1. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Globalization of Retail Industry Why do retail firms to expand internationally?

2. page 2Location Module David F. Miller Center for Retailing Education and Research Agenda  Globalization of retail industry  Introduction to China  History  Economy  Culture  Shopping behavior  Retail industry

3. page 3Location Module David F. Miller Center for Retailing Education and Research Why do retailers (businesses) expand internationally?

4. page 4Location Module David F. Miller Center for Retailing Education and Research 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

5. page 5Location Module David F. Miller Center for Retailing Education and Research Why Have Retailers Be Slower to Expand Internationally than mfgrs? $40B vs 400B 100’s vs 15 countries

6. page 6Location 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%

7. page 7Location Module David F. Miller Center for Retailing Education and Research Why are European retailers more global than U.S. retailers?

8. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Commercial History of China Over 2000 years

9. page 9Location Module David F. Miller Center for Retailing Education and Research History of Retailing in China  Qin (ching) Dynasty (221-206 B.C.E.) First centralized government  Tang Dynasty (tong) (AD 618–907) Modern Xi”an(she an) the national capital, the world's largest city at the time.  Yuan Dynasty (1271–1368): Venetian Macro Polo’s trip astounded the people of Europe  Ming Dynasty (1368–1644): “ Capitalism”, Isolation to globalization. Known for textile, silk and cotton export. 1000’s entrepreneurs in a capitalist economy  Qing (ching) (Dynasty (1644–1912):  Closed-door policy on foreign trade.  High taxes on merchants  Limits on factory size  Opium wars.  China agreed to open Shanghai and four other ports to Western trade

10. page 10Location Module David F. Miller Center for Retailing Education and Research China -- A Colonial Society to European Countries  Government powerless to stop foreign land acquisitions and mistreatment of Chinese citizens  Example: sign over new municipal park in Shanghai: “No admittance for dogs and Chinese”  Gambling, opium, prostitution in Shanghai  Class divisions between rich entrepreneurs and working class intensify; civil strife ensues  Nationalists and Communists agree on strikes and boycotts leading to seizures of possessions of Chinese upper class and foreigners (Nationalists leave for Taiwan after WWII).

11. page 11Location Module David F. Miller Center for Retailing Education and Research  Defeated Nationalist group heads to Taiwan  “Commercial” group goes to Hong Kong  These two groups create thriving retail communities Impact of Communism: Off-shore Retailing in China Aberdeen St. Hong Kong 1960

12. page 12Location Module David F. Miller Center for Retailing Education and Research Brief History of Retailing in China after the Establishment of P. R. China  Two important periods  1949-1978  Before Reforms: planned economy  1979-present  The reforms: socialist market economy with Chinese characteristics

13. page 13Location Module David F. Miller Center for Retailing Education and Research Before Reforms (1949-1978)  Set deadline of 1956 to transform private businesses into “whole people enterprises”  State expropriates all major industries  The State Planning Commission decided on general production goals for the factories in China. FEN PEI: allocation system  The factories would then be allocated raw materials and told to produce necessary products.  After production, the goods would be shipped to the Ministry of Commerce Central Distribution Centers.  State owner distributors and retailers - Luxury department stores taken over by government and renamed, e.g., Number One Department Store  Price determined by government, not market  Closing of ties between China and the West  Cultural Revolution (1966-1976) creates poor climate for “retailing” as typically known

14. page 14Location Module David F. Miller Center for Retailing Education and Research Before Reform (1949-1978)  Merchandise shortages lead government to use coupons to determine how much each kind of product a consumer could purchase each month. Food Coupons Cloth Coupons Vegetable Coupon Soap Coupon

15. page 15Location Module David F. Miller Center for Retailing Education and Research The Reforms (1979-present)  Decentralization of Distribution Authority  Going through state-owned wholesale channels not mandatory.  Management Reforms in Retail Outlets  State-owned wholesalers and retailers were held accountable for their own profits  Lift of Restrictions on Retailing  Price could be negotiated.  Foreign retailers could operate in China.  Retail Ownership Become diversified  State-owned ↓, Private and foreign ↑  Consumers have greater freedom.  Product shortage ended and food coupons were abandoned at the early 1990’s. Deng Xiaoping in 1979

16. page 16Location Module David F. Miller Center for Retailing Education and Research Liberalization of Foreign Entries  Step 1: 1992  Experimental cities: 6 cities (Beijing, Shanghai, Tianjin, Guangzhou, Qingdao, and Dalian) and 5 special economic zones (Shenzhen, Zhouhai, Shentou, Xiamen and Hainan)  Each city could have 1-2 foreign retailers (Shanghai had 4). Other cities are forbidden to accept foreign retail investment.  The retail stores must be joint venture. Sole-owned foreign retailer is forbidden. Chinese partner should have at least 51% of shares.  They could not be wholesalers.  No more than 30% of imported products.

17. page 17Location Module David F. Miller Center for Retailing Education and Research Liberalization of Foreign Entries (Cont.)  Step 2: 1995  Foreign retailers can operate chain stores in Beijing.  Foreign retailers can partially enter wholesale section.  They must be joint venture and 51% share is owned by for Chinese partners.  Licenses are for no more than 30 years.  Step 3:1999  Foreign retailers can enter the capitals of provinces and autonomous regions.  The number and scope of the foreign retailers operating in China increased.  Step 4: 2004  2001, China joined WTO  Three years later, all restrictions on foreign retailers were removed.

18. page 18Location Module David F. Miller Center for Retailing Education and Research Role of Government  Government still plays important role in retail industry  China has elements of planned economy.  China’s retailers are still affected by the legacy of the command economy.  The government‘s role evolves with the reforms over time.  The general direction is that government will be less likely to directly intervene in the operations of retailers.  The government’s role varies across the country.  Retail market reforms occurred first in the major special economic zones and cities along the east coast and then slowly spread out to other inland areas.

19. page 19Location Module David F. Miller Center for Retailing Education and Research General Guidelines from the Central Government  Five-year plans  Ninth five-year plan (1996-2000)  Focused on regulatory issue such as modernization of ownerships.  Tenth five-year plan (2001-2005)  Encouraged investment in western China.  Emphasis on fresh markets, Restrict development of hypermarkets  Development of 5 to 10 retail chains, 3 rd party distribution  Eleventh five-year plan (2006-2010)  Suggested to further market reforms and develop modern distribution system.  Twelfth five-year plans (2011-2015)  Emphasized the development of larger firms and brands.  E-commerce is encouraged.

20. page 20Location Module David F. Miller Center for Retailing Education and Research China has a long retail history and rich commercial past Since Marco Polo’s time, it has been sought as trading partner by the West However, China has gone through periods of outreach and isolationism Its planned Communist economy and trade with the West are very recent phenomena Government still plays an important role but gradually diminishing China’s Commercial History

21. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Modern China facts

22. page 22Location Module David F. Miller Center for Retailing Education and Research Two Chinas  In 1949, after major combat ended in the Chinese Civil War, two states calling themselves "China" emerged:  The People's Republic of China (PRC), established in 1949, commonly known as China, has control over mainland China and the largely self-governing territories of Hong Kong (since 1997) and Macau (since 1999).  The Republic of China (ROC) established in 1912 in mainland China, now commonly known as Taiwan, has control over the island of Taiwan, Penghu, Kinmen, Matsu, the Pratas island group, and a few other outlying islands.

23. page 23Location Module David F. Miller Center for Retailing Education and Research Administrative Districts

24. page 24Location Module David F. Miller Center for Retailing Education and Research Population Density Map of the administrative divisions(PRC) by population in millions

25. page 25Location Module David F. Miller Center for Retailing Education and Research GDP of Regions

26. page 26Location Module David F. Miller Center for Retailing Education and Research Summary of Population and GDP

27. page 27Location Module David F. Miller Center for Retailing Education and Research City Tiers How many cities in China have over 1 million resident?

28. page 28Location Module David F. Miller Center for Retailing Education and Research Ethnic Groups Officially recognized 56 ethnic groups in mainland China

29. page 29Location Module David F. Miller Center for Retailing Education and Research Ethnolinguistic Map Ethnolinguistic map of the People's Republic of China and the Republic of China

30. page 30Location Module David F. Miller Center for Retailing Education and Research Han  Han Chinese constitute about 92% of the population of mainland China.  There is substantial genetic, linguistic, cultural, and social diversity among the subgroups of the Han, mainly due to thousands of years of immigration and assimilation of various regional ethnicities and tribes within China  Han Chinese usually wear Western-style clothing. Few wear traditional Han Chinese clothing on a regular basis. It is, however, preserved in religious and ceremonial costumes.

31. page 31Location Module David F. Miller Center for Retailing Education and Research Mongols  The Mongol population in China is over twice that of the independent nation of Mongolia.  Most of them live in Inner Mongolia  Inner Mongolia is the third-largest subdivision of China spanning about 1,200,000 km² (463,000 sq mi) or 12% of China's total land area. It has a population of about 24 million as of 2004. The autonomous region was established in 1947. The majority of the population in the region are Han Chinese, with a substantial Mongol minority. The official languages are Standard Mandarin and Mongolian, the latter written in the classical alphabet.

