Industry Analysis Case Study

Retailing in China: The Foreign Factor

OR

Abstract:
China had become the economic power-house of the twenty-first century. The retail trade was another high growth area which saw the entry of many foreign consumer goods manufacturers into the Chinese market. China's retail market growth was first among the 12 leading countries in Asia. In 1978, the Chinese Government initiated the process of liberalisation which soon opened the door to globalisation in the country. The modern retail trade did not emerge until the middle of the 1990s when China made the transition from a planned economic system to a market driven one. Since 2002, after China's entry into the World Trade Organisation, many Governmental restrictions on the retail trade were diluted or removed giving multinational retailers unprecedented freedom to establish wholly owned foreign enterprises (WOFEs) rather than operate through joint ventures. By 2006, at least 35 of the global top 50 retailers were operating in China. In 2005, total retail sales in China touched the US$755 billion mark. The high population density in the country had lured global retailers to set up shop and compete with a growing band of local operators. These retailers catered to an expanding middle-class of consumers expected to grow from 42 million in 2005 to 200 million by 2015. Over 1,000 new retailers had received approval, of which more than half were foreign investors. By 2006, there were over 1,000 foreign retailers in China compared to just 314 two years earlier. The case looks at the retail background in China and discusses: (1) the performance of retailers; (2) pricing and consumer behaviour; (3) the need for mergers and acquisitions which helped retailers expand their networks and increase bargaining power with suppliers; (4) the importance of proactive strategies to penetrate virgin markets especially in the rural areas; and (5) the significance of value-for-money retailing.

Pedagogical Objectives:

• To understand the fragmented retail trade in China and the effect of the entry of international players into the Chinese market
• Help students appreciate the buying power of a growing middle-class of consumers on the Chinese economy and the need for local retailers to analyse and learn from the strategies of the foreign entrants
• Study the need for focused marketing efforts by foreign companies to penetrate the rural sector.

Keywords : China; Retail trade; Consumer; World Trade Organisation (WTO); Supermarket chains; Industry Analysis Case Study; Value-for-money; Globalisation; Wholly owned foreign enterprise (WOFE); Mergers and acquisitions (M&A); Retail sales; Households; Chain stores; Brand; Economic growth