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Retail Internationalization

Retail Internationalization. Chuanyi Tang, Ph. D. Post Doctoral Associate Hough Graduate School of Business Warrington College of Business Administration University of Florida. Objectives. Identify Major International Retailers Analyze the Motivation of Retail Internationalization

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Retail Internationalization

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  1. Retail Internationalization Chuanyi Tang, Ph. D. Post Doctoral Associate Hough Graduate School of Business Warrington College of Business Administration University of Florida

  2. Objectives • Identify Major International Retailers • Analyze the Motivation of Retail Internationalization • Gain Insights into Foreign Market Entry Decisions • Identify the Specific Opportunities and Challenges for International Retailers • Understand the Concept of Divestment and Retail Divestment in China

  3. Outline • International Retailers • Motivation for Retail Internationalization • Retail Internationalization Opportunities • Foreign Retail Entries in China • Retail Divestment in China

  4. Top 20 Retailers in the World Information source: GMID, Euromonitor

  5. Global Map of Tesco Czech Republic Russia UK Poland R.O. Ireland Slovakia France Hungary S Korea USA China Greece Turkey Japan Taiwan Thailand Malaysia Information Source: www.planetretail.net

  6. Oversea Market of Tesco Information Source: www.planetretail.net 5

  7. Oversea Market of Tesco (Cont.) Information Source: www.planetretail.net

  8. Oversea Market of Tesco (Cont.) Europe +25% Asia +122% Information Source: www.planetretail.net 8

  9. Motivation for Retail Internationalization Overview Two Major Drives Push factors Negative aspects of the domestic market Pull factors Attractive aspects of either the retail offer or the foreign market

  10. Motivation for Retail Internationalization Push Factors Saturated home market and low growth potential Intense competition at home Diversify investment Expansion at home blocked by legislation Economic downturn at home

  11. Motivation for Retail Internationalization Pull Factors Market size and growth Improved channel of distribution, advertising, and transportation De-regulation for foreign retail entry Great potential for some mature retail formats from developed countries Undeveloped retail industry and less intensive competition

  12. Motivation for Retail Internationalization Challenges for International Retailers Increased competition Look like a single market, but is not Additional layers of governmental complexity Cultural differences Internal coordination and transfer of knowledge

  13. International Expansion Opportunities Criteria for Selecting a Country Macro-Marketing Factors (Sternquist, 2007; Alexander and Doherty, 2009) Economic Environment Market size Market growth Governmental Environment Trade barriers Regulations on foreign retailers Social and Cultural Environment Cultural proximity Technological Environment Retail information system Retail Structure and Competition Environment Market concentration and competition

  14. International Expansion Opportunities Information source: GMID, Euromonitor

  15. Comparison among BRIC (Brazil, Russia, India and China) Market Size Market Growth Market Concentration Country Risk International Expansion Opportunities

  16. International Expansion Opportunities Market Size Information source: GMID, Euromonitor

  17. International Expansion Opportunities Market Growth Information source: GMID, Euromonitor

  18. International Expansion Opportunities Market Concentration Brazil Russia Information source: GMID, Euromonitor

  19. International Expansion Opportunities Market Concentration (Cont.) China India Information source: GMID, Euromonitor

  20. Country Risk (Euromoney)

  21. 2010 Global Retail Development Index (A.T. Kearney)

  22. 2010 Global Retail Development Index (A.T. Kearney)

  23. Why China? Economic Factors The Largest Market Size The market size of China is the sum of the other three BIRC countries in 2010. Stable High Market Growth China has continued a double digit growth rate from 2005 to 2010. International Expansion Opportunities

  24. Why China? (Cont.) Industry Structure The market is largely fragmented. Chinese retailers are regional. The sizes of Chinese retailers are relatively small. Huge opportunities for foreign retailers. International Expansion Opportunities

  25. Why China? (Cont.) Political Environment Socialist market economy with Chinese characteristics Focus on reforms and economic development Technological Environment China has better infrastructure than other developing countries. Chinese government encourages retailers to adopt advanced information system International Expansion Opportunities

  26. International Expansion Opportunities 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

  27. Foreign Retail Entry Decisions • Entry Mode • Location • Time • Format

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

  29. Foreign Retail Entry in China Entry Mode Franchising MacDonald and Sogo Contract Management Parkson Joint Venture Carrefour Solely Owned Tesco (Merger and Acquisition) Best Buy (Green field) Increased after 2004 Foreign Manufacturer’s Specialty Store Pierre Cardin and Play Boy

  30. Foreign Retail Entry in China Entry Format Department Store Ito Yokada Hypermarket/supercenter Carrefour, Wal-mart, Tesco, Auchan Foreign retailers have 70% market share Warehouse Metro Specialty/ specialist Store Ikea, B&Q, Best Buy Convenience Store 7-11

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

  32. Geographic Areas

  33. Foreign Retail Entries in China (Li and Wang, 2006)

  34. Leading Retailers in China (CCFA, 2010)

  35. Foreign Retailers in China

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

  37. Foreign Retail Entry in China 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

  38. Foreign Retail Entry in China 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

  39. Foreign Retail Entry in China 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)

  40. Foreign Retail Entry in China Expansion of Wal-mart in China (Cont.) • The 100th Wal-Mart store in China • http://www.youtube.com/watch?v=x65efvLryqY • 300 Wal-Mart stores in China • http://www.youtube.com/watch?v=gGtQDL6OliI

  41. Retail Divestment in China Divestment It is not necessarily true that all international companies succeed or would like to stay in China. Divestment is defined as “Company actions resulting in a reduced presence in a foreign market” (Alexander, Quinn, and Cairns, 2005)

  42. Retail Divestment in China Divestment (Cont.) Some Retailers That Have Exited China (Li and Wang, 2006) Yaohan (Japanese Supermarket), 1999 Xiyou (Japanese Supermarket), 1999 Ahold (Netherland Hypermarket), 1999 PCD (Hong Kong Department Store), 2000 Jusco (Japanese Department Store), 2000 Daiei (Japanese Supermarket), 2004 Mykal (Japanese Department), 2003 OBI (German Home Improvement Store), 2005

  43. Retail Divestment in China Store Closures in 2008-2009 (Wang, 2009)

  44. Case Study Case Study Best Buy in China http://www.youtube.com/watch?v=zMABUmlOQdE

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

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