Retail Market Entry Strategy in China
Objectives <ul><li>Identify Major International Retailers </li></ul><ul><li>Analyze the Motivation of Retail International...
Outline <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating International Opportunities– BRIC Countri...
Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating Internation...
Top 20 Retailers in the World  Information source: GMID, Euromonitor Ranking Retailer Country of origin 2009 Sales  ($mill...
Global Map of Tesco UK  R.O. Ireland France  Czech Republic  Poland Slovakia  Hungary Turkey  Thailand Malaysia  Taiwan   ...
5 Oversea Market of Tesco Information Source: www.planetretail.net
Oversea Market of Tesco (Cont.) Information Source: www.planetretail.net
Oversea Market of Tesco (Cont.) 8 Europe +25% Asia +122% Information Source: www.planetretail.net
Motivation for Retail Internationalization <ul><li>Overview </li></ul><ul><li>Two Major Drives  </li></ul><ul><ul><li>Push...
Motivation for Retail Internationalization <ul><li>Push Factors  </li></ul><ul><ul><li>Saturated home market and low growt...
Motivation for Retail Internationalization <ul><li>Pull Factors </li></ul><ul><ul><li>Market size and growth </li></ul></u...
Motivation for Retail Internationalization <ul><li>Challenges for International Retailers </li></ul><ul><li>Increased comp...
International Expansion Opportunities <ul><li>Criteria for Selecting a Country </li></ul><ul><li>Macro-Marketing Factors  ...
Information source: GMID, Euromonitor  International Expansion Opportunities
Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating Internation...
<ul><li>Comparison among BRIC (Brazil, Russia, India and China) </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><...
Market Size International Expansion Opportunities Information source: GMID, Euromonitor    2005 2006 2007 2008 2009 2010 B...
Market Growth International Expansion Opportunities Information source: GMID, Euromonitor  2006 2007 2008 2009 2010 Brazil...
Market Concentration International Expansion Opportunities Information source: GMID, Euromonitor
International Expansion Opportunities Market Concentration (Cont.) Information source: GMID, Euromonitor
Country Risk (Euromoney) Country Overall Score Political Risk Economic  Performance Structures Debt Indicators Credit Rati...
2010 Global Retail Development Index (A.T. Kearney)
2010 Global Retail Development Index (A.T. Kearney)
<ul><li>Why China? </li></ul><ul><li>Economic Factors </li></ul><ul><ul><li>The Largest Market Size </li></ul></ul><ul><ul...
<ul><li>Why China? (Cont.) </li></ul><ul><li>Industry Structure </li></ul><ul><ul><li>The market is largely fragmented. </...
<ul><li>Why China? (Cont.) </li></ul><ul><li>Political Environment </li></ul><ul><ul><li>Socialist market economy with Chi...
Video on the interview with the CEO of Wal-Mart, China (Ed Chan) http://www.mckinseyquarterly.com/Retail_Consumer_Goods/Se...
Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating Internation...
Foreign Retail Entry Decisions <ul><li>Entry Mode </li></ul><ul><li>Location </li></ul><ul><li>Time </li></ul><ul><li>Form...
Foreign Retail Entry Decisions <ul><li>Entry Mode </li></ul>Risk, Control, and Resource Licensing Franchising Export Join ...
Foreign Retail Entry in China <ul><li>Entry Mode </li></ul><ul><ul><li>Franchising </li></ul></ul><ul><ul><ul><li>MacDonal...
Foreign Retail Entry in China <ul><li>Entry Format </li></ul><ul><ul><li>Department Store </li></ul></ul><ul><ul><ul><li>I...
Foreign Retail Entry in China <ul><li>Locations </li></ul><ul><ul><li>Their first entries are in Beijing, Shanghai, Guangz...
Geographic Areas
Foreign Retail Entries in China  (Li and Wang, 2006) Retailer Country City Format Retailer Country City Format Yaohan Japa...
Leading Retailers in China  (CCFA, 2010) Ranking Retailer 2009 Sales ( 10,000 ¥ ) Growth (%) # of stores Growth (%) 1 Suni...
Foreign Retailers in China Ranking Retailer Sales ( 10,000 ¥ ) Growth (%) # of stores Growth (%) 13 Yum!   2,880,000 9.9  ...
