Multinational retailers in the Asia Pacific ii

Multinational retailers in the Asia Pacific
This report was prepared by:
27 April 2007
Address for correspondence: iii

Dr Jos Gamble
School of Management,
Royal Holloway, University of London
Egham, Surrey TW20 0EX
United Kingdom
Tel. +44(0)1784 414094
Fax +44(0)1784 4276100 j.gamble@rhul.ac.uk
Multinational retailers in the Asia Pacific iv

Multinational retailers in the Asia Pacific
This research was funded by the ESRC/AHRC under its Cultures of Consumption programme award number RES-143-25-0028 for the project ‘Multinational Retailers in the Asia Pacific’, from 1st April 2003 to 30th April 2007. I would also like to thank earlier support from a British Council China Studies Grant, the Daiwa Foundation, the Japan Foundation Endowment Committee, and Royal Holloway for ‘pumppriming’ that was essential to the success of this project. I would like to express gratitude to all those companies and individuals who gave their time so generously.
Many thanks also to Qihai Huang, for being such as conscientious, hardworking and resourceful Research Assistant. I gratefully acknowledge the assistance of Melissa
Schroder in the preparation of this report.
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Multinational retailers in the Asia Pacific
This report has been prepared for both practitioners and academics. In undertaking this task, there is the risk that neither group is fully satisfied. While academics would like to see far more engagement with academic debates, practitioners are inevitably more concerned to understand the implications for business in China.
In terms of style, the approach has been to use plain English with as little academic jargon as possible. At the same time, it is hoped that academic readers will find the contents thought provoking and sufficiently interesting to be encouraged to read the more conventional academic papers that are referred to in the text. The contents are presented as clearly as possible, with every attempt made to reduce the number of unnecessary qualifications while still presenting an accurate account of the findings.
This project has amassed a vast amount of data, both qualitative and statistical.
Several papers have already appeared in academic books and journals and more are underway, with others planned in the future. This work will keep my former research assistant, Qihai Huang, and I busy for a long time to come. A book, based on the findings, will be published by Palgrave press. This report can do no more than present a ‘taster’ of the various project themes and findings.
Although this is not a consultancy report, the final section highlights managerial implications of the findings. This might be rather presumptuous; however, the intention is to indicate some useful lessons that have been garnered from the research. The implications might be ‘old hat’ for companies already well established in China, but might be useful pointers for firms at an earlier stage of engagement with China. vi

Multinational retailers in the Asia Pacific
I would very much welcome comments and suggestions on this research, both from academic colleagues and from those in the case study companies. vii

Multinational retailers in the Asia Pacific
Acknowledgments ...................................................................................................... v
Preface ..................................................................................................................... vi
Chapter 1. Introduction to the Research ................................................................... 1
Key Findings ......................................................................................................... 1
Aims and Objectives.............................................................................................. 2
Methodology .......................................................................................................... 4
Structure of the Report .......................................................................................... 6
Chapter 2. China’s Economic History and Development of the Retail Sector ........... 7
China’s Economic System under Mao Zedong ..................................................... 7
China’s Economy in the Reform Period ............................................................... 10
China’s Entrance into the WTO ........................................................................... 12
Chapter 3. The Landscape of Foreign Retailers in China ....................................... 17
Chinese Consumers ............................................................................................ 23
Chapter 4. Results From the Research................................................................... 26
Transferring Parent Country Human Resource Management Practices to China 27
Local Employees’ Reception of Imported HRM Practices ................................... 33
Notions of the Consumer ..................................................................................... 35
Concluding Comment: ............................................................................................ 40
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Multinational retailers in the Asia Pacific
Messages for Policy and Practice ........................................................................... 41
References ............................................................................................................. 42
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Multinational retailers in the Asia Pacific
Rising prosperity and a rapidly commercialising economy have transformed China into the world’s most important emerging market. Multinational retailers have rapidly built up their presence since foreign participation in the sector was permitted in 1992.
This study explored the extent to which retailers from the UK and Japan transferred their parent country management practices and retail concepts to Chinese subsidiaries and how local employees and customers responded to them. The research indicated that these multinational firms have largely transferred their home country business practices to China, it appears, with considerable success. Further, the project has shown that Chinese consumers have widely embraced imported retail concepts.
:
 Although analysts often advise foreign investment enterprises to adapt to local human resource management practices, in their Chinese subsidiaries both the Japanese and UK retailers in the study tended to mirror their parent country HRM practices.
 Employees surveyed in the Chinese subsidiaries, and especially in UK owned stores, reported strong levels of approval for the imported HRM practices.
 Local labour markets constitute a greater barrier to the transfer of parent company management practices by foreign firms than cultural differences.
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Multinational retailers in the Asia Pacific
 Foreign investment in a sector often characterised as providing deskilled jobs with minimal opportunities provides meaningful work and opportunities to upskill.
 Japanese retailers in China have not expanded as rapidly as retailers from the US, France and the UK even though, in some cases, they began operations earlier. In part, at least, this is because their operations are more dependent on expatriate managers.
 Chinese customers have rapidly become accustomed to imported retail formats and can be extremely demanding with respect to price and customer service.
 These customers have higher expectations and are more demanding of foreign firms than they are of locally-owned retailers.
 Interactions between customers and sales staff remain embedded in specific institutionally, culturally and historically influenced patterns of behaviour.
:
The overall aim of this project was to investigate and analyse the transfer of management practices and retail concepts from multinational retailers based in the
United Kingdom and Japan to their subsidiaries in China. In addition, the project aimed to analyze the ways in which Chinese employees and customers respond to these practices and concepts. More specific aims and objectives were to:
 Provide data to make an innovative contribution to the debate on the transfer of business systems. Japanese and UK firms were selected for the research since
2

Multinational retailers in the Asia Pacific they have been shown to possess quite different business systems, with contrasting approaches to human resource management.
 Provide a substantial and valuable body of knowledge on the economically and socially significant retail industry and its operations in a region that constitutes a vast and growing consumer market: Japan is the world’s second largest consumer market and China the largest and most rapidly growing emerging market.
 Make a contribution to policy and practice – comparative study of companies from three different countries can provide indications into what constitutes 'best practice' human resource management as well as insights into marketing strategies for China and Japan.
The research documented and analysed differences between the business structures, management practices and retail concepts of retailers from the UK and
Japan. It indicated the extent to which firms transfer their home country management practices and retail concepts to their operations in China, and the degree to which these practices are influenced by specific institutional and cultural factors in the host country.
The research also investigated Chinese employees and customers' reception of transferred practices. China's rising popular consumerism has been accompanied by substantial shifts in both notions and expectations of ‘the customer'. This research explored the impact of multinational retailers and sought to answer questions such as, ‘How do Chinese customers perceive the relationship between themselves and stores?’ Is this changing? To what extent does 'Britishness' or
'Japaneseness' permeate and trickle down firms' hierarchy and then to local customers?
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Multinational retailers in the Asia Pacific
The project produced detailed, qualitative and contextualised case studies of workplaces in multinational retailers. Although other firms were included, the most intensive research was undertaken at four key firms: one firm from the United
Kingdom and three firms from Japan. The basic strategy was to select multinational retail firms that operated in both the home country and China; the greater number of
Japanese firms reflects the closer engagement of retail firms from that country in
China compared to UK firms.
The four main firms are anonymous in accord with guarantees provided to them.
The UK firm is involved in the sale of home decoration products, one Japanese firm is a department store, while the other two are general merchandise stores (the lowest floor is devoted to food and the remainder of the store to clothing and other products).
Much research on the transfer of organizational practices explores only one level of firms’ activities, for instance, only expatriates and/or only managerial staff. The aim in this study was to include as many levels as possible: home country headquarters; home country store managers; home country store non-managerial employees; overseas regional headquarters; overseas subsidiary store managers; and overseas subsidiary store non-managerial employees from a range of departments and all levels of the hierarchy.
Research at stores and headquarters offices in Japan and the UK provided the basis to understand parent country practices, while the bulk of the field research was undertaken at six locations in China (Shanghai, Beijing, Chengdu, Tianjin
Shenzhen, Suzhou). Given China’s vast size and the potential for regional differences, these locations were selected to include points north, south, east and west. In several cases, repeat visits were made to stores and headquarters.
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Multinational retailers in the Asia Pacific
In the UK and Japan, data was collected through survey-based questionnaires given to retail stores’ employees and interviews with employees, managers, business organisations, trade unions, research institutes, and academic researchers. In addition to the four core case study companies, research was undertaken at a further four retail firms in Japan.
Research in China included:
 The four core case study companies: six UK-invested stores and eight Japanese stores. In China, over 200 interviews were conducted in these firms with expatriate managers and local staff from all levels of their hierarchies.
 Case study research at a further 14 stores in China, including state-owned enterprises, private firms, Taiwanese-owned firms, German, Swedish, and
French firms. In such cases, the number of interviews conducted ranged from one to thirty two.
 Interviews were conducted at government departments, consumer associations, consular offices and embassies, and with local researchers and consumers - both individually and in focus groups.
 Over 2,200 survey questionnaires was collected, including almost 1,000 from the four main case study firms (in both China and Japan).
Interviews were semi-structured, that is, a standard set of questions was used to ensure comparability, but space was permitted to follow up digressions and new avenues that opened in the course of interviews. Interviews with Chinese staff were conducted on a one-to-one basis by the researcher. Interviews with Japanese staff were conducted in a variety of languages: in Chinese on a one-to-one basis; in
Chinese via a Chinese-Japanese interpreter; in English on a one-to-one basis; and in English via an English-Japanese interpreter. In the majority of cases, interviews
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Multinational retailers in the Asia Pacific were not recorded since this might affect interviewees’ willingness to talk openly – especially in China – but, instead, transcribed directly during the interview.
A research assistant, funded by the project, trained and operated as a sales assistant in one of the UK retailer’s China subsidiaries for a period of three months in order to better understand whether, how, and with what consequences ‘British’ approaches to employees and customers are diffused to China.
The following chapter provides a brief overview of China’s economic history and the development of the retail sector both under Mao Zedong and in the reform era. This chapter ends with an overview of the impact on the retail sector of China’s accession to the World Trade Organization. Chapter 3 examines the ‘landscape’ of foreign retailers in China, with short introductions to the major multinationals in that country and brief comments on Chinese consumers. Chapter 4 presents some of the results from the research with a focus on the following: the transfer of parent country human resource management practices to China; local employees’ reception of imported HRM practices; and notions of the consumer. These are followed by a short concluding comment. The report ends with some messages for policy and practice.
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Multinational retailers in the Asia Pacific
Before outlining the findings of the research, it is helpful to have a basic understanding of modern China’s economic history and the development of the retail sector. The success of China’s economy is a quite recent phenomenon. A brief introduction to the economic background can answer why it has only been in the recent past that China has become a major player in the global economy.
In the thirty years before economic reforms began in 1978, China’s economic system was a command economy in which the government (in this case the
Chinese Communist Party) controlled and regulated all factors of production. The government decided what should be produced, and controlled the production methods of enterprises. As Nolan and Wang observe, during the Maoist period, the state destroyed the central idea of capitalist industry - the competitive firm; instead they attempted to run the whole economy as a single factory based on administrative orders rather than competitive struggle between firms.
1
From 1931 to 1976 Mao Zedong served as Chairman of the CCP. Mao structured
China’s government and economy under the Stalinist model, emphasizing heavy industry, agriculture, and industrial construction. What remained of private industry and commercial activity after the Communist takeover in 1949 was absorbed into its command economy. Jobs were assigned by the state and the freedom to make hiring decisions independent of state purview did not exist.
2
1 Nolan, P. and Wang, X. (1999) ‘Beyond privatisation: institutional innovation and growth in
China’s large state-owned enterprises’. World Development, 27, 1, 180
2 Guthrie, D. (1999) Dragon in a Three Piece Suit . Princeton, Princeton University Press
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Multinational retailers in the Asia Pacific
China’s economy suffered from its lack of connection with the outside world. This, alongside China’s fear of foreign aggression and the rural guerrilla experience of the
Communist Party, lay behind a policy of local self-sufficiency. While much of the rest of the global market, and particularly East Asian countries such as Japan and South
Korea, made huge advances in technology, trade, and business China remained largely isolated behind its closed doors. It was not until 1978, under the reform movement initiated by Deng Xiaoping, that China would again allow foreign trade and foreign direct investment.
Under the Maoist regime, various political campaigns were ignited to mould China and its people into the Communist ideal. These included, for example, the Three
Antis (1951) and the Five Antis (1952) campaigns which sought to disband the private sector.
3 David Goodman comments that from mid-1950s: ‘conspicuous consumption and individual wealth creation were largely regarded as hostile acts by the CCP.’ 4
Subsequent campaigns such as The Hundred Flowers Campaign (1956), the Great
Leap Forward (1958-60), and the Cultural Revolution (1966-76) are widely considered to have had a negative effect on China’s economy. Such campaigns tended to produce the opposite of Mao’s stated intentions and his apparent hope that:
‘the intensive marshalling of China's energies would draw manual and mental labor together into a final harmonious synthesis and throw a bridge across the
3 Teiwes, F.C. (1993) ‘The establishment and consolidation of the new regime, 1949-1957’ in
The Politics of China, 1949-89 . Cambridge, Cambridge University Press, 187-204
4 Goodman, David S.G. (1996) ‘The People’s Republic of China: the party-state, capitalist revolution and new entrepreneurs’, p.225–42 in R. Robison and D.S.G. Goodman (Eds) The
New Rich in Asia: Mobile Phones, McDonald’s and Middle Class Revolution . London:
Routledge, 227
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Multinational retailers in the Asia Pacific chasm of China's poverty to the promised socialist paradise on the other side.’ 5
Mao’s hopes of using these mass movements to reform the country instead
‘degenerated into violence, factionalism and chaos.’ 6
For much of the Maoist era the stress was on the development of heavy industry, with consumption being deferred, an economic policy backed up by an austere, puritanical ethos that strongly discouraged conspicuous consumption. This was felt most strongly during the Cultural Revolution (1966-76).
Under China’s centrally planned economy and the shortage of consumer goods that subsequently plagued Chinese households, retailing was a passive activity, limited to the distribution of basic necessities to consumers. Stores responded to administrative decisions rather than consumer preferences. The idea of appealing to and tailoring products to consumer tastes did not reappear in China until the late
1970s and early 1980s.
By the 1970s, Mao’s economic policies were widely considered to have failed – although the system was not wholly unsuccessful: in the period 1960-1981 annual growth of per capita GNP averaged 5%.
7 Additionally, industrial workers enjoyed secure employment with good social welfare provision. However, there had been ‘the absence of any significant improvement in mass consumption standards for more than two decades.’ 8
People’s living standards were often no better than they had been in the 1950s. For
5 Spence, J.
http://www.time.com/time/time100/leaders/profile/mao2.html
6 MacFarquhar, R. (1993) ‘The Succession of Mao and the end of Maoism, 1969-82’ in The
Politics of China, 1949-89 . Cambridge, Cambridge University Press
7 Nolan, P. and Ash, R. (1995) ‘China’s economy on the eve of reform’. China Quarterly , 144,
981
8 Ibid., 984
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Multinational retailers in the Asia Pacific example, per capita grain availability in 1977 was no higher than in 1955, barely allowing the Chinese diet to meet basic dietary needs. The average housing space per resident was only 3.6 square metres.
9 It was under these social and economic circumstances that Deng Xiaoping succeeded Mao as China’s next leader.
Deng Xiaoping served under Mao as a senior member of the CCP. In January 1975, he was granted control of economic affairs. During the early years of the Cultural
Revolution (1966-76), he was criticized as a ‘capitalist roader’; his actions once in power provided ample evidence that this assessment had been correct. Unlike Mao,
Deng recognized the importance of focusing on material incentives in order to spur
China’s economy forward.
Deng is credited with setting in motion policies that have changed significantly the direction of China’s economy. The first reforms took place in the agricultural sector where the commune system set up under Mao in the late 1950s was dismantled within a few years.
From 1979-1984, there was growing prosperity in many rural areas and rural residents began to engage in the development of small-scale industries. An increasing number of rural residents began to look beyond largely subsistence level farming and to undertake the supply of consumer goods and investment goods in the agricultural sector. The restoration of private plots, the revival of free markets, and the return to limited forms of private ‘ownership’ of the means of production were significant developments in China’s transformation toward a market economy.
In 1978, a key policy shift took place that would steadily bring about a transformation of China’s economy: the implementation of the ‘Open Door Policy’.
Deng Xiaoping and his key advisers recognized the vital role that foreign trade and
9 Pyle, D. (1997) China’s Economy: From Revolution to Reform . Basingstoke, Macmillan, 24
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Multinational retailers in the Asia Pacific investment could play in China’s economic development. By allowing foreign investment through joint ventures and cooperative licensing agreements, Deng also believed that international competition would, ‘force Chinese manufacturers... to improve the quality of their products and be responsive to the specific requirements of customers.’ 10
In the late 1970s, China established four Special Economic Zones (SEZs). Within these zones, Zhuhai, Shenzhen, Shantou and Xiamen, foreign direct investment was enticed to invest with favourable tax, profit repatriation, and other provisions for foreign investors. Further, Deng reformed how state owned enterprises (SOEs) operated.
Under Mao’s regime, workers employed in SOEs had a de facto tenure for life, a benefit commonly known as the ‘iron rice bowl’. In the mid 1980s, the labour contract system was introduced to remove this obligation of life employment. Under the contract system, enterprises were granted more freedom in hiring practices.
Also, newly hired employees had to sign a contract, specifying the duration of the period in which they would work, as well as responsibilities, benefits, and wages.
Now, China’s workers are increasingly employed according to their performance.
SOEs share in the economy has steadily declined, from nearly 76% of total industrial output in 1980 to just 28.5% in 1999.
11 Meanwhile, that of private and foreign invested enterprises rose from 0.5% to 36.4% between 1980-97.
12
According to the Hong Kong Trade Development Council, the private sector may
10 Shirk, S. (1993) The Political Logic of Economic Reform in China.
Oxford, University of
California Press
11 Zhu, C.J. and Nyland, C. (2004) ‘Marketization and social protection reform: emerging HRM issues in China’. International Journal of Human Resource Management , 15, 4, 860
12 Smyth, R. (2000) ‘Should China be promoting large-scale enterprise groups?’. World
Development, 28, 4, 724
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Multinational retailers in the Asia Pacific have reached 61% of national GDP by the end of 2000, although the percentage varies hugely from one part of China to another.
Despite this, SOEs remain a significant part of the economy. For example, in 2003,
SOEs were reported to employ half of China’s 750 million workers and to control 57 percent of its industrial assets. Further, SOEs control many crucial industries such as financial services, power, and telecommunications. The Chinese banking system has continued to support failing SOEs in large part to help maintain employment.
Despite the overall successes of the open door policy, throughout the 1980s and early 1990s the CCP continued to debate whether China should continue ‘opening up’ or be ‘self reliant’. These debates created concern among foreign investors that
China’s door may close once again. This concern increased during the late 1980s, following the violent suppression of demonstrations across China.
From 1989 until early 1992, China appeared to be set upon a more introspective and conservative path of economic development. However, during early 1992, Deng embarked on a highly publicised ‘tour’ of China’s southern provinces and successfully re-energised economic reform and the investment environment. Since that time, it has become increasingly unlikely that China will ever fully close out the outside world again. In 1992, a record number of foreign invested projects were allowed into China.
The reforms promoted by Deng were effectively sealed by China’s accession to the
World Trade Organization in 2001. WTO accession provided an important spur to foreign involvement in China’s retail sector. Since admission, many of China's longstanding market barriers and trade restrictions have come down. China has gradually opened its vast and domestically dominated retail market to the outside world. The following are some of the most important changes for the retail sector.
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Multinational retailers in the Asia Pacific
Under the WTO agreement, China lifted the joint venture restrictions on large department stores and almost all chain stores. The 20,000 square metre size restriction for foreign owned chain stores was also eliminated.
Restrictions on geographic, quota, and retail formats were also lifted. The only exception being for chain stores with over 30 outlets selling or distributing restricted items such as motor vehicles and chemical fertilizers.
13
China allowed foreign business to form wholesale joint ventures to distribute both imported and domestically produced products. Geographic restrictions have been lifted from these foreign firms. Foreign firms can now use their own services such as storage, warehousing, packaging, and advertising thus improving their access to
Chinese markets and its consumers.
14
Prior to this time, only 20 foreign invested retailers were approved by the central government, mostly established multinationals such as Wal-Mart (US), Metro
(Germany), Makro (Netherlands), Ito Yokado (Japan) and Jusco (Japan). Now another 277 retailers have been approved. The previously established retailers now have almost all restrictions lifted from them allowing them to expand their existing operations.
With the ongoing reception of franchising, China is expected to have more franchises in 10 to 15 years than any other country in the world. Companies such as
Starbucks, KFC, and Kodak have already expanded rapidly as franchises in China.
China has implemented its own strategies to face the large increase in foreign competition coming as a result of its entrance into the WTO. Chinese retailers have
13 China’s Retail Market (2001) British Chamber of Commerce in China, HSMO, 15
14 Ibid., 4
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Multinational retailers in the Asia Pacific pooled together their resources to with the intention to create large domestic firms capable of defeating or matching foreign retailers. By pooling resources and improving the quality of their goods and customer service, these domestic retailers believe they can compete against the recently arrived foreign competitors.
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Multinational retailers in the Asia Pacific
Table 1 - Summary of Landmark Policies and Reforms
1978 – The Open Door Policy Initiation of the open door policy
1979 – Foreign Joint Venture Law signifies China’s entrance into the global market.
PRC allows foreign companies and enterprises to establish joint ventures with Chinese companies and enterprises.
1979 – Special Economic Zones
(SEZs) established
1984 – Major expansion of Open Door
Policy
Areas set up to attract FDI by offering tax breaks and profit repatriation.
Policy extended to 14 coastal cities and
24 inland cities.
Mid-1980s – Labour Contract system Began a new system in which
1986 - Law on Enterprises Operated
Exclusively with Foreign Capital enterprises are only responsible to workers for as long as the contract specifies.
Wholly foreign-owned enterprises allowed in some circumstances.
1992 - Provisions on Foreign
Investment in Retailing
1993 – Company Law
1999 - National People’s Congress upgrades role of private sector in the constitution
- Holiday Economics Policy
State Council approves major cities and the SEZs to allow foreign investment in retailing.
Private, collective and state enterprises are now legally allowed to exist autonomously.
- Henceforth private sector to be considered an ‘important part’ of the
‘socialist market economy’.
- Labour and May Day holidays
15

2001 – China becomes a member of the World Trade Organization (WTO)
Multinational retailers in the Asia Pacific extended to promote consumer spending.
Long-standing market barriers and trade restrictions removed.
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Multinational retailers in the Asia Pacific
Since 1992, when foreign retailers were again allowed into China, several firms have rapidly expanded their operations in the country. International retailers such as
B&Q, Wal-Mart and Carrefour have brought Western style aesthetics, ideas, and tastes.
15 Not only have they had an impact on consumers’ tastes and spending, they have also begun to affect the organization and structure of local retail markets.
Despite these changes, total retail sales in China still account for a relatively small proportion of the economy when compared to developed economies. In addition, the retailing industry is still highly fragmented. Of the top 100 retailers, 45 are stateowned, 32 private-owned and 23 foreign-owned. More active participation from foreign retailers occurred after China opened the sector to 100% foreign investment in 2004 in accordance with its WTO comittments. Since foreign players no longer need to have local joint ventures, many retailers are likely to buy back shares from local partners.
16 A small but steadily growing body of work explores Chinese retail sector and consumers.
17
15 Garner, (2006) The Rise of the Chinese Consumer . Chichester, John Wiley & Sons, 84
16 Euromonitor International (2006) ‘China-Retail’. Euromonitor International: Country Market
Insight. September, 6
17 Beyond those produced by this study useful references include: Dawson, J., Mukoyama, M.,
Choi, S.C. and Larke, R. (Eds) (2003) The Internationalization of Retailing in Asia . London,
Routledge; Goldman, A. (2000) ‘Supermarkets in China: the case of Shanghai’. International
Review of Retail, Distribution and Consumer Research , 10, 1, 1-21; Goldman, A. (2001) ‘The transfer of retail formats into developing economies: the example of China’. Journal of Retailing ,
77, 2, 221-242; Letovsky, R., Murphy, D.M. and Kenny, R.P. (1997) ‘Entry opportunities and environmental constraints for foreign retailers in China’s secondary cities’. Multinational
Business Review , 5, 2, 28-40; Taylor, R. (2003) ‘China’s consumer revolution: distribution reform, foreign investment and the impact of the WTO’, Asian Business and Management , 2,
187-204; Wang, S. and Zhang, Y.C. (2005) ‘The new retail economy of Shanghai’. Growth and
Change , 36, 1, 41–73
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Multinational retailers in the Asia Pacific
To set up operations in China, foreign multinationals have faced many difficulties.
18
In part, this is attributed to the dominance of the CCP and the mixing of ‘business relations with state interests.’ 19 However, some of the following multinationals have become major players in China’s retail market:
 Carrefour – A French owned company formed in 1959 and now the largest hypermarket operator in the world. Following its merger with rival Promodes in 1999, Carrefour became the world's second largest retail group, behind
America's Wal-Mart, and the market leader in Europe. Carrefour is the number one foreign retailer in China in terms of the number of stores it operates, ahead of Wal-Mart. At the end 2006, Carrefour reported operating
90 hypermarkets, 8 supermarkets and 255 hard discount stores in China – a dramatic increase of 34 hypermarkets, 2 supermarkets and 91 hard discount stores in less than 2 years.
20 This recent progress came despite the Chinese government having prohibited further Carrefour expansion in 2001.
Carrefour’s Expansion Comes to a Halt
Studies on Chinese consumers include: Croll, E. (2007) China's New Consumers.
London,
Routledge; Davis, D.S. (Ed.) (2000) The Consumer Revolution in Urban China . Berkeley,
University of California Press; Gamble, J. (2001) ‘Shanghainese consumerism’. Asia Pacific
Business Review , 7, 3, 88-110; Gerth, K. (2003) China Made: Consumer Culture and the
Creation of the Nation . Cambridge, MA, Harvard University Asia Center.
18 Foreign firms in many sectors have found China a difficult place in which to operate, see
Studwell, J. (2003) The China Dream: The Elusive Quest for the Greatest Untapped Market on
Earth . London, Profile Books
19 Au-Yeung, A. and Henley, J.S. (2003) ‘Internationalisation Strategy: In Pursuit of the China
Retail Market’. European Business Journal , 15, 1, 22
20 Carrefour (2006) ’Integrated Number of Stores Report’ http://www.carrefour.com/english/groupcarrefour/parcenseignes.jsp
(January 25, 2007)
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Multinational retailers in the Asia Pacific
In 2001, the Chinese government stopped the expansion of Carrefour stores, citing that they did not have the correct approvals from Beijing and according to the rules at that time had too large a stake in their stores. Carrefour’s expansion and development in China was halted for 18 months while negotiations between the
Chinese government and Carrefour were undertaken.
Source: ‘Lessons from a Global Retailer: An Interview with the President of
Carrefour China.’ The McKinsey Quarterly, 2006 Special Edition
 Wal-Mart – A U.S.-owned company formed in 1962. In 2005, Wal-Mart’s annual revenues of $315bn were roughly equal to those of the next four global retail groups combined. In 1996, Wal-Mart opened its first supercentre and Sam’s Club in Shenzhen, Guangdong. Until late 2004, Wal-Mart’s development in China had been mostly limited to the eastern and southern seaboards. However, under WTO agreements, Beijing allowed foreign retailers to expand outside provincial capitals and special economic zones from December 2004. As of January 2007, Wal-Mart operates 66 supercentres, 3 Sam’s Clubs and 2 neighbourhood markets in China.
21
Wal-Mart Faces the All China Federation of Trade Unions
In November 2004, the world’s largest retailer Wal-Mart stated that the company would be in full compliance with Chinese law, and that it would allow voluntary action of its associates to unionize under the Federation. The world's largest retailer,
Wal-Mart has always been resistant to unionization in its stores around the world.
21 Wal-Mart (2007) ‘China Fact Sheet’ http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=375 (January 25, 2007)
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Multinational retailers in the Asia Pacific
As its business in China expanded, the chain store was pressured by the official All
China Federation of Trade Unions to establish union branches in its stores.
 Metro – The Metro Group is Germany's largest retail group, formed in 1996 out of the merger of three separate companies. It is the country's biggest grocer and electronics retailer, and operates around 2,440 wholesale warehouses, hypermarkets and department stores in 30 countries. It is currently the third largest retailer worldwide. Nearly half of its 270,000 employees work outside
Germany. Metro started operations in China in 1995. Since that time, Metro has opened a further 31 stores in 27 cities.
22
 Ito-Yokado – Ito-Yokado Group was established in 1958 and is Japan’s largest retail group, operating over 9,700 7-Eleven convenience stores and more than 900 superstores, supermarkets, discounters and specialty stores in
Japan. Ito-Yokado opened its first store in China in 1997. According to the latest released figures, Ito-Yokado operated seven chain stores in China at the end of 2005.
23
 B&Q – Kingfisher plc is Europe’s leading home improvement retail group and the third largest in the world, with nearly 650 stores in 11 countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and
Screwfix Direct. The group's leading brand, B&Q, initially entered the Asian market through a joint venture in Taiwan in 1996 and expanded into mainland
China three years later. B&Q is now the number one home improvement retailer in China. At the end of 2006 they had a total of 48 stores in mainland
22 Metro Group (2006) ‘Global Locations of the Metro Group.’ September 30. http//www.metrogroup.de/servlet/PB/menu/1011895_12/index.html (January 25, 2007)
23 Ernst & Young (2006) ‘Retail Revolution – A Look at Mergers and Acquisitions in China’s
Retail Industry.’ September, 2
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Multinational retailers in the Asia Pacific
China and a further 20 in Taiwan. Their flagship Beijing subsidiary is the largest B&Q store in the world.
24
 Tesco – Tesco was formed in 1924 and today is the UK's largest retailer. The company embarked upon a plan to expand its presence in China, eventually entering the country at the end of 2004 by paying £145 million for a 50% holding in Ting Hsin's Hymall, which operates hypermarkets in Shanghai and
North East China. In December 2006, Tesco paid a further £180 million to increase its holdings in Hymall from 50% to 90%. At the end of 2006 Hymall operated 39 hypermarkets in China.
25 In January 2007, Tesco opened its first own-brand supermarket in China.
 Aeon - AEON is a Japanese owned retailer that operates drug, clothing, and general merchandise stores, in addition to supermarkets and other specialty shops. In September 2004, AEON became the first Japanese associated retailer in China to gain approval as a wholly-foreign owned subsidiary. As of
March 2005, AEON operated 10 general merchandise stores in China and one major shopping centre.
26
China constitutes an increasingly significant market for foreign retailers and offers significant growth potential. Aside from some of the difficulties that foreign retailers have encountered since entering the Chinese market, they have also benefited greatly from this emerging consumer market. This new market is attributed to the
24 Kingfisher (2006) ‘Annual Report 2005/06.’ http://www.kingfisher.com/managed_content/files/reports/annual_report_2006/index.asp?pageid
=58 (January 25, 2007)
25 Tesco (2006) ‘Annual Report and Financial Statements – 2006’ http://www.tescocorporate.com
(January 25, 2007)
26 Jusco (2005) ‘Aeon Stores Corporate Profile.’ http://www.jusco.com.hk/chi/index.html
(January 25, 2007)
21

Multinational retailers in the Asia Pacific country’s fast developing economy, a growing middle class, and consumers increasingly purchasing products that go beyond basic necessities.
27
The Chinese government has also increasingly recognized the necessity to stimulate domestic consumption as a means to ensure continued economic growth.
28 In 2002, the National People’s Congress designated the expansion of domestic demand as ‘a long-term strategic principle’. This approach is intended to help reduce the heavy reliance of China’s export industry on American consumers.
One policy implemented to raise consumption is ‘Holiday Economics’, the lengthening of the May Day and Labour Day holidays.
In addition, the Chinese government has made additional concessions in the last 2-
3 years that have created more possibilities for foreign retailers. As noted above, in
December 2004, China finally permitted foreign retailers to establish solely owned outlets. The removal of geographical constraints will allow other global players to plan expansion strategies in China. China now allows foreign retailers to enter into more cities as well as its inland regions.
Initially, many domestic retailers in China may face stiff competition from the inflow of foreign retailers. These foreign retailers bring time-tested management styles that are new to China’s domestic retailers. However, as these domestic retailers adapt to new conditions they may adopt ‘new management styles, probably Sino-foreign hybrids, focusing on better customer service techniques and quality.’ 29 Eventually, it is hoped, these foreign inputs will aid China as it seeks to develop its own multinational retail firms.
27 Ness, A. (2005) ‘China’s Growing Attractiveness to Global Retailers: Strategies for Retail
Expansion in China’. European Retail Digest , 47, 58-63
28 Croll, E. (2007) China's New Consumers.
London, Routledge
29 Taylor, R. (2003), ‘China’s Consumer Revolution’, 201
22

Multinational retailers in the Asia Pacific
Today’s Chinese Consumers:
‘China has gone from a time when stores selected customers, to an era where customers select the store.’ (Managing Director of a Japanese retail company)
‘During induction training we’re told two rules. Rule One, the customer is always right. Rule Two, when the customer is wrong refer to Rule One.’ (Checkout
Assistant in a Japanese subsidiary)
Source: Gamble, J. (2006) ‘Consumers with Chinese Characteristics? Local
Customers in British and Japanese Multinational Stores in Contemporary China’,
175-198
A Japanese subsidiary’s checkout assistant who had previously worked in a state store remarked:
‘At the SOE we didn’t emphasise customer service, here it’s what we stress the most. Here customer service is number one. People there were lazy, we often ignored customers. The atmosphere wasn’t good, because of the poor management style. The supervisors and managers stayed in their offices reading the newspaper and didn’t come out, not like the leaders here.’
Before the reform era in China, customer choice was severely restricted and limited to state-owned stores. These stores offered poor customer service and sold the same limited range of products at the same prices so there was little incentive for customers to compare stores. Maoist ideology and socio-economic policies
23

Multinational retailers in the Asia Pacific precluded the emergence of popular consumerism: incomes were low and egalitarian, there was reliance upon payment in kind, and there was a limited choice of consumer goods. From the mid-1950s, conspicuous consumption and individualism were frowned upon by the state, creating an era of ‘conspicuous non-consumption’.
30
Stores offered the same range of products at the same prices, with little incentive for either store managers or employees to seek to attract customers or raise sales volumes.
Since the Maoist era, the inflow of foreign companies, products and personnel has steadily grown. The state’s legitimacy has become deeply entwined with the ability to deliver improving living standards and there has been a marked shift from deferred gratification to an emphasis on consumption and material rewards in the present.
Since 1992, many of the factors that prevented the emergence of a popular consumer society have been radically changed or at least undermined. Income levels have generally risen, a new wealthy stratum has emerged, a far greater range of consumer products is available, and there is now fierce competition amongst both producers and retailers. The increased availability and widespread affordability of consumer products has been a part of Chinese life and in many senses serves as the benchmark of China’s post-Mao economic development.
31 China can be characterized as undergoing a transition from a production-driven economy to a consumer-led economy. In China today, retailers must compete to attract and retain customers.
China’s GDP has grown by an average of 9% per annum since 1994, with 2004 constant value GDP more than double that of 1994. This growth drove up retail
30 Gamble, J. (2001) ‘Shanghainese consumerism’. Asia Pacific Business Review , 7, 3, 88-110
31 Gamble, J. (2003) Shanghai in Transition: Changing Perspectives and Social Contours of a
Chinese Metropolis . London, RoutledgeCurzon
24

Multinational retailers in the Asia Pacific sales of consumer goods by 13% per annum over the same decade. China’s rising popular consumerism has been accompanied by substantial shifts in both notions and expectations of the ‘customer’.
25

Multinational retailers in the Asia Pacific
Although much research has been carried out on multinational manufacturing companies in China, research on the transfer of human resource management techniques in the retail sector has largely been ignored.
32 This project was undertaken to explore this topic.
The research documented and analysed differences between the business structures, management practices, and retail concepts of retailers from Japan and the UK as well as local Chinese firms. The research also investigated Chinese employees and customers' reception of transferred practices.
Foreign multinational retailers have introduced novel and qualitatively different approaches to customer service into China. Multinationals have been at the forefront of the development of a consumer culture and the emergence of a consumer consciousness that includes customer rights.
Foreign retailers have introduced the notion of systematic customer service training for store staff and local consumers tend to have higher expectations of customer service and product quality in foreign stores compared to domestically owned stores.
33 At the same time, there are indications that consumers differ crossculturally. This was evident in the observation of a UK expatriate manager at a UK invested store in Shanghai who found that, ‘selling here is much more used to negotiating’.
32 Although see, Gamble, J. (2003) ‘Transferring human resource practices from the United
Kingdom to China: the limits and potential for convergence’. The International Journal of Human
Resource Management , 14, 3, 369-387
33 See also, Chaney, I. and Gamble, J. (forthcoming) ‘Retail store ownership influences on
Chinese consumers’. International Business Review
26

Multinational retailers in the Asia Pacific
The findings indicate that the multinationals in this study have generally sought to transfer their human resource management practices to China. There are, though, exceptions to this general picture.
Contrasts between Japan and China are particularly interesting. Even though these two countries have different political, social, and economic systems, there are some notable parallels between them. The retail sectors in both countries were largely closed to foreign competition and new domestic entrants until the early 1990s. Until quite recently, at least, both Japan and China shared a labour system ideal that provided workers with lifetime employment and extensive welfare benefits, although these were usually only available to those in large firms. Similarly, Chinese and
Japanese business hierarchies tend to link salaries to employees’ needs rather than their contributions to the firm.
In both China and Japan, ‘traditional’ models of employment practices, including lifetime employment and minimal reward differentials are under pressure.
34 As one
Japanese executive reflected on the passing of seniority pay in his home company,
‘the time has gone where if you stay longer you get more.’
Both countries could be described as in a transitional phase: Japan from a highly regulated market economy and China from a socialist planned economy. Arguably,
HRM practices in China have been accelerating most rapidly away from this
34 Ding, D., Goodall, K. and Warner M. (2000) ‘The end of the “iron rice-bowl”: whither Chinese human resource management?’. International Journal of Human Resource Management , 11, 2,
217-236
27

Multinational retailers in the Asia Pacific model.
35 Divergences in income, for instance, have widened sharply at both the firm and the macro level. By contrast, Japan has witnessed marginal changes in labour management systems with relatively slight shifts in its deeply entrenched socialiststyle ethic.
36
Both the Japanese and UK retailers transferred HRM practices from their parent country.
37 There were also notable differences between the Japanese and UK subsidiaries, such as the former’s greater use of expatriates in senior management positions. This reliance on expatriates may have stunted growth. After the first year of operations, the UK firm’s subsidiaries relied entirely upon local Chinese managers at store-level. This firm has experienced far more rapid expansion than
Japanese counterparts who have been established at least as long in China.
Cultural Distinctions – Not Just Between East and West:
‘Usually it is said that there are eastern and western cultures, but actually there are very big differences between Japanese and Chinese culture. Japanese style is very detailed (xi), this can lead to friction.’ (Chinese manager at a Japanese owned store)
35 Benson, J. and Zhu, Y. (1999) ‘Markets, firms and workers in Chinese state-owned enterprises’. Human Resource Management Journal , 9, 4, 58-74
36 Dalton, N. and Benson, J. (2002) ‘Innovation and change in Japanese human resource management’. Asia Pacific Journal of Human Resources , 40, 3, 345-362
37 On the Japanese firms see Gamble, J. (2004) ‘Turning Japanese? Chinese workers in multinational retail firms from Japan’. Multinationals and the International Diffusion of
Organizational Forms and Practices conference, Barcelona, 15-17 July. On the UK firm, see
Gamble, J. (2006) ‘Introducing Western-style HRM practices to China: shopfloor perceptions in a
British multinational’. Journal of World Business , 41, 4, 328-343
28

Multinational retailers in the Asia Pacific
‘The workforce is different; we cannot expect the same diligence as in Japan.
Vendors are different; it is common that they don’t keep their promise. Customers are different; they do not know what a good consumer is.’ (Japanese executive)
‘We give workers a manual, the same as at McDonald’s. Without a manual it would be a big mess. New employees can see the manual and know what to do. So, in
China work “know-how” is in the manual; in Japan work “know-how” is in the people, not the manual.’ (Deputy General Manager at a Japanese owned store)
Source: Gamble, J. (2004) ’Turning Japanese? Chinese Workers in Multinational
Retail Firms from Japan’, 1- 23
In addition, the Japanese approach to customer service was more regimented and detailed than the UK stores. Employees in stores from both nations tended to describe customers as ‘friends’ or akin to ‘family members’.
38 Among the Japanese store employees there was also a tendency to depict customers as ‘guests’, a description not heard in the UK owned stores. This difference could be the result of the Japanese firms placing stronger emphasis on customer service than their UK counterparts.
One dimension not replicated in China was the Japanese male-dominated management structure. In all the Japanese stores surveyed, much higher percentages of female supervisors were reported in China compared to Japan where proportions of females in supervisory and managerial roles was extremely low. Another dimension of personnel management that was rather different for
Japanese firms in China was a greater emphasis on monetary incentives and sanctions. These policies were less evident in the parent company’s stores in
38 Gamble, J. (2006) ‘Consumers with Chinese Characteristics? Local Customers in British and
Japanese Multinational Stores in Contemporary China,’ in F. Trentmann (Ed.) The Making of the
Consumer: Knowledge, Power and Identity in the Modern World . Berg Publishers
29

Multinational retailers in the Asia Pacific
Japan. This was rather an ironic situation for multinational firms from a nominally capitalist country operating in a nominally socialist country.
The Japanese firms transferred a weak form of the commitment to long-term employment, an aspect that meshed with recent historical practice in China but is contrary to emergent norms. In other cases, some features matched current trends in the host county, such as the introduction of performance-related pay. This same trend was evident in Japan itself, but the absence of a constraining union voice probably permitted its more thoroughgoing adoption in China.
Some transferred practices were innovative in the Chinese context, such as
Japanese style customer service. For instance, a Japanese store manager stated:
‘We need to constantly think, what do Chinese think and need? We need to understand Chinese habits and customs and to bring the good Japanese ones and mix these with the good Chinese ones and create something new.’
There were rather unsuccessful attempts to replicate Japan’s internal labour markets based upon recruitment of graduates for lifetime employment. One store, in particular, that attempted this found that almost all the carefully selected and trained staff left within a few years for other opportunities.
While the UK retail firm transferred most of its parent country HRM practices to
China, in one significant regard it followed local practices. This exception refers to the host country practice of using large numbers of vendor representatives, sales staff who work for product suppliers instead of the retail stores.
39
39 Gamble, J. and Huang, Q. (2009 forthcoming) ‘One store, two employment systems: core, periphery and flexibility in China’s retail sector’.
British Journal of Industrial Relations , March.
30

Multinational retailers in the Asia Pacific
Table 2 Employment contrasts between Japanese and UK firms’ subsidiaries
UK style HRM in China subsidiaries: Japanese style HRM in China subsidiaries:
Employment practices:
- ‘Grass Roots’ in house consultation system introduced.
- Open and consultative management interaction.
-Wore single status uniforms and used first name terms.
Employment practices:
- Greater use of expatriates.
- Strict rules and regulations.
- Relatively slow promotion.
- Expectation of long-term employment with strong internal labour market
Employee training and customer service:
- Hired and employed those that held customer service in high regard.
- Use of role play training to teach customer service interaction.
- Encouraged customers to make written comments and suggestions.
The employees:
- Worked longer hours on average than at previous SOE jobs.
Adaptations in China subsidiaries:
Employee training and customer service:
- Hired and employed those that held customer service in high regard.
- Vigorous training and outlines for customer service interaction.
- Use of job rotation for floor staff.
- Encouraged customers to make written comments and suggestions.
The employees:
- Worked longer hours on average than at previous SOE jobs.
Adaptations in China subsidiaries:
- Employed more staff in China
- Displays more elaborate than in UK parent stores.
- Used vendor representatives in their
China subsidiaries.
- More frequent promotion than in the
UK. Used ‘fast-track management’
- Employed more staff in China
- More female supervisors in China subsidiaries than in Japan
- Greater stress on monetary incentives and sanctions than in Japan.
- Faster promotion than in Japan.
31

Multinational retailers in the Asia Pacific scheme to qualify employees to become supervisors and managers quicker.
Sources: Table constructed from various articles based on the research.
The project studied the labour divisions in sales-oriented work and the relationship between ‘vendor representatives’ and store employees in the same workplace. In contrast to store workers, vendor representatives usually enjoy less job security and fewer welfare benefits, but play a major role in sales and store atmosphere. Vendor representatives possess in-depth, hands-on knowledge of the product, thus being able to answer customer questions with ease. The co-existence of these two types of workers could complicate relationships, both between co-workers and between workers and managers, and could also undermine customer service. Such employment arrangements tended to create dilemmas that run counter to the UK company’s goals and strategies.
The findings indicate that while it is possible to transfer culturally innovative practices, those that run counter to institutional features - such as the nature of local labour markets - are much harder to implement.
40 Thus firms were able to transfer cultural practices such as Japanese style customer service, even though bowing in particular was antithetical to local norms and possessed the potential to arouse latent resentment against Japan. In contrast, an uncontroversial practice such as a
Japanese company’s hiring of graduates to train as a new management cadre foundered on China’s different institutional soil.
The impact of multinational retailers on local employment practices is also noteworthy. Unlike most factories and offices, retail companies such as these are particularly open to the public and competitors’ scrutiny. Some competitors have readily copied their practices and procedures: for example, expatriate managers
40 For further discussion, see Gamble, J. (2004) ‘Turning Japanese?’
32

Multinational retailers in the Asia Pacific noticed that SOE floor managers now performed more regular floor inspections and local stores no longer permitted their staff to eat meals while on duty.
‘The management approach is completely different to my last work unit (danwei).
There everything depended on guanxi (personal connections) and ‘human feelings’ (renqing). Here it depends on your brain and your own efforts.’
(Showroom customer assistant at a UK owned store)
Employees noted that they appreciated how these firms provided a more consultative HRM regime than state-owned enterprises.
41 This was particularly evident for the UK firm. Further, employees appreciated that in most instances a clear and long-term company management strategy was communicated to the workforce, something few had experienced in SOEs.
In the past, Chinese employees working for SOEs noted that their appraisals and promotions were based more on guanxi, or personal ‘connections,’ rather than on output and performance. The relative lack of guanxi biases in Japanese and the UK firms was one factor that attracted employees to work in these foreign firms.
Working in foreign firms versus local companies:
‘There’s a big difference to my old firm [a local factory], there it was like being a machine. Here my ability to express myself has increased, as each customer is different.’ (Paint department customer assistant in a UK owned store)
41 Gamble, J. (2006) ‘Introducing Western-style HRM practices to China’
33

Multinational retailers in the Asia Pacific
‘Because it’s a foreign firm you can learn a lot, so I should be able to improve myself. In a state-owned enterprise you couldn’t learn this kind of knowledge.’ (Fish counter assistant at a Japanese store)
Source: Gamble, J. (2006) ‘Introducing Western-style HRM practices to China:
Shopfloor perceptions in a British Multinational’. Journal of World Business, 41, 4,
328-343
Interview and survey evidence also indicated that most employees believed that their current jobs would help them improve their skills level, contradicting widely held expectations that most retail positions constitute dead-end ‘McJobs’.
42 This might, in part, be related to Chinese employees apparently strong desire for self improvement through education and training:
‘In the UK it’s about money, not learning about the job. In China they want to know everything… Everyone in China wants to learn, and this is central to the business’.
(Expatriate project manager in a UK owned store)
Employees’ Perceptions of Skills Development
Almost 86 percent of the employees working for these multinationals believed that they could learn a lot from their jobs. They believed the skills and knowledge they learned from these firms would help them in the future:
‘I joined [store’s name] because I like challenge. I wanted to see if I could get used to a different job. I felt that Japanese management was strict and modern, and it would be good for me and my future development.’ (Checkout assistant in a
Japanese owned store)
42 Gamble. J. (2006) ‘Multinational Retailers in China: Proliferating “McJobs” or Developing
Skills?’. Journal of Management Studies , 43, 7, 1463-1490
34

Multinational retailers in the Asia Pacific
‘As [the UK store] grows I can increase my quality (suzhi), in the state enterprise I didn’t learn anything.’ (Gardening department customer assistant in a UK owned store)
Source: Gamble. J. (2006) ‘Multinational Retailers in China: Proliferating “McJobs” or Developing Skills?’. Journal of Management Studies, 43, 7, 1463-1490.
The research exposes some of the often baseless mystique and mythology surrounding human resource management in China. The message is a simple one, reflected in advice given by a senior expatriate manager who described his approach as ‘managing fairly and getting the best out of people.’ While some adaptation to local conditions might be necessary, time-tested management practices translate remarkably well across cultures. Rather than struggle to develop complex adaptations to the Chinese environment, firms would be better advised to hone and refine their existing managerial practices and technical expertise.
‘In China, if somebody spends one yuan, they want one thousand yuan of service.’ (Receiving Section supervisor)
China’s retail market has rapidly become extremely competitive, with competition between state-owned and private stores and foreign entrants. It was difficult for the multinationals to compete on price alone. Profit margins were already lower than in
Britain and Japan, while competitor state-owned stores had soft budget constraints and small-scale family-run stores could operate with low overheads. Initially, at least, the multinationals were able to differentiate themselves from local competitors through imported technologies and practices such as product displays, use of bar
35

Multinational retailers in the Asia Pacific codes, and return policies. However, the advantage gained was often short-lived, as rivals rapidly copied and adapted these features.
Customer service was crucial to the firms’ success and a form of differentiation that was difficult to replicate. Both the Japanese and UK-invested stores sought to transfer and implement their parent country visions of the consumer and of customer service.
43 These notions were underpinned by an array of human resource management practices, including selection and recruitment of those with customer-orientated values, as well as training, discipline, and incentive strategies.
The notion of the ‘ideal’ employee varied, a local HR manager at one Japanese firm offered a particularly negative account of recruitment criteria:
‘It’s easy to find recruits, but hard to find suitable recruits. They need to be able to endure hardship (chiku) and be obedient (fucong). It’s no good if they have their own ideas, also they need to be able to cope with pressure.’
The form of customer service considered appropriate depended upon the firm and the specific job role. However, in general, it required employees to process product knowledge, to provide emotional labour, and to utilize appropriate social skills.
Customer Service:
The Japanese stores’ approach to customer interactions was more prescriptive and detailed than the UK stores. Training included memorizing scripted polite phrases, bowing, and smiling.
43 Gamble, J. (2006) ‘Consumers with Chinese Characteristics?’
36

Multinational retailers in the Asia Pacific
The UK stores’ training included the use of role-plays in order to convey customeroriented values. The emphasis was upon adapting interactive behaviour used in everyday life rather than repetition of set phrases.
Consumers are an increasingly important member of a rapidly changing Chinese society. Both the Japanese and UK firms built on this idea, transferring the idea of the ‘sovereign consumer’ into these multinational subsidiaries.
44 The status of the consumer has been enhanced in recent years, as quotes from managers and workers in UK owned stores indicate:
‘The customer is king and the king can do whatever he wants’ (Store Manager)
‘Some employees get upset by customers. I tell them not to argue with customers as, after all, the customer is god’ (Flooring and tiles department, deputy supervisor)
‘We’re patient with the customers, as the customer is god. Even if the customer is unreasonable, we’re still patient’ (Decorative materials, deputy supervisor)
‘Once I argued with a customer, then I controlled myself and walked away, as the customer is the emperor and is always right. When you’re wearing this uniform even if they’re wrong, they’re still right’ (Decorative materials, customer assistant)
Both the UK and especially the Japanese stores recruited and trained employees to hold customer service values as the most important part of their jobs. In the case of shopfloor workers, many said that they appreciated the consumer friendly practices that management stressed. Shopfloor workers in all the firms frequently stated that they created worthwhile relationships with customers. By helping to create a basis
44 Gamble, J. (2007) ‘The Rhetoric of the Consumer and Consumer Control in China’. Work,
Employment & Society , 21, 1, 7-25
37

Multinational retailers in the Asia Pacific of trust, meaningful relationships between customers and workers could also play a crucial role in transactions.
Relations between staff and customers present a microcosm of human relations outside the workplace; trust, for instance, must be built in similar ways. Both parties sought to create or at least replicate generally understood, valued, and accepted categories of interaction. These findings indicate how both customers and sales staff remain embedded in historically influenced institutional and cultural contexts.
Differences between the relationships with customers in the UK subsidiary stores and Japanese stores were dependent upon a range of factors, such as the duration of customer contact and nationality of store ownership. In the Japanese stores, workers were expected to bow and welcome each customer, reflecting the belief that consumers should be treated as guests and family members. Such consumerdeferential attitudes appeared less prevalent in the UK stores. As one Chinese personnel manager employed in a Japanese owned store stated:
‘In Japan they put the customer first, but in China to put the customer first is a new concept. The Japanese stress customer service, standing in the customers’ viewpoint. Before, at Chinese stores, staff ignored customers. Each time we get paid, they tell us the customers pay this salary.’
With respect to store design, the UK stores in particular did not replicate exactly their parent country store layouts. Instead, they had been prompted by customer demand to arrange displays in their China subsidiaries by brand name rather than product function.
The findings suggest that Chinese consumers have benefited from increased competition between both local and multinational firms. Customers in foreign-owned
38

Multinational retailers in the Asia Pacific retail stores readily, sometimes aggressively, assert their rights as consumers.
45
The demanding nature of Chinese customers can be attributed to factors such as: the low-trust retail environment; poorly developed consumer law and means of legal redress; and the absence of recognizable quality standards and the independent organs of civil society that are taken for granted in Western societies.
Local consumers’ higher expectations of foreign-owned stores provide a fertile basis to strengthen notions of the consumer as citizen. Chinese consumers have asserted the right to consume goods, receive customer service of improving quality, and demand accountability from these firms. Such experiences may have analogies in the political sphere, and it is perhaps from such quotidian encounters that deeprooted social changes may develop.
45 Gamble, J. (2007) ‘The Rhetoric of the Consumer and Consumer Control in China’, 193
39

Multinational retailers in the Asia Pacific
To avoid personnel difficulties in their overseas subsidiaries, many analysts advise multinational firms to customize their management practices to fit local norms.
However, both the UK and Japanese retailers in this study transferred to China largely unmodified versions of their home country management practices and retail concepts.
Overall, employees reported high levels of satisfaction with these foreign retailers’ human resource management techniques. However, these positive evaluations may diminish over time as the newness of the experience wears off. The sustainability and efficacy of the imported HRM practices will be tested in the event of a business downturn, or a slower pace of expansion when employees’ expectations for individual advancement are less likely to be fulfilled. Despite these caveats, while some adaptation to local conditions might be necessary, time-tested management practices appear to translate well across cultures.
40

Multinational retailers in the Asia Pacific
 While some adaptation to local conditions might be necessary, proven management techniques translate remarkably well across cultures. Rather than struggle to adapt to the Chinese environment, multinational firms would be better advised to hone and refine their managerial skills and technical expertise.
 The use of too many expatriates may hinder the growth and development of foreign subsidiaries in China. It was noticeable that, even though they had sometimes begun operations in China earlier, the more expatriate dependent
Japanese retailers have been outpaced by retailers from France, the UK, and the United States that generally operate with either one or no expatriates in their stores.
 Some adaptation to local conditions might be necessary, but choosing which local practices to adopt should be handled carefully. The UK and Japanese retailers all followed local practice in their use of large numbers of vendor representatives, sales staff who work for product suppliers instead of directly for the stores. Vendor representatives and regular store staff work alongside each other, but operate under markedly different employment relationships. This dualistic system can create complex and fractious relationships between the two sets of workers and this can, in turn, undermine customer service.
 Chinese workers who join foreign subsidiaries can be extremely ambitious and expect rapid promotion. It is important to communicate clearly the possibilities for training, promotion and career development. It is also important to develop retention strategies for key staff.
41

Multinational retailers in the Asia Pacific
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Multinational retailers in the Asia Pacific
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