Retail Market Entry Strategy in China

Retail Market Entry Strategy in China

1. Introduction to International Retail Strategy

Questions What is a retailing strategy?
How can a retailer build a sustainable competitive advantage? What different strategic growth opportunities can retailers pursue?

“Strategy” Is Over Used
Retailers Talk About A Lot of Different “Strategies” Sales Strategy Advertising Strategy Merchandise Strategy Location Strategy Strategy Is Not Just Another Term for A Management Decision The term strategy is frequently used in retailing. For example, retailers talk about their merchandise strategy, promotion strategy, location strategy, or branding strategy. The term is used so commonly that it might appear that all retailing decisions are strategic decisions, but retail strategy isn’t just another expression for retail management.

Elements in International Retail Strategy
Target Market Countries and market segment(s) toward which the retailer plans to focus its resources and retail mix Retail Format – Offering to customer the nature of the retailer’s operations—its retail mix- the the skills and resou8rces that the retailer has Sustainable Competitive Advantages advantages over the competition A retail strategy is a statement identifying (1) the retailer’s target market, (2) the format the retailer plans to use to satisfy the target market’s needs, and (3) the bases upon which the retailer plans to build a sustainable competitive advantage. The target market is the market segment(s) toward which the retailer plans to focus its resources and retail mix. A retail format describes the nature of the retailer’s operations—its retail mix (type of merchandise and services offered, pricing policy, advertising and promotion programs, store design and visual merchandising, typical locations, and customer services)—that it will use to satisfy the needs of its target market. A sustainable competitive advantage is an advantage the retailer has over its competition. that is not easily copied by competitors and thus can be maintained over a long period of time. © image100 Ltd

Target Market Why Does a Retailer Need to Focus on a Specific Counties Target Market? Why Not Sell to Everyone? Military Analog

Criteria For Selecting A Target Market
Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages Rim Light/PhotoLink/Getty Images

Internal and External Bases for Competitive Advantage
Retail Firm Low Cost Large Size Efficient Distribution, Operations Unique Knowledge Loyal Employees Sources of Capital Vendors, Suppliers Customers Establishing a competitive advantage means that the retailer, in effect, builds a wall around its position in a retail market -- around its present and potential customers and its competitors. When the wall is high, it will be hard for competitors outside the wall (i.e., retailers operating in other markets or entrepreneurs) to enter the market and compete for the retailer’s target customers. Any business activity that a retailer engages in can be the basis for a competitive advantage. But some advantages are sustainable over a long period of time, while others can be duplicated by competitors almost immediately. For example, it would be hard for Peets Coffee & Tea to establish a long-term advantage over Starbucks by simply offering the same coffee specialties at lower prices. If Peets’ lower prices were successful in attracting customers, Starbucks would soon realize that Peets had lowered its prices and quickly match the price reduction. This might lead to price war that Starbuck’s is likely to win because it has lower costs due to its larger size. Similarly, it’s hard for retailers to develop a long-term advantage by offering broader or deeper assortments of national brands. If the broader and deeper assortment attracts a lot of customers, competitors will simply go out and buy the same branded merchandise for their stores.

Can A Retailer Develop a Sustainable Competitive Advantage by:
Dropping the Price of Your Merchandise? Building a Store at the Best Location? Deciding to Sell Some Hot Merchandise? Increasing Your Level of Advertising? Attracting Better Sales Associates by Paying Higher Wages? Providing Better Customer Service?

Sources of Competitive Advantage
Less Sustainable Better Computers More Employees More Merchandise Greater Assortments Lower Prices More Advertising More Promotions Cleaner Stores More Sustainable Location Customer Loyalty Customer Service Exclusive Merchandise Low Cost Supply Chain Management Information Systems Buying Power with Vendors Committed Employees (HR)

Approaches for Building a Sustainable Competitive Advantage
Customer Loyalty Relationship with Suppliers Internal Efficiencies Three approaches for developing sustainable competitive advantage are: (1) building strong relationships with customers, (2) building strong relationships with suppliers, and (3) efficient internal operations. Each of these approaches involves developing an asset – loyal customers, strong vendor relationships, committed effective human resources and efficient.

