&#x2122; standards, and this is what keeps high street fashion retailers in business in Ukraine: during and after the economic downturn 30


that the Ukrainian economy faced in 2009 and 2010, value and mainstream retailers became extremely popular (ibid). However, despite the importance of price for Ukrainian consumers, the emotional element in shopping experience also plays a decisive role (Liga, 2013). Discounting alone does not work: there is evidence that successful marketing campaigns that appeal to the target customersâ&#x20AC;&#x2122; emotions and the quality of service affect sales (ibid).

4.2 ONLINE RETAIL IN UKRAINE Online shopping is becoming very popular among Ukrainian consumers as they are starting to understand the advantages of buying from e-stores (Forbes Ukraine, 2012a). Ukrainians are active users of the Internet: on average, they stay connected more hours a day than Europeans (ITC.ua, 2012). 34% of Ukrainians use the Internet (Shopolog, 2013) and approximately 10% - shop online (Finance.ua, 2013). The showrooming phenomenon is prominent in the Ukrainian market: it is common practice for consumers to try on garments (especially footwear) in-store and buy it cheaper online (Forbes Ukraine, 2012a). Local entrepreneurs are responding to this demand by actively launching new online retail businesses. In the period between January and July 2013, over 1500 ecommerce businesses were registered in Ukraine â&#x20AC;&#x201C; that is one and a half times more than in the year 2012 (Golos.ua, 2013). This demonstrates a current boost of ecommerce in the Ukrainian market (ibid). A major shift in this market was caused by the entry of a Danish retail company SmartGuy Group with the launch of their Ukrainian store on StylePit.ua in 2013; the company is planning to make 600 daily sales by end of 2013 and reach 200 million UAH sales per annum (Finance.ua, 2013). The company even decided to relocate its warehouse into Poland in order to shorten delivery times for the most fastgrowing European markets, including Ukraine (Proretail.info, 2013). However, there are an increasing number of consumers who prefer to order apparel online from foreign retailers that are not present in the Ukrainian market where they can purchase items twice as cheap as they would in local stores (Depo.ua, 2012). It is predicted that this trend would continue (ibid), and therefore, offering a localised

31


Ukrainian website could be an attractive opportunity for key online retailers from European countries, including the UK.

4.3 SIMILARITIES AND DIFFERENCES BETWEEN THE UKRAINIAN AND RUSSIAN FASHION RETAIL MARKETS It is a common practice for fashion retailers who expand into the Eastern European and post-Soviet regions to begin with establishing a presence in the biggest market – Russia – and then to expand into the smaller surrounding markets (Appendix 1). For example, even the largest UK online fashion retailer ASOS uses the Russian market as the main landing platform for customers from Ukraine (Appendix 2). This connection between markets is due to their historic links as well as geographic and cultural proximity. Ukraine is viewed as a more manageable version of the Russian market because of its smaller size (Retail Week, 2005). However, in the existing literature, there is no evidence of viewing these two markets in connection with each other strategically. Taking into account the definition of psychic distance by Evans et al. (2000) in Chapter 3 of this study, it is important to examine the similarities and differences between these two markets in terms of consumer behaviour and business practice. Little comparison is available in the existing literature, and therefore, establishing the similarities and differences between Ukraine and Russia in the fashion retail market context is on the agenda for the primary research of this study. There is, however, a study by Digital Guru Club (Shopolog, 2013) that compares e-commerce in Ukraine and Russia and helps to distinguish between the aspects that can be viewed as common for these two markets and the ones that have to be altered when entering one of these markets after the other. The main indicators of e-commerce in Ukraine, Russia and the United Kingdom – as an example of a European market – are shown in Table 2. These figures demonstrate that e-commerce is not as developed in these two Eastern European markets in comparison to the developed UK market: the percentage of Internet users shopping online and the total online sales are not high in Ukraine and Russia. However, this means that there is potential for future growth (ibid). The similarity between the Ukrainian and Russian markets is in the customers’ high level of weariness: in both markets, a large percentage of consumers research

32


products before purchase and prefer to pay by cash on delivery – this implies a low level of trust to online stores and payment security systems. This means that these two markets might also benefit from online retailers establishing physical presence with the use of alternative retail formats, as suggested in Chapter 3. Another similarity between the Ukrainian and Russian markets lies in the popularity of foreign brands and the fact that they cost a lot more than they do abroad (Forbes Russia, 2009). Retailers in Russia also operate on extremely high margins (ibid). However, research has shown that a high percentage of Russian consumers are prepared to pay high prices for branded clothes in order to maintain their image in society (ibid), whereas Ukrainians – as was mentioned above – tend to look for ways to save money by shopping online and buy from discounters. Clothes and footwear are more popular among Ukrainian online shoppers in comparison to Russia in terms of their share among other categories (Table 2). This shows that Ukrainian consumers are active buyers of clothing online, and therefore, this market is potentially sufficient to ‘try out’ brands before entering Russia. Taking into account the difference in GDP per capita in Ukraine and Russia, it is safe to assume that purchasing power of Ukrainians on average is lower than that of Russians (Colliers International, 2013). This should be taken into consideration since this means that only a certain level of brands can be relevant to both markets (i.e. value and mainstream brands are more likely to find demand in the Ukrainian market). The similarities and differences in business culture and consumer behaviour between Ukraine and Russia will be explored further through primary research within this study.

33


Table 2 Comparison of e-commerce indicators for Ukraine, Russia and the UK in 2012 (compiled by author on the basis of Shopolog, 2013)

34


4.4

LITERATURE

REVIEW

CONCLUSION:

INDICATIVE

RESEARCH

QUESTIONS Bearing in mind the information that can be found in existing literature and media about the fashion retail market and patterns in online retailing, there are some aspects that are not explored in depth. Thus, three research gaps have been identified. First of all, it is necessary to understand how European fashion retailers that operate online are meeting the current challenges described in Chapter 2. It is worth exploring whether they find these challenges relevant when they expand into the Eastern European region and how they respond to them. This would aid in making suggestions for future strategic improvements. Secondly, it is unclear whether fashion retailers’ market selection process when expanding via a website is indeed unstructured as the theoretical literature suggests and whether it differs from the multichannel retailers’ market selection process in practice. Establishing this would clarify the changes that can be made in the existing process in order to make these retailers’ expansion more efficient. Finally, for the purposes of this study, it is essential to further understand the current situation in the Ukrainian market, with a focus on business practice and the developments in online fashion retail, and the compatibility of this market with the Russian market. Therefore, Table 3 below contains the clarifications as to the research questions listed in the Introduction that have been developed on the basis on the literature review. These questions will be answered by means of primary research.

35


Table 3 Indicative research questions for primary research Primary research question

Expertise areas required to answer question

1. What are the factors that European online fashion retailers should consider when they internationalise online? (Research question 2, Table 1) 1.1 What are the factors that European fashion

International expansion online (IEO)

retailers consider when they internationalise?

AND European brand perspective (EBP)

1.2 What problems are European fashion retailers

International expansion (IE) AND

facing in their internationalisation how are they solving

European brand perspective (EBP)

them? 1.3 What is European fashion retailersâ&#x20AC;&#x2122; attitude

International expansion online (IEO)

towards physical presence in foreign markets when

AND European brand perspective

internationalising online?

(EBP)

1.4 How do European fashion retailers adapt their

International expansion online (IEO)

online model in international markets?

AND European brand perspective (EBP)

2. What route to market selection do retailers usually take when they internationalise online? (Research question 4, Table 1: additional information needed, based on the literature review) 2.1 Does the market selection process differ for online

International expansion online (IEO)

retailers and multichannel retailers in practice?

AND European brand perspective (EBP) / International expansion (IE) AND European brand perspective (EBP)

3. What is the current situation in the fashion retail market of Ukraine? (This question will form a basis for the comparison with the Russian market in answering Research question 7, Table 1) 3.1 What are the challenges and peculiarities faced by

Ukrainian fashion retail (UFR)

fashion retailers in the Ukrainian market? 3.2 Are there opportunities for online fashion retailers

Ukrainian fashion retail (UFR) or

in Ukraine?

Online fashion retail in Ukraine (OFRU)

4. How do European fashion retailers see the link between the Russian and the Ukrainian fashion retail markets? (Research question 6 and 7, Table 1: additional information needed, based on the literature review)

36


4.1 How do experiences of other international markets

International expansion (IE) AND

influence new market entry (choice of market and

European brand perspective (EBP)

approach) for European fashion retailers? 4.2 How do European retailers who have worked with

Comparison between Ukrainian and

the Eastern European region view the relationship

Russian fashion retail markets (U vs

between the Ukraine and Russia in terms of their

R) AND European brand perspective

internationalisation strategy?

(EBP)

Can European online fashion retailers take advantage of entering the Ukrainian market in their expansion strategy into the Russian market? (Research question 8, Table 1) 5.1 Are there links between the Russian and Ukrainian

Comparison between Ukrainian and

markets that can be advantageous for fashion retailers

Russian fashion retail markets (U vs

who expand into the Eastern European region?

R)

5.2 Would entering the Ukrainian market before Russia be a useful experience in online retailersâ&#x20AC;&#x2122; expansion strategy? 5.3 What are the differences between operating in Russia and Ukraine to take into consideration if these two markets are united in one expansion strategy of

Comparison between Ukrainian and Russian fashion retail markets (U vs R) Comparison between Ukrainian and Russian fashion retail markets (U vs R)

an online fashion retailer?

37


CHAPTER 5: METHODOLOGY 5.1 RESEARCH DESIGN The study aims to answer the indicative research questions that have been formulated in the Introduction in order to meet the objectives. A number of these questions were answered with the means of secondary research through the review of existing literature including books, peer-reviewed journal articles, information on company websites and articles from trade publications. The rest of the research questions were clarified upon completion of the literature review, when indicative research questions were derived (Table 3). The latter were answered by qualitative primary research. The research design is summarized in the research â&#x20AC;&#x2DC;onionâ&#x20AC;&#x2122; adapted from Saunders et al. (2013), (Figure 1).

Figure 1 Research 'onion' adapted from Saunders et al. (2013)

The nature of this study is exploratory because it attempts to clarify understanding of an issue (Saunders et al., 2012): the internationalisation of European 38


fashion retailers in Eastern European region has not been researched in-depth, especially from the point of view of sequential expansion. For this type of research, it is normal to start with a broad focus and eventually become narrower (ibid). This research was cross-sectional because it studied the current connection between the Ukrainian and Russian markets and the possibilities of advancing European fashion retailersâ&#x20AC;&#x2122; online strategies in these markets at the given time (ibid).

5.2 RESEARCH PHILOSOPHY There are different angles at which an issue can be explored, and each is determined by the philosophical stance underpinning the research. The most common ones are: realism and positivism â&#x20AC;&#x201C; both closely linked to traditional scientific enquiry; interpretivism, which opposes positivism and does not rely on the generalisations the same way it is done in physical studies; and pragmatism, which might refer to different approaches within one study, depending on how suitable they are for each individual research question (Saunders et al., 2012). The research philosophy in this study is interpretive because it is aimed at exploring the topic based on subjective opinions (ibid) of people who have been in contact with the Ukrainian and Russian fashion retail markets and worked in internationalisation of fashion retailers from Europe. This way, the main concepts associated with the market were defined based on previous experiences of players and consumers in the market. This philosophy was adopted because it is relevant in management research because business situations happen as a result of unique combinations of external circumstances and managersâ&#x20AC;&#x2122; decisions, and this philosophy acknowledges the role of humans as important actors in this field (ibid).

5.3 APPROACH The research was abductive: it commenced with an overview of the already existing models and theories of international expansion, market selection and formation of e-commerce strategy to a specific market in order to form a basis for primary research; then it attempted to formulate a new model of international expansion for online fashion retailers to suit the current retail environment taking into account the experience of multichannel retailers. Therefore, it combined both deductive and inductive approaches and result in abduction (Saunders et al., 2012). 39


5.4 METHODOLOGICAL CHOICE Qualitative methods were used mainly because they help to gain a significant understanding of the market and decision-making process of fashion retailers instead of only stating the proportion of the cases with certain qualities and preferences (de Ruyter and Scholl, 1998): the research is aimed at answering the ‘what?’ and ‘how?’ questions (Table 3). The process of market selection by online fashion retailers needed to be understood in order to establish the applicability of theoretical frameworks to it, and because it had not been researched in-depth before, qualitative research was suitable because the variables to examine were not known (Creswell, 2003). Moreover, since the study was exploratory and was aimed at establishing the factors that affect e-tailers in entering a new market and ways that these e-tailers need to adapt, qualitative methods of research were appropriate (Maxwell, 1996). In addition, the research was aimed at establishing the patterns of the process of online retailers’ internationalization, and qualitative methods are suited to achieve this aim (ibid).

