This business owner launched a German subsidiary to side-step Brexit red tape

Karndean Designflooring are suppliers of luxury vinyl flooring and have been exporting their products from the UK under their sister brand Designflooring to a number of European markets for decades.

But three years ago the company could see the writing on the wall with Brexit, expecting their export business to be hamstrung by red tape and unexpected costs.

The answer? Open a warehouse distribution base in Germany to better serve their growing Designflooring customer base in Europe.

We caught up with Designflooring MD Paul Barratt, who shared valuable learnings for any small business looking to open an arm in any new market.

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A Brexit survival plan

Karndean Designflooring designs luxury vinyl flooring products in the UK, exporting them to a number of European countries under its Designflooring brand. But as Brexit loomed, a decision had to be made about how to operate in Europe after the UK left.

“The UK government kept asking the same question: is your business prepared for Brexit? Without any real advice on what you should do, because at that stage they didn’t know either,” Paul says.

By opening a third-party warehouse in Germany, Designflooring managed to reduce some of the impact.

“Lots of businesses at the moment are being caught out by the issue of the origin of their product. If they bring it into the UK from the Far East and sell it into Europe, they have to pay double duty. ”

Paul was aware that the smooth running of their operation was also likely to be impacted too.

“We knew it would be a very bureaucratic, slow process - and just messy - to be able to trade from the UK once we were out of Europe. So it made much more sense to go early and be in charge of our own destiny.”

Learnings from Designflooring

Designflooring’s’s German hub is a storage, pick and pack operation that has been outsourced to a third party. There were lots of considerations to be made before deciding on this approach, though.

So, after years of exporting internationally and setting up a warehouse in Europe, what are Paul’s top pieces of advice for any business entering a new territory?

Don’t scrimp on your market research

Paul is emphatic about the importance of thorough and detailed market research. He explains why it’s likely to be the difference between success and failure in a new market.

“If you’re going to go into Europe, you’ve got to research that market, understand what the needs and wants of the customer are, their buying habits, and the types of legislation that may impact the products you sell there.”

“For example, in France most flooring is installed by painters and decorators that turn their hand to flooring. So they buy all their paints and flooring from what we would call builders merchants. The stores are not like the flooring stores in the UK - they’re paint stores that have a flooring department.”

Paul explains why this seemingly small detail is actually a crucial piece of information. “Primarily the individuals installing the product are painters; they want an easy to install product. They don’t want something that’s complicated or messy or something that they can get wrong. They want something really straightforward.”

In-depth research will help you understand which products are right for which market, and which are unlikely to sell.

“We’ve got some easy fit products that do extremely well in France because of that - exactly that - we know that territory is very particular about it.”

Consider third party solutions

How will you sell your product in a new territory? What will your route to market be? Paul is clear that the way in which you sell to your customers is a fundamental factor when breaking into a new market. He explains why it can have a significant impact on your bottom line.

“A European business can be an expensive and complicated business to run, so there are lots of things to consider. For Designflooring, it can be more expensive to run because we prefer to have a close relationship with our direct sales team.,
However, this route isn’t going to be the right one for every business.

“There are cheaper ways of entering new markets and territories,” Paul explains.

“If you get the right distribution partner with the right contacts, who’s going to stock your product at the appropriate level, promote it in the right way and work with you as a partnership, it could cost you far less.”

A distribution partner will take on the burden and the cost of sale. With their own sales teams and existing foothold in the territory, they’re already established.

“You probably won’t make as much of a margin on your product but on the flip side it’s probably cheaper overall to distribute to them.”

The relative ease and reduced cost of using a third party distributor, according to Paul, makes it the most logical option when you first enter a new market.

“If you’re looking at entering a new territory, most businesses start with a distribution model. They pick a partner, work with them, and then open it up at a later date.”

Think your customer service through

When you’re entering a new business territory there will always be unforeseen challenges. That’s why it’s vital to mitigate these unwelcome surprises by considering every aspect of your buyer journey and customer service. A small oversight can end up being incredibly costly.

“We send samples into Europe,” Paul explains. “The warehouse in Germany doesn’t have a setup to send samples out to consumers so we still do that from the UK. Even though they’re only samples, they have a value, and because of that value, you have to pay a duty on them. So the cost of sampling has probably doubled.

Paul points out that these kinds of challenges can’t always be easily or quickly fixed.

“We’ve just got to pay it. It’s going to cost us more, but it is an important part of the customer journey for us and a challenge we will overcome. We are investigating options to have a third party fulfil our samples requirements overseas. This will come with time and patience”.

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Ensure you speak the language

If you’re expanding your business into a new market, you have to be able to communicate with your customers and/or any third party distributors. For Designflooring, employing native speakers is a priority in all of their overseas operations.

“We have native speakers in all of our direct territories,” Paul explains. ‘All our back office functions - marketing, finance - are UK-based. It’s just the warehousing that’s separated out. The goods don’t come into the UK, they go straight into Rotterdam, and then travel down to our German warehouse.”

Of course, employing people who speak the language goes beyond communication. It’s also about understanding the culture, attitudes, and behaviours of your new market. If you’re training staff for example, who do you send to train them? Paul shares Designflooring’s approach.

“We had to go over (to Germany) and do some training. There were a few issues with how the staff were picking the orders, the priorities they had in place - those kinds of things. We sent our head of customer service over there, who lives in the UK but is German.”

Lean on available expertise

If you’re reading this, then you probably already know this piece of advice – lean on the expertise of others.

Apart from talking to the local Chambers of Commerce, if you’re a Vistage member, you have an invaluable network of peers at your disposal. Many will have gone through the experience of expanding their businesses overseas. Paul extols the value of reaching out to others:

“We put things out to Vistage members to see what information they could provide us with. That helped us prepare and do it in the right way.”

For support with international expansion and many other problems facing leaders, join the world’s largest community of business executives today.

CTA_Leaders Guide to expanding overseas

Image: By eyegelb Via Adobe Stock

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