Approaches for Building Customer Loyalty
Unique Positioning Location Customer Service Personalization using Information About Customers (Database) Unique Merchandise Customer loyalty means that customers are committed to buying merchandise and services from a particular retailer. Loyalty is more than simply liking one retailer over another. Loyalty means that customers will be reluctant to patronize competitive retailers. For example, loyal customers will continue to have their car serviced at Jiffy Lube, even if a competitor opens a store nearby and provides slightly lower prices. Some activities that retailers engage in to build loyalty are: (1) developing a strong brand image, (2) having a clear and consistent positioning (3) providing outstanding customer service, and (4) undertaking customer relationship management (CRM) programs. In addition, other activities discussed in this section also contribution to developing customer loyalty. For example, providing convenient locations encourages patronage which can develop into loyalty. Engaging in human resource management practice develop competent, committed sales associates lead to better customer service and subsequent customer loyalty,

Location What are the three most important things in retailing?
“location, location, location” Why is location is a competitive advantage? Location While developing committed relationships with external parties and efficient internal operations are important sources of advantage, location is a pervasive source of advantage in retailing. The classic response to the question, “What are the three most important things in retailing?” is “location, location, location.” Location is a critical opportunity for developing competitive advantage for two reasons. First, location is the most important factor determining which store a consumer patronizes. For example, most people shop at the supermarket closest to where they live. Second, location is a sustainable competitive advantage because it is not easily duplicated. Once Walgreens has put a store at the best location at an intersection, CVS is relegated to the second-best location. Starbucks has developed a strong competitive advantage with its locations. As it expanded across the U.S., it saturated each market before entering a new market. For example, there were more than 100 Starbucks outlets in the Seattle area before the company expanded to a new region. Starbucks will frequently open several stores close to one another. It has two stores on two corners of the intersection of Robson and Thurlow in Vancouver. By having such a high density of stores, Starbucks makes it very difficult for a competitor to enter a market and find good locations.

Unique Merchandise: Private Labels
Sears’ Kenmore -- appliances Macy’s ING. – fine apparel Kmart’s Martha Stewart -- home JCPenney’s Arizona -- jeans Rob Melnychuk/Getty Images Jules Frazier/Getty Images It is difficult for retailers to develop customer loyalty through its merchandise offering because most competitors can purchase and sell the same popular national brands. But many retailers build customer loyalty by developing private-label brands x>(also called store brands or own brands) -- products developed and marketed by a retailer and available only from that retailer. Jacobs Stock Photography/Getty Images

High Quality Customer Service
Retailers also can develop customer loyalty by offering excellent customer service.[i] Consistently offering good service is difficult because customer service is provided by retail employees who are less consistent than machines. Machines can be programmed to make every box of Cheerios identical. But employees do not provide a consistent level of service because they vary in their training, motivation, and mood. It takes considerable time and effort to build a tradition and reputation for customer service. But once a retailer has earned a service reputation, it can sustain this advantage for a long time because it’s hard for a competitor to develop a comparable reputation. For example, Ritz-Carlton hotels are world-renown for providing outstanding customer service. Every day, its employees gather for a 15-minute staff meeting and share "WOW stories" -- true stories of employee that has gone above and beyond conventional customer service expectations. In one story, a hotel chef in Bali found special eggs and milk for a guest with food allergies in a small grocery store in another country and had them flown to the hotel. In another WOW story, a hotel's laundry service failed to remove a stain on a guest's suit before the guest left and the manager flew to the guest's house to personally deliver a reimbursement the cost of the suit. Telling these WOW stories focuses employees on customer service and gives them recognitions for the efforts they make.[ii] Chapter 18 discusses how retailers develop a customer service advantage. High Quality Customer Service [i] Frances X. Frei and Amy C. Edmondson, “Influencing Customer Behavior in Service Operations,” Harvard Business School Publications, Case , March 10, 2006; Rajnish Jain and Sangeeta Jain, “Towards Relational Exchange in Services Marketing: Insights from Hospitality Industry,” Journal of Services Research 5, no. 2 (2006), pp. 139–50; Tim Matanovich, “Know Your Service Strategy,” Marketing Management, July/August 2004, pp. 14–16. [ii] Carmine Gallo, “Employee Motivation the Ritz-Carlton Way,” Business Week, February 29, 2008. Difficult to Achieve People Are Not Machines -- Inconsistent Retail Sales Associates At Bottom of Labor Pool Goes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture Retailers also can develop customer loyalty by offering excellent customer service. Consistently offering good service is difficult because customer service is provided by retail employees who are less consistent than machines. Machines can be programmed to make every box of Cheerios identical. But employees do not provide a consistent level of service because they vary in their training, motivation, and mood. It takes considerable time and effort to build a tradition and reputation for customer service. But once a retailer has earned a service reputation, it can sustain this advantage for a long time because it’s hard for a competitor to develop a comparable reputation. For example, Ritz-Carlton hotels are world-renown for providing outstanding customer service. Every day, its employees gather for a 15-minute staff meeting and share "WOW stories" -- true stories of employee that has gone above and beyond conventional customer service expectations. In one story, a hotel chef in Bali found special eggs and milk for a guest with food allergies in a small grocery store in another country and had them flown to the hotel. In another WOW story, a hotel's laundry service failed to remove a stain on a guest's suit before the guest left and the manager flew to the guest's house to personally deliver a reimbursement the cost of the suit. Telling these WOW stories focuses employees on customer service and gives them recognitions for the efforts they make.