5.5 STRATEGY The research strategy of this study is fundamentally a case study. This strategy was appropriate because it allowed researching ‘the issue in depth and provide an explanation that can cope with the complexity and subtlety of real-life situations’ (Denscombe, 2010: 55). The case study strategy is suitable for exploratory research and provides answers to the ‘what?’ and ‘how?’ questions, which constitute the majority of indicative research questions provided earlier in Table 3 (Saunders et al., 2012; Yin, 2003). Moreover, this strategy is suitable for an abductive study because it is compatible both with theory building and testing (Denscombe, 2010). The unit of analysis was defined based on the research questions of the study (Yin, 2003); therefore, the case of this study is the Ukrainian fashion retail market – it is most relevant in demonstrating the application of previously reviewed theory and answering questions derived from literature review (Denscombe, 2010). The Ukrainian market’s location is unique: it is considered European, yet its historic and geographic proximity to Russia makes it a potentially useful market for European brands to gather experience. It is, in a certain way, a small-scale post-Soviet prototype of the Russian 40


market; however, it has strong and continuously developing ties with the European mentality.

5.6 METHODS In-depth interviews were chosen in order to meet the requirements of the level of detail of data for a case study strategy (Denscombe, 2010). This method provides an opportunity to contextualize findings and explore issues closely. In addition, this method allows collecting information while economising resources and time, (Silverman, 2006) which was very important for a study conducted in a relatively short period of time. The interview guide approach (Stone, 1984) was used – there are certain topics to cover in each interview but the way they are explored are decided in the course of the interview. This approach is, in essence, referred to as semi-structured interviews in the more recent literature (Denscombe, 2010; Wilson, 2012). In the case of this type of interviews, the researcher is flexible with regard to the order in which different topics are discussed, and the interviewee has an opportunity to elaborate on the issues that are being discussed (Denscombe, 2010). It is the most appropriate approach for an exploratory study and is ‘well-suited to situations in which comparability of response is either not possible or not essential and where depth of understanding is more important’ (Stone, 1984: 15). This type of interviews was chosen because they can provide detailed information and some ‘contextual or other information’ (Wisker, 2001: 165) about the market and international expansion, thus shedding light on some issues that might have not been explored in previous studies. Some other advantages of this approach include the fact that the research topics are likely to be covered, respondents will be able to communicate in a manner that is natural to them, and questions can be asked in a naturally arising order as if it were an ordinary conversation (Stone, 1984). The main disadvantage of the interview guide approach are that the data gathered is not standardized and, therefore, relatively hard to analyse as the comparability of collected responses is reduced (ibid). In addition, the interviewer has less control over the topic covered since the respondents may talk about one topic for longer than is necessary for the researcher – this means that different aspects may be covered to a different extent in the interview (ibid).

41


The case study approach normally emphasizes the need for multiple sources of data (Denscombe, 2010), and although this study used a consistent mono-method approach, different sources of information were used within one method – i.e. exploring views of experts from within the Ukrainian market and from outside of it – which ensured the validity of the in-depth research. In addition, the essence of the topic explored in this study is very industry-focused, therefore, the opinion and knowledge of professionals with expertise in online retail or with experience in working with the Ukrainian and Russian markets were the most valuable sources of information to form the basis of the study. In this case, interviews as a method of collecting data were the most appropriate choice (Wisker, 2001). Thus, the research consisted of ten in-depth interviews with experts from various backgrounds.

The sampling was purposive as opposed to the probability-

based. There were several groups of experts selected using the following criteria: the first group consisted of people who had long-term experience of working in online and offline fashion retail in the Ukrainian market and could share insight into the way this market works; the second set of interviews was held with experts who have worked for European brands in Ukrainian and/or Russian markets in either offline or online fashion retail and had the relevant experience to compare these two markets; the third set – with fashion retail professionals from the European fashion retail companies who specialise in international expansion. The interviews were conducted over the period between August and October 2013. The first two sets of interviews were held in Kiev, Ukraine and via email; the ones in second were conducted in London face-to-face, or via Skype and email. The full list of interviewees’ backgrounds is provided in Appendix 5. The indicative questions in Table 3 formed the basis for the topics covered in the in-depth interviews. Then, detailed questions were formulated in order to explore each topic from different perspectives, with probes added for the questions that could be considered general by the interviewees. Some questions were aimed at a specific group of interviewees from one set (e.g. for online retailers who have experience in the Eastern European region). Examples of questions for each set of interviews are provided in Appendix 3. The number of interview subjects was determined on the basis of the principle described by Kvale and Brinkmann (2009: 113): ‘Interview as many subjects as necessary to find out what you need to know’. In order to make the research succinct and allocate the time necessary for in-depth analysis, it was decided that ten interviews

42


in total were sufficient to answer the research questions because the focus is on the insights of industry professionals with a specific set of skills and expertise.

5.7 DATA COLLECTION There were three types of data collection procedures. The first involved conducting the semi-structured interview, recording it with a voice recorder and transcribing it; in this case, interview notes were taken to aid the analysis of collected data. The second type of procedure was used with one of the interviewees who was abroad but was available to talk on Skype. Then, the process resembled a face-to-face interview: it was also recorded and notes were taken throughout, but the interview consent form was sent to the interviewee to fill via email. Finally, when interviewees were not available for a face-to-face or a Skype interview, but they were sent a list of topics with questions and probes by email, and their responses were then filed or translated first if necessary. The transcribed interviews are provided in Appendix 6.

5.8 ANALYSIS OF DATA The data analysis consisted of four stages, based on the conceptual framework of coding described by Richards (2009) and the grounded theory approach by Denscombe (2010). The latter was necessary in order to formulate the new model if international expansion for online fashion retailers who expand into Eastern Europe. First of all, descriptive coding was used to record the details of each expert that was interviewed (Richards, 2009), including their experience in the industry, their connection to the Ukrainian and/or Russian fashion retail market and their current role. This is a necessary part of analysis for a qualitative study because it helps to sort data by attributes of the interviewees. The descriptive coding of the interviews is presented in Appendix 5. The second stage consisted of topical coding (ibid). The same method is described by Silverman (2007) as content analysis specific to qualitative research: extracts from interviews were placed in pre-set categories in order to illustrate the meaning of the information provided by the interviewees (ibid). This stage involves 43


meaning condensation – ‘an abridgement of the meanings expressed by the interviewees into shorter formulations’ (Kvale and Brinkmann, 2009: 205). The pre-set categories were derived from the review of theories and concepts in existing literature. This method is helpful in simplifying large amounts of information and organising it in appropriate segments for comparison and evaluation (Silverman, 2007). The results of this part of coding are presented in meaning condensation tables in the ‘Findings’ chapter and in Appendix 7; these tables include finding formulations and quotes from the interviews. The third stage of analysis involved analytical coding – ‘considering the meanings of the text, and creating categories that express new ideas about the data’ (Richards, 2009: 102). This part of the analysis is presented as the detailed discussion of the themes from meaning condensation tables in the ‘Findings’ chapter. The themes were then reviewed, as described further in the ‘Validity’ section. Finally, the grounded theory approach was used in order to make statements that can be applied on a more general level (Denscombe, 2010). The codes and categories where reduced by putting them into congruent groups in order to develop a hierarchy until a high level of generalisation was reached and no new topics emerged (ibid; Rapley, 2011). The higher level codes were then used to develop key concepts that provided basis for recommendations for European online fashion retailers.

5.9 RELIABILITY Reliability implies the ‘degree to which the findings of the study are independent of accidental circumstances of their production’ (Kirk and Miller, 1986, cited in Silverman, 2007). The research process and theoretical stance of this study is described in detail to ensure that other researchers can replicate it in another environment – this satisfies the reliability of the dissertation (Silverman, 2007). Moreover, this study focuses on authenticity as opposed to generalising based on the sample size: the interviewees were selected carefully on the basis of their expertise and ability to provide deep insight into the topic (Silverman, 2007) – this also ensures reliability of data collected. In addition, the analysis of this study complies with one of the hermeneutical canons of interpretations: ‘the continuous back-and-forth process between parts and the whole’ (Kvale and Brinkmann, 2009: 210). In other words, different parts of the

44


expert interviews were interpreted separately, followed by interpretation of each interview as a whole, and so on – this ensured reliability of analysis.

5.10 VALIDITY In order to validate the data, tabulation was used, as suggested by Silverman (2007): after the initial analysis of data and identifying a phenomenon, the prevalence of this phenomenon in the text was established by counting – this ensured that the interpretation of data was accurate. Another method that was used to validate the interview data was checking it against other interviews of the study for some level of consistency – the information that seemed disputable when compared to other sources was given less credibility than the consistent data (Denscombe, 2010). Themes that emerged in responses of more than one interviewee formed the basis of the final conclusions and strategy formulation (ibid).

5.11 ETHICAL CONSIDERATIONS The research undertaken as part of this study complies with the main concepts of research and business ethics, including informed consent and confidentiality and anonymity (Wiles, 2013). The interviewees were provided with the information about the purpose and essence of the research in a detailed way but without going into indepth nuances of the study (Silverman, 2007). The consent was recorded: in the case of face-to-face interviews – with the use of written consent forms in the language of the participants; and in the case of interviews conducted via email – with the help of a questions requesting permission to use the information the participants provided for the purposes of this study (Appendix 4). With regard to confidentiality and anonymity, the identities of the participants will not be disclosed in the dissertation if they so wish – this is required even in case of questions that do not seem intimate and controversial (ibid). When requested by the participants of the study, the information provided by the them was not passed on to third parties and was not used at all if an interviewee so wished (Wiles, 2013). The findings of this study were used for educational purposes only. 45


CHAPTER 6: FINDINGS AND DISCUSSION The findings from the research were, as was described in the previous chapter, derived from the interviews by coding the concepts and ideas and analysing the links between them in order to answer research questions. Full meaning condensation tables that were compiled in the course of the analysis are provided in Appendix 7, and below is the summary of findings on the basis of these tables presented in accordance with the research question structure provided in Table 3 with some interview extracts illustrating the main themes.

6.1 PRIMARY RESEARCH QUESTION 1: WHAT ARE THE FACTORS THAT EUROPEAN ONLINE FASHION RETAILERS SHOULD CONSIDER WHEN THEY INTERNATIONALISE ONLINE? This research question was explored from four dimensions outlined below. 6.1.1 FACTORS CONSIDERED BY MULTICHANNEL RETAILERS Firstly, the primary research provided an insight into what factors are considered by multichannel fashion retailers in their internationalisation strategies. One of the factors that were mentioned by two interviewees included the need to maintain brand consistency in the new market. This demonstrates that European fashion retailers are in favour of standardisation, as opposed to adaptation, as discussed in Chapter 2. Another important factor is the operation of the distribution network and the ability to deliver the promise made to the customer. Market potential and the importance of economy of scale were also touched upon by one of the interviewees: the volume of sales and the marketâ&#x20AC;&#x2122;s ability to create demand are key. This might reflect the view of Wood and Robertson (2000) mentioned in Chapter 3: economic indicators become more important when entering developed markets. Interestingly, understanding consumer behaviour and cultural specificities of the receiving market were not mentioned by retailers as often as the previous factor, although they do play a role in the development of the international expansion strategy.