Foreign Retail Entry in China <ul><li>Expansion of Carrefour in China </li></ul><ul><li>In 1995, they entered China in Sha...
<ul><li>Expansion of Wal-mart in China </li></ul><ul><li>Entered China in 1996 </li></ul><ul><li>Headquartered in Shenzhen...
<ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>After 2004, Fast Growth </li></ul><ul><ul><li>Adapted to ...
<ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>No. 2 Foreign Retailer in China </li></ul><ul><ul><li>Thr...
<ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>Video: The 100 th  Wal-Mart store in China </li></ul><ul>...
Retail Divestment in China <ul><li>Divestment </li></ul><ul><li>It is not necessarily true that all international companie...
Retail Divestment in China <ul><li>Divestment (Cont.) </li></ul><ul><li>Some Retailers That Have Exited China (Li and Wang...
Retail Divestment in China <ul><li>Store Closures in 2008-2009  (Wang, 2009) </li></ul>Retailer Store Format Reason Isetan...
Case Study <ul><li>Case Study </li></ul><ul><li>Best Buy in China </li></ul><ul><li>Video On the Opening of Best Buy Shang...
References <ul><li>CCFA (2010), Report on Chain Store Retailers’ Performance in China (2009-2010).  </li></ul><ul><li>Li, ...
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Module 3 Retail market entry strategy in china

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  • International retailing is the management of retail operations in markets that are different from each other in their regulation, economic development, social conditions, cultural environment, and retail structures. (Alexander and Doherty, 2009)
  • 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.
  • Tesco is used as an example of international expansion of retailers.
  • Top 3 in UK, Thailand, Slovakia, Poland, S Korea, Ireland and Hungary
  • Key Overseas Markets: South Korea, Ireland, Hungary, Thailand and China
  • In the 1980s, retail internationalization emphasized pushing factors. The foreign market considered were mainly North America, Euro, and Japan. In the 1990s, the foreign market entries were from developed countries to developing countries. Eastern Europe and China became the focus of retail internationalization.
  • 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. The Japanese department stores which expanded into other Asian countries are those unsuccessful in Japan. ” Don’t put all your eggs in one basket”. Internationalization might be a part of financial portfolio diversification strategies. 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. European governments have also passed strict zoning laws to preserve green spaces, protect town center, and inhibit the development of large-scale retailing in the suburbs.
  • Picture: customers from mainland were waiting to shop at LV store in Hong Kong. Because of too many customers, the store had to restrict the number of customers in the store. International expansion increases the sales area and the potential customer bases. For example, China is the most populous nation; household income and purchasing power are increasing; two-digit number economy growth; large emerging middle-class Retailers benefit from economies of scale in purchasing merchandise. The development of infrastructure and information technology makes the transmission of information, goods, and human resources easier. For example, after 2004, all restrictions on foreign retailers were removed in China. Some retail formats such hypermarket and convenient store are mature in developed countries. But they are innovative and have greater potential in developing countries. For example, hypermarket has been booming in China in recent 10 years. Convenient store is a “encouraged format” in Shanghai. Format: warehouse clubs peaked in popularity in the US in the late 1980s, but these formats are no entering asisan and south American market with great pizza.
  • After the tariffs are eliminated, competition becomes much more intense. All retailers compete with each other world-wise. Viewing multinational markets as one mass market is a dangerous assumption. For example, there are great geographic, cultural, and economic difference within China. Governments have diversified laws, policies, and regulations.
  • Market scanning: fundamentally a secondary data utilizing process that allows retailer quickly to assess the relative merits of a wide selection of different markets. Market research is more expensive in-depth process that uses secondary and primary data. Cultural difference is more important for multinational retailers than global retailers. Global retailers (e.g., Body Shop and Footlocker) will enter worlds cities, selling essentially the same thing they sell at home. Multinational retailers (e.g., Wal-mart and Carrefour) will initially 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. Geographic proximity: French retailers entered Spanish first. England Retailer use Ireland as the first market. U.S retailers entered Canada first. For example, Toys R Us and Costoco are important in Canada. Australia is a primary target of UK retailers. But They found that geographic distance is an important factors.
  • China has the biggest market size, followed by Russia.
  • All four countries have been experiencing significant market growth. Russia grew the fastest on average. But China and Brazil have stable two-digit growth rate. US and Europe GDP increase 3% or 1% in 2010
  • Concentration ratio is measured by the market share or a given number of firms in the industry. The most common concentration ratio is CR4. The market concentration ratios for Brazil 16%, Russia 10.4% China and India have the most fragmented retail market.
  • The market concentration ratios for India is 1.5%, China 3.5% The market is highly concentrated in U.S. Walmart, Kmart, and Target account for 85% of the sales of full-line discount stores. There is only one big category specialists in consumer electronics Best Buy left. Three dominant warehouse clubs’: Sams’ club, Costco, and BJ’s.
  • 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; 11-20 have entry priority; 21-30 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.
  • 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 2007. It is equal to 12 days’ sales of Wal-mart.
  • 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.
  • 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.
  • 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.
  • 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
  • Each distribution center can support 100 stores.
  • 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 &amp; 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.
  • Yaohan entered Shenzhen 1991. 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.
  • Transcript of "Module 3 Retail market entry strategy in china"

    1. 1. Retail Market Entry Strategy in China
    2. 2. Objectives <ul><li>Identify Major International Retailers </li></ul><ul><li>Analyze the Motivation of Retail Internationalization </li></ul><ul><li>Gain Insights into Foreign Market Entry Decisions </li></ul><ul><li>Identify the Specific Opportunities and Challenges for International Retailers </li></ul><ul><li>Understand the Concept of Divestment and Retail Divestment in China </li></ul>
    3. 3. Outline <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating International Opportunities– BRIC Countries </li></ul><ul><li>Entry Strategies </li></ul>
    4. 4. Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating International Opportunities– BRIC Countries </li></ul><ul><li>Entry Strategies </li></ul>
    5. 5. 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 International 40 37.70% 3 The Kroger Co USA 45,352.00 Single Country 1 0.00% 4 Metro AG GER 44,163.37 International 35 40.00% 5 The Home Depot, Inc USA 38,434.00 International 5 3.70% 6 Albertson’s, Inc USA 37,478.00 Single Country 1 0.00% 7 ITM Enterprises SA FRA 36,762.45 International 10 36.00% 8 Sears, Roebuck and CO USA 36,728.00 International 3 10.60% 9 Kmart Corporation USA 35,925.00 Single Country 1 0.00% 10 Target Corporation USA 33,702.00 Single Country 1 0.00% 11 JC Penney USA 31,503.50 Single Country 1 0.00% 12 Royal Ahold NET 31,222.15 International 12 76.40% 13 Safeway Inc. USA 30,801.80 International 8 10.80% 14 Rewe-Gruppe GER 30,567.69 International 18 19.70% 15 Tesco plc UK 30,404.40 International 14 10.00% 16 Ito-Yokado Co, Ltd JPN 30,237.57 International 2 29.80% 17 Edeka-Gruppe GER 30,002.57 International 2 2.40% 18 Costco Companies, Inc USA 26,976.45 International 8 18.40% 19 Tengelmann Warenhande GER 26,509.12 International 15 47.90% 20 The Daiei, Inc JPN 26,486.11 Single country 1 0.00%
    6. 6. 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
    7. 7. 5 Oversea Market of Tesco Information Source: www.planetretail.net
    8. 8. Oversea Market of Tesco (Cont.) Information Source: www.planetretail.net
    9. 9. Oversea Market of Tesco (Cont.) 8 Europe +25% Asia +122% Information Source: www.planetretail.net