Internal Efficiencies Human Resources
“Employees are key to build a sustainable competitive advantage” Strategies for Recruiting and Retaining Talented Employees Employee Branding Develop positive organizational culture Retailing is a labor-intensive business, in which employees play a major role providing services for customers and building customer loyalty. Knowledgeable and skilled employees committed to the retailer’s objectives are critical assets that support the success of many retailers. JCPenney chairman and CEO Mike Ullman emphasizes the power of employees to build a sustainable competitive advantage. He notes, "The associates are the first customers we sell. If it doesn't ring true to them, it's impossible to communicate and inspire the customer." To build involvement and commitment among its employees, Penney has dropped many of the traditional pretenses that define an old-style hierarchical organization. For instance, at the Plano, Texas, corporate headquarters, all employees are on a first-name basis, workweeks are flexible, and leadership workshops help build the executive team for the future. Recruiting, training, and retaining great employees is challenging Chapter 9 examines how retailers build their human resource assets by developing programs to motivate and coordinate employee efforts, providing appropriate incentives, fostering a strong and positive organizational culture and environment, and managing diversity.

Internal Efficiencies - Distribution and Info Systems
Flow of Information By decreasing costs here, the is more money available to invest in: Vendor Distribution Center Store -Better services -Increase in breadth and depth -Decrease in prices All retailers strive to reduce operating costs—the costs associated with running the business—and make sure that the right merchandise is available at the right time and place. The use of sophisticated distribution and information systems offers an opportunity for retailers to achieve these efficiencies. Through its data sharing about merchandise sales, information flows seamlessly from Walmart to its vendors to facilitate quick and efficient merchandise replenishment that avoids costly stockouts. Walmart’s distribution and information systems have enabled it to have a cost advantage that its competitors can not overcome. In addition to using information systems to improve supply chain efficiency, the customer purchase data collected by information systems provide an opportunity for retailers to tailor store merchandise assortments to market served by each of its stores and tailor promotion to the specific needs of individual customers. This data about its customer buying behavior is a valuable asset offering an advantage that is not easily duplicated by competitors. Richard Cuthbertson, Gerd Islei, Peter Franke, and Balkan Cetinkaya, “What Will the Best Retail Supply Chains Look Like in the Future?” European Retail Digest, Summer 2006, pp. 7–15; “Competitive Advantage Through Supply-Chain Innovation,” Logistics & Transport Focus, December 2004, pp. 56–59.

Vendor Relationships Low Cost - Efficiency Through Coordination
Electronic Data Interchange (EDI) Collaborative Planning and Forecasting to Reduce Inventory and Distribution Costs Exclusive Sale of Desirable Brands Special Treatment Early Delivery of New Styles Shipment of Scare Merchandise By strengthening relationship with vendors, both retailers and vendors can develop mutually beneficial assets and programs that will give the retailer-vendor pair an advantage over competing pairs. For example, Ralph Lauren and JCPenney collaborated to develop the American Living apparel merchandise sold exclusively at JCPenney, Similarly, Estee Lauder and Kohls worked together to develop American Beauty cosmetics sold exclusively at Kohls. These collaborations are win-win situations. By working together both parties develop a sustainable competitive advantage and increase their sales and profits. The relationship between Proctor & Gamble and Walmart initially focused on improving supply chain efficiencies. Eventually, the partners in this relationship shared sensitive information with each other so that Walmart is better able to plan for the introduction of new P&G products and even develop some unique packaging for P&G’s national brands exclusively available at Walmart. Walmart shares its sales data with P&G so P&G can better plan its production and use a just-in-time inventory management system to reduce the level of inventory in the system. From this initial focus on improving supply chain efficiency, P&G and Walmart now work together on other initiatives such as Family Moments to produce family-friendly TV programming.

Critical Tradeoff In Developing Strategic Advantage
Focus Leads to Developing A Competitive Advantage But Focus Reduces Flexibility Low Cost, Consistent Image, Vendor Relationships Reduces Flexibility Similar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility

Criteria for Selecting a Country
Economic Environment Market size Market growth Governmental Environment Trade barriers Regulations on foreign retailers Political stability Social and cultural environment Cultural proximity Technology Environment Retail information system Retail Structure and competition environment Market concentration and competition Available partners Global retailers (e.g., Body Shop and Footlocker) will enter worlds cities, selling essentially the same thing they sell at home. Market to a cosmopolitan segment worldwide. Wal-mart and Carrefourinitially enter countries that have smallest cultural difference to the home market, but over time they will expand to counties that are culturally distant. For example, before entering mainland China, Carrefour operated first in Taiwan to learn about Chinese culture. 20

Opportunities U.S Germany France China Brazil India Russia
U.S Germany France China Brazil India Russia Population (billions) 0.3 0.1 1.3 0.2 1.2 GDP ($ trillion) 14.7 3.0 2.2 9.8 4.0 2.3 GDP per capita) ($/000) 47.4 35.9 33.3 7.4 10.9 3.4 15.9 telephones (billions) 141.0 48.7 39.5 314.0 41.5 35.8 44.8 Mobile Telephone (millions) 280.0 105.0 61.0 747.0 174.0 570.0 330.0 Internet users (millions) 245.0 65.1 45.3 389.0 76.0 61.3 40.9 Internet hosts (millions) 439.0 21.7 15.1 15.2 19.3 4.5 10.4 Railway (000 miles) 227.0 42.0 29.0 78.0 64.0 87.0 Roadways (000 trilllions) 6.5 0.6 1.0 3.6 1.8 3.3 Airports (thousands) 0.5 4.1 0.4 Retail sales ($ trillions) Growth in sales (%) 12.8 7.6 10.5 Concentration (% sales top 4) 3.5 16 1.5 Risk (100 least risky) 82.1 72.6 69.8 62.8 61.5

2010 Global Retail Development Index (A.T. Kearney)
AT Kearney GRDI Global Retail Development Index (1) Political risk, (2) modern businises infrastructure/1000 person (3) number of international retailers, (4) time pressure retail squaire feet increase and GDP increase. Top 10 have good investment future; have entry priority; should avoid. The oil-rich middle east contries is explosive growth, thanks t largely urban population, and relative underrepnetrated oranzied retail market. Latin Americ, has shown resiliency throughout the downtown.

It compares this years’ opportunities with the past. A country’s window of opportunity opens when the government opens their doors to foreign investment, real estate is still inexpensive, modern formats are evolving, consumers are beginning to spend disposable income on branded products, and there is little competition. The window closes when completion is fierce, consumers desire more specialized retail formats, and real estate prices are high and still going up. A closed window can still mean there is solid retail entry potential , but retailer need to be more thoughtful about their entry strategy and operations in order to turn a profit.

International Expansion Opportunities
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.

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. Top 100 Chinese retailers took only around 10% of market share. Chinese retailers were all regional retailers. There was no national chain before market reforms. Chinese retailers are relatively small compared to international retailers. For example, China’s largest retailer-Bailian has a annual sales of 871 Yuan in It is equal to 12 days’ sales of Wal-mart. 26

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

Video on the interview with the CEO of Wal-Mart, China (Ed Chan)

2. Globalization of Retailing

Agenda Globalization of retail industry BRIC countries

Why do retailers (businesses) expand internationally?

Motivation for International Expansion
Increase Sales International markets more attractive than domestic markets Saturated home market and low growth potential Intensive competition at home Expansion at home blocked by politics/legislation Economic downturn at home Reduce Costs Scale economies Economies of scope Diversify Risk – Reduce uncertainty Kmart expanded into Mexico after it lost the battle with Wal-mart in U.S.A in order to avoid the direct competition with Wal-mart. Many developed countries have strict rules that limit retail expansion. For example, Japan’s Large-Scale Retail Store Law once requested that the opening of a new large store should be determined by small shops in the areas. Many European countries have similar laws to protect local small business. Many Japanese stores expanded into China in the early 1990s when domestic retail sales declined for 44 straight months. The Japanese department stores which expanded into other Asian countries are those unsuccessful in Japan. Retailers benefit from economies of scale in purchasing merchandise, development of systems. The development of infrastructure and information technology makes the transmission of information, goods, and human resources easier. To realize the scale economies benefits, need to use the same resources in countries in which they are entering. 32