46


Table 4 Meaning condensation table 1.1 Finding

Quotes

Economy of scale

‘…you will probably need to create volume for rapid expansion in the country – to create economies of scale. And you need to be able to, hopefully, use existing partners in your supply chain to get more out of them by giving you better rates, better prices, because you’re actually giving them a bigger opportunity.’ (#10)

Brand consistency

‘You don’t touch the brand because the brand is sacred: you get the same product and the same brand if you look at it from the UK or from Asia or from America.’ (#10)

Distribution network

‘…once you promise to deliver within a certain day you must have reliable partners in distribution for online stores.’ (#8)

Market potential

‘…the potential market that you have: so the number of people who can buy online, who use Internet just to collect information or also to buy.’ (#8)

6.1.2 CHALLENGES The second dimension of multichannel online retailers’ internationalisation regarded the challenges faced in the process of expanding. Surprisingly, cultural sensitivity of customers in new markets was mentioned by only one of the interviewees. The notion of a more globalised consumer in different markets was brought up twice: this, again, demonstrates that retailers veer towards standardisation in their international expansion. This, however, does not prove the effectiveness of their approach: an alternative model involving recognising differences between consumers of different markets and accumulating knowledge about them might be more beneficial. The attitude of European fashion retailers to the cultural specificities of consumers in the markets that they expand into online is somewhat ignorant: it may be useful for them to take into consideration Hofstede’s cultural dimensions such as uncertainty avoidance and collectivism / individualism (Gong, 2009) and the elements of Hall’s theories in the context of e-commerce, such as polychronicity/monochronicity and high or low context culture theory (ibid), as mentioned in Chapter 2 of this study. Specifically in the case of online expansion, multichannel and pure-play retailers mentioned operational challenges (such as delivery and problems at the

47


customs) and consumers’ insecurity with regard to payment. As for the latter, one interviewee made a point about overcoming this challenge collectively. Several times it was mentioned that challenges are linked to establishing brand awareness in a new market, and for brands with high global awareness, many market entry barriers are automatically removed. This point was not raised in the reviewed literature, and therefore, this finding sheds light on a new factor to consider when developing an internationalisation strategy for online fashion retailers. One interviewee noted that developing countries have a tendency to pose a similar set of operational challenges. Therefore, a strategy used in one developing market might be applicable to another, if the main issues in question are related to operations and overcoming the barrier of bureaucracy. An interesting point with regard to adaptation that arose was related to sizing: a representative of a multichannel retailer noted that his company had faced problems in other markets because of the difference in average build. Therefore, additional research into the sizing specificities of new markets is beneficial.

Table 5 Meaning condensation table 1.2 Finding

Quotes

Consumers becoming

‘…in reality people travel more and more with cheap flights and

increasingly globalized

therefore the difference between countries is becoming smaller.’ (#7)

Challenges linked to

‘The difficulties are strictly linked to the brand awareness that your

brand awareness

brand has at international level.’ (#8) ‘…growth of sales is coming, but at a slow rate, as more and more people are finding out about it.’ (#10)

Sizing

‘Yes, we need to be able to adjust the product. But not so much in the type of the product – in the available sizes. […] And it may sound simple but it’s not.’ (#10)

Fear of online shopping

Physical barriers are easier to remove […]. The psychological

is a barrier that can be

barriers (the fear of online shopping) can be removed by the

overcome collectively

industry as a whole, altogether.’ (#9)

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6.1.3 PHYSICAL PRESENCE Thirdly, the issues of physical presence in new markets and consumers’ need to have physical contact with garments before purchase were explored. Several experts provided arguments in favour of having physical stores primarily by claiming that the multichannel approach is the most efficient in driving sales. In addition, two experts from multichannel retail background argued that physical stores are more effective in building brand awareness in new markets and it is essential to have real-life interaction with customers before offering product online because it contributes to understanding the consumer. These findings add to the argument in favour of online retailers’ establishing physical presence from literature review in Chapter 2. Experts from the pure-play retail background, however, did not think that physical presence is necessary in a new market: it was viewed as a burden. This demonstrates that online fashion retailers from Europe do not recognise the potential benefit of physical presence, as described in Chapter 2 of the literature review. On the other hand, interviewee #9 mentioned that the online retail company he represents did use offline marketing tools. A new finding emerged from the responses of two interviewees who noted that consumers’ need to touch and try on garments before purchase in different markets depends on the type of garment. Interviewee #10 specified that the more fashionforward and innovative a product is, the stronger the need for consumers to have physical contact with it before purchase. Table 6 Meaning condensation table 1.3 Finding

Quotes

The multichannel

‘…by giving the customer the opportunity to shop in the store, on

approach is the most

the mobile, at home online you definitely maximise the potential of

efficient

your sales.’ (#10)

Physical presence

‘Not necessarily. We do not have either any offline stores or

unnecessary

showrooms in any country of the world.’ (#9)

Physical presence is

‘…to be successful in online sales you need…to have your product

stronger in building

touched before you start to get sales.’ (#8)

brand awareness Additional challenges

‘But then there’s the question of how many of such do they need?

associated with

One, two, ten? Moreover, there are legal issues in receiving

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physical presence

markets – the company’s registration, its maintenance etc.’ (#5)

(viewed as a burden) The need for physical

‘…in places where there is not a physical store you do find that

contact with garment

people buy more essential, more things that are for day-to-day use

before purchase

and not so much the more specific product.’ (#10)

depends on the type of garment

6.1.4 WEBSITE ADAPTATION The fourth perspective, from which this research question was explored, focused on the adaptation of international transactional websites of European fashion retailers. The primary element that is adapted, as was noted by three different experts, is the language. Payment method was also mentioned as an important element of a website to localise. This supports further the review of website localisation theory in Chapter 2. A new element to adapt that emerged from primary research is the selection of models on the website. Interviewee #10 noted that when a company is looking to expand globally, it has to consider the cultural diversity of models and not give preference to one specific look. Thus, this means taking a ‘global from nowhere’ stance (Yip, 2000:11), as was mentioned in Chapter 2. Maintaining brand consistency online is important, as was mentioned by two interviewees. Moreover, an expert from a multichannel retail background suggested that addressing to the needs of a global customer is necessary in the current environment. Therefore, again, the importance of standardisation is stressed by European fashion retailers. Table 7 Meaning condensation table 1.4 Finding

Quotes

Selection of models

‘If you want to be global, you cannot just use models that are very specific to the country.’ (#10)

Brand consistency

‘Generally international brands try and keep a common general

important

approach to their international websites (to keep them consistent and easy to manage/update).’ (#7)

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Inclusive and

‘…yes, customisation is not important. Technical adjustments are

convenient strategy

important but you need to be careful not to leave someone outside. You need to make sure that you cater for the whole world.’ (#10)

6.2 PRIMARY RESEARCH QUESTION 2: WHAT ROUTE TO MARKET SELECTION

DO

RETAILERS

USUALLY

TAKE

WHEN

THEY

INTERNATIONALISE ONLINE? This research question was aimed at establishing whether the market selection process differs for online and offline expansion in European fashion retailers’ strategies. One expert noted that this process is streamlined and not time-consuming in the case of online fashion retail. Surprisingly, two interviewees revealed that the market selection process in the case of international expansion with the use of physical stores is often opportunistic. This contradicts the theory surrounding expansion of brick-and-mortar retailers: literature reviewed in Chapter 3 suggests that this is a specificity of online retailers and so-called Born Globals; however, one of the companies represented by an expert who referred to market selection as opportunistic is neither an online retailer, nor a Born Global. According to two interviewees, statistical indicators and the level of brand awareness in a new market play a decisive role in both online and offline expansion. Therefore, the market potential and the stage in the lifecycle of the expanding retailer are primary. The concept of psychic distance to the domestic market, on the other hand, was only mentioned once in the course of the research by a representative of a multichannel retailer: a company expanded into other European markets because it ‘[understands] them a bit better’ (interviewee #10). Therefore, the findings support the views of Wood and Robertson (2000) who, as was mentioned in Chapter 3, show that companies assign more importance to the level of the host market’s development than to its cultural similarity with the home market. One expert noted that companies do not see the need to test a brand in a smaller market before entering a larger market: gradual market penetration fulfils this purpose. Therefore, large markets with high potential – such as the BRIC economies – do not require additional pull factors to be selected for entry. This means that psychic distance does not play a role in market selection if the economic indicators – market growth, in a particular – offer an optimistic outlook. A similar point was made by Forsgren and Hagstrom (2007) with regard to markets that can potentially offer first-

51


mover advantage, as mentioned in Chapter 3: high uncertainty in a market would not be a repelling factor, However, two experts from multichannel retail background emphasised the importance of networks when expanding into new markets. One interviewee mentioned that partners in existing markets play an important role in expansion, and therefore entering the surrounding markets in the same region is convenient. This links directly back to the adapted Uppsala model of internationalisation (Johanson and Vahlne, 2011) discussed in Chapter 3: opportunities in a new market are evaluated on the basis of the knowledge from networks in the neighbouring markets where the company is already present. Table 8 Meaning condensation table 2.1 Finding

Quotes

Offline retail expansion

‘In our case we entered Russia opportunistically and were fortunate

is also prone to being

that our success on our first projects acted as a catalyst for growth.’

opportunistic

(#7)

Statistical factors +

‘When we plan launching a new regional site we mainly consider

brand awareness are

the financial factors such as the growth of sales, potential growth of

important

sales.’ (#9)

Large markets with

‘The other markets that we launch in are the markets with a huge

high potential are

potential, what everybody’s looking at: China, Russia, Turkey – the

primary and do not

big markets and the ones that are parts of the BRICs economies –

require additional pull

because they are big growing markets, because it’s a big

factors for multichannel

opportunity.’ (#10)

retailers Networks important for

‘…once you promise to deliver within a certain day you must have

multichannel retailers

reliable partners in distribution for online stores.’ (#8)

6.3

PRIMARY

RESEARCH

QUESTION

3:

WHAT

IS

THE

CURRENT

SITUATION IN THE FASHION RETAIL MARKET OF UKRAINE? This question was explored from two perspectives: the challenges and peculiarities of the market and the gaps and advantages of the market that form new opportunities for online fashion retailers from Europe.

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6.3.1 CHALLENGES AND PECULIARITIES Two major challenges in the Ukrainian market that fashion retailers might face are the low level of trust of consumers to online shopping and therefore their high need for physical contact with garments before purchase – both of these issues were raised by four interviewees. This means that offline presence is desirable and online fashion retailers might find it difficult to gain trust of consumers without offering a physical point of contact with the brand before purchase, thus illustrating the applicability of the suggestion as to physical presence made in Chapter 2. Twice the interviewees noted that Ukrainian customers are demanding in terms of service, practicality and customer experience. This poses a challenge of offering brand experience in the online environment. Moreover, this finding suggests that online fashion retailers would be under pressure to strictly meet the brand promise, including delivery times and quality of product. Another specificity of the Ukrainian online fashion retail market is the popularity of flash sales and discounters – consumers are seeking to save money when they shop online, they see the Internet as an opportunity to buy a product cheaper. This finding further supports the fact that the price sensitivity is high in Ukraine (Liga, 2013), as described in Chapter 4, and this should be considered in online fashion retailers’ strategies of entry into this market. From a business practice perspective, the Ukrainian market is considered risky due to political instability and a strong corruption element – this issue emerged in several interviews. This factor can be discouraging to European online fashion retailers who are not experienced in operating in such an environment. However, opening physical stores normally requires a lot more interaction with the authorities, whereas opening an online store might prove less complicated in a market with a high level of corruption and instability. This finding poses a challenge in relation to one of the previous findings about this market: establishing physical presence is necessary, yet it carries a higher risk for the company. This means that companies need to evaluate their resources and experience before making the decision about physical presence in Ukraine and find reliable partners to aid them in opening a temporary store or showroom. Another point to consider about the Ukrainian market is the lack of experience and organisation among the management of existing local players. On the one hand, this indicates a success opportunity for the experienced retailers, and on the other

53


hand, this might pose a problem in finding local managerial staff with sufficient experience to operate in the market. Table 9 Meaning condensation table 3.1 Finding

Quotes

Cautious when online

‘I would not say that the brick-and-mortar concept is feeling the

shopping

competition just yet, since customers still seem to prefer the shopping experience offline and do not trust the online buying a 100%.’ (#6)

Need for physical

‘Yes [physical presence is important in the Eastern European

contact with garment is

markets]. Because there isn’t real trust of consumers towards

high

online shops.’ (#2)

Flash sales and

‘. All the online retail is done by separate companies who buy

discounters popular

discounted product from local retailers or import it from abroad –

online in Ukraine

legally or not. In 90% of cases they are discounters.’ (#2)

Business is risky /

‘Any business in Ukraine today is very risky. I read not long ago: I

political risks / strong

think it was Deutsche Bank that does not recommend to starting a

corruption element

business in Ukraine and does not support financially the companies that want to locate their capital here. It is related to the real political situation that we have here.’ (#2)

6.3.2 OPPORTUNITIES IN UKRAINE There were numerous points raised by the interviewees that implied a very optimistic perspective for online fashion retailers in Ukraine. Four interviewees noted that the online retail segment is growing at a high pace, which supports the data provided in Chapter 4. Another expert specified that the online shopper mindset is developing among the consumers in that market. Moreover, the fact that Ukrainian consumers have a positive attitude towards foreign brands, especially European labels, was evident in the responses of half of the interviewed experts. In fact, the country of origin of a brand adds value to the product in this market. One interviewee from an environment where the target consumer is young and fashion-conscious interestingly noted that the demand for fashion-forward products is

