Foreign Retailers in China -Towards Further Understanding of Internationalisation of Retailing
Shuguang Wang, School of Applied Geography Centre for the Study of Commercial Activity Ryerson University Toronto, Canada
Abstract
The case study approach is an important research method for understanding the internationalization of retailing. As Dawson (1994:268) points out, Any move towards multi-store operation has to acknowledge that culture varies through space. While many case studies exist in the large body of literature, most of them were conducted for Western countries, which are also WTO members. Few researchers have reported studies on non-WTO countries, where international retailers may face unconventional as well as conventional regulatory barriers.
China is a non-WTO country. Despite the fact that the state government approved only 18 foreign retailer to operate in China, thousands now exist in 24 of the 31 provinces. Large international retailers that have established presence in China include AmericaÕs Wal-Mart, GermanyÕs Metro, NetherlandsÕ Makro, FranceÕs Carrefour, SwedenÕs IKEA, and JapanÕs Jusco and Ito-Yokado. This raises two important research questions: (1) how did so many foreign investors bypass government regulatory barriers and gain entry into a highly protected market? (2) Why did not the government take punitive actions against the operations that have not received state approval?
The objective of this Chinese case study is three-fold. First, to investigate foreign firmsÕ internationalisation strategies to gain entry and set up operations in China; these include entry modes and paths, location decisions, and format of operation to serve the culturally different Chinese market. Second, to examine government policy changes and the process of loosening state control as China embraces globalization and strives for WTO membership. More importantly, it looks into variations in local government policies, how local policies were developed to accommodate international retailers, and how conflicts between local policies and state policies were compromised. Third, to evaluate the effectiveness of the internationalisation strategies of foreign retailers, and to assess their impacts on local retailers. This study has both theoretical and applied importance. It is to reveal the valuable experiences of a major non-WTO country and contribute to further understanding of internationalisation of retailing. It also generates useful information for governments of Asian countries to develop their own policies to fend off foreign competition.
The research was conducted through a combination of literature review, study of government documents, and personal interviews with government officials and company managers (both foreign and Chinese) in Beijing, Shanghai and Qingdao. Major research findings are summarised below.
- Except for the 18 foreign retailers approved by the state government, all others entered China through negotiations with local governments, which are not content with strict state control and took the liberty to approved their own joint ventures.
- All foreign-invested retail establishments are joint ventures, and no sole foreign ownership is allowed. However, despite minority equity participation, in almost all cases, foreign investors insist that they have control over the management.
- Some foreign retailers have taken unconventional paths to enter the Chinese market.
- some joint ventures in manufacturing took the advantage of ChinaÕs preferential policies that allow them to sell part of their production in China without paying tariff. They either opened factory outlets or established franchised specialty stores to sell their products, mostly apparels.
- some applied to invest money in real estate development; when the buildings are completed, they would use part of the building for retail.
- some Chinese retailers contracted their day-to-day management to foreign retailers, thus becoming Sino-foreign co-operatives.
- Foreign retailers heavily concentrate in the East Coastal Region, where the largest and the wealthiest markets exist. However, few foreign retailers choose Beijing as their landing field, because they are not approved by the state government to enter China and the Beijing government, which is under close watch of the state government, is not as liberal as other parts of the country.
- Those from Asian countries mostly adopted the department store format. But there is a major difference between Japanese retailers and the Malaysian Parkson: Japanese retailers tend to focus on retailing, but Parkson combines retailing with real estate development. Those from Europe and North America came later, but they all adopted new formats, such as supermarkets (Carrefour), C&C warehouse stores (Metro, Makro, Ikea), discount department stores (WalMart), membership clubs (America Sam and PriceMart).
- Entry of foreign retailers has had mixed impacts on ChinaÕs retail sector. On the positive side, they introduced capital, new concepts and technology to China; consumers greatly benefited from more varieties and higher quality of merchandise. On the negative side, they brought severe competition and forced many local retailers out of business.
- As China further opens its retail market, the losers will be the domestic retailers and the Asian retailers who still do business in conventional format (such as department store). The winners will be the European and American retailers, who possess the most resources and advanced IT technologies, and adopt new retail format.
