Best Office, with annual revenues exceeding $44 million, operates 70 franchised and company-owned retail stores, has a delivery sales business and stands as one of the big three OP supply companies in South Korea. So Office Depot’s new controlling interest in the company is a major step for Depot in the South Korean market.
Office Depot International president Charlie Brown told OPI: "In a market like South Korea, being able to come in with one of the top three players with an aggressive outlook does create problems for other people in the market."
On the strategy behind the deal, Brown added: "We see Asia as a huge opportunity. A lot of European companies feel that way. South Korea is an easy market for US companies to do business in, it’s fairly open."
Opportunities
Depot’s other Asian interest, its Japanese business, has not exactly been a raging success. "It’s fair to say that the Japanese business is not where we would like it to be, but we’ve made terrific progress over the last couple of years. We continue to evaluate other opportunities for partnership or other structural changes that we could make, but the good news is that we are well on our way to a pretty successful business," Brown said.
Nevertheless, Depot’s tricky experience in Japan – generally considered to be not too dissimilar to the South Korean market – has clearly not put it off operating in the region. Brown explained: "We have learnt a lot from our business in Japan in terms of what to do and what not to do, and we are applying those lessons to our expansion into other parts of Asia."
In South Korea, Depot will have to contest against similar foes. Around 20,000 small dealers and stationers are all bidding for business from the country’s three million SMBs while the surge of the mass market retailer, led by Emart, Carrefour and Wal-Mart, seems to be unstoppable.
One retailer that entered and then left South Korea, Office 1 Superstore International, certainly has words of warning for any retailer entering the country. CEO Mark Baccash told OPI last year that the market was "a tough existence" as "local vendors charge very high prices and enjoy large margins and control prices by maintaining a united front", resulting in "low margins for retailers and dealers".
Another major foreign player that is now in South Korea, Lyreco, decided against buying a foothold in the market and simply started its own subsidiary.
Lyreco CEO Eric Bigeard told OPI: "We have done very little acquisition in Asia. Only one in Hong Kong and that was our first move in Asia. I believe that when you have a real strong model, Asia is a great area for greenfield operations."
Established
South Korea is still attractive for companies, including Office 1, because it’s such a huge market – touching on 50 million people. Of course, one thing Depot has with Best Office is a strong and established domestic brand. But will Depot look to rebrand?
"We always have to think about that sort of thing carefully. Best Office, being in the top three in the market, has a lot of value while Depot has a lot of value on a global basis. Any changes that we ultimately make, if we make them, will be done in a very powerful manner, but we haven’t finished our analytics on this point," Brown explained.
On a similar issue, Depot is also keen to maintain some local expertise within its management team. Jang-Duk Sun, Best Office founder and CEO, is a true entrepreneur and excited about being part of a global player. He believes the hook-up with Depot will allow his company to "further differentiate our business from the competition by offering our customers more value and unique assortments".
Expertise
Local expertise is particularly important in Asia as store formats are different to how they are in Europe or North America. Stores are laid out in a very different way and there is a much higher density of product. It is also common for companies to deliver out of stores with delivery often expected in three or four hours.
So after South Korea, where else may Depot look in Asia? The company says it is looking to build a large regionally-based business in Asia as it has in Europe, with China and India seen as "attractive markets". And if the Best Office deal is anything to go by, Depot will certainly be bold in making its move into those markets.
