1. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Retail Internationalization Chuanyi Tang, Ph. D. Post Doctoral Associate Hough Graduate School of Business Warrington College of Business Administration University of Florida

2. page 2Location Module David F. Miller Center for Retailing Education and Research Objectives  Identify Major International Retailers  Analyze the Motivation of Retail Internationalization  Gain Insights into Foreign Market Entry Decisions  Identify the Specific Opportunities and Challenges for International Retailers  Understand the Concept of Divestment and Retail Divestment in China

3. page 3Location Module David F. Miller Center for Retailing Education and Research Outline  International Retailers  Motivation for Retail Internationalization  Retail Internationalization Opportunities  Foreign Retail Entries in China  Retail Divestment in China

4. page 4Location Module David F. Miller Center for Retailing Education and Research Top 20 Retailers in the World Information source: GMID, Euromonitor RankingRetailerCountry of origin 2009 Sales ($millions) Type # of countries of operation % of sales in foreign countries 1Wal-Mart Stores, IncUSA163,532.00International1513.9% 2Carrefour GroupFRA52,196.10International4037.70% 3The Kroger CoUSA45,352.00Single Country 10.00% 4Metro AGGER44,163.37International3540.00% 5The Home Depot, IncUSA38,434.00International53.70% 6Albertson’s, IncUSA37,478.00Single Country 10.00% 7ITM Enterprises SAFRA36,762.45International1036.00% 8Sears, Roebuck and CO USA36,728.00International310.60% 9Kmart CorporationUSA35,925.00Single Country 10.00% 10Target CorporationUSA33,702.00Single Country 10.00% 11JC PenneyUSA31,503.50Single Country 10.00% 12Royal AholdNET31,222.15International1276.40% 13Safeway Inc.USA30,801.80International810.80% 14Rewe-GruppeGER30,567.69International1819.70% 15Tesco plcUK30,404.40International1410.00% 16Ito-Yokado Co, LtdJPN30,237.57International229.80% 17Edeka-GruppeGER30,002.57International22.40% 18Costco Companies, IncUSA26,976.45International818.40% 19Tengelmann Warenhande GER26,509.12International1547.90% 20The Daiei, IncJPN26,486.11Single country 10.00%

5. page 5Location Module David F. Miller Center for Retailing Education and Research Global Map of Tesco UK R.O. Ireland France Czech Republic Poland Slovakia Hungary Turkey Thailand Malaysia Taiwan Japan S Korea USA China Russia Greece Information Source: www.planetretail.net

6. page 6Location Module David F. Miller Center for Retailing Education and Research 5 Oversea Market of Tesco Information Source: www.planetretail.net

7. page 7Location Module David F. Miller Center for Retailing Education and Research Oversea Market of Tesco (Cont.) Information Source: www.planetretail.net

8. page 8Location Module David F. Miller Center for Retailing Education and Research Oversea Market of Tesco (Cont.) 8 Europe +25% Asia +122% Information Source: www.planetretail.net

9. page 9Location Module David F. Miller Center for Retailing Education and Research Motivation for Retail Internationalization Overview  Two Major Drives  Push factors  Negative aspects of the domestic market  Pull factors  Attractive aspects of either the retail offer or the foreign market

10. page 10Location Module David F. Miller Center for Retailing Education and Research Motivation for Retail Internationalization  Push Factors  Saturated home market and low growth potential  Intense competition at home  Diversify investment  Expansion at home blocked by legislation  Economic downturn at home

11. page 11Location Module David F. Miller Center for Retailing Education and Research Motivation for Retail Internationalization  Pull Factors  Market size and growth  Improved channel of distribution, advertising, and transportation  De-regulation for foreign retail entry  Great potential for some mature retail formats from developed countries  Undeveloped retail industry and less intensive competition

12. page 12Location Module David F. Miller Center for Retailing Education and Research Motivation for Retail Internationalization Challenges for International Retailers  Increased competition  Look like a single market, but is not  Additional layers of governmental complexity  Cultural differences  Internal coordination and transfer of knowledge