54


high, yet there is little competition in the fashion-forward mainstream segment. This means, that retailers who aim their product at teens and young people in their twenties might meet a high demand in this market. An expert from online retail background also stressed the demand for value brands, which indicates a gap in the market for value retailers. Finally, one expert interestingly noted that the online stylist niche is empty in this market; therefore, additional services provided by European online fashion retailers in Ukraine have a potential to add value. Table 10 Meaning condensation table 3.2 Finding

Quotes

Online shopper

‘It seems that the number of shopaholic women who have a lot of

mindset is developing

time to shop on the high street is decreasing because a new generation is growing.’ (#4)

Positive attitude

‘[Consumers’ attitude towards foreign brands is] as positive as it is

towards and high

possible, of course.’ (#2)

awareness of foreign brands

‘Customers love international brands and have an extremely positive attitude towards them, of course also due to its worldwide brand awareness! People believe they offer better quality and updated trends, compared to local brands.’ (#6)

The consumers are

‘The consumers, especially young ones, react very quickly when

fashion-savvy / the

large volumes of clothing are on offer: no one wants to look the

demand for fashion is

same as everyone else.’ (#4)

high Online stylist service

‘I heard of some programmes where you can input your data and

niche empty

they would give you advice but I have not come across anything like this yet.’ (#2)

6.4 PRIMARY RESEARCH QUESTION 4: HOW DO EUROPEAN FASHION RETAILERS

SEE

THE

LINK

BETWEEN

THE

RUSSIAN

AND

THE

UKRAINIAN FASHION RETAIL MARKETS? Firstly, the role of experience from different markets of one region for European fashion retailers was evaluated to further understand the applicability of the adapted 55


Uppsala model (Johanson and Vahlne, 2011) to European fashion retailers’ international expansion. The prevailing response was that experience from other markets is valuable in forming the market entry strategy and approach for a new market. The points that were raised included, in particular, the fact that knowledge from neighbouring markets can aid in setting up logistics and adaptation of assortment to a new market. This further supports the point stressed by Retail Week (2012), as was mentioned in Chapter 2: having partnerships established in a region facilitates expansion into other markets of that region. One interviewee noted that the same knowledge accumulation is relevant for both online and offline expansion. One interviewee argued that sometimes markets of one region might require different strategies: he talked about Hungary and Russia, where business practice and types of society are historically different despite both of them being a part of the Eastern European region. Ukraine and Russia, on the other hand, have more historic ties and common specificities in terms of business practice. Another expert, however, mentioned that the strategies for Ukraine and Russia are not similar, and Russia is considered priority due to the ‘scale and level of investment potential’ (interviewee #7). An interviewee from online retail background revealed an organic link between the Russian and the Ukrainian market: Ukrainian customers started shopping from the Russian version of a European online store when it launched. This explains the lack of interest in a separate strategy for Ukraine: this market seems to be covered automatically when retailers open Russian online stores. Finally, one expert noted that knowledge of the Russian market is valuable when expanding into Ukraine because both markets have similar issues. Table 11 Meaning condensation table 4 (questions 4.1 and 4.2) Finding

Quotes

Experience from other

‘We generally refer to our experience in previous website launches

markets is valuable

in order to avoid repeating mistakes, if there were any.’ (#9) ‘And I think that’s party why we became so successful in Ukraine – because, as I said, I had already been trained how to operate in a CIS country before I went to Ukraine.’ (#10)

Understanding local

‘…you still have to import the goods, you still have to transport the

business practice is

goods locally, you still have to deal with the authorities – you need

important for setting up

to have an understanding of what are the local dynamics of the

logistics

business practice’ (#10)

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Brand offer can be

‘Yes, it’s possible. Once you have a critical amount of information

adapted using the

and a request […] you could influence, for example, the

experience from other

assortment. […] …you can build up baskets of products and

markets

combinations that are sold together.’ (#8)

Experience from Russia

‘…when I went to Ukraine, I was able to deal with issues much

is helpful when opening

faster because I had already dealt with them in Russia.’ (#10)

in Ukraine (in terms of business practice)

6.5 PRIMARY RESEARCH QUESTION 5: CAN EUROPEAN FASHION RETAILERS TAKE ADVANTAGE OF ENTERING THE UKRAINIAN MARKET ONLINE

IN

THEIR

EXPANSION

STRATEGY

INTO

THE

RUSSIAN

MARKET? This research question focused on exploring the links between Ukraine and Russia in terms of consumer behaviour and business practice from the retailers’ perspective, the feasibility of entering Ukraine before Russia and the possible implications to consider when uniting these two markets into one expansion strategy.

6.5.1 SIMILARITIES BETWEEN UKRAINE AND RUSSIA Overall, experts who have worked with the Ukrainian and Russian markets view consumer behaviour as one of the post-Soviet or CIS consumer – they do not divide the mentality between different states. The similarities between Ukrainian and Russian consumers that were mentioned by the interviewees included the average size of the basket, payment method preferences, fashion taste and the importance of brand name. Preference of foreign brands among consumers was noted as a common feature in both markets, too, which supports the evidence in Chapter 4. As for the business practice specificities, it is also seen as similar by retailers, especially with regard to the corruption element. Several interviewees mentioned problems at the border, which are relevant for both markets.

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Table 12 Meaning condensation table 5.1 Finding

Quotes

Both markets have a

‘Yes, the corruption element [is similar in Ukraine and Russia]’ (#2)

similar business practice specificity

‘I think that 80% are similar. […] I wouldn’t say there are any radical differences.’ (#4)

Problems at the border

‘…as a result of customs control, the delivery of goods is often

in both markets

delayed. […] … large companies do face these delays for different reasons. […] [In Russia] it’s even worse. When even the deliveries by the Russian Post are now getting difficult – there are new duties they introduced, it get much more difficult at the border. The prices are higher in Russia, too. I heard a few years ago about a 30% difference in markup because these processes are so difficult in that country.’ (#4)

The post-Soviet / CIS

‘…and the culture of Slavonic people of former CIS countries [does

consumer

not differ] […] the level of trust to the internet, the culture of shopping online [are the same].’ (#2)

The brand name plays

‘I think it is mainly the brand name and advertising [play an

am important role in

important role in Ukraine]’ (#3)

both markets

‘Specifically in fashion – Russians really love brands.’ (#9)

6.5.2 ENTERING UKRAINE BEFORE RUSSIA Most of the interviewees agreed that entering the Ukrainian market before entering Russia might prove a successful strategy if the aim is to test a brand on a smaller scale, especially in the sense of understanding consumer behaviour. The common features of the retail environment and the limitations that it poses on managing operations make Ukraine a valuable platform for gaining experience before entering Russia. An expert from a multichannel background mentioned that due to the more advanced business practice in Russia, ‘if you manage to make business in Ukraine then Russia will be easier’ (interviewee #10). These findings support the alternative internationalisation path proposed in Chapter 3 of this study. As one expert mentioned, this would be relevant for a retailer with evolutionary strategy who does see the need to test a brand. The same expert mentioned that this

58


sequential expansion would work for a small European fashion retailer who is not an established company with global presence. Another interesting point made by one of the experts was that Ukrainian consumers react faster to new luxury retailers than consumers in Russia. This means that luxury brands might use the Ukrainian market to in case they need to test the response of this region’s consumers to their brand before entering Russia. There was only one negative response about the suggested strategy from an expert from a multichannel background because the two markets are ‘so different’ (interviewee #7). Table 13 Meaning condensation table 5.2 Finding

Quotes

Practice on a smaller

‘…trying something new is better done with minimal investment.

scale / engaging fewer

And then this experience could be transferred further. So you could

resources

try on a small scale and then go bigger.’ (#2) ‘It is very similar, however on a much bigger scale... practice on a smaller scale is always a good preparation for a larger market to follow.’ (#6)

Useful for

‘…it is feasible to enter the Ukrainian market in order to test the

understanding the post-

main tendencies of the so-called post-Soviet customers: their level

Soviet consumer on a

of trust, their IT awareness and knowledge – with little investment

smaller scale

and little competition.’ (#1)

Would work for small

There will be second or third priority to do with trends and mentality

companies only

that can be tested on a small scale, but this could maybe work for small companies that want to check the way they are perceived in the Eastern European market. But in general it makes more sense to go to Russia. (#4)

Ukrainian consumers

‘Here, the ratio of the way the population reacts to the two

may react to new luxury

segments would be around 60:40 because our stratification is very

retailers faster than

specific. Luxury retailers would probably be even better perceived

Russians

here.’ (#4)

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6.5.3 IMPLICATIONS There are different types of implications that may affect the feasibility of online fashion retailers from Europe entering Ukraine before Russia. Firstly, two interviewees implied that the mentality of Ukrainian consumers is more similar to that of Europeans in comparison with Russian consumers. Some differences in the culture of consumers of the two markets were noted, especially in the luxury segment: one interviewee mentioned that the Ukrainian consumers are more demanding in terms of product quality and design. Two interviewees raised the point of Moscow as a separate market: it is viewed as a â&#x20AC;&#x2DC;state within a stateâ&#x20AC;&#x2122; and may be hard to compare with Kiev. This way, online retailers need to consider the target customers: if they are based primarily in Moscow, then experience from Ukraine might not prove useful in meeting consumer needs in Russia. A prominent theme that was discussed by the majority of interviewees regarded the market size of Russia, both in geographic and purchasing power sense. Russia being such a large territory, is a more complicated market for online retail in terms of logistics: finding partners for providing smooth delivery across the whole territory is challenging. This means that if retailers enter Ukraine first, they might encounter problems due to the lack of experience in logistics in a challenging market like Russia. In addition, the purchasing power of Ukrainian consumers is lower; therefore the two markets will most likely respond to brands of different segments in different ways. Another very important point stressed by several experts was that Russia is a more progressive and established market with a clear market entry system in place. It is also saturated. In addition to this, an expert from multichannel retail background mentioned the importance of speed when entering a Russian market in order to get a profitable retail space when a retailer is opening physical stores. Ukraine, being less a less saturated market, does not have the same level of competition over retail space. This should be kept in mind by online retailers who are planning to have physical presence in a new market: it is then more feasible to enter Russia as quickly as possible without testing a brand in a smaller market. This finding also adds to a point made in Chapter 3: first-mover advantage is a highly influential factor not only for online businesses (Barrutia and Echebaria, 2007), but also for brick-and-mortar and multichannel retailers.

60


Moreover, the low competition in Ukraine might mean it would be easier for brands to establish themselves there, and it would then be a challenge to enter Russia. Therefore, entering Ukraine first would be beneficial for very niche brands that are not facing fierce competition among the players who are already operating in Russia. Finally, four interviewees noted that the fashion retail management in Russia is more progressive than in Ukraine. Therefore, again, Ukraine might prove to be a platform to learn ‘the tough way’ because employing qualified local management might be challenging for online fashion retailers from Europe, or they would have to spend additional time on training. Table 14 Meaning condensation table 5.3 Finding

Quotes

Market volume

‘Russia is a much bigger market, with more money, more visitors, bigger opportunities and higher awareness due to its size and population.’ (#6)

Some differences in

‘Russian customers […] are less picky than Ukrainian ones. Maybe

culture and consumer

because Russia is a big country there are different types of

tastes

mentality there in different regions. The Kiev audience is more spoilt in terms of clothing.’ (#3)

Management is less

‘Russians are quite straightforward and more often well

progressive and has

educated/open minded at management level. Ukraine is a bit

less experience in

behind and decision makers are more cautious.’ (#7)

Ukraine Russia is more

‘The Ukrainian market has more challenges and the legislation is

progressive in fashion

less clear, I would say. It is harder to do business here, in Russia

retail / has a more

everything is a more straightforward, business is becoming more

established system for

transparent there. They have clear game rules there.’ (#2)

foreign brands to enter ‘First come first served’

‘…going to Ukraine first – yes, it will allow you to learn – but in a

factor in Russia

way you may be losing important retail opportunities because malls get booked very quickly […] … a good mall in Ukraine may wait for you, a good mall in Russia is not going to wait for you. And that’s why companies go to Russia first as fast as they can, as soon as they are ready – because being late will cost you.’ (#10)

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Moscow is a state

‘…Ukraine and Russia practically don’t differ at all. I am not talking

within a state

about Kiev and Moscow – there is a difference, and quite a big difference […] In Moscow, the people are very progressive. Here, people are on the way to being this progressive.’ (#2)

Ukrainian customers

‘We’re kind of a buffer zone in between. […] … because we are

are more ‘European’

closer to the borders that opened approximately 10-15 years ago, we absorb everything European more intensively.’ (#4)

6.6 SUMMARY This study initially focused on two aspects of the ‘psychic distance’ concept: the difference between the home and host markets in consumer behaviour and in business practice, as is stated in Chapter 3. In the course of primary research, one of the main themes that emerged in the majority of interviews was that the difference in consumer behaviour and taste preferences for many brands is not considered a challenge when entering a new market. None of the culture-defining dimensions were mentioned by interviewed experts when they spoke about the factors that influence market selection and market entry strategy both online and offline. The consumer preferences that were considered were linked to the lifecycle of the expanding brand: established brands, according to the experts, find their target customer in a new market without major challenges. This supports the standardised approach to internationalisation, as opposed to the cultural adaptation, as suggested by theory in Chapter 2. The psychic distance element that is considered important, however, is the difference in business practice between the home and host markets. Especially in the case of Ukraine and Russia, the bureaucracy and corruption elements create a challenging market environment, to operate in which companies need to gain knowledge from their networks. In terms of market selection process, multichannel retailers tend to follow an opportunistic route in their market selection based on their network opportunities when they internationalise online – this is not very much different from the non-sequential route followed by online retailers, as discussed in Chapter 3. Entering large markets with high sales growth is priority. Therefore, the non-sequential expansion is justified by the benefits it offers; yet, some arguments were made in support of a structured knowledge-accumulation approach based on the Uppsala model in the case of Ukraine and Russia.

