globalization of retail industry

David F. Miller Center For Retailing Education and ResearchInternational Retailing Education and Training (IRET )

Globalization of Retail Industry

Why do retail firms to expand internationally?

Location 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


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


Why Have Retailers Be Slower to Expand Internationally than mfgrs?

$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 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%


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


Commercial History of China

Over 2000 years


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


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)

.


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 Kong1960


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


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


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.

FoodCoupons

ClothCoupons

VegetableCoupon

SoapCoupon


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


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.


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.


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.


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, 3rd 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.


•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


Modern China

facts


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.


Administrative Districts


Population Density

Map of the administrative divisions(PRC) by population in millions


GDP of Regions


Summary of Population and GDP


City Tiers

How many cities in China have over 1 million resident?

Barton A Weitz


Ethnic Groups

Officially recognized 56 ethnic groups in mainland China


Ethnolinguistic Map

Ethnolinguistic map of the People's Republic of China and the Republic of China


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.


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.


Uygur

Uyghur live primarily in the Xinjiang Uyghur Autonomous Region

The religion of Uyghur is Islam The language is Uyghur


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.


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


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。


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.


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.


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 quickerThough they’re honest and straightforward, at the slightest provocationThey’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


Stereotypes – Shandong, Human

The stalwart Shandong people grow as hearty as their scallionsOn 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-southThey say the people there can really run it at the mouthIn Hubei in particular, the saying is often heardThat 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


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 GuangzhouIs 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


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 immenseBut 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 airBut scratch beneath the cynicism and you’ll find they care.”

Shanghai

Beijing


Shopping Behavior

Retailing in China


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


What effect do these cultural differences have on retailing? Shopping behavior Store management


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


Comparison U.S. with China in Tier 1 and 2 Cities

U.S. China

Mean household income ($) 47,300 10,220

Median household income ($) 84,300

add 2.2 times

Gray income - top 10%

Household debit as % of income 137 17Own a home % 85 69Carry mortgage % 70 11

Consumer loan cedit cards % 47 1Car owner % 90 20


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


Brand Conception


Shopping as Leisure


Local vs. Foreign Brands


Young Consumers Preferences


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


Shift in Consumption


Food Retailing in Tier 1 and Tier Chinese Cities

Description of China


Food Retailer in China

Open Market Convenience stores Traditional Grocery Stores Supermarkets Hypermarkets


Basic Facts-Retail Industry

2008 Shanghai Beijing

Hypermarkets: Carrefour, Wal-Mart, RT-Mart, Century Mart, Lotus, Tesco, Auchan…

169 93

Supermarkets:Lianhua, Hualian…

2635 1706

Convenience stores:AllDays, Kedi, Lianhua Quick, Family Mart…

4298 910

Department Stores(Shopping centers)：Parkson, Pacific Department stores…

132 67


Open Markets


Traditional Grocery Stores


Supermarkets in China (Shanghai)


Hypermarkets


Convenience store in China (Shanghai)

globalization of retail industry

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