13. page 13Location Module David F. Miller Center for Retailing Education and Research International Expansion Opportunities Criteria for Selecting a Country  Macro-Marketing Factors (Sternquist, 2007; Alexander and Doherty, 2009)  Economic Environment  Market size  Market growth  Governmental Environment  Trade barriers  Regulations on foreign retailers  Social and Cultural Environment  Cultural proximity  Technological Environment  Retail information system  Retail Structure and Competition Environment  Market concentration and competition

14. page 14Location Module David F. Miller Center for Retailing Education and Research Information source: GMID, Euromonitor International Expansion Opportunities

15. page 15Location Module David F. Miller Center for Retailing Education and Research  Comparison among BRIC (Brazil, Russia, India and China)  Market Size  Market Growth  Market Concentration  Country Risk International Expansion Opportunities

16. page 16Location Module David F. Miller Center for Retailing Education and Research 200520062007200820092010 Brazil118,687.00146,325.60181,181.60216,101.10215,774.10266,813.50 Russia160,472.40201,493.10259,254.20319,682.20258,717.70305,312.90 India174,688.20185,528.50220,980.70227,851.00216,107.00229,944.00 China520,599.70609,339.10723,108.50886,776.50985,138.701,072,255.70 Market Size International Expansion Opportunities Information source: GMID, Euromonitor

17. page 17Location Module David F. Miller Center for Retailing Education and Research 20062007200820092010 Brazil10.210.812.38.912.8 Russia20.72119.83.410.5 India9.18.78.55.57.6 China13.913.2129.210.9 Market Growth International Expansion Opportunities Information source: GMID, Euromonitor

18. page 18Location Module David F. Miller Center for Retailing Education and Research Market Concentration International Expansion Opportunities Information source: GMID, Euromonitor

19. page 19Location Module David F. Miller Center for Retailing Education and Research International Expansion Opportunities Market Concentration (Cont.) Information source: GMID, Euromonitor

20. page 20Location Module David F. Miller Center for Retailing Education and Research Country Risk (Euromoney) CountryOverall Score Political Risk Economic Performance StructuresDebt Indicators Credit Rating Access to bank finance/capit al market Sep - 10 Mar. - 10 10030 105 11Norway93.3328.1926.898.2510.00 23Switzerland90.2226.8024.998.4410.00 36Sweden88.9328.0422.658.2410.00 916Hong Kong87.1825.2524.878.1010.008.9610.00 1713United States82.1026.2617.917.9210.00 3643China72.6017.3722.316.819.957.508.67 4251Brazil69.5718.8420.736.629.014.3810.00 4952India62.8016.9218.045.359.444.388.67 5254Russia61.4814.6618.465.359.305.218.50

21. page 21Location Module David F. Miller Center for Retailing Education and Research 2010 Global Retail Development Index (A.T. Kearney)

22. page 22Location Module David F. Miller Center for Retailing Education and Research 2010 Global Retail Development Index (A.T. Kearney)

23. page 23Location Module David F. Miller Center for Retailing Education and Research Why China?  Economic Factors  The Largest Market Size  The market size of China is the sum of the other three BIRC countries in 2010.  Stable High Market Growth  China has continued a double digit growth rate from 2005 to 2010. International Expansion Opportunities

24. page 24Location Module David F. Miller Center for Retailing Education and Research Why China? (Cont.)  Industry Structure  The market is largely fragmented.  Chinese retailers are regional.  The sizes of Chinese retailers are relatively small.  Huge opportunities for foreign retailers. International Expansion Opportunities

25. page 25Location Module David F. Miller Center for Retailing Education and Research Why China? (Cont.)  Political Environment  Socialist market economy with Chinese characteristics  Focus on reforms and economic development  Technological Environment  China has better infrastructure than other developing countries.  Chinese government encourages retailers to adopt advanced information system International Expansion Opportunities

26. page 26Location Module David F. Miller Center for Retailing Education and Research Interview with the CEO of Wal-Mart, China (Ed Chan) http://www.mckinseyquarterly.com/Retail_Consumer_Good s/Sectors_Regions/Chinas_retail_revolution_An_interview_ with_Wal-Marts_Ed_Chan_2459 International Expansion Opportunities

27. page 27Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry Decisions  Entry Mode  Location  Time  Format

28. page 28Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry Decisions  Entry Mode Risk, Control, and Resource Licensing Franchising Export Join Venture Wholly owned Contract Management

29. page 29Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China  Entry Mode  Franchising  MacDonald and Sogo  Contract Management  Parkson  Joint Venture  Carrefour  Solely Owned  Tesco (Merger and Acquisition)  Best Buy (Green field)  Increased after 2004  Foreign Manufacturer’s Specialty Store  Pierre Cardin and Play Boy

30. page 30Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China  Entry Format  Department Store  Ito Yokada  Hypermarket/supercenter  Carrefour, Wal-mart, Tesco, Auchan  Foreign retailers have 70% market share  Warehouse  Metro  Specialty/ specialist Store  Ikea, B&Q, Best Buy  Convenience Store  7-11

31. page 31Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China  Locations  Their first entries are in Beijing, Shanghai, Guangzhou and Shenzhen, and their headquarters are mainly in these four cities.  Eastern China has a much higher density than Western China.  Yangzi river delta, Pearl river delta and Bohai Circle have the greatest density.  Sichuan and Chongqing are emerging areas.  Foreign retailers have entered most of the provinces and all the major economic cities.  Foreign retailers are conducting large-scale expansion into lower tier cities.

32. page 32Location Module David F. Miller Center for Retailing Education and Research Geographic Areas

33. page 33Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entries in China (Li and Wang, 2006) RetailerCountryCityFormatRetailerCountryCityFormat YaohanJapanShenzhen (1991) Department store AholdHollandShanghai (1997) Hypermarket 7-11JapanShanghai (1992) Convenience store LocusThailandShanghai (1997) Hypermarket ParksonMalaysiaQingdao (1993) Department store Trust MartTaiwanGuangzhou (1997) Hypermarket CarrefourFranceBeijing (1995) HypermarketIto-YokadaJapanBeijing (1998) Supermarket DaieiJapanTianjin (1995) SupermarketIkeaSwedenShanghai (1998) Specialty JuscoJapanGuangzhou (1995) Department Store Rt-MartTaiwanShanghai (1998) Hypermarket MetroGermanyShanghai (1996) WarehouseAuchanFranceShanghai (1999) Hypermarket MakroNetherlandGuangzhou (1996) WarehouseB&QU. K.Shanghai (1999) Specialty Wal-martU.S.AShenzhen (1996) Shopping center/ Sam’s club/ neighborhood store OBIGermanyWuxi (2000)Specialty LawsonJapanShanghai (1996) Convenience store OttoGermanyShanghai (2000) Specialty Home Depot U.S.ATianjin (2006)SpecialtyBest BuyU.S. AShanghai (2006) Specialty

34. page 34Location Module David F. Miller Center for Retailing Education and Research Leading Retailers in China (CCFA, 2010) RankingRetailer2009 Sales （ 10,000 ¥ ） Growth (%) # of stores Growth (%) 1 Suning 11,700,26714.394115.9 2 Gome 10,680,1652.11,170-14.1 3 Bailian 9,791,5373.86,153-4.1 4Dashang 7,053,59012.81606.7 5 China Resources Vanguard 6,800,0006.62,9268.5 6 RT-Mart 4,043,16920.512119.8 7 Carrefour 3,660,0008.215616.4 8 Anhui Huishang 3,437,883 13.52,88415.5 9 Wal-Mart 3,400,00022.217545.8 10 Wu-mart 3,270,000 6.72,33316.1

35. page 35Location Module David F. Miller Center for Retailing Education and Research Foreign Retailers in China RankingRetailerSales （ 10,000 ¥ ） Growth (%) # of stores Growth (%) 13 Yum! 2,880,0009.93,20018.5 15 Best Buy 2,570,000 262 20 Trust-mart 1,650,0000.61040.0 27 Tesco 1,330,000 15.7 79 29.5 29 Locus 1,300,0000.0771.3 30 Parkson 1,237,00015.74410.0 31 Metro 1,202,277-4.94210.5 39Auchan 986,000 21.03512.9 45 Intime 758,65934.9 22 46.7 50 MacDonald 650,0006.61,10010.0 62Ito Yokada351,38021.930.0 68IKEA312,00015.6716.7 100Home Depot160,0004.6120.0

36. page 36Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China Expansion of Carrefour in China  In 1995, they entered China in Shanghai.  They expanded aggressively and tried to avoid the government’s regulations.  They entered major cities 2-3 years sooner than Wal-mart and Metro.  In 1999, they had 28 stores in 17 cities.  They are currently the No. 1 foreign retailer in China.  169 Hypermarkets in China (as of November, 2010)

37. page 37Location Module David F. Miller Center for Retailing Education and Research Expansion of Wal-mart in China  Entered China in 1996  Headquartered in Shenzhen  Operates three formats in China: Supercenters, Sam’s Clubs, and neighborhood stores.  1996-2004 Slow Growth  Wal-mart is not flexible and doesn’t adapt to the China market  Underdeveloped Infrastructures and IT Systems in China  2004, Ranking 20, <1/2 Carrefour Foreign Retail Entry in China

38. page 38Location Module David F. Miller Center for Retailing Education and Research Expansion of Wal-mart in China (Cont.)  After 2004, Fast Growth  Adapted to Chinese Markets  Worked with Intermediate Agents  Decentralized Management  Opened Stores in Urban Areas  Established Unions and Communist Party Branch  Adjusted Pricing Policies  Government Policies Became More Open  Significantly Improved Infrastructure in China  Consumer Market Booming Foreign Retail Entry in China

39. page 39Location Module David F. Miller Center for Retailing Education and Research Expansion of Wal-mart in China (Cont.)  No. 2 Foreign Retailer in China  Three distribution centers in Shenzhen, Tianjin, and Jiaxing. (By 12/2008)  189 units in 101 cities in China (By August, 2010) Foreign Retail Entry in China

40. page 40Location Module David F. Miller Center for Retailing Education and Research Expansion of Wal-mart in China (Cont.)  The 100 th Wal-Mart store in China  http://www.youtube.com/watch?v=x65efvLryqY http://www.youtube.com/watch?v=x65efvLryqY  300 Wal-Mart stores in China  http://www.youtube.com/watch?v=gGtQDL6OliI http://www.youtube.com/watch?v=gGtQDL6OliI Foreign Retail Entry in China

41. page 41Location Module David F. Miller Center for Retailing Education and Research Retail Divestment in China Divestment  It is not necessarily true that all international companies succeed or would like to stay in China.  Divestment is defined as “Company actions resulting in a reduced presence in a foreign market” (Alexander, Quinn, and Cairns, 2005)

42. page 42Location Module David F. Miller Center for Retailing Education and Research Retail Divestment in China Divestment (Cont.)  Some Retailers That Have Exited China (Li and Wang, 2006)  Yaohan (Japanese Supermarket), 1999  Xiyou (Japanese Supermarket), 1999  Ahold (Netherland Hypermarket), 1999  PCD (Hong Kong Department Store), 2000  Jusco (Japanese Department Store), 2000  Daiei (Japanese Supermarket), 2004  Mykal (Japanese Department), 2003  OBI (German Home Improvement Store), 2005

43. page 43Location Module David F. Miller Center for Retailing Education and Research Retail Divestment in China Store Closures in 2008-2009 (Wang, 2009) RetailerStoreFormatReason Isetan Huating store in Shanghai Department storeNet loss for two years ParksonChangsha storeDepartment storeLease expired TescoJilin StoreHypermarketHigh operation cost Trust-mart Nanjing Qingliangmen store and Gulou store; Chengdu Daye store, Wuhan Minyi store, and Fuzhou stores SupermarketBad performance B & Q Shekou store in Shenzhen; Fuzhou store Specialty storeBad performance HomeDepotQingdao storeSpecialty storeBroke up with the landlord

44. page 44Location Module David F. Miller Center for Retailing Education and Research Case Study  Best Buy in China  http://www.youtube.com/watch?v=zMABUmlOQdE http://www.youtube.com/watch?v=zMABUmlOQdE

45. page 45Location Module David F. Miller Center for Retailing Education and Research References  CCFA (2010), Report on Chain Store Retailers’ Performance in China (2009-2010).  Li, Fei and Gao Wang (2006), The Development of the Retailing Industry in China (1981-2005), Social Sciences Academic Press, Beijing  Wang, Qiang (2009), Report on China Retail Business Monitoring and Analysis, China Economic Publishing House, Beijing.  Alexander, Nicholas, Barry Quinn, and Patricia Cairns (2005). International retail divestment activity, International Journal of Retail & Distribution Management, 33(1), 5- 22