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Retailers of different segments noted the operational challenges such as establishing a distribution network when entering a new market, including and finding reliable logistics partners, and gaining experience in overcoming problems at the border â&#x20AC;&#x201C; these elements play a key role in the internationalisation of online retailers. Overall, it can be generalised from this study that only certain types of online retailers might benefit from entering Ukraine before expanding into Russia. These include small niche companies that do not rely entirely on economies of scale and want to test their brand in a market with a post-Soviet mentality at a lower cost than Russia. This could be especially beneficial for companies that have weak global presence and low brand awareness in this region. These companies can belong to any price segment: there is a high demand for value and mainstream brands in Ukraine, however this market might prove more receptive to luxury brands also, in comparison with the Russian market. Since larger companies rely on economies of scale, it is more feasible for them to enter Russia before entering Ukraine: the Russian market, naturally, offers an opportunity to sell larger volumes. European online retailers will find it easier, however, to meet demand for their product in Ukraine, in comparison to Russia, especially if they offer fashion-forward clothing. They will also find it easier to establish logistics in Ukraine than in Russia due to the countryâ&#x20AC;&#x2122;s size and the predictability of deliveries there. As for the physical presence, it is desirable for online retailers to offer their customer physical contact with the product before purchase in new markets, especially if a retailer is not well known globally. In addition, physical presence offers a platform for interaction with the customers and therefore accumulating primary knowledge about their tastes and preferences. This means that it is beneficial for a company operating online to establish physical presence at least in the market which it enters first in the region (i.e. if a retailer decides to test its brand in Ukraine before expanding into Russia, it should open a pop-up store or a showroom in Ukraine to learn about the post-Soviet consumer specificities).

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6.7 RECOMMENDATIONS TO EUROPEAN ONLINE FASHION RETAILERS WITH REGARD TO ENTRY STRATEGY INTO EASTERN EUROPE Based on the findings above, a model of international expansion strategy decision making process with regard to market entry and establishing physical presence has been developed for online fashion retailers from Europe entering Ukraine and/or Russia. The model is provided in Figure 2 below. For the purposes of this study, the exact numerical definition of large and small companies is not provided: the focus is solely on their individual strategies and reliance on economy of scale. The experts did not use exact measurement of brand awareness in their responses; therefore, in the proposed model below, consumers’ awareness of a retailer in their market is measured in the level of brand recognition for convenience and clarity, i.e. whether consumers have heard of a particular company in their past experiences (‘brand awareness’, 2009). ‘Niche company’ term is used according to the definition in The New Penguin Business Dictionary (‘niche brand’, 2003): one that ‘that appeals to a specific group of committed, heavy and/or frequent buyers’. There are three proposed strategies that companies can follow, depending on their reliance on economy of scale and level of brand awareness and target customer. 1.

For large and small companies with high brand recognition in the CIS region, it is feasible to follow the non-sequential route traditionally used by fashion retailers of different segments in this region: entry into Russia with further expansion into Ukraine without the need to test their brand.

2.

For large companies with low brand recognition in the CIS region the same strategy would be appropriate. However, it is beneficial to establish physical presence in Russia in order to develop brand recognition and accumulate knowledge about the type of consumer.

3.

For small online fashion retailers with low brand recognition in the region or niche companies, applying the adapted Uppsala model (Johanson and Vahlne, 2011) would be appropriate with entry into Ukraine as the initial step, establishing physical presence to accumulate knowledge about consumers and business practice as well as to develop brand recognition, followed by further expansion into Russia.

64


The findings are based on the case of Ukraine and Russia: the two markets have many similarities in the business culture and challenges faced by companies who enter them, as well as a common consumer mentality – that of a post-Soviet consumer. This model would also be applicable for online and multichannel retailers in other regions if they are planning to enter a large and resource-demanding market: a smaller market that psychologically and geographically sits between a company’s home market and the large market could be used as a ‘springboard’ by companies that do not rely on the economies of scale or niche retailers.

Figure 2 Suggested model of expansion strategy decision-making for European online fashion retailers when entering Ukraine and Russia

65


CHAPTER 7: CONCLUSION 7.1 AIM AND OBJECTIVES FULFILLMENT This study has achieved the aim set in the first Chapter: the model of internationalisation strategy decision-making process for European online fashion retailers expanding into Ukraine and Russia (Figure 2) was developed, thus providing a clear set of recommendations for companies of different size and level of brand awareness in the region. Below is a detailed overview of the fulfillment of each of the four objectives set forth in Table 1.

7.1.1 OBJECTIVE 1: TO EXPLORE THE CHALLENGES AND PECULIARITIES OF INTERNATIONALISATION FOR ONLINE FASHION RETAILERS This objective was achieved through secondary research in Chapter 2 as well as primary research. Overall, four sets of challenges were identified through literature review: the detachment from consumer in the online environment, the demand for physical contact with product from consumers before purchase, the challenges related to establishing logistics in new markets and the need to create branding elements that would provide additional competitive advantage. Through primary research, more challenges emerged: the issue of raising brand awareness in new markets without a physical store and the problem of providing the right sizing for consumers in new markets. Establishing temporary form of physical presence in foreign markets has been proposed in order for online fashion retailers to overcome the aforementioned challenges. Showrooms can be used, for example, as suggested by Brynjolfsson et al. (2013). The main peculiarity of international expansion online is based on the standardization vs. adaptation debate. In the literature review, many frameworks are in support of adaptation (Brashear et al., 2009; Lynch and Beck, 2001; Oracle, 2011; Shneor, 2012; Sinkovics et al, 2007), whereas in practice multichannel retailers and online retailers use a low level of localisation when entering new markets online, as was found through primary research. In practice, the role of cultural differences with the receiving market is not as important as the issue of logistics and delivery for multichannel and online retailers who expand online. This reflects a potential 66


improvement in strategy through more attentive consideration of local culture by online retailers.

7.1.2 OBJECTIVE 2: TO DISCUSS THEORIES AND PRACTICES OF MARKET SELECTION AND MARKET ENTRY TOOLS USED BY ONLINE FASHION RETAILERS Through the literature review, it was established that online retailers often follow a non-sequential and unstructured route to expansion (Forsgren and Hagstrom, 2007), as opposed to the traditional sequential strategy, as reflected in the Uppsala model (Johanson and Vahlne, 2003). Yet, several reasons for online retailers to make their market selection process more structured have been identified, and the most important of them is the risk of opportunistic behaviour in case of unstructured expansion. However, findings of the primary research demonstrated that it is not only the online retail companies that follow an unstructured approach. Multichannel retailers also noted that they sometimes select markets opportunistically, and preference is given to the large and fast growing markets such as the BRIC economies. They still mentioned that entering geographically and psychologically close markets is easiest and beneficial with regard to understanding consumer needs. The importance of networks in a region was also stressed in the course of the expert interviews undertaken within this study. Primary research also indicated that the level of brand awareness pre-entry is a crucial determinant of success in that market and the strategy of entry into that market. Therefore, online fashion retailers should take this factor into consideration and realistically evaluate the level of brand awareness in the region they are planning to enter.

7.1.3 OBJECTIVE 3: TO ILLUSTRATE THE POSSIBLE OPPORTUNITIES IN DEVELOPING A UNITED INTERNATIONAL EXPANSION STRATEGY WHEN ENTERING PSYCHOLOGICALLY AND GEOGRAPHICALLY PROXIMATE MARKETS FOR ONLINE FASHION RETAILERS This objective was explored using the case of Ukraine and Russia mainly through primary research. In general, experience from neighbouring markets was

67


evaluated as important by the interviewed experts, especially in establishing logistics and product range planning both for online and offline retail formats. Overviews of the Ukrainian fashion retail and online retail markets were given in Chapter 4 of the literature review, and the potential of using Ukrainian market’s geographic and psychic proximity to Russia was discussed. Primary research provided an in-depth exploration of this potential, leading to a number of interesting findings. A strong link between the two markets has been identified: experience from Russia for online fashion retailers would be valuable in Ukraine, and vice versa. Two elements of psychic distance were explored, based on the definition of this term by Evans et al. (2000): the similarities in consumer behaviour and the specificities of business practice. The type of consumer in both markets has been defined in similar terms, namely a post-Soviet or CIS consumer. This means that companies can test their brand in either of the markets before entering the other market if they want to see the perception of their brand in Eastern Europe. Business practice specificity was considered a more important element of psychic distance by the experts. The Russian and the Ukrainian markets both have a similar set of bureaucratic and corruptionrelated challenges for foreign companies, and experience from one market in the entry to another is important in overcoming these challenges. However, some differences between the markets should be taken into consideration, such as the market size, level of experience of local management, purchasing power and the existing fashion retail landscape.

7.1.4 OBJECTIVE 4: TO DEVELOP RECOMMENDATIONS FOR EUROPEAN FASHION RETAILERS THAT EXPAND INTO UKRAINE WITH FURTHER EXPANSION INTO RUSSIA AND DISCUSS THE APPLICABILITY OF THESE RECOMMENDATIONS TO OTHER MARKET Upon the completion of the analysis of data, recommendation for European online fashion retailers that plan to enter Ukraine and/or Russia were formulated in Chapter 6. The model developed within this study draws on the adapted Uppsala model of internationalisation (Johanson and Vahlne, 2011) and the network model (Osarenkhoe, 2009). However the central concept is the accumulation of knowledge by online fashion retailers through entry into a ‘springboard’ market with low geographic and psychic distance from the home market.

68


Three strategic routes were proposed, depending on the company’s size and reliance on the economy of scale as well as the level of its brand awareness in the Eastern European region. In the suggested model, the idea of using Ukraine as a ‘springboard’ market applies to small companies with low level of brand awareness or small niche businesses – for them it would be feasible to accumulate knowledge about the business practice and consumer tastes, and test the perception of their brand in a market that requires fewer resources. For large companies or businesses with high level of brand awareness it is proposed to follow the tradition route of expanding into Russia with subsequent expansion into Ukraine. The need to establish physical presence is also considered in the model: it depends on the type of the company and the stage of its lifecycle.

7.2 MANAGERIAL IMPLICATIONS The findings of this dissertation provide a practical contribution to the internationalisation strategy of online fashion retailers from Europe, especially the smaller companies with low level of brand awareness in foreign markets. In order to successfully apply the proposed model in practice, companies’ management needs to acknowledge the importance of knowledge accumulation in their international expansion when entering complicated markets such as the ones of Eastern Europe: overcoming some challenges in that region such as bureaucracy requires sufficient networks and experience. Moreover, small retailers need to realistically evaluate the level of their brands’ awareness in the markets they are entering. It is common for online retailers – who feel that they have a global presence by nature – to target large markets with high potential and fast growth, but it is important for them to establish a temporary form of physical presence in their new market. Therefore, if small and relatively young European online fashion retailers are planning to enter Russia, it would be beneficial for them to use a market that is smaller and psychologically more similar to their home market, such as Ukraine, as a ‘springboard’. Again, the accuracy of the companies’ self-evaluation is key to the effective application of the proposed model.