Why Have Retailers Been Slower to Expand Internationally than manufacurers?
$40B vs 400B 100’s vs 15 countries

Top 20 Retailers in the World Information source: GMID, Euromonitor
Ranking Retailer Country of origin 2009 Sales ($millions) Type # of countries of operation % of sales in foreign countries 1 Wal-Mart Stores, Inc USA 163,532.00 International 15 13.9% 2 Carrefour Group FRA 52,196.10 40 37.70% 3 The Kroger Co 45,352.00 Single Country 0.00% 4 Metro AG GER 44,163.37 35 40.00% 5 The Home Depot, Inc 38,434.00 3.70% 6 Albertson’s, Inc 37,478.00 7 ITM Enterprises SA 36,762.45 10 36.00% 8 Sears, Roebuck and CO 36,728.00 10.60% 9 Kmart Corporation 35,925.00 Target Corporation 33,702.00 11 JC Penney 31,503.50 12 Royal Ahold NET 31,222.15 76.40% 13 Safeway Inc. 30,801.80 10.80% 14 Rewe-Gruppe 30,567.69 18 19.70% Tesco plc UK 30,404.40 10.00% 16 Ito-Yokado Co, Ltd JPN 30,237.57 29.80% 17 Edeka-Gruppe 30,002.57 2.40% Costco Companies, Inc 26,976.45 18.40% 19 Tengelmann Warenhande 26,509.12 47.90% 20 The Daiei, Inc 26,486.11 Single country ITM enterprise SA is the largest supermarket group in France. Among the top retailers, around half are from the USA., 4 Germany, 2 France, 2 Japan, 1 Netherland. 6 are not international retailers. A large consumer market and relatively abundant land have kept many U. S. Retailers from seeking global expansion.

Why are European retailers more global than U.S. retailers?

3. Evaluating International Opportunities-BRIC Countries

Foreign Retail Entry in China
Expansion of Wal-mart in China (Cont.) Video: The 100th Wal-Mart store in China Video: 300 Wal-Mart stores in China

Agenda BRIC Countries Why is China an attractive market?

Target Decides to Become a Global Retailer
What criteria should it use to evaluate international opportunities? Which country should they enter first?

Criteria for Selecting a Country
Economic Environment Market size Market growth Governmental Environment Trade barriers Regulations on foreign retailers Political stability Social and cultural environment Cultural proximity Technology Environment Retail information system Retail Structure and competition environment Market concentration and competition Available partners Global retailers (e.g., Body Shop and Footlocker) will enter worlds cities, selling essentially the same thing they sell at home. Market to a cosmopolitan segment worldwide. Wal-mart and Carrefourinitially enter countries that have smallest cultural difference to the home market, but over time they will expand to counties that are culturally distant. For example, before entering mainland China, Carrefour operated first in Taiwan to learn about Chinese culture. 40

Criteria For Selecting an International Market
Attractiveness -- Large, Growing, Limited competition and regulation More Profits Exploit with Your Bases of Competitive Advantages Brand image/reputation Information systems supply chain management Sustain profits over time Unique private label merchandise Vendor relationships

Comparison of BRIC countries on Criteria
Comparison among BRIC (Brazil, Russia, India and China) Market Size Market Growth Market Concentration

BRIC Opportunities U.S Germany France China Brazil India Russia
U.S Germany France China Brazil India Russia Population (billions) 0.3 0.1 1.3 0.2 1.2 GDP ($ trillion) 14.7 3.0 2.2 9.8 4.0 2.3 GDP per capita) ($/000) 47.4 35.9 33.3 7.4 10.9 3.4 15.9 telephones (billions) 141.0 48.7 39.5 314.0 41.5 35.8 44.8 Mobile Telephone (millions) 280.0 105.0 61.0 747.0 174.0 570.0 330.0 Internet users (millions) 245.0 65.1 45.3 389.0 76.0 61.3 40.9 Internet hosts (millions) 439.0 21.7 15.1 15.2 19.3 4.5 10.4 Railway (000 miles) 227.0 42.0 29.0 78.0 64.0 87.0 Roadways (000 trilllions) 6.5 0.6 1.0 3.6 1.8 3.3 Airports (thousands) 0.5 4.1 0.4 Retail sales ($ trillions) Growth in sales (%) 12.8 7.6 10.5 Concentration (% sales top 4) 3.5 16 1.5 Risk (100 least risky) 82.1 72.6 69.8 62.8 61.5

AT Kearney GRDI Global Retail Development Index (1) Political risk, (2) modern businises infrastructure/1000 person (3) number of international retailers, (4) time pressure retail squaire feet increase and GDP increase. Top 10 have good investment future; have entry priority; should avoid. The oil-rich middle east contries is explosive growth, thanks t largely urban population, and relative underrepnetrated oranzied retail market. Latin Americ, has shown resiliency throughout the downtown.

It compares this years’ opportunities with the past. A country’s window of opportunity opens when the government opens their doors to foreign investment, real estate is still inexpensive, modern formats are evolving, consumers are beginning to spend disposable income on branded products, and there is little competition. The window closes when completion is fierce, consumers desire more specialized retail formats, and real estate prices are high and still going up. A closed window can still mean there is solid retail entry potential , but retailer need to be more thoughtful about their entry strategy and operations in order to turn a profit.

Expected average annual growth rates over next 50 years
Source: Goldman Sachs

Factoids about Brazil 71% of Brazilians agree that “music is an important part of my life” 33% have participated in trips to the beach in the last 30 days 76% agree that “it is important to be attractive to the opposite sex” 65% agree that “it is important to keep young looking” 32% express the desire for plastic surgery in order to improve their appearance

Factoids about Russia 31% of Russians agree that “I feel I get a raw deal out of life” 48% agree that “it’s difficult to survive nowadays without violating the laws” 39% agree that “there’s no point in having insurance” 31% agree that “I believe in miracles”

Factoids About India Top sports to watch on TV: Cricket (33m)
Soccer (8m) Top sports paid to attend: Cricket (2m) Soccer (0.8m) Top sports to play: Cricket (8m) Badminton (4m) Value of Nike’s sponsorship of Indian national cricket team: $44m over 5 years

China Top three brands of cellphone: Nokia Motorola Samsung
Top three brands of washing machine: Haier Little Swan Royalstar Many Chinese want to demonstrate their status and achievement, so buy western brands for ‘show’. But they aren’t made of money, so for items that aren’t seen by others, they buy reliable local brands

Social Indicators: Education
Base: year olds, living in main cities (BRICS); all (US, Europa) Source: Global TGI

Social Indicators: Household Size

Ownership of items: Automobile

Ownership of items: PC Source: Global TGI

Three Relevant Groups Answers are very similar in all the BRICs countries, indicating that they share the same pattern of attitudes or values: Shared also by the western countries. This group is called Universal values. Contrast between BRICs and western attitudes and values. We have called these Specific values. Attitudes and values which vary within BRICs countries, indicating that these may be too localized to be compared, or even divergent. These are the Divergent values.

Universal Values “How I spend my time is more important than the money I make” “I have a practical outlook on life” “It is important to keep young-looking” “I enjoy spending time with my family” “I think it’s important to have a lasting relationship with one partner” “I don't like the idea of being in debt”

Universal Values Source: Global TGI

Universal Values Universal values are heavily related to the importance of the family. They reflect conservative behavior and a lack of adventurousness. Brand images related to conservative and unadventurous values can be considered to be risk-free and can be positively associated with universal values.

Specific Values “I like to pursue a life of challenge, novelty and change” “It's important my family thinks I'm doing well” “Because of my busy lifestyle, I don't take care of myself as well as I should” “I really enjoy any kind of shopping” “Money is the best measure of success” “I would be prepared to pay more for environmentally friendly products”

Specific Values Source: Global TGI

Specific Values Specific values are related towards one’s image in the face of one’s family or society. Success seems to be the driving force behind most of these specific statements. Success and social aspiration can be positively associated with brands in most BRICs countries, as the struggle for social ascension is considered to be a sign of a healthy society.

Divergent Values “I am a vegetarian”
“My faith is really important to me” “Real men don't cry” “I am very good at managing money” “I like taking risks” “It is important to be attractive to the opposite sex” “I like to stand out in a crowd”

Divergent Values Source: Global TGI
Base: year olds, living in main cities (BRICS); all (US, Europe) Source: Global TGI

Divergent Values Divergent values are related to very local attitudes or values, and often involve controversial issues rooted in local culture. Global companies have to be extremely careful regarding controversial issues, which may work very well in some countries but can become destructive in others. The widest differences from international ‘norms’ exist in China and India. Especially in their major cities, status is a key driver. Brands that convey it can do well.