32. page 32Location Module David F. Miller Center for Retailing Education and Research Uygur  Uyghur live primarily in the Xinjiang Uyghur Autonomous Region  The religion of Uyghur is Islam  The language is Uyghur

33. page 33Location Module David F. Miller Center for Retailing Education and Research Zhuang  Zhuang people live in the Guangxi Zhuang Autonomous Region in southern China.  Their population, estimated at 18 million people, puts them second only to the Han Chinese and makes the Zhuang the largest minority in China.  Zhuang cuisine includes many salty and sour dishes such as pickled cabbage, pickled vegetables and pork, and dried fish. A common Zhuang drink is oil tea, which is tea leaves fried in oil with rice grains and brewed, and drunk with peanuts or rice cake.  There is an indigenous Zhuang language, which has been written with Zhuang logograms based on Chinese characters for over a thousand years, and now is officially written in Roman letters.  Most Zhuang follow a traditional animist/ancestor-oriented religion, however, there are also a number of Buddhists, Daoists in Guangxi.

34. page 34Location Module David F. Miller Center for Retailing Education and Research Differing Preferences for Food A number of different styles contribute to Chinese cuisine, but perhaps the best known and most influential are Sichuan cuisine, Shandong cuisine, Jiangsu cuisine and Guangdong (Cantonese) cuisine.  Sichuan cuisine is a style of Chinese cuisine originating in Sichuan Province of southwestern China famed for bold flavors, particularly the pungency and spiciness resulting from liberal use of garlicand chili peppers, as well as the unique flavour of the Sichuan peppercorn

35. page 35Location Module David F. Miller Center for Retailing Education and Research Differing Preferences for Food (cont)  Shandong cuisine is considered the most influential in Chinese cuisine, with majority of the culinary styles in China having developed from it. Modern day schools of cuisine in North China, such as those of Beijing, Tianjin, and Northeast, are all branches of Shandong Cuisine. Also, the typical dishes in most North China households‘ meals are prepared in simplified Shandong methods 。

36. page 36Location Module David F. Miller Center for Retailing Education and Research Differing Preferences for Food (cont)  Jiangsu cuisine is a tradition within the cuisine of China derived from the native cooking styles of the region surrounding the lower reaches of the Huai and Yangtze rivers, and centered upon the cities of Huai'an, Yangzhou and Zhenjiang in Jiangsu province.

37. page 37Location Module David F. Miller Center for Retailing Education and Research Differing Preferences for Food (cont)  Cantonese (Yuet) cuisine comes from Guangdong Province in southern China. Of all the regional varieties of Chinese cuisine, Cantonese is renowned both inside and outside China.Its prominence outside China is due to the great numbers of early emigrants from Guangdong. In China, too, it enjoys great prestige among the eight great traditions of Chinese cuisine, and Cantonese chefs are highly sought after throughout the country.

38. page 38Location Module David F. Miller Center for Retailing Education and Research Regional Stereotypes - Dongbei  Chinese never seem to tire of talking about regional stereotypes. The followings are extracted from internet.  “In Dongbei, whence the Manchus came, the men do like their liquor. While effusive with their friendship, with their enmity they’re quicker Though they’re honest and straightforward, at the slightest provocation They’ll show why they’ve been slandered as the Klingons of this nation.  The leggy Dongbei ladies for their beauty are renowned, (I attest that in my travels, few more fetching have I found.) But they suffer from one drawback, and it’s very sad to tell— When they open up their mouths to speak, they break that magic spell. PS:Dongbei (Northeast China) includes the three northeastern provinces of Heilongjiang, Jilin, and Liaoning according to the government of the People's Republic of China, and thus the region is sometimes called the Three Northeast Provinces

39. page 39Location Module David F. Miller Center for Retailing Education and Research Stereotypes – Shandong, Human  The stalwart Shandong people grow as hearty as their scallions On their noodle-heavy diet they’ve been bred as strong as stallions. They’re known for dogged loyalty; they’re known as trusty folks, But a bit slow on the uptake—thus, the butt of many jokes.  In Hunan and in Hubei in the country’s center-south They say the people there can really run it at the mouth In Hubei in particular, the saying is often heard That a single Hubei codger can drown out a nine-head bird.  The Hunanese, in temperament, are piquant as their dishes, Like duo jiao yu tou—capsicum with slow-braised heads of fishes. Add to this mix the province’s infernal summer heat, And you see why Hunan’s Xiang Jun had the Taiping rebels beat. Shandong province Hunan province Hubei province

40. page 40Location Module David F. Miller Center for Retailing Education and Research Steroetypes – Chengdu, Guangzhou  The teahouses of Chengdu represent the Sichuan Way: The women toil in earnest while the men drink tea and play. The Chuan hou plays at mahjong as the Chuan mei cleans and mends, And like the Sichuan peppers do, she burns it at both ends.  The Pearl River Delta in the southlands of Guangzhou Is home to China’s most industrious people, as you know: They’re scrappy and they’re gritty and they’re free of all pretension, And they’ll make a meal of any living beast you’d care to mention.  They say that Henan people are a sly and cunning lot. But my ancestors are from there— proving some, at least, are not. My co-provincials countrywide are blamed for every ill, While provinces that suck as bad get let off easy still. Sichuan province Henan province

41. page 41Location Module David F. Miller Center for Retailing Education and Research Stereotypes – Shanghai, Beijing  The Shanghainese are philistines, and this they’ll gladly own: Commercial instincts permeate them to the very bone. Their pride in Shanghai’s petit bourgeois ethos is immense But what they lack in culture, they make up in common sense.  As you might well have expected, I have saved the best for last, For my love for Beijing’s people is immovably steadfast. From their gargling r-drenched accent to their dry sardonic wit, The denizens of Jing Town are the dope, the bomb, the shit.  Beiingers love to gab, and though they’re lazy and they’re slow, There’s nothing about politics that they aren’t apt to know. They may complain a lot about the traffic and the air But scratch beneath the cynicism and you’ll find they care.” Shanghai Beijing

42. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Shopping Behavior Retailing in China

43. page 43Location Module David F. Miller Center for Retailing Education and Research Cultural Differences Individualistic (IDV) vr. Collectivist – look out for self, self reliant, loose bonds with others Power distance (PDI) – acceptance of power and wealth inequality Long-Term Orientation (LTD) – importance of tradition, protecting face

44. page 44Location Module David F. Miller Center for Retailing Education and Research What effect do these cultural differences have on retailing?  Shopping behavior  Store management

45. page 45Location Module David F. Miller Center for Retailing Education and Research Urban Life in Tier 1 and 2 Cities  Families live in high rise apartments (condos)  Apartments (condos) are small with small kitchens, small refrigerators, limited storage `  Use public transportation, walk, bicycle rather than automobiles

46. page 46Location Module David F. Miller Center for Retailing Education and Research Comparison U.S. with China in Tier 1 and 2 Cities U.S.China Mean household income ($)47,30010,220 Median household income ($)84,300 add 2.2 times Gray income - top 10% Household debit as % of income13717 Own a home %8569 Carry mortgage %7011 Consumer loan cedit cards %471 Car owner %9020

47. page 47Location Module David F. Miller Center for Retailing Education and Research Differences between Consumers - China, U.S. consumers  Greater emphasis on quality, freshness for food, brands  Less interested in customer service  Haggling over price  Shop for fresh food daily  Limited credit, mostly cash transaction  Group buying

48. page 48Location Module David F. Miller Center for Retailing Education and Research Brand Conception

49. page 49Location Module David F. Miller Center for Retailing Education and Research Shopping as Leisure

50. page 50Location Module David F. Miller Center for Retailing Education and Research Local vs. Foreign Brands

51. page 51Location Module David F. Miller Center for Retailing Education and Research Young Consumers Preferences

52. page 52Location Module David F. Miller Center for Retailing Education and Research Shifts in Behavior  Brand to Value  Collect information from internet and other sources  Shift from traditional channels-Dept. Stores and brand exclusive stores to hypermarkets, supermarkets, Internet  Increasing Consumer Sophistication  Demand products with more function, better value, better price, variety  Consumers gain more access to product information— brands, products, prices and channels

53. page 53Location Module David F. Miller Center for Retailing Education and Research Shift in Consumption

54. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Food Retailing in Tier 1 and Tier Chinese Cities Description of China

55. page 55Location Module David F. Miller Center for Retailing Education and Research Food Retailer in China  Open Market  Convenience stores  Traditional Grocery Stores  Supermarkets  Hypermarkets

56. page 56Location Module David F. Miller Center for Retailing Education and Research Basic Facts-Retail Industry 2008ShanghaiBeijing Hypermarkets: Carrefour, Wal-Mart, RT-Mart, Century Mart, Lotus, Tesco, Auchan… 16993 Supermarkets: Lianhua, Hualian… 26351706 Convenience stores: AllDays, Kedi, Lianhua Quick, Family Mart… 4298910 Department Stores (Shopping centers) ： Parkson, Pacific Department stores… 13267

57. page 57Location Module David F. Miller Center for Retailing Education and Research Open Markets

58. page 58Location Module David F. Miller Center for Retailing Education and Research Traditional Grocery Stores

59. page 59Location Module David F. Miller Center for Retailing Education and Research Supermarkets in China (Shanghai)

60. page 60Location Module David F. Miller Center for Retailing Education and Research Hypermarkets

61. page 61Location Module David F. Miller Center for Retailing Education and Research Convenience store in China (Shanghai)

62. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET )