Module 11 : The Internationalization of Retailing
1- Internationalization of Concepts
 One of the key differences between the internationalization of manufacturing and retailing
innovations whilst you can patent a new product you cannot patent a retail format or
operational procedure.
 First mover advantage is important in retailing, but new ideas will be copied and perfected,
so constant innovation is imperative to maintain competitive advantage.
 As the large retailers open more subsidiaries in new markets, best practice principles can be
applied across the world.
 Most academic attention on the internationalization of concepts has focused upon the
‘export’ of retail formats into new markets
2- Sourcing of Products and Services
 The first step to internationalization for many retailers is often through their buying
decisions.
 Large clothing firms have been sourcing products ‘offshore’ for some time, securing the
benefits of low-cost manufacturing in countries
 This reduction in time to market through coordinated supply chain management enables
buyers to source the globe for ideas, designs and products.
 The global consumer is acquiring global tastes as travel and media exposure place
increasing demands on the retailer to provide a cosmopolitan retail offer.
 In order to enhance their buying power, companies have joined buying alliances and web
exchanges to foster coordination in international sourcing.
 The retail industry has followed in the footsteps of other sectors in utilizing a range of
‘international’ services.
3- Internationalization of Store Development
 Much of the research into RI (Retail Internationalization) focuses upon four main themes:
1- Motives for Internationalization:
 The so-called proactive retailers who have embraced internationalization and have been
‘pulled’ towards new markets were invariably the subjects of case histories. These
companies had a differentiated retail offer, and a strong brand image, and were either
category killers (Toys ‘R’ Us, IKEA) or specialist clothing retailers (The Gap,
Benetton…)
 The facilitators listed in Figure 11.1 are encouraging consolidation in the food/mass
merchandise sector
 Consumers, whilst retaining local tastes, are becoming more geocentric in experimenting
with ‘international’ products, especially from the country of origin of the foreign retailer.
2- Direction of Growth
 Retailers have to decide which markets to enter and the entry strategy to deploy.
Commercial research organizations have tended to monitor the flow of international
activity
 Most evidence suggests that firms in the early stages of internationalization prefer a lowrisk strategy and favour markets that are geographically or culturally proximate to their
home market
 The latter idea of cultural or business proximity relates to the concept of psychic distance,
whereby ‘a firm’s degree of uncertainty about a foreign market resulting from cultural
differences and other business difficulties presents barriers to learning about the market
and operating there’
 As retailers gain experience (sometimes negative experience), they reshape their
international strategies.
3- Method of Market Entry
 The entry strategies in retailing mirror that of the research undertaken on manufacturing
concerns.
 The main difference is one of scale and investment required for international expansion.
 The step-by-step approach in manufacturing goes from the low-cost, low-risk exporting of
goods through licensing to foreign direct investment (FDI).
 Initial low-investment strategies to glean better knowledge of the market can occur
through
1- Minority shareholdings: cross-shareholdings of ‘partners’, which open the door for
greater collaboration or even merger activity in the future.
2- Franchise agreement: advantages of franchising are 1- the speed of market entry, 2the availability of local management knowledge and expertise, 3- the low costs of
entry
The problem with franchising is the policing of the franchise network. It is
important that franchisees conform to the strict rules laid down by the franchiser in
terms of merchandising, brand image and
4- Degree of Adaptation to New Markets
 Levitt argued that consumers have the same needs and aspirations around the world,
 This view is supported by specific sectors of service businesses – hotel chains..
 Nevertheless, these companies have had to adapt their product to specific markets, and the
communications message has to be conveyed in different ways in new markets.
 In fast-moving consumer goods (FMCG) markets, adaptation for specific country markets
has been deemed necessary because of the ‘culturally grounded’ nature of tastes.
 In retailing, the degree of adaptation to specific markets is driven largely by the image of
the store brand and whether values associated with the brand can be transferred across
international boundaries.
 For the mass merchandisers and hypermarket operators, approaches differ according to the
scale of operation and management style of companies.
 The larger ‘big box’ operators which focus on fewer, large-scale formats – hypermarkets
and warehouse clubs – have tried to create a global brand identity
4- Towards a Conceptual Framework
 This model shows that the nature of international expansion is a function of a series of
advantages: ownership specific, where the product (retail offer) gives competitive
advantage; location specific, where the host country can yield cost or market opportunities
(Eastern Europe, Asia); or internalisation, where management innovation or other
corporate advantages can lead to success
 Criticisms: the internationalization of retailing differs fundamentally from that of
manufacturing.
 This is true in terms of the scale of capital flows and the degree of complexity,
 However, methods of entry and values associated with an international brand are
comparable
 Strategic international retail expansion (SIRE): explain the international expansion of
US retailers. The model integrates the eclectic paradigm (left side of the diagram), stages
theory and the global versus multinational strategy literature.
 She observed that multinational retailers’ expansion is slower than global retailers, that they
adapt rather than standardize, and that they concentrate their expansion within a
geographical area before moving to a new country or region
 Alexander and Myers (2000) have integrated previous research into a framework which
encapsulates the internationalization process from the corporate perspective
 The retailer has asset-based advantages (Dunning) through innovation of format and retail
brand
 Its ability to internationalize these assets will largely be determined by the internal
facilitating competences within the retail organization
 On the basis of the internal competences, strategic decisions will be taken on market
selection, entry method and the approach to be adopted in an international retailing
strategy.
 As the retailer gains experience within the international environment, the internal
facilitating competences are upgraded to accommodate the lessons learnt from its
operations in new geographical markets.
 The extension of the retail concept along the x-axis
and the firm’s perspective on internationalization on
the yaxis.
 They measure the latter in terms of a company’s
ethnocentricity or geocentricity.
 An ethnocentric approach is one whereby the retailer
adapts a domestic orientation to its international
strategy.
 The geocentric approach is to adopt a one market
view of the world where like-minded consumers will
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demand the retail offer with limited adaptation in specific markets.
The proximal retailer as one which provides a similar retail offer to customers in adjacent
countries
The multinational retailer has considerable global reach but remains psychologically
rooted within the competitive market of the domestic market,
The global retailer may embrace change rather than replicate an existing formula.
The difference between a transnational and a global retailer is the scale of operations, in
that a transnational operates only in a limited number of markets
5- The Reshaping of the Global Retail Market