69


7.3 THEORETICAL IMPLICATIONS The findings of the study also make a valuable academic contribution to the theoretical frameworks with regard to market selection process of retail companies in the case of expansion with the use of a transactional website by challenging the traditional application of the adapted Uppsala model of internationalisation (Johanson and Vahlne, 2011). The developed model (Figure 2) illustrates the applicability of

sequential

international expansion to small sized online fashion retail businesses with low level of brand awareness in new markets and niche businesses, and thus sheds light on an alternative internationalisation process of e-tailers. Therefore, this study contributes to the development of the Uppsala model and introduces new factors for consideration: company size and brand recognition (often determined by the stage in the companyâ&#x20AC;&#x2122;s life cycle). In fact, the importance of the company size factor contradicts the traditional route of the so-called Born Globals to whom firm size and level of experience do not matter (Lu and Sternquist, 2011), as described in Chapter 3 of the literature review.

7.4 LIMITATIONS The greatest limitation of the case study strategy lies in the low level of generalisation because there is the risk of the findings only being applicable to the unique case (Denscombe, 2010). However, despite this fact, the unique case of Ukraine is one of a type (Yin, 2009 cited in Denscombe, 2010) and it still allows analytical generalisation on the basis of one case (Blaxter et al., 2010; Kvale and Brinkmann, 2009): the emerging markets that border with other BRIC countries or smaller markets that border with larger markets with high potential for fashion retailers might find the proposed model applicable to them as well. The study provides sufficient information on the case for the readers to make judgement about the comparability of the Ukrainian market with other market and the applicability of the findings to other cases (Denscombe, 2010). One of the main limitations of this study is the nature of the research method: interviews provide information â&#x20AC;&#x2DC;filtered through the views of intervieweesâ&#x20AC;&#x2122; (Creswell, 2003: 186), and therefore, the collected data is fundamentally subjective. Finally, the sample size also adds a limitation - this study includes interviews from only ten professionals from this field. The main reason for limited number of 70


interviews was the nature of the method, yet there was also a difficulty in accessing top managers and experts for this field, and a more large-scale study could provide more accurate insight.

7.5 AREAS FOR FUTURE RESEARCH This study provides a holistic overview of the process of market selection by online fashion retailers in a particular region. Future studies could focus on specific groups of companies and explore further the effectiveness of using a smaller and less distant market as a ‘springboard’ market. In addition, the applicability of the findings of these studies could be tested in relation to other markets with a similar relationship to that of Ukraine and Russia. Moreover, the possibility of using the ‘springboard’ market concept for fashion retailers with high level of brand awareness and large retailers with low level of brand awareness could be explored further by testing the effectiveness of basing internationalisation strategy on the economy of scale in the long term. In addition, future research could focus on particular areas of adaptation to new markets for online fashion retailers and the role of knowledge accumulation in this (e.g. adapting sizing, communication, user experience of the website etc.).

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Yip, G.S., (2000) "Global Strategy in the Internet Era", Business Strategy Review, Vol. 11, No. 4: 1-13.

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APPENDICES APPENDIX 1: EUROPEAN FASHION RETAILERSâ&#x20AC;&#x2122; DATES OF ENTRY INTO THE RUSSIAN AND UKRAINIAN MARKETS

Retailer

Date of entry into Russia

Date of entry into Ukraine

Sources

M&S

Autumn 2005

2007

Zara

2003

2008

H&M

Spring 2009

Expected in 2014

Sportswear International (2009) Capital.ua (2013)

Mango

1998

2000

Arts Group (n.d.) ARGO (n.d.)

Topshop

2006

Autumn 2010

Menstyle.livejournal.com (2006) Bagnet.org (2010)

New Look

February 2009

November 2010

River Island

2010

December 2010

Reiss

2011

2012

Malls.ru (2011) K.A.N. Development (2012)

Benetton

1998

2003

Fashion People (n.d.) ARGO (n.d.)

The Grocer (2005) Web-portal of Ukrainian Government (2006)

Inditex (n.d.)

Fashionista.ru (n.d.) Nedavno.blox.ua (2010) Malls.ru (n.d.) Domik.net (2010)

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APPENDIX 2: EXAMPLE OF REGIONAL ADAPTATION OF ASOS

Example of ASOSâ&#x20AC;&#x2122;s regional adaptation: when entering the website from Ukraine, customers get a message suggesting to switch to the Russian site where the local sizing is provided and prices are stated in RUB (printscreen taken on 25.07.2013).

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APPENDIX 3: INDICATIVE INTERVIEW QUESTIONS

1. Questions to experts with insider experience in Ukraine and Russia Topic 1: Current situation in fashion retail in Ukraine 1. What is the attitude of Ukrainians towards online shopping? (Prob. 1: Do consumers trust online shops?) (Prob. 2: Do you think brick-and-mortar stores feel the competition from online stores now?) 2. What is the attitude of Ukrainian consumers towards international brands? 3. What is the experience of key e-tailers in the market? (for the experts involved in online retail) (prob. 1: Could you identify an international brand which has an online presence which they consider to be best practice? Why?) (prob. 2: Could you give an an example of an international brand whose online presence is in difficulty? Why?) (This section will answer question 3.1 and 3.2 to establish opportunities and identify possible difficulties and ways of tackling them for European online fashion retailers in the Ukrainian market)

Topic 2: Business practice for fashion retailers in Ukraine and Russia 4. What aspects of the way business is run are common for Ukraine and Russia? 5. What are the differences? (prob. 1: What about the levels of corruption for fashion retailers in these two countries? Do they differ?) 6. Are there any business practice aspects specific to e-commerce in these two markets? (for the experts involved in online retail)

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(prob. 1: Are there difficulties in finding partners in terms of logistics in these countries?) (This section will answer question 4.2 and question 5.3 [in case of interviews with experts who work for European retailers in Ukraine] and help reveal possible business practice links between the two markets.)

Topic 3: Comparison of consumer behaviour in Ukraine and Russia 7. Is there still a common mentality between Russian and Ukrainian consumers with regard to e-commerce? (for the experts involved in online retail) (Prob. 1: Are opportunities for online fashion retailers different in Ukraine and Russia?) (Prob. 2: Are Russians more willing to buy online?) 8. What are the similarities and differences in taste when it comes to fashion in these two markets? (Prob. 1: Does the offer in shops differ much in the Ukrainian and Russian markets?) 9. Are Ukrainians as active in shopping for clothes and footwear as Russians? (This section will help to further answer question 4.2 and reveal possible consumer links between the two markets.)

Topic 4: Sequential expansion into Russia via the Ukrainian market 10. To conclude, what is the connection between the Ukrainian and Russian market for foreign retailers? (prob.1: Why do fashion retailers tend to enter Russia before entering Ukraine?) (prob. 2: Do you think that retailers can benefit from their experience in Ukraine when entering the Russian market?) (prob. 3: What about e-commerce â&#x20AC;&#x201C; would this link mean that entering Ukraine before Russia would be beneficial in terms of gathering market experience?)

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(This section will further answer questions 5.1, 5.2 and 5.3 by linking the similarities and differences between Ukraine and Russia to the applicability of the Uppsala model to these markets for European online fashion retailers, thus combining the previous two sections)

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2. Questions to experts involved in international expansion of multichannel fashion retailers from Europe and introducing their brands in new markets Topic 1: Role of Internet in internationalisation strategy 1. How important is e-commerce to the international expansion of the company you work for? (for multichannel retailers) (Prob. 1 Is it easier to internationalise online?) (Prob. 2 What is more important â&#x20AC;&#x201C; the physical store or the online store? What comes first?) 2. Is localisation of the website important? (Prob. 1 To what extent is the website adapted to new markets?) (Prob. 2 What role does this play for success in new markets?) (This section will answer questions 1.1 and 1.4 and help to establish the role of e-commerce in international expansion and the primary factors that are considered by online retailers when they expand into foreign markets.)

Topic 2: Challenges in foreign markets 3. What are the most difficult challenges faced by your company in new markets? (Prob. 1 Are these challenges exclusive to international operations?) (Prob. 3 Do consumers increasingly demand physical contact with garments before purchase?) 4. Is there one group/ type of products that is most difficult to introduce in new markets? 5. Do psychological challenges prevail over practical aspects? (This section will answer question 1.2 and help to explore the challenges recognised by European retailers when expanding online and establish the factors that need to be taken into consideration.)

Topic 3: Market selection 6. How are decisions made about which markets to enter? (Prob. 1 What are the factors that influence market selection?)

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(Prob. 2 What markets are priority?) (Prob. 3 What factors repulse from entering markets? 7. If you compare internationalising online with opening a physical store - is there a difference in the decision making process? (Prob. 1 Does geographic distance play a role for online?) (Prob. 2 Does psychic distance play a role for online?) (Prob. 3 Does international expansion online have to be accompanied by physical presence in the form of pop-up shops, showrooms etc?) (This section will answer question 2.1 and reveal the essence of the market selection process by European fashion retailers when expanding internationally online.)

Topic 4: Links between foreign markets 8. Does experience in one market influence your decisions in other markets? (Prob. 1 When entering a new market, to what extent do you rely on the experience from neighbouring markets? (Prob. 2 Does it help to ‘test’ the brand before investing into a large market? if yes, how do you do that?) (Prob. 3 The experience from entering neighbouring markets – does its role differ if you open a physical store in comparison to expanding online?) 9. Would entering a smaller market like Ukraine be helpful before entering a larger market like Russia?

(This section will answer questions 4.1, 4.2 and 5.3 [in case of interviews with experts who had experience in the Ukrainian and Russian market] and 5.1 and 5.2 and establish the applicability of the Uppsala model to international expansion of fashion retailers online.)

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APPENDIX 4: INTERVIEW CONSENT FORMS 1. Consent form for research participants who were interviewed face-to-face

INTERVIEW CONSENT FORM

I, ___________________, representing ____________________, hereby give my consent for Ganna Gavrylova, to utilize all audio recordings as well as the disclosing of the information provided during the interview for the specific use by her dissertation only and to share the information with her dissertation supervisor.

________________________ Signature

________________________ Date

2. Consent request addressed to participants who were interviewed via email:

I, ___________________, representing ____________________, hereby give my consent for Ganna Gavrylova, to utilize all of the information provided during the interview for the specific use by her dissertation only and to share the information with her dissertation supervisor.

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APPENDIX 5: DESCRIPTIVE CODING

Not available in the public copy for confidentiality reasons.

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APPENDIX 6: INTERVIEW TRANSCRIPTS Not available in the public copy for confidentiality reasons.

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APPENDIX 7: MEANING CONDENSATION TABLES 1. What are the factors that European online fashion retailers should consider when they internationalise online? 1.1 What are the factors that European fashion retailers consider when they internationalise?

Finding

Quotes

Understanding of

‘So it’s more important really to try to understand the consumer

consumer behaviour

behavior. That is absolutely more important, in my opinion. And even more difficult. So you have to observe, to study, to learn.’ (#8)

Economy of scale

‘…you will probably need to create volume for rapid expansion in the country – to create economies of scale. And you need to be able to, hopefully, use existing partners in your supply chain to get more out of them by giving you better rates, better prices, because you’re actually giving them a bigger opportunity.’ (#10)

Brand consistency

‘…especially if you have your own brand, your store, what you are to do is to replicate the customer experience through all the different channels or through the different ways of how you go to the market.’ (#8) ‘You don’t touch the brand because the brand is sacred: you get the same product and the same brand if you look at it from the UK or from Asia or from America.’ (#10)

Distribution network

‘…once you promise to deliver within a certain day you must have reliable partners in distribution for online stores.’ (#8) ‘The difficulty is to set up the technical side of the website because if you’re selling something online in a new country, where is the product going to be coming from?’ (#10)

Market potential

‘…the potential market that you have: so the number of people who can buy online, who use Internet just to collect information or also to buy.’ (#8)

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1.2 What problems are European fashion retailers facing in their internationalisation how are they solving them?

Finding

Quotes

Customers skeptical of

‘In general, online retail is still way behind the UK or other more

buying online / privacy

developed countries and customers remain quite skeptical about

issues

online retail and using credit card details online.’ (#7)

Importance of cultural

‘we also employ people from the markets we work in so that

sensitivity

cultural understanding is integrated into our team’ (#7) ‘…culture is something which is extremely important to understand, respect and integrate. It's easy to either patronise or offend a whole potential customer base and local input is essential.’ (#7)

Consumers

‘…in reality people travel more and more with cheap flights and

internationally are

therefore the difference between countries is becoming smaller.’

becoming increasingly

(#7)

globalized

‘…especially nowadays we all speak with one voice: it doesn’t matter which part of the world you are.’ (#10)

Challenges are linked to

‘The difficulties are strictly linked to the brand awareness that your

brand awareness

brand has at international level. […] [Brand X] was unknown in the Eastern countries. The penetration of the market was much more difficult, much more expensive in terms of advertising than for a worldwide known brand. […] So really it’s the lifecycle of the brand awareness – it becomes very important.’ (#8) ‘…to be successful in online sales you need to be known as a brand…’ (#8) ‘In other markets we had to increase the number of dressing rooms because they didn’t know the product. […] …maybe a loyal customer is more keen to buy the product of the brand, but to acquire new, completely new customer – I’m not sure it’s so easy.’ (#8) ‘…growth of sales is coming, but at a slow rate, as more and more people are finding out about it.’ (#10)

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Operational challenges

‘The main difficulties are, of course, the delivery and the customs.’ (#9)

Sizing

‘Yes, we need to be able to adjust the product. But not so much in the type of the product – in the available sizes. […] And it may sound simple but it’s not.’ (#10)

Similar problems in

‘…generally developing countries have the same set of problems.

developing markets

The most difficult things are about customs, the local officials, about how we can resolve problems and how you can make things work.’ (#10)

Fear of online shopping

Physical barriers are easier to remove […]. The psychological

is a barrier that can be

barriers (the fear of online shopping) can be removed by the

overcome collectively

industry as a whole, altogether.’ (#9)

1.3 What is European fashion retailers’ attitude towards physical presence in foreign markets when internationalising online?

Finding

Quotes

The multichannel

‘It [physical presence] is desirable, of course.’ (#5)

approach is the most efficient / positive opinion on physical presence

‘If you at the same time launch the store and launch the website, one will help the other…So a lot of the industry experts do say that the symbiosis of these two is, in fact, the best formula.’ (#10) ‘…by giving the customer the opportunity to shop in the store, on the mobile, at home online you definitely maximise the potential of your sales.’ (#10)

Additional challenges

‘But then there’s the question of how many of such do they need?

associated with

One, two, ten? Moreover, there are legal issues in receiving

physical presence

markets – the company’s registration, its maintenance etc.’ (#5)

Physical presence

‘Not necessarily. We do not have either any offline stores or

considered

showrooms in any country of the world.’ (#9)

unnecessary by pureplay retailer Physical presence is

‘…you need to build brand awareness through brick-and-mortar

stronger in building

stores. And once the country is interested – then you start to

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brand awareness

develop an online store.’ (#8) ‘…to be successful in online sales you need…to have your product touched before you start to get sales.’ (#8) ‘What you find is that in order to have successful e-commerce side, you either have to have first – a strong presence of physical stores or you need to spend a lot of money to market that there is an online presence.’ (#10)

Physical presence

‘…the more time you are on field, the more you learn.’ (#8)

contributes to understanding the customer The need for physical

‘This depends on the product. For example, it’s not that critical for

contact with garment

footwear. With shirts this is critical.’ (#5)

before purchase depends on the type of garment

‘…in places where there is not a physical store you do find that people buy more essential, more things that are for day-to-day use and not so much the more specific product.’ (#10)

Offline marketing tools

‘… we often appear in the offline media by taking part in events

used by online retailers

(festivals, for example).’ (#9)

1.4 How do European fashion retailers adapt their online model in international markets?

Finding

Quotes

Language

‘We remove the language barrier, which allows us to speak to the customers in their language, and it gives us an opportunity to launch a wider online marketing campaign (PPC, for example).’ (#9) ‘…basic essentials include language, consistency (of tone of voice/brand communication direction/strategy), cultural variants and what to avoid, payment terms and local practices/laws and the offer itself.’ (#7) ‘…normally, what you adapt is just the language and the price.’ (#8)

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Payment method

‘When you pay, there are some countries, like Russia, where a lot of people don’t have credit cards, you need to find a different way for the transaction to be completed. And there are some other countries, like Belgium, where everybody pays by credit card.’ (#10)

Selection of models

‘If you want to be global, you cannot just use models that are very specific to the country.’ (#10)

Brand consistency

‘Generally international brands try and keep a common general

important

approach to their international websites (to keep them consistent and easy to manage/update).’ (#7) ‘You don’t need to localise the brand. There are more technical localisations that you have to do but you don’t need to localise what is the look and the feel of the brand.’ (#10)

Inclusive and

‘…yes, customisation is not important. Technical adjustments are

convenient strategy

important but you need to be careful not to leave someone outside. You need to make sure that you cater for the whole world.’ (#10)

2. What route to market selection do retailers usually take when they internationalise online? 2.1 Does the market selection process differ for online retailers and multichannel retailers in practice?

Finding

Quotes

For online expansion

‘In general it's clearly easier to open an online offer internationally

the decision-making

or in new markets as the whole approach is far more streamlined

process is more

compared to creating physical stores (which have agency fees,

streamlined and takes

rent, staff, fitout costs, etc.).’ (#7)

less time Offline retail expansion

‘In our case we entered Russia opportunistically and were fortunate

is also prone to being

that our success on our first projects acted as a catalyst for growth.’

opportunistic

(#7) … at the end of the day, it’s the market: go there, try and then you understand. Often it is opportunistic, especially in the early stages of the existence of the company you just enter a market there is a distributor who wants to distribute your product.’ (#8)

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Statistical factors +

‘When we plan launching a new regional site we mainly consider

brand awareness are

the financial factors such as the growth of sales, potential growth of

important

sales.’ (#9) ‘We expanded into … a number of Western European countries for two reasons: a. because the online sales are very big and because the brand is well known. […] That’s why we decided to expand online first in the markets where a company had very strong presence 10-11 years ago and also where there is a very big use of Internet, that’s also important.’ (#10)

Psychic distance plays

‘…these markets are close to home, so we understand them a bit

a role for multichannel

better.’ (#10 on expanding online to Germany)

retailer Large markets with

‘Companies now enter China and shift their priority from other

high potential are

markets because the other markets are too small in comparison.’

primary and do not

(#1)

require additional pull factors for multichannel retailers

‘The other markets that we launch in are the markets with a huge potential, what everybody’s looking at: China, Russia, Turkey – the big markets and the ones that are parts of the BRICs economies – because they are big growing markets, because it’s a big opportunity.’ (#10)

Networks important for

‘…once you promise to deliver within a certain day you must have

multichannel retailers

reliable partners in distribution for online stores.’ (#8) ‘…it’s easy to expand to the neighbouring markets because the existing partner can go there as well. So you don’t have to look for a new partner – it’s easy to work with someone you already know and trust and to give your partner the opportunity to just take one more market in the vicinity of his region. […] …it’s easier to use an existing partner to go to his neighbouring market where we’re not present.’ (#10)

No need to test a brand

‘…you open one store before you open the second, the third and

in smaller market –

the fourth – maybe that’s how you can test the market. But I think

gradual market

the market is very clear to understand from a visit to the market and

penetration is used

see what’s the potential.’ (#10)

instead

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3. What is the current situation in the fashion retail market of Ukraine? 3.1 What are the challenges and peculiarities faced by fashion retailers in the Ukrainian market?

Finding

Quotes

Cautious when online

‘…there is still little trust.’ (#1)

shopping

‘…the trust is very weak.’ (#2) ‘I think [the attitude of Ukrainian consumers towards online shops] is non-existent.’ (#3) ‘I would not say that the brick-and-mortar concept is feeling the competition just yet, since customers still seem to prefer the shopping experience offline and do not trust the online buying a 100%.’ (#6)

Need for physical

‘…customers still trust offline stores more because this allows for

contact with garment is

trying on the clothes, touching them, evaluating the quality and

high

understanding whether the item is original or fake.’ (#1) ‘Yes [physical presence is important in the Eastern European markets]. Because there isn’t real trust of consumers towards online shops.’ (#2) ‘…accessibility is also important – the ability to try on the garment. For example, if you’re ordering from a Ukrainian retailer, you can order several garments and use the ‘home fitting room’ service.’ (#1) ‘As for luxury brands, online shopping is not popular because people the consumer needs to try the garment on, touch it, the consumer needs to get more information about it.’ (#3)

Flash sales and

‘. All the online retail is done by separate companies who buy

discounters popular

discounted product from local retailers or import it from abroad –

online in Ukraine

legally or not. In 90% of cases they are discounters.’ (#2) ‘Most of the successful online buying websites are flash sales, which have made a good introduction.’ (#6)

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Service / practicality /

‘…their delivery times are key. If you are buying a top that you need

customer experience

here and now, for this weather, and you get it from a foreign retailer

important

in 18 days, for example, it can snow in 18 days. Then you understand that it’s not feasible.’ (#1) ‘Luxury products do not sell themselves, they have to be sold, and you need good staff for this. No matter how aware the client is, he still needs to be informed about what he’s buying.’ (#3)

Business is risky /

‘Any business in Ukraine today is very risky. I read not long ago: I

political risks / strong

think it was Deutsche Bank that does not recommend to starting a

corruption element

business in Ukraine and does not support financially the companies that want to locate their capital here. It is related to the real political situation that we have here.’ (#2) ‘…when you want to build a ‘white’ system, when you are registering all the documents, you find that it is nearly more expensive than doing things the ‘grey’ way.’ (#4)

Lack of organization

‘From what I understand, they did not manage to sell on the scale

among management

that they expected. I think that their mistake was in their internal planning and organisation.’ (#4)

3.2 Are there opportunities for online fashion retailers in Ukraine?

Finding

Quotes

Online increasingly

‘…it is an actively developing market. The growth is high and it has

growing

to be made use of.’ (#1) ‘What I noted is the very high annual growth of online sales.’ (#2) ‘Ukrainian consumers have a positive attitude towards online shopping. The proof of this is the 30% annual growth in sales (for the whole market).’ (#5) ‘… it can be observed that the online buying experience in Ukraine is increasing each year and will surely grow.’ (#6)

Online shopper

‘It seems that the number of shopaholic women who have a lot of

mindset is developing

time to shop on the high street is decreasing because a new generation is growing.’ (#3)

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Positive attitude

‘In fashion retail these [favourite brands] are Italy, Spain. Spain is

towards and high

now a leader in mass market.’ (#1)

awareness of foreign brands

‘[Consumers’ attitude towards foreign brands is] as positive as it is possible, of course.’ (#2) ‘Today it is very clearly positive. Ukrainian consumers know European brands well.’ (#3) ‘Ukrainians would buy mainly from foreign [online] stores – Net-APorter, maybe some Russian stores.’ (#4) ‘The attitude towards foreign brands at this stage is better than towards Ukrainian labels. […] … when Ukrainian labels expand into the Western market and show some kind of successful performance, only then retailers and consumers tend to buy them. ’ (#4) ‘Maybe because from the start – the very first foreign labels in this market – were Italian and French, they are the favourites. For the more progressive young consumers now… London and New York have become very popular.’ (#4) ‘Customers love international brands and have an extremely positive attitude towards them, of course also due to its worldwide brand awareness! People believe they offer better quality and updated trends, compared to local brands.’ (#6)

The consumers are fashion-savvy / the demand for fashion is high

‘…there is a demand for clothing in general in this market.’ (#4) ‘The consumers, especially young ones, react very quickly when large volumes of clothing are on offer: no one wants to look the same as everyone else.’ (#4)

There is little

‘The offer in the market isn’t sufficient. There are luxury brands –

competition for

quite expensive ones – and the very cheap shops that the modern

fashion-forward

fashionable young people don’t even shop at. […] …the middle

mainstream brands

segment between luxury and value is weak. There aren’t many quality stores that sell in Ukraine.’ (#4) ‘In Ukraine, the proposition online isn’t strong enough yet for consumers to find the product they need at the price they can afford. And the range isn’t sufficient: some consumers are happy to buy value brands, but some want affordable but quality clothes, and

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not really luxury brands.’ (#4) High demand for value

‘…it was on the cheaper side of the spectrum – this is what is

brands

missing in Ukraine now and everyone is actively developing in this direction now.’ (#1)

Online stylist service

‘I heard of some programmes where you can input your data and

niche empty

they would give you advice but I have not come across anything like this yet.’ (#2)

4. How do European fashion retailers see the link between the Russian and the Ukrainian fashion retail markets? 4.1 How do experiences of other international markets influence new market entry (choice of market and approach) for European fashion retailers?

Finding

Quotes

Experience from other

‘Markets can be compared (even if they are different).’ (#7)

markets is valuable

‘We generally refer to our experience in previous website launches in order to avoid repeating mistakes, if there were any.’ (#9) ‘And I think that’s party why we became so successful in Ukraine – because, as I said, I had already been trained how to operate in a CIS country before I went to Ukraine.’ (#10)

Understanding local

‘If you talk about offline, it makes sense to be able to understand

business practice is

what is different in the local market… In terms of online, I think it’s

important for setting up

the same issues because you’re not going to have a problem

logistics and

launching a website because the template is the same. What the

developing

problem is that you still have to import the goods, you still have to

relationships with local

transport the goods locally, you still have to deal with the

partners

authorities – you need to have an understanding of what are the local dynamics of the business practice’ (#10)

The same knowledge

‘…the same ‘learnings’ can be applied both offline and online.’

accumulation factor

(#10)

applies both to online and offline expansion

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Brand offer can be

‘Yes, it’s possible. Once you have a critical amount of information

adapted using the

and a request […] you could influence, for example, the

experience from other

assortment. […] …you can build up baskets of products and

markets

combinations that are sold together.’ (#8)

Markets of one region

‘…if your product is OK for Hungary, most probably you can

might require different

develop in Russia without any problems. Not sure it works vice

strategies

versa. […] …once you enter Moscow and you’re succeeding with a product, not automatically you would succeed in Hungary due to the market dimension, due to the different purchasing power. […] …the cost structure is completely different. Consumer behavior is completely different. Price sensitivity is completely different.’ (#8)

4.2 How do retailers who have worked with the Eastern European region view the relationship between the Ukraine and Russia in terms of their internationalisation strategy?

Finding

Quotes

Organic flow of

‘We always had clients from Ukraine who shopped from the UK

Ukrainian customers to

website. After the launch of the Russian website, a part of the client

the Russian site

‘migrated’ to it. There isn’t a separate strategy for Ukraine as such yet.’ (#9)

Experience from Russia

‘…when I went to Ukraine, I was able to deal with issues much

is helpful when opening

faster because I had already dealt with them in Russia.’ (#10)

in Ukraine (in terms of business practice) Different strategies

‘The strategies for these 2 countries are quite differently considered and Russia will always be our focus due to scale and level of investment potential (in us and our projects)’ (#7)

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5. Can European fashion retailers take advantage of entering the Ukrainian market online in their expansion strategy into the Russian market? 5.1 Are there links between the Russian and Ukrainian markets that can be advantageous for fashion retailers who expand into the Eastern European region?

Finding

Quotes

Both markets have

‘The main differences are the limitations on the total price of goods

similar average basket

delivered by post and the preference of cash on delivery payment

and payment method

method.’ (#5)

preference Both markets have a similar business practice specificity

‘Yes, the corruption element [is similar in Ukraine and Russia]’ (#2) ‘I think that 80% are similar. […] I wouldn’t say there are any radical differences.’ (#4) ‘This entry can be characterized as a cultural shock, from staff selection to the neverending changes in the markets’ rules.’ (#5)

Problems at the border

‘It is worse when the rules change constantly, like they do in

in both markets

Ukraine. […] A huge wagon of clothing was stopped at the Russian border. […] This shows the unpredictability of the Russian market – and it is caused by political factors.’ (#3) ‘…as a result of customs control, the delivery of goods is often delayed. […] … large companies do face these delays for different reasons. […] [In Russia] it’s even worse. When even the deliveries by the Russian Post are now getting difficult – there are new duties they introduced, it get much more difficult at the border. The prices are higher in Russia, too. I heard a few years ago about a 30% difference in markup because these processes are so difficult in that country.’ (#4) ‘I’m talking about the problems with the custom duties in order to import the goods into the country, problems with bureaucracy, sometimes problems with corruption [in Russia].’ (#10)

The post-Soviet / CIS

‘…and the culture of Slavonic people of former CIS countries [does

consumer

not differ] […] the level of trust to the internet, the culture of shopping online [are the same].’ (#2)

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‘You know, the buyers who select ranges for the CIS countries, they have CIS consumers in mind. The product is practically the same. They view it as a single market.’ (#2) The brand name plays

‘I think it is mainly the brand name and advertising [play an

am important role in

important role in Ukraine]’ (#3)

both markets

‘Specifically in fashion – Russians really love brands.’ (#9)

Foreign brands have

‘…there is also a psychological barrier: I often hear that ‘until they

more credibility than

demonstrate success in a foreign market, I don’t deal with them’.

local ones in both

Like in Russia: Vika Gazinskaya is an example. When she proved

markets

that she was successful abroad, she gained popularity. While she was trying to grow in Russia, nobody really cared for her design.’ (#4)

Similar mentality and

‘There are no big differences to be found in taste taking these two

tastes of consumers in

countries into consideration. [...] Both countries offer very similar

both markets

merchandise.’ (#6)

5.2 Would entering the Ukrainian market before Russia be a useful experience in online retailers’ expansion strategy?

Finding

Quotes

Experience from

‘Yes, the aspects would include managing operations in an

Ukraine is valuable for

environment with limitations on the total price of each purchase…’

operating in a market

(#5)

with local limitations Negative response

‘Not really... they are so different.’ (#7)

Practice on a smaller

‘So to understand the demand for a particular product in the

scale / engaging fewer

market, here [in Ukraine] it is much easier and cheaper to analyse

resources

whether it is worth launching the product in this market in comparison to Russia. In Russia you would have to invest more money to do the same thing.’ (#1)

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‘Of course, it is easier to start here [in Ukraine]. The volumes required are smaller. Prices are lower, so the costs are lower than in Russia. Delivery is cheaper. All the business elements… Labour is cheaper here. […] In Russia it would take ten times as much money to start, fully start a business on a national level. Naturally, by minimizing investment, you minimize risk. So to test a brand, Ukraine is more feasible to enter. In testing a brand, the risks are lower here.’ (#2) ‘…trying something new is better done with minimal investment. And then this experience could be transferred further. So you could try on a small scale and then go bigger.’ (#2) ‘It is very similar, however on a much bigger scale... practice on a smaller scale is always a good preparation for a larger market to follow.’ (#6) ‘It would be… If you think about it in the common sense, I will be useful because then you learn in a smaller environment because compared to Russia Ukraine is almost like a big village, no?’ (#10) Learning the ‘tough

‘…if you manage to make business in Ukraine then Russia will be

way’

easier. I will tell you why: it seems that Russia is more advanced and more developed.’ (#10)

Useful for

‘…it is feasible to enter the Ukrainian market in order to test the

understanding the post-

main tendencies of the so-called post-Soviet customers: their level

Soviet consumer on a

of trust, their IT awareness and knowledge – with little investment

smaller scale

and little competition.’ (#1) ‘This experience would definitely be beneficial. It is also a postSoviet state. The Ukrainian market would give a lot of experience.’ (#3)

Useful for someone

‘So if someone wants to check and can afford to start from small

with evolutionary

doses, then yes, this makes sense. If someone wants to start

strategy (for testing a

making money commercially straight away, maybe it’s better to

brand) only

enter Russia.’ (#4)

Would work for small

There will be second or third priority to do with trends and mentality

companies only

that can be tested on a small scale, but this could maybe work for small companies that want to check the way they are perceived in the Eastern European market. But in general it makes more sense to go to Russia. (#4)

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Ukrainian consumers

‘Here, the ratio of the way the population reacts to the two

may react to new luxury

segments would be around 60:40 because our stratification is very

retailers faster than

specific. Luxury retailers would probably be even better perceived

Russians

here.’ (#4)

5.3 What are the differences between operating in Russia and Ukraine to take into consideration if these two markets are united in one expansion strategy of an online fashion retailer?

Finding

Quotes

Ukrainian market is

‘Another factor is the cost of logistics [in Russia]. Naturally, for a

less complicated in

larger country this cost will be higher. If the delivery is done by air, it

terms of logistics

wouldn’t even be feasible to buy from European online stores

because of its size / the

because the cost of transportation will be higher than the value of

size of Russia causes

the purchase.’ (#1)

problems with delivery

‘The Ukrainian market is more compact. It is easier to stick to the delivery schedule and organize returns in this market.’ (#5)

Market volume

‘[The Russian market] is larger – perhaps ten times as large as the Ukrainian market.’ (#1) ‘There is an issue of distance in that market and the availability of certain brands. If you are in Ryazan and you want a Louis Vuitton, you probably won’t find it there. Going to Moscow, seeing it and then ordering is not convenient.’ (#2) ‘Russia is a much bigger market, with more money, more visitors, bigger opportunities and higher awareness due to its size and population.’ (#6)

Some differences in

‘Russian customers – I have noticed this over the period of 10

culture and consumer

years now – are less picky than Ukrainian ones. Maybe because

tastes

Russia is a big country there are different types of mentality there in different regions. The Kiev audience is more spoilt in terms of clothing.’ (#3) ‘…minor differences depending on the historic preferences of one brand or another in either country.’ (#5) ‘They [Ukrainians] do speak Russian (most) but they do have their own language and cultural differences.’ (#7)

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Purchasing power in

‘[Russian] market is larger. It’s several times larger in consumption

Ukraine is smaller

and purchasing power.’ (#2) ‘They have a larger middle class than in Ukraine [in Russia]’ (#3) ‘There is much more money in Russia!’ (#6) ‘Projects there are generally less sophisticated than Russia due to economic conditions. Retail, for example, is generally much more value focused [in Ukraine].’ (#7)

Management is less

‘The proposition in the market is rather unprofessional‘ (#1)

progressive and has less experience in Ukraine

‘…not everyone who runs the fashion business – including luxury and premium – knows what they are doing.’ (#3) ‘Russians are quite straightforward and more often well educated/open minded at management level. Ukraine is a bit behind and decision makers are more cautious.’ (#7) ‘Russia is more advanced and more developed… Russia is much more straightforward than Ukraine’ (#10)

Russia is more

‘…in terms of implementation time it would differ here [in Ukraine].

progressive in fashion

It wouldn’t be as powerful and fast as it would have been in the

retail / has a more

Russian market.’ (#1)

established system for foreign brands to enter

‘The Ukrainian market has more challenges and the legislation is less clear, I would say. It is harder to do business here, in Russia everything is a more straightforward, business is becoming more transparent there. They have clear game rules there.’ (#2) ‘…they [Russians] are ahead of us in both offline and online by 5-7 years.’ (#4) ‘Maybe they have some established management chains there, so it’s just easier to manage their shops from there instead of building new structures in each market.’ (#4) ‘Ukraine is a very different market, far less sophisticated and with fewer opportunities.’ (#7)

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‘Moscow is a much more busy environment, all the international players are there. Therefore, the earlier you go to Russia, the more likely you are to find good retail opportunities.’ (#10)

‘First come first served’

‘…the Russian market is more saturated’ (#1)

factor in Russia ‘…going to Ukraine first – yes, it will allow you to learn – but in a way you may be losing important retail opportunities because malls get booked very quickly, all the international players are there from H&M, to Zara, to Nike, to Ikea – everybody’s in Russia. Not everyone is in Ukraine – that means that a good mall in Ukraine may wait for you, a good mall in Russia is not going to wait for you. And that’s why companies go to Russia first as fast as they can, as soon as they are ready – because being late will cost you.’ (#10)

Competition in Russia

‘There are more of major online stores operating with larger

is more fierce

marketing exposure.’ (#1)

Moscow is a state

‘…Ukraine and Russia practically don’t differ at all. I am not talking

within a state

about Kiev and Moscow – there is a difference, and quite a big difference […] In Moscow, the people are very progressive. Here, people are on the way to being this progressive.’ (#2) ‘Moscow is a state in itself. The volume of sales is completely different there.’ (#3)

Ukrainian customers

‘According to some data, approximately 5 million Ukrainians work

are more ‘European’

abroad. And they bring that culture here.’ (#2) ‘We’re kind of a buffer zone in between. […] …because we are closer to the borders that opened approximately 10-15 years ago, we absorb everything European more intensively.’ (#4)

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Entry into the Eastern European fashion retail market online