    10. 10. Motivation for Retail Internationalization <ul><li>Overview </li></ul><ul><li>Two Major Drives </li></ul><ul><ul><li>Push factors </li></ul></ul><ul><ul><ul><li>Negative aspects of the domestic market </li></ul></ul></ul><ul><ul><li>Pull factors </li></ul></ul><ul><ul><ul><li>Attractive aspects of either the retail offer or the foreign market </li></ul></ul></ul>
    11. 11. Motivation for Retail Internationalization <ul><li>Push Factors </li></ul><ul><ul><li>Saturated home market and low growth potential </li></ul></ul><ul><ul><li>Intense competition at home </li></ul></ul><ul><ul><li>Diversify investment </li></ul></ul><ul><ul><li>Expansion at home blocked by legislation </li></ul></ul><ul><ul><li>Economic downturn at home </li></ul></ul>
    12. 12. Motivation for Retail Internationalization <ul><li>Pull Factors </li></ul><ul><ul><li>Market size and growth </li></ul></ul><ul><ul><li>Improved channel of distribution, advertising, and transportation </li></ul></ul><ul><ul><li>De-regulation for foreign retail entry </li></ul></ul><ul><ul><li>Great potential for some mature retail formats from developed countries </li></ul></ul><ul><ul><li>Undeveloped retail industry and less intensive competition </li></ul></ul>
    13. 13. Motivation for Retail Internationalization <ul><li>Challenges for International Retailers </li></ul><ul><li>Increased competition </li></ul><ul><li>Look like a single market, but is not </li></ul><ul><li>Additional layers of governmental complexity </li></ul><ul><li>Cultural differences </li></ul><ul><li>Internal coordination and transfer of knowledge </li></ul>
    14. 14. International Expansion Opportunities <ul><li>Criteria for Selecting a Country </li></ul><ul><li>Macro-Marketing Factors (Sternquist, 2007; Alexander and Doherty, 2009) </li></ul><ul><ul><li>Economic Environment </li></ul></ul><ul><ul><ul><li>Market size </li></ul></ul></ul><ul><ul><ul><li>Market growth </li></ul></ul></ul><ul><ul><li>Governmental Environment </li></ul></ul><ul><ul><ul><li>Trade barriers </li></ul></ul></ul><ul><ul><ul><li>Regulations on foreign retailers </li></ul></ul></ul><ul><ul><li>Social and Cultural Environment </li></ul></ul><ul><ul><ul><li>Cultural proximity </li></ul></ul></ul><ul><ul><li>Technological Environment </li></ul></ul><ul><ul><ul><li>Retail information system </li></ul></ul></ul><ul><ul><li>Retail Structure and Competition Environment </li></ul></ul><ul><ul><ul><li>Market concentration and competition </li></ul></ul></ul>
    15. 15. Information source: GMID, Euromonitor International Expansion Opportunities
    16. 16. Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating International Opportunities– BRIC Countries </li></ul><ul><li>Entry Strategies </li></ul>
    17. 17. <ul><li>Comparison among BRIC (Brazil, Russia, India and China) </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><li>Market Growth </li></ul></ul><ul><ul><li>Market Concentration </li></ul></ul><ul><ul><li>Country Risk </li></ul></ul>International Expansion Opportunities
    18. 18. Market Size International Expansion Opportunities Information source: GMID, Euromonitor   2005 2006 2007 2008 2009 2010 Brazil 118,687.00 146,325.60 181,181.60 216,101.10 215,774.10 266,813.50 Russia 160,472.40 201,493.10 259,254.20 319,682.20 258,717.70 305,312.90 India 174,688.20 185,528.50 220,980.70 227,851.00 216,107.00 229,944.00 China 520,599.70 609,339.10 723,108.50 886,776.50 985,138.70 1,072,255.70
    19. 19. Market Growth International Expansion Opportunities Information source: GMID, Euromonitor 2006 2007 2008 2009 2010 Brazil 10.2 10.8 12.3 8.9 12.8 Russia 20.7 21 19.8 3.4 10.5 India 9.1 8.7 8.5 5.5 7.6 China 13.9 13.2 12 9.2 10.9
    20. 20. Market Concentration International Expansion Opportunities Information source: GMID, Euromonitor
    21. 21. International Expansion Opportunities Market Concentration (Cont.) Information source: GMID, Euromonitor
    22. 22. Country Risk (Euromoney) Country Overall Score Political Risk Economic Performance Structures Debt Indicators Credit Rating Access to bank finance/capital market Sep - 10 Mar. - 10 100 30 30 10 5 10 10 1 1 Norway 93.33 28.19 26.89 8.25 10.00 10.00 10.00 2 3 Switzerland 90.22 26.80 24.99 8.44 10.00 10.00 10.00 3 6 Sweden 88.93 28.04 22.65 8.24 10.00 10.00 10.00 9 16 Hong Kong 87.18 25.25 24.87 8.10 10.00 8.96 10.00 17 13 United States 82.10 26.26 17.91 7.92 10.00 10.00 10.00 36 43 China 72.60 17.37 22.31 6.81 9.95 7.50 8.67 42 51 Brazil 69.57 18.84 20.73 6.62 9.01 4.38 10.00 49 52 India 62.80 16.92 18.04 5.35 9.44 4.38 8.67 52 54 Russia 61.48 14.66 18.46 5.35 9.30 5.21 8.50
    23. 23. 2010 Global Retail Development Index (A.T. Kearney)
    24. 24. 2010 Global Retail Development Index (A.T. Kearney)
    25. 25. <ul><li>Why China? </li></ul><ul><li>Economic Factors </li></ul><ul><ul><li>The Largest Market Size </li></ul></ul><ul><ul><ul><li>The market size of China is the sum of the other three BIRC countries in 2010. </li></ul></ul></ul><ul><ul><li>Stable High Market Growth </li></ul></ul><ul><ul><ul><li>China has continued a double digit growth rate from 2005 to 2010. </li></ul></ul></ul>International Expansion Opportunities
    26. 26. <ul><li>Why China? (Cont.) </li></ul><ul><li>Industry Structure </li></ul><ul><ul><li>The market is largely fragmented. </li></ul></ul><ul><ul><li>Chinese retailers are regional. </li></ul></ul><ul><ul><li>The sizes of Chinese retailers are relatively small. </li></ul></ul><ul><ul><li>Huge opportunities for foreign retailers. </li></ul></ul>International Expansion Opportunities
    27. 27. <ul><li>Why China? (Cont.) </li></ul><ul><li>Political Environment </li></ul><ul><ul><li>Socialist market economy with Chinese characteristics </li></ul></ul><ul><ul><li>Focus on reforms and economic development </li></ul></ul><ul><li>Technological Environment </li></ul><ul><ul><li>China has better infrastructure than other developing countries. </li></ul></ul><ul><ul><li>Chinese government encourages retailers to adopt advanced information system </li></ul></ul>International Expansion Opportunities
    28. 28. Video on the interview with the CEO of Wal-Mart, China (Ed Chan) http://www.mckinseyquarterly.com/Retail_Consumer_Goods/Sectors_Regions/Chinas_retail_revolution_An_interview_with_Wal-Marts_Ed_Chan_2459 International Expansion Opportunities
    29. 29. Retail Market Entry Strategy in China <ul><li>Reasons for International Expansion </li></ul><ul><li>Evaluating International Opportunities– BRIC Countries </li></ul><ul><li>Entry Strategies </li></ul>
    30. 30. Foreign Retail Entry Decisions <ul><li>Entry Mode </li></ul><ul><li>Location </li></ul><ul><li>Time </li></ul><ul><li>Format </li></ul>
    31. 31. Foreign Retail Entry Decisions <ul><li>Entry Mode </li></ul>Risk, Control, and Resource Licensing Franchising Export Join Venture Wholly owned Contract Management
    32. 32. Foreign Retail Entry in China <ul><li>Entry Mode </li></ul><ul><ul><li>Franchising </li></ul></ul><ul><ul><ul><li>MacDonald and Sogo </li></ul></ul></ul><ul><ul><li>Contract Management </li></ul></ul><ul><ul><ul><li>Parkson </li></ul></ul></ul><ul><ul><li>Joint Venture </li></ul></ul><ul><ul><ul><li>Carrefour </li></ul></ul></ul><ul><ul><li>Solely Owned </li></ul></ul><ul><ul><ul><li>Tesco (Merger and Acquisition) </li></ul></ul></ul><ul><ul><ul><li>Best Buy (Green field) </li></ul></ul></ul><ul><ul><ul><li>Increased after 2004 </li></ul></ul></ul><ul><ul><li>Foreign Manufacturer’s Specialty Store </li></ul></ul><ul><ul><ul><li>Pierre Cardin and Play Boy </li></ul></ul></ul>
    33. 33. Foreign Retail Entry in China <ul><li>Entry Format </li></ul><ul><ul><li>Department Store </li></ul></ul><ul><ul><ul><li>Ito Yokada </li></ul></ul></ul><ul><ul><li>Hypermarket/supercenter </li></ul></ul><ul><ul><ul><li>Carrefour, Wal-mart, Tesco, Auchan </li></ul></ul></ul><ul><ul><ul><li>Foreign retailers have 70% market share </li></ul></ul></ul><ul><ul><li>Warehouse </li></ul></ul><ul><ul><ul><li>Metro </li></ul></ul></ul><ul><ul><li>Specialty/ specialist Store </li></ul></ul><ul><ul><ul><li>Ikea, B&Q, Best Buy </li></ul></ul></ul><ul><ul><li>Convenience Store </li></ul></ul><ul><ul><ul><li>7-11 </li></ul></ul></ul>
    34. 34. Foreign Retail Entry in China <ul><li>Locations </li></ul><ul><ul><li>Their first entries are in Beijing, Shanghai, Guangzhou and Shenzhen, and their headquarters are mainly in these four cities. </li></ul></ul><ul><ul><li>Eastern China has a much higher density than Western China. </li></ul></ul><ul><ul><li>Yangzi river delta, Pearl river delta and Bohai Circle have the greatest density. </li></ul></ul><ul><ul><li>Sichuan and Chongqing are emerging areas. </li></ul></ul><ul><ul><li>Foreign retailers have entered most of the provinces and all the major economic cities. </li></ul></ul><ul><ul><li>Foreign retailers are conducting large-scale expansion into lower tier cities. </li></ul></ul>
    35. 35. Geographic Areas
    36. 36. Foreign Retail Entries in China (Li and Wang, 2006) Retailer Country City Format Retailer Country City Format Yaohan Japan Shenzhen (1991) Department store Ahold Holland Shanghai (1997) Hypermarket 7-11 Japan Shanghai (1992) Convenience store Locus Thailand Shanghai (1997) Hypermarket Parkson Malaysia Qingdao (1993) Department store Trust Mart Taiwan Guangzhou (1997) Hypermarket Carrefour France Beijing (1995) Hypermarket Ito-Yokada Japan Beijing (1998) Supermarket Daiei Japan Tianjin (1995) Supermarket Ikea Sweden Shanghai (1998) Specialty Jusco Japan Guangzhou (1995) Department Store Rt-Mart Taiwan Shanghai (1998) Hypermarket Metro Germany Shanghai (1996) Warehouse Auchan France Shanghai (1999) Hypermarket Makro Netherland Guangzhou (1996) Warehouse B&Q U. K. Shanghai (1999) Specialty Wal-mart U.S.A Shenzhen (1996) Shopping center/ Sam’s club/ neighborhood store OBI Germany Wuxi (2000) Specialty Lawson Japan Shanghai (1996) Convenience store Otto Germany Shanghai (2000) Specialty Home Depot U.S.A Tianjin (2006) Specialty Best Buy U.S. A Shanghai (2006) Specialty
    37. 37. Leading Retailers in China (CCFA, 2010) Ranking Retailer 2009 Sales ( 10,000 ¥ ) Growth (%) # of stores Growth (%) 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  6.7 2,333 16.1
    38. 38. Foreign Retailers in China Ranking Retailer Sales ( 10,000 ¥ ) Growth (%) # of stores Growth (%) 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 0.0 77 1.3 30 Parkson   1,237,000 15.7 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 10.0 62 Ito Yokada 351,380 21.9 3 0.0 68 IKEA 312,000 15.6 7 16.7 100 Home Depot 160,000 4.6 12 0.0
    39. 39. Foreign Retail Entry in China <ul><li>Expansion of Carrefour in China </li></ul><ul><li>In 1995, they entered China in Shanghai. </li></ul><ul><ul><ul><li>They expanded aggressively. </li></ul></ul></ul><ul><ul><li>They entered major cities 2-3 years sooner than Wal-mart and Metro. </li></ul></ul><ul><ul><li>In 1999, they had 28 stores in 17 cities. </li></ul></ul><ul><li>They are currently the No. 1 foreign retailer in China. </li></ul><ul><ul><li>169 Hypermarkets in China </li></ul></ul><ul><ul><li>(as of November, 2010) </li></ul></ul>
    40. 40. <ul><li>Expansion of Wal-mart in China </li></ul><ul><li>Entered China in 1996 </li></ul><ul><li>Headquartered in Shenzhen </li></ul><ul><li>Operates three formats in China: Supercenters, Sam’s Clubs, and neighborhood stores. </li></ul><ul><li>1996-2004 Slow Growth </li></ul><ul><ul><li>Wal-mart is not flexible and doesn’t adapt to the China market </li></ul></ul><ul><ul><li>Underdeveloped Infrastructures and IT Systems in China </li></ul></ul><ul><ul><li>2004, Ranking 20, <1/2 Carrefour </li></ul></ul>Foreign Retail Entry in China
    41. 41. <ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>After 2004, Fast Growth </li></ul><ul><ul><li>Adapted to Chinese Markets </li></ul></ul><ul><ul><ul><li>Worked with Intermediate Agents </li></ul></ul></ul><ul><ul><ul><li>Decentralized Management </li></ul></ul></ul><ul><ul><ul><li>Opened Stores in Urban Areas </li></ul></ul></ul><ul><ul><ul><li>Established Unions and Communist Party Branch </li></ul></ul></ul><ul><ul><ul><li>Adjusted Pricing Policies </li></ul></ul></ul><ul><ul><li>Government Policies Became More Open </li></ul></ul><ul><ul><li>Significantly Improved Infrastructure in China </li></ul></ul><ul><ul><li>Consumer Market Booming </li></ul></ul>Foreign Retail Entry in China
    42. 42. <ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>No. 2 Foreign Retailer in China </li></ul><ul><ul><li>Three distribution centers in Shenzhen, Tianjin, and Jiaxing. (By 12/2008) </li></ul></ul><ul><ul><li>189 units in 101 cities in China (By August, 2010) </li></ul></ul>Foreign Retail Entry in China
    43. 43. <ul><li>Expansion of Wal-mart in China (Cont.) </li></ul><ul><li>Video: The 100 th Wal-Mart store in China </li></ul><ul><li>http://www.youtube.com/watch?v=x65efvLryqY </li></ul><ul><li>Video: 300 Wal-Mart stores in China </li></ul><ul><li>http://www.youtube.com/watch?v=gGtQDL6OliI </li></ul>Foreign Retail Entry in China
    44. 44. Retail Divestment in China <ul><li>Divestment </li></ul><ul><li>It is not necessarily true that all international companies succeed or would like to stay in China. </li></ul><ul><li>Divestment is defined as “Company actions resulting in a reduced presence in a foreign market” (Alexander, Quinn, and Cairns, 2005) </li></ul>
    45. 45. Retail Divestment in China <ul><li>Divestment (Cont.) </li></ul><ul><li>Some Retailers That Have Exited China (Li and Wang, 2006) </li></ul><ul><ul><li>Yaohan (Japanese Supermarket), 1999 </li></ul></ul><ul><ul><li>Xiyou (Japanese Supermarket), 1999 </li></ul></ul><ul><ul><li>Ahold (Netherland Hypermarket), 1999 </li></ul></ul><ul><ul><li>PCD (Hong Kong Department Store), 2000 </li></ul></ul><ul><ul><li>Jusco (Japanese Department Store), 2000 </li></ul></ul><ul><ul><li>Daiei (Japanese Supermarket), 2004 </li></ul></ul><ul><ul><li>Mykal (Japanese Department), 2003 </li></ul></ul><ul><ul><li>OBI (German Home Improvement Store), 2005 </li></ul></ul>
    46. 46. Retail Divestment in China <ul><li>Store Closures in 2008-2009 (Wang, 2009) </li></ul>Retailer Store Format Reason Isetan Huating store in Shanghai Department store Net loss for two years Parkson Changsha store Department 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 Bad performance HomeDepot Qingdao store Specialty store Broke up with the landlord
    47. 47. Case Study <ul><li>Case Study </li></ul><ul><li>Best Buy in China </li></ul><ul><li>Video On the Opening of Best Buy Shanghai Store </li></ul><ul><li>http://www.youtube.com/watch?v=zMABUmlOQdE </li></ul>
    48. 48. References <ul><li>CCFA (2010), Report on Chain Store Retailers’ Performance in China (2009-2010). </li></ul><ul><li>Li, Fei and Gao Wang (2006), The Development of the Retailing Industry in China (1981-2005), Social Sciences Academic Press, Beijing </li></ul><ul><li>Wang, Qiang (2009), Report on China Retail Business Monitoring and Analysis, China Economic Publishing House, Beijing. </li></ul><ul><li>Alexander, Nicholas, Barry Quinn, and Patricia Cairns (2005). International retail divestment activity, International Journal of Retail & Distribution Management, 33(1), 5-22 </li></ul>

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