1. INBS 440: International Retailing
Chapter 2
Strategic International Retail Expansion

2. Entry Modes For Retailers
Licensing
Franchising
Pure Franchising (Master Franchise)
Management Contract
Joint Venture
Concession
Wholly Owned Subsidiary
Acquisition (Investment or Hands-on)
Greenfield

3. Acquisition Looking for higher return on investment
Acquisition is the purchase of an existing company
Investment type acquisition: the purchase of an existing well-managed company and allowing management to continue operations
A dormant type of management
Strategy used by Delhaize, Ahold, and Sainsbury when they first entered the U.S.
Rationale for using investment strategy
Looking for higher return on investment
A safe foreign investment
Access to retail know-how
Diversification of investment
Knowledge transfer

4. Acquisition Requirements for acquisition-hands off management:
Select well managed companies
Look for fragmented markets
Stable government & economy
Developed market
Transfer of technology to purchasing firm
Low returns due to high price paid for goodwill
Examples: Ahold’s acquisition of U.S. food retailers

5. Pure Franchise This is another form of dormant management
Pure franchisors typically focus on master franchising; they use franchising exclusively in their international expansion
Expand internationally for opportunistic reasons

6. Global Retailers
The terms global and multinational retailers refer to the concept of standardization (global) versus adaptation (multinational)
Characteristics of Global Retailers:
Standard retail format
Centralized management
Often vertically integrated backwards
Extensive use of private label
Generally small-medium sized
Example: Zara, Gap, and Aldi

7. Global Retailers
When they enter foreign markets, they look for a universal, global market segment that will accept their retail offering without much change
It is possible to develop business format franchise for these retailers because they are relatively small in scale and centralized
They begin their internationalization to world-class cities where they expect to find a segment of consumers who are indistinguishable throughout the world

8. Multinational Retailers
A multinational retailer is decentralized and adapts its product to the culture it is serving
Characteristics:
Decentralized
Concentrate expansion within a geographic area
Change retail offering based on customer and cultural differences
Generally large sized retailers such as hypermarkets, cash and carry
Examples: Carrefour, Wal-Mart’s Supercenters, warehouse clubs such as PriceClub

9. Multinational Retailers
Generally do not internationalize before they have saturated their home market
Most large-scale European retailers that internationalized were food retailers
Because multinational retailers have large-scale format, they do not have a franchising option
Franchising requires that the business format be standardized
Multinational retailers who want to use a low-risk alternative must use licensing rather than franchising

10. Eclectic Theory
The eclectic theory focuses on Ownership advantage, Location advantage, and Internalization advantage (OLI)
Ownership Advantage—innovative or unique products, or process the company can use to obtain market power
Asset-based Advantages: tangible items such as patents or unique products; e.g., private label merchandise
Transaction-based Advantages: refers to the way things are done; e.g., customer service and centralized buying

11. Eclectic Theory
Locational Advantages: relate to how suitable the host country is with respect to the firm’s strategies
Issues related to locational advantages:
Cultural proximity: people in different countries may share similar way of life
Market size:
France, Belgium, Germany, and Spain have stringent requirements that limit large scale retailers’ growth, pushing retailers to expand outside their national borders

12. Issues related to locational advantages:
Multinational retailers will seek countries that are less developed than their home market. Market with high growth in income can provide retailers with double digit growth rate
Global retailers are not affected by the level of economic development in the country. They seek world capitals where a homogeneous consumer resides
Multinational retailers who enter less developed countries are also expected to alter their product offering so that food becomes a larger percentage of sales. Consumers in less developed countries
spend a higher percentage of their income on
food

13. Eclectic Theory Competitors’ Moves: Geographic proximity:
The larger the retailer considering international expansion, the more crucial it is to be an early mover: an early mover is able to secure prime retail locations
Geographic proximity:
Expanding closer to home reduces costs related to transportation and corporate communication

14. Eclectic Theory
Internalization: means keeping information within the company
The greater a company’s ownership assets, the more important it is to protect these assets by guarding company secrets
Because there are not patents on retail know-how, the retail company needs to internalize its innovations to maintain a competitive advantage