The Global Challenge

Posted by Marty Brochstein on November 18, 2009

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“Anyone who hasn’t been thinking of their licensing business in global terms is in trouble.”

That statement by a U.S.-based licensing agent is both a comment on the state of the U.S. retail scene in 2009, as well as an acknowledgement about where the biggest growth is likely to come from in the years ahead.

For those looking forward, though, the future is now. Try this list on for size: Sao Paulo, Brazil. Rovinj, Croatia. London. Shanghai. Tokyo. Dubai. Munich. Milan, Italy. New Delhi. Hong Kong. Budapest. Bologna. Paris.

Those are the sites of licensing-specific shows and conferences (many of which LIMA sponsors or supports) that have been and are scheduled to be staged in the nine months following Licensing International Expo this past June in Las Vegas. Five years ago, the vast majority of these events didn’t even exist. That licensing itinerary is a reminder of the geographical breadth of the licensing business.

It was great to see the level of enthusiasm surrounding the recent Brand Licensing Europe in London. As far as we could tell, meetings were being conducted in most booths literally until the show closed its doors and lights started being turned off.  For the most part, reports from other shows have held a constant theme: The shows themselves were somewhat smaller than organizers wish, but the level of traffic and business discussions more than justified the investment.

It would be ingenuous to say that the business in most areas outside North America – which by most accounts still generates more than 60% of the global business — doesn’t present a host of challenges to be overcome before they become meaningful contributors to most licensors’ bottom lines.  Piracy, counterfeiting, distribution challenges, shoddy merchandise and media support are only some of the issues that need to be dealt with to build a solid, stable, projectable business.

For example, the first edition Licensing Factory New Europe, staged over four days in the lovely coastal town of Rovinj, Croatia, didn’t attract as many visitors as organizers had hoped, but offered a closer look at both the opportunities down the road in Eastern and Central Europe, as well as the complexities of operating in the region.

Consultant Nenad Pacek of Global Success Advisors offered an upbeat assessment of long-term prospects in much of the region – though short-term enthusiasm should be tempered. Consumer demand, he said, “should remain subdued for the next two years, because hiring will lag” behind other indicators of economic recovery.  On the other hand, economic growth rates, he predicts, will be three times higher in emerging markets than in more developed markets. Further, he notes, more than 80% of the world population lives in emerging markets (though it must be pointed out that income levels in most of those areas don’t offer much immediate hope for significant discretionary consumer product sales).

While much of the talk about market potential in developing areas of the world centers on China, Pacek said that “there’s more business now in Eastern Europe than in China for most multinationals.” Consumer economies in the region were “growing nicely during the boom times” of the early part of this decade, until the recession hit, when they were “hit hard.”

Alen Magdic, General Manager of One2Play — a Croatia-based retailer/toy distributor/licensee – offered a brutal picture of business prospects in Croatia, starting with a laundry list of conditions that mitigate against success: an “inefficient and slow legal system,” corruption, high taxes, workers’ expectations of “less work for more money” than they’d gotten in the earlier communist society, and general low income levels.

He also listed things specific to the licensing business: the lack of reliable market research, the lack of many companies involved in the business, shortage of educated professionals to operate businesses, and lack of support from licensors.

Other difficulties involve the high costs of dubbing animated programming into the four languages spoken in the immediate region (which includes Serbia, Slovenia and Montenegro), low penetration of cable/satellite, and a highly concentrated and intertwined retail and media structure.

But with all that, Magdic and others offer reasons to stick it out. He says the future of the publishing and movie theater businesses are bright, and that the Internet will begin to play a larger role in consumers’ lives – he terms it a “powerful future medium.”

One2Play, like some other Croatian companies, is in the process of developing and launching domestically-developed characters and properties. “In the future,” says Magdic, “were going to develop more of our own properties” as part of co-productions. That’s a course that’s been taken, for example, by UltraLink, a Croatian company which is relaunching Professor Balthazar – an updated animated version of the title character of a 59-episode Croatian animated series from the late ‘60s and early ‘70s.

Licensing Factory New Europe offered an illuminating look at both the challenges and the promise of the global marketplace.  As property owners and manufacturers look for room to expand, they’ll have to educate themselves and form alliances to meet the local challenges in order to reap the benefits.