1. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) International Retail Strategy International Retail Growth Opportunities

2. page 2Location Module David F. Miller Center for Retailing Education and Research Agenda  Evaluating international growth opportunities  Why is China an attractive market?  Entry approaches

3. page 3Location Module David F. Miller Center for Retailing Education and Research Target Decides to Become a Global Retailer  What criteria should it use to evaluate international opportunities?  Which country should they enter first?

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

5. page 5Location Module David F. Miller Center for Retailing Education and Research 5-5 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

6. page 6Location Module David F. Miller Center for Retailing Education and Research Comparison of BRIC countries on Criteria  Comparison among BRIC (Brazil, Russia, India and China)  Market Size  Market Growth  Market Concentration

7. page 7Location Module David F. Miller Center for Retailing Education and Research Opportunities U.SGermanyFranceChinaBrazilIndiaRussia Population (billions)0.30.1 1.30.21.20.1 GDP ($ trillion)14.73.02.29.82.24.02.3 GDP per capita) ($/000)47.435.933.37.410.93.415.9 telephones (billions)141.048.739.5314.041.535.844.8 Mobile Telephone (millions)280.0105.061.0747.0174.0570.0330.0 Internet users (millions)245.065.145.3389.076.061.340.9 Internet hosts (millions)439.021.715.115.219.34.510.4 Railway (000 miles)227.042.029.078.029.064.087.0 Roadways (000 trilllions)6.50.61.03.61.83.31.0 Airports (thousands)15.10.5 4.10.41.2 Retail sales ($ trillions) Growth in sales (%) 10.912.87.610.5 Concentration (% sales top 4) 3.5161.510.4 Risk (100 least risky)82.1 72.669.862.861.5

8. page 8Location 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

9. page 9Location Module David F. Miller Center for Retailing Education and Research 2010 Global Retail Development Index (A.T. Kearney)

10. page 10Location Module David F. Miller Center for Retailing Education and Research 2010 Global Retail Development Index (A.T. Kearney)

11. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Retail Strategy Why China?

12. page 12Location Module David F. Miller Center for Retailing Education and Research Why China?  Economic Factors  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.

13. page 13Location Module David F. Miller Center for Retailing Education and Research

14. page 14Location Module David F. Miller Center for Retailing Education and Research Why China? (Cont.)  Political 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

15. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Retail Strategy Entry Modes

16. page 16Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry Decisions  Entry Mode  Location  Time  Format

17. page 17Location 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

18. page 18Location 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)  Foreign Manufacturer’s Specialty Store  Pierre Cardin and Play Boy

19. page 19Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China  Entry Format- Which format would result in the easiest entry – great chance of success?  Department Store  Ito Yokada  Hypermarket/supercenter  Carrefour, Walmart, Tesco, Auchan  Convenience Store  7-11  Warehouse Club  Metro  Specialty Store -  Furniture – Ikea  Home improvement - B&Q  Electronics - Best Buy

20. page 20Location Module David F. Miller Center for Retailing Education and Research Foreign Retail Entry in China  Locations – Where would you recommend entering first?”  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.

21. page 21Location 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

22. page 22Location 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

23. page 23Location 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.  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)

24. page 24Location 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

25. page 25Location 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

26. page 26Location 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

27. page 27Location Module David F. Miller Center for Retailing Education and Research Expansion of Wal-mart in China (Cont.)  Video: The 100 th Wal-Mart store in China  http://www.youtube.com/watch?v=x65efvLryqY http://www.youtube.com/watch?v=x65efvLryqY  Video: 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

28. page 28Location 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)

29. page 29Location 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

30. page 30Location 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

31. page 31Location Module David F. Miller Center for Retailing Education and Research Case Study  Best Buy in China Video On the Opening of Best Buy Shanghai Store  http://www.youtube.com/watch?v=zMABUmlOQdE http://www.youtube.com/watch?v=zMABUmlOQdE