GlobalizationRetail1
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David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Globalization of Retail Industry Why do retail firms to expand internationally? Agenda Globalization of retail industry Introduction to China Location Module History Economy Culture Shopping behavior Retail industry David F. Miller Center for Retailing Education and Research page 2 Why do retailers (businesses) expand internationally? Location Module David F. Miller Center for Retailing Education and Research page 3 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 Location Module David F. Miller Center for Retailing Education and Research page 4 Why Have Retailers Be Slower to Expand Internationally than mfgrs? $40B vs 400B 100’s vs 15 countries Location Module David F. Miller Center for Retailing Education and Research page 5 Top 20 Retailers in the World Information source: GMID, Euromonitor Ranking Retailer Country of origin 2009 Sales Type ($millions) # of countries of operation 1 Wal-Mart Stores, Inc USA 163,532.00 International 15 % of sales in foreign countries 13.9% 2 3 Carrefour Group The Kroger Co FRA USA 52,196.10 45,352.00 40 1 37.70% 0.00% 4 5 6 Metro AG The Home Depot, Inc Albertson’s, Inc GER USA USA 44,163.37 38,434.00 37,478.00 35 5 1 40.00% 3.70% 0.00% 7 8 36,762.45 36,728.00 10 3 36.00% 10.60% 9 ITM Enterprises SA FRA Sears, Roebuck and USA CO Kmart Corporation USA International Single Country International International Single Country International International 1 0.00% 10 Target Corporation USA 33,702.00 1 0.00% 11 JC Penney USA 31,503.50 1 0.00% 12 13 14 15 16 17 18 19 Royal Ahold Safeway Inc. Rewe-Gruppe Tesco plc Ito-Yokado Co, Ltd Edeka-Gruppe Costco Companies, Inc Tengelmann Warenhande The Daiei, Inc NET USA GER UK JPN GER USA GER 31,222.15 30,801.80 30,567.69 30,404.40 30,237.57 30,002.57 26,976.45 26,509.12 Single Country Single Country Single Country International International International International International International International International 12 8 18 14 2 2 8 15 76.40% 10.80% 19.70% 10.00% 29.80% 2.40% 18.40% 47.90% JPN 26,486.11 Single country 1 0.00% 20 Location Module 35,925.00 David F. Miller Center for Retailing Education and Research page 6 Why are European retailers more global than U.S. retailers? Location Module David F. Miller Center for Retailing Education and Research page 7 David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) 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 Location Module David F. Miller Center for Retailing Education and Research page 9 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) Location Module David F. Miller Center for Retailing Education and Research page 10 Impact of Communism: Off-shore Retailing in China Defeated Nationalist group heads to Taiwan “Commercial” group goes to Hong Kong These two groups create thriving retail communities Aberdeen St. Hong Kong 1960 Location Module David F. Miller Center for Retailing Education and Research page 11 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 Location Module David F. Miller Center for Retailing Education and Research page 12 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 Location Module David F. Miller Center for Retailing Education and Research page 13 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. Food Coupons Vegetable Coupon Location Module David F. Miller Center for Retailing Education and Research Cloth Coupons Soap Coupon page 14 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. Deng Xiaoping in 1979 Product shortage ended and food coupons were abandoned at the early 1990’s. Location Module David F. Miller Center for Retailing Education and Research page 15 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. Location Module David F. Miller Center for Retailing Education and Research page 16 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. Location Module David F. Miller Center for Retailing Education and Research page 17 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. Location Module David F. Miller Center for Retailing Education and Research page 18 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. Location Module David F. Miller Center for Retailing Education and Research page 19 China’s Commercial History •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 Location Module David F. Miller Center for Retailing Education and Research page 20 David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) 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. Location Module David F. Miller Center for Retailing Education and Research page 22 Administrative Districts Location Module David F. Miller Center for Retailing Education and Research page 23 Population Density Map of the administrative divisions(PRC) by population in millions Location Module David F. Miller Center for Retailing Education and Research page 24 GDP of Regions Location Module David F. Miller Center for Retailing Education and Research page 25 Summary of Population and GDP Location Module David F. Miller Center for Retailing Education and Research page 26 City Tiers How many cities in China have over 1 million resident? Location Module David F. Miller Center for Retailing Education and Research page 27 Ethnic Groups Officially recognized 56 ethnic groups in mainland China Location Module David F. Miller Center for Retailing Education and Research page 28 Ethnolinguistic Map Ethnolinguistic map of the