15 international retailing

8/8/2019 15 International Retailing

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Retailers have long operated on an internationalbasis yet, it is only within the last decade of thetwentieth century or so, that they have done so,on any significant scale. In spite of theinternationalization during the past fifteen odd years, most retailers remain largely domesticoperations.

But of late, a small elite group of retailers haveexpanded their overseas operations to assumedominant market positions in Southeast Asia,

Central Europe and Latin America. In fact, therapidity of this change is actually quitestartling. For instance, in 1990, Wal-Mart (USD404 bn-2009) was present only in its home marketUSA; but by 2002, Wal-Mart had entered 11markets. Today, they are in 14 countries.



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An AT Kearney study shows that while

thew

orld·s top tw

enty retailers had apresence in 11 countries in 1992 theyhad a presence in 82 countries in 2002.

An AT Kearney investment index ranksIndia, China and Vietnam in its top tenmost favored retail destinations.



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What constitutes internationalization

of retailing?

Retail internationalization refers to the

management of retail operations in markets thatare different from each other in their regulation,economic development, social conditions, culturalenvironment, and retail structures (Alexander

1997).

Gilbert (1999) states that retail internationalizationrefers the process of a retailer transferring its

retail operations, concept, management expertise,technology, and/or buying function across nationalborders.



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Three major dimensions of retailinternationalization

Operation of overseas retail outlets:This can be done by replicating existing formatsor going in for customized retail formats. In

India, for instance, Metro AG (Germany) and Shoprite (South Africa) are successfully running their globally successful B2B hypermarket retail format.

The international sourcing ofmerchandise:This is an area where buying and supply chain

operations are internationalized.ELRo Holdings India is a JV with Indian telecommajor Bharti which has set up operations toexport produce under the Fieldfresh brand.Wal-Mart buys from Cipla & Ranbaxy., Carrefour



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The transfer and sharing of technology,management expertise, design concepts,store formats and so on.Internal retailers must also explore this high potentialarea of , what we term as, ¶retail consulting·.In India, for instance, Netherlands SPAR has a

cooperative model, in which local stores can becomemembers of a retail network, share SPAR·s expertiseand offerings, and yet, remain independent.Tesco of UK has also outsourced several IT and finance jobs to India, given its rapidly maturing ITes sector andBPO expertise.



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Factors contributing to Retail

internationalization(1) inadvertent internationalization(2) non-commercial motives(3) commercial objectives

(4) government regulation(5) capitalize existing or potential sales

opportunities

(1) saturation of domestic markets

(2) falling barriers to entry into markets worldwide(3) suppliers ability to service retailers globally(4) increased foreign travel by consumers(5) the spread of cross-border mass media such as

satellite television



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Whatever may be the cause, the move fromdomestic to international retailing is astrategic and significant one, for at least three

reasons as pointed out by Newman andCullen(2002, p452):

The retailer is moving into a different businessenvironment. In many situations, the regulatoryenvironment can be very different from the

home market. The retailer needs to make a long-term

commitment of a substantial amount ofresources in order to establish the brand in theforeign market.

Investing abroad will eventually require a



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Which International EmergingMarkets are attractive? Burt(1993) has suggested that the initial

direction of expansion is primarilydecided by three factors:

cultural proximity

geographical proximity

the stage of development of the retailmarket.



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The Tough Three: Italy, South Korea andJapan.These are strong economies with largemiddle-classes, but where localrestrictions have limited the degree ofconcentration of retailing and entry byforeign players

The Torrid Three: Mexico, Turkey,Argentina.The markets are characterized by rapidbut volatile economic growth with anunderdeveloped retail sector



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GRDI- AT Kearney

In another, and perhaps the mostrespected, market attractivenessrankings, AT Kearney in their Global

Retail Development Index (GRDI) 2009have ranked markets in the followingdescending order (starting from rank

#1):

India China Russia UAE Saudi ArabiaVietnam Chile Brazil Slovenia & Malaysia

GRDI Based on:

Country Risk/ Mkt Att./ Saturation/Time Pressure.



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Pull Factors for International

Retailers PoliticalDeregulation of markets. Less restrictions on

foreign investment

Retail StructureExisting success stories. Existing formats and

structures.

Commercial

Attitudes to risk. Commercial infrastructure. EconomicLevels of income and rates of market growth

Managerial/ Human ResourcesWork pattern. Skill availability.



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Market Entry Methods into India·sRetail Sector

Direct Investment:This is the organic route with maximum controlover operations, but it also entails the highest

risk. Metro AG of Germany and several nicheglobal retailers, such as Spain·s Mango, have optedfor this route. Single brand retailers can own upto51% of their Indian operations. Companies likeWal-Mart can enter India using their Cash andCarry(B2B) format Sam·s Club. For mass retailing,

companies can begin by scouting for and investingin real estate. They can start investing in backend operations, supply chain and so on. They FDIpolicy should eventually favour them.

Joint Venture:

This joint ownership model can bring in the ¶all-so-im ortant· local artner·s domestic ex ertise. The



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Franchise:This type of arrangement allowsentrepreneurs to open outlets under a single

brand/fascia which are operated undercertain controlled conditions. Mostinternational fast food and lifestyleretailers opt for this mode of entry.Marks &Spencer, Lee, Levi·s, Lacoste, Pepe are

operating through the franchising route(Mukherjee and Patel 2005).

Acquisition:This would mean the taking over an existing

Indian retailer. This entry is less advisableas it could lead to negative public opinion



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CONCLUSION

15 international retailing

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