International Flow of Retail Know-How Through Foreign Direct Investment: From Europe to China
Amelia Yuen Shan AU-YEUNG Management School The University of Edinburgh
Abstract
Internationalisation has appeared to be inevitable for those Fast Moving Consumer Goods (FMCG) retailers who desire to maintain a strong and competitive position in the marketplace. Owing to the opportunities offered in transitional economies in recent years, a lot of western FMCG retailers with their ÔsuperiorÕ retail expertise have ambitiously expanded their operation domains into these largely untapped markets. Modern western retailing has evolved over a long period of time in Europe and North America, whereas structured retail development in transitional economies, such as China, only began about a decade ago. Therefore, western retailers should logically be assumed to possess overwhelming competitive advantages when they undertake foreign direct investment in developing markets. However, is the possession of ÔsuperiorÕ retail expertise alone enough for these retailers to be successful in such countries? Under scrutiny, these retailers are confronted with many complications when they transfer their retail expertise from their developed domestic countries to the developing host countries, because of the absence of certain preconditions and basic infrastructure in such foreign markets.
This paper discusses the complications that European FMCG retailers encountered in their process of transfer of retail know-how from their domestic countries into China. Particular attention is vested in the transfer of four aspects of retail know-how: retail formats, supply chain relationship management practice, supply chain formation technology and human resources policy. The first section presents a conceptual framework of international flow of retail know-how. The next section investigates the major differences in retail environment between Europe and China. The third section analyses how these differences affect the transfer of retail know-how regarding the four aspects mentioned earlier. Problems encountered and the corresponding adjustments to their retail know-how by European retailers are also examined in this section. The fourth section evaluates the impact of the transfer of European retail know-how on the local Chinese retail industry. The paper concludes with some managerial implications for retail practitioners and suggestions on future research in the field of international retailing.
Methodologically, this study adopts the case study strategy that stresses Ôthe rigorous and fair presentation of empirical dataÕ (Yin, 1994:2) and allows Ôan investigation to retain the holistic and meaningful characteristics of real-life eventsÕ (Yin, 1994:3). In-depth, semi-structured interviews were conducted with top executive of three leading European FMCG retailers who are undertaking foreign direct investment in China. As exploratory research, the study constructs a working model in which critical variables, and their logical relationships, are used to analyse and explain the effective transfer of retail know-how from developed countries to transitional economies.