People's Republic of China and the Republic of China Location Module David F. Miller Center for Retailing Education and Research page 29 Han Location Module 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. David F. Miller Center for Retailing Education and Research page 30 Mongols Location Module 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. David F. Miller Center for Retailing Education and Research page 31 Uygur Location Module Uyghur live primarily in the Xinjiang Uyghur Autonomous Region The religion of Uyghur is Islam The language is Uyghur David F. Miller Center for Retailing Education and Research page 32 Zhuang Location Module 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. David F. Miller Center for Retailing Education and Research page 33 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 Location Module David F. Miller Center for Retailing Education and Research page 34 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。 Location Module David F. Miller Center for Retailing Education and Research page 35 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. Location Module David F. Miller Center for Retailing Education and Research page 36 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. Location Module David F. Miller Center for Retailing Education and Research page 37 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 quicker Though they’re honest and straightforward, at the slightest provocation They’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. Location Module 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 David F. Miller Center for Retailing Education and Research page 38 Stereotypes – Shandong, Human Shandong province Hunan province Hubei province Location Module The stalwart Shandong people grow as hearty as their scallions On 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-south They say the people there can really run it at the mouth In Hubei in particular, the saying is often heard That 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. David F. Miller Center for Retailing Education and Research page 39 Steroetypes – Chengdu, Guangzhou Sichuan province Henan province Location Module 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 Guangzhou Is 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. David F. Miller Center for Retailing Education and Research page 40 Stereotypes – Shanghai, Beijing Shanghai Beijing Location Module 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 immense But 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 air But scratch beneath the cynicism and you’ll find they care.” David F. Miller Center for Retailing Education and Research page 41 David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Retailing in China Shopping Behavior 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 Location Module David F. Miller Center for Retailing Education and Research page 43 What effect do these cultural differences have on retailing? Shopping behavior Store management Location Module David F. Miller Center for Retailing Education and Research page 44 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 Location Module David F. Miller Center for Retailing Education and Research page 45 Comparison U.S. with China in Tier 1 and 2 Cities U.S. China Mean household income ($) 47,300 10,220 add 2.2 times Median household income ($) 84,300 Gray income - top 10% Household debit as % of income Own a home % Carry mortgage % Consumer loan cedit cards % Car owner % Location Module 137 85 70 17 69 11 47 90 1 20 David F. Miller Center for Retailing Education and Research page 46 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 Location Module David F. Miller Center for Retailing Education and Research page 47 Brand Conception Location Module David F. Miller Center for Retailing Education and Research page 48 Shopping as Leisure Location Module David F. Miller Center for Retailing Education and Research page 49 Local vs. Foreign Brands Location Module David F. Miller Center for Retailing Education and Research page 50 Young Consumers Preferences Location Module David F. Miller Center for Retailing Education and Research page 51 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 Location Module David F. Miller Center for Retailing Education and Research page 52 Shift in Consumption Location Module David F. Miller Center for Retailing Education and Research page 53 David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Description of China Food Retailing in Tier 1 and Tier Chinese Cities Food Retailer in China Open Market Convenience stores Traditional Grocery Stores Supermarkets Hypermarkets Location Module David F. Miller Center for Retailing Education and Research page 55 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 Location Module David F. Miller Center for Retailing Education and Research page 56 Open Markets Location Module David F. Miller Center for Retailing Education and Research page 57 Traditional Grocery Stores Location Module David F. Miller Center for Retailing Education and Research page 58 Supermarkets in China (Shanghai) Location Module David F. Miller Center for Retailing Education and Research page 59 Hypermarkets Location Module David F. Miller Center for Retailing Education and Research page 60 Convenience store in China (Shanghai) Location Module David F. Miller Center for Retailing Education and Research page 61 David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET )
