Sound products, clever ideas and the right plan are what you need for a successful move into overseas markets. A little chutzpah doesn't go astray either. By Jane Cherrington
"I haven't the foggiest how to sew," says Sean Ashby blithely. Fortunately for the rapidly expanding menswear company aussieBum, his doggedness launched a business that, in theory, should never have survived.
The company has been achieving 15-20 per cent growth each quarter since it began in 2000 despite Ashby breaking almost every rule for establishing a business. He had little or no capital to start; he had no idea about the fashion business or manufacturing; he began exporting before establishing a customer base in Australia; and he launched an e-commerce operation just as the dotcom bubble burst.
Even with these seemingly steep odds, aussieBum achieved a turnover in the first year of $30,000, and today its annual turnover is "in excess of $10 million", says Ashby.
It is perhaps not so much that the joint owner of a multi-million dollar fashion business needs to know how to sew. But six years ago it might have been an issue. Unemployed and sitting on Bondi Beach in imported bathers, Ashby wished for the "nylon cossies" of his childhood.
The business was born when Ashby thought he might rustle up a couple of samples, show them to retailers and department stores, and the orders would flow. Fortunately, he has a lot of friends. They helped make the samples, but the response from local department stores and retailers was universally negative. "The bathers were rejected as passe," says Ashby. He was told that lycra was the only material customers were interested in.
Convinced his idea was a winner, Ashby called on his mates again. Together they built a website, did a photoshoot at Bondi Beach, then sent a sample, a press release and the photos to major magazines around the world.
The response wasn't overwhelming exactly, but a few magazines included a couple of paragraphs and the website address. "Then one order arrived, two days later there was another, then the next day another, and so on," says Ashby.
In 2007, aussieBum ships more than 1000 individual orders around the world every day. Business has been kicked along with a few major marketing "wins". Kylie Minogue featured aussieBum bathers in her video clip for "Slow". The garments have been shown on high profile talk shows in the US and UK, and the company will be featured in a US reality show, The Janice Dickinson Modeling Agency, due to air in Australia later this year.
Home-grown export model
Two years after aussieBum began, Ashby realised the business needed systems and technology that were beyond his expertise. Guyon Holland bought into the business and set about streamlining the back-end. "It's one thing to have a really great product, but it's entirely another to manage the logistics of the website, manufacturing and distribution," says Ashby.
Emphasising the international nature of the business, Ashby says, "We have nine different languages on the website, there are more than 300 different styles and designs and five different sizes in our current range, and we ship about 7000 orders per week. So if there wasn't a person like Guyon with the knowledge and experience to develop systems, we would have imploded."
But it's a business model many would envy. Every order, whether a single pair of bathers for South Africa or a job lot of 5000 for the Printemps department store chain in France, is paid for upfront via the website or by direct deposit. It is aussieBum's innovative back office operations that underpin the business success. Despite the local textile sector being in tatters through cheap imports, aussieBum makes all of its garments here.
Holland has devised a system that is more efficient than offshore manufacturing. With sophisticated inventory control systems, and good partnerships with local manufacturers, production lines can be quickly diverted to change the size, style or colour so that even large orders can be fulfilled within a couple of days. That wouldn't be possible, says Ashby, if the company's garments were made in China where controlling the manufacturing process would be far more difficult because of the distance; time would be wasted while the products were shipped back to Australia , and there'd be warehousing expenses once they arrived.
Exporting the franchise
Systems are the bedrock of a franchise operation, but they can be trickier to monitor and supervise once a franchise expands overseas. Bakers Delight has come up with an approach that has seen it grow from a single store in a Melbourne suburb in 1980, to 700 stores in Australia, New Zealand and Canada, with plans for a further 100 in the US within two years. The first US store opened late last year in Seattle.
Typically, franchisors appoint a master franchise in a country, but Bakers Delight has taken a more cautious approach by operating its own stores first, to establish and build a market for the brand, before appointing franchisees. Today, all 35 bakeries in New Zealand are franchised, but in the relatively new Canadian market, only four of the 39 stores are franchised.
"When you sell a franchise you've got to have the runs on the board," says Joint CEO Lesley Gillespie. Being successful in Australia doesn't necessarily mean much to a Canadian, she says.
It's a good strategy, says Austrade's Cheryl Scott, an industry specialist in franchising and business services. "There's a lot of control over the brand but you need a lot of capital to do it."
Master franchising is more common, says Scott, but it can be more risky because you have less control. In this case, she recommends attention to detail in contract documentation to cover your expectations, and thorough training systems.
"The master is brought to Australia for training and then they're responsible for training in their own country. Alternatively, the Australian entity could set up a training operation overseas that can act as a training hub for a number of countries. For example, Cartridge World has a training facility in Poland for training people from Europe," she says.
The moves made by Bakers Delight into New Zealand, then Canada, and now Seattle are no accident. While the New Zealand operations were established 11 years ago "because New Zealand is close and we thought it would be easy; but nothing's ever easy," Gillespie says, the move into Canada four years ago came after a year of research.
The shopping list for the choice of next country included the following: English speaking; stable government; access to labour; reasonable rents; a reasonable exchange rate with the Australian dollar. At the time, Canada came out on top, followed by the US.
Trojan horse strategy
Not all exporters are quite so considered. Austrade research actually shows that 50 per cent of exporters get there by accident. "Whether it be on vacation and they get a business idea, or they set up a website to sell domestically and suddenly get an order from Hong Kong or the US, or after meeting someone at a conference - a lot of that happens," says the Australian Trade Commission's Chief Economist Tim Harcourt.
For IBA Health, the largest ASX-listed health technology company in Australia, a "trojan horse" style export strategy has seen it grow from a market capitalisation of around $150 million at the time it listed in 2000 (during the dotcom bust), to around $500 million today. The company has identified that its major growth opportunities are in developing countries such as China and India , says Business Development Director Greg King. "China has 68,000 hospitals, for example. The opportunities are huge."
IBA has had contracts in New Zealand since it floated, and at that time acquired a company in Singapore as well. But it wasn't until 2005, when it spent more than $40 million to buy a business in India, Medicom, that things really started moving. "That gave us a development centre of more than 200 people in Bangalore and offices in Oman, South Africa and Kuala Lumpur," says King.
IBA followed up with the purchase of a small company in Malaysia that provides a second "anchor point" in Malaysia for use as a launch pad into Thailand and Indonesia. Buying reputable local companies allows IBA to combine local expertise and networks with the company's Australian innovation to strengthen the overall operations, says King. "I strongly think it's the right way to enter a country where the culture isn't familiar to us, such as China and India. It's just too tough to go in and open up an empty shop," he says.
There are risks though. "One of the things we try not to do is to buy a company, then go in and make it look like us. We try to be very careful to remember why we bought it and what its value-add is," he says.
There are other ways of gaining a presence in a foreign market, and it's in the interests of countries to attract overseas investment to their own shores.
International Business Wales (IBW) is one example of a body designed to assist Australian companies to make Wales their stepping stone to UK and European markets.
IBW was created by the Welsh government to raise awareness of overseas opportunities and acts to drive alliances between Welsh companies and counterparts overseas. IBW's Sydney office has helped such Australian companies as Macquarie Bank, Sims Group and BHP Billiton set up operations in Tom Jones's homeland.
The kind of help IBW provides includes local knowledge, identifying partners and helping with trade strategies. For example, an international investor consortium led by Macquarie Bank is setting up a shared service centre in Newport, Wales for 350 employees. The obvious benefits to this sort of exercise cut both ways for investor and the host country.
Ultimately, not every partnership is viewed as a positive opportunity. aussieBum's Sean Ashby refuses to have Australian retailers dictate his business. Still bitter about rejection by local stores in his early days, he admits to a "huge chip on my shoulder". So can he ever envisage his garments in an Australian department store?
"Absolutely not! I'll build a store right next door instead," he says. In the meantime, another overseas market beckons.