Brands – Experimentation and Loyalty
Base: year olds, living in main cities Source: Global TGI

Communications – Openness and Word of Mouth

Orientation – International and Local Focus

And yet... 63% of Indian consumers agree that they “really like it that more and more international brands are available in India nowadays”. 53% of Chinese consumers agree that they are “drawn to the lifestyles of developed nations”. Opportunities for companies able to invest their brands with ‘status points’.

Why China? Economic Factors Industry Structure The biggest market size
The market size of China is the sum of the other three BIRC countries in 2010 Stable high market growth China has kept two-digit growth rate from 2005 to 2010 Industry Structure The market is largely fragmented Chinese retailers are regional. The size of Chinese retailers are relative small.

Why China? (Cont.) Political environment Technology Environment
Socialist market economy with Chinese characteristics Stable government Focus on reforms and economic development Encourages foreign investment Technology Environment China has better infrastructure than other developing countries. Government investing in infrastructure

Foreign Retailers in China
Ranking Retailer Sales（10,000 ¥） Growth (%) # of stores 13 Yum! 2,880,000 9.9 3,200 18.5 15 Best Buy 2,570,000 262 20 Trust-mart 1,650,000 0.6 104 0.0 27 Tesco 1,330,000 15.7 79 29.5 29 Locus 1,300,000 77 1.3 30 Parkson 1,237,000 44 10.0 31 Metro 1,202,277 -4.9 42 10.5 39 Auchan 986,000 21.0 35 12.9 45 Intime 758,659 34.9 22 46.7 50 MacDonald 650,000 6.6 1,100 62 Ito Yokada 351,380 21.9 3 68 IKEA 312,000 15.6 7 16.7 100 Home Depot 160,000 4.6 12

Leading Retailers in China (CCFA, 2010)
Ranking Retailer 2009 Sales（10,000 ¥） Growth (%) # of stores 1 Suning 11,700,267 14.3 941 15.9 2 Gome 10,680,165 2.1 1,170 -14.1 3 Bailian 9,791,537 3.8 6,153 -4.1 4 Dashang 7,053,590 12.8 160 6.7 5 China Resources Vanguard 6,800,000 6.6 2,926 8.5 6 RT-Mart 4,043,169 20.5 121 19.8 7 Carrefour 3,660,000 8.2 156 16.4 8 Anhui Huishang 3,437,883 13.5 2,884 15.5 9 Wal-Mart 3,400,000 22.2 175 45.8 10 Wu-mart 3,270,000 2,333 16.1

Case Study Case Study Best Buy in China
Video On the Opening of Best Buy Shanghai Store 74

4. Foreign Retail Entry into China

Foreign Retail Entry Decisions
Entry Mode Location Time Format

Foreign Retail Entry Decisions
Entry Mode Export Contract Management Licensing Franchising Join Venture Wholly owned Risk, Control, and Resource

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 Root (1987) defines an entry mode as an institutional arrangement that makes possible the entry of a firm’s products, technology, human skills, management, or other resources into a foreign country.

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

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.

Geographic Areas

Foreign Retail Entries in China (Li and Wang, 2006)
Retailer Country City Format Yaohan Japan Shenzhen (1991) Department store Ahold Holland Shanghai (1997) Hypermarket 7-11 Shanghai (1992) Convenience store Locus Thailand Parkson Malaysia Qingdao (1993) Trust Mart Taiwan Guangzhou (1997) Carrefour France Beijing (1995) Ito-Yokada Beijing (1998) Supermarket Daiei Tianjin (1995) Ikea Sweden Shanghai (1998) Specialty Jusco Guangzhou (1995) Department Store Rt-Mart Metro Germany Shanghai (1996) Warehouse Auchan Shanghai (1999) Makro Netherland Guangzhou (1996) B&Q U. K. Shanghai (1999) Wal-mart U.S.A Shenzhen (1996) Shopping center/ Sam’s club/ neighborhood store OBI Wuxi (2000) Lawson Otto Shanghai (2000) Home Depot Tianjin (2006) Best Buy U.S. A Shanghai (2006)

Leading Retailers in China (CCFA, 2010)
Ranking Retailer 2009 Sales（10,000 ¥） Growth (%) # of stores 1 Suning 11,700,267 14.3 941 15.9 2 Gome 10,680,165 2.1 1,170 -14.1 3 Bailian 9,791,537 3.8 6,153 -4.1 4 Dashang 7,053,590 12.8 160 6.7 5 China Resources Vanguard 6,800,000 6.6 2,926 8.5 6 RT-Mart 4,043,169 20.5 121 19.8 7 Carrefour 3,660,000 8.2 156 16.4 8 Anhui Huishang 3,437,883 13.5 2,884 15.5 9 Wal-Mart 3,400,000 22.2 175 45.8 10 Wu-mart 3,270,000 2,333 16.1

Foreign Retailers in China
Ranking Retailer Sales（10,000 ¥） Growth (%) # of stores 13 Yum! 2,880,000 9.9 3,200 18.5 15 Best Buy 2,570,000 262 20 Trust-mart 1,650,000 0.6 104 0.0 27 Tesco 1,330,000 15.7 79 29.5 29 Locus 1,300,000 77 1.3 30 Parkson 1,237,000 44 10.0 31 Metro 1,202,277 -4.9 42 10.5 39 Auchan 986,000 21.0 35 12.9 45 Intime 758,659 34.9 22 46.7 50 MacDonald 650,000 6.6 1,100 62 Ito Yokada 351,380 21.9 3 68 IKEA 312,000 15.6 7 16.7 100 Home Depot 160,000 4.6 12

Expansion of Carrefour in China In 1995, they entered China in Shanghai. They expanded aggressively. 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) In 1999, it had entered all economic centers and east coast cities. It is 2-3 years earlier than Wal-mart and Metro. It used “faked” partner to enter some cities in order to grab the best location Forced to make adjustment by central government in 2001.

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. 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 Each distribution center serves 100 shopping centers. Centralized management and transaction showed low flexibility. It lost Shanghai market because its bad relationship with Shanghai government. They strictly follow government policies and but do not have good relationships with some local governments. Corporate Culture of “Business is busines”. It didn’t charge slotting fees from its suppliers. However, it couldn’t get the lowest price from suppliers at the beginning.

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 There are many small Chinese suppliers with low IT knowledge. Buying directly from them is costly. Therefore, walmart does not only buy directly but also work with agent. It abandoned its reverse hierarchical diffusion strategy and begin open stores in downtown and urban areas. It decentralized its management a little bit and give more power to store managers on merchandising assortment and pricing, It provide price promotion to Chinese consumers. EDLP doesn’t work well in China China is No 1. Cell phone market, No. 2 gold product and automobile market, and No.3 luxury product market

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) Each distribution center can support 100 stores.

Expansion of Wal-mart in China (Cont.) Video: The 100th Wal-Mart store in China Video: 300 Wal-Mart stores in China

Retail Divestment in China
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) Although the benefits outweigh the drawbacks, there are some inherent winners and losers among countries engaging in multinational operations. Sometime divestment is caused by market failure, but in some cases it is a strategic move because of market and organizational environment reasons. Some U.K. retailers such as Marks & Spencer, Boots, and Arcadia focus their core retail business on their domestic market. They divested from certain international markets in order to refocus on UK market. Ahold divested from Poland and planned divestment from Slovakia, because Ahold is interested in only the markets in which they can be either the market leader or the hold o f the second largest market share. Divestment may take the form of closure of stores, sales of store chain, termination of business contract/agreement or organizational restructuring in the form of changing from corporate ownership to a franchising or licensing or distribution agreement.

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 Yaohan entered Shenzhen It targeted itself as small traditional grocery supermarket. This format is not innovative and difficult to survive in China. Ahold built a distribution center in Shanghai that could support 100 stores. However, it had only 50 stores in China, which couldn’t justify the high cost of the big distribution center. In addition, the undeveloped food distribution system in China and its weak partner (a district retailer in Shanghai) were the other reason that caused its failure. 91

Store Closures in (Wang, 2009) Retailer Store Format Reason Isetan Huating store in Shanghai Department store Net loss for two years Parkson Changsha store Lease expired Tesco Jilin Store Hypermarket High operation cost Trust-mart Nanjing Qingliangmen store and Gulou store; Chengdu Daye store, Wuhan Minyi store, and Fuzhou stores Supermarket Bad performance B & Q Shekou store in Shenzhen; Fuzhou store Specialty store HomeDepot Qingdao store Broke up with the landlord 92

Case Study Case Study Best Buy in China
Video On the Opening of Best Buy Shanghai Store 93

References CCFA (2010), Report on Chain Store Retailers’ Performance in China ( ). Li, Fei and Gao Wang (2006), The Development of the Retailing Industry in China ( ), 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 94

Retail Market Entry Strategy in China

Similar presentations

Presentation on theme: "Retail Market Entry Strategy in China"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Retail Market Entry Strategy in China

Similar presentations

Presentation on theme: "Retail Market Entry Strategy in China"— Presentation transcript:

Similar presentations

About project

Feedback