International retailers’ strategy for entry into China:

A case study on Carrefour’s entry strategy

Myriam Da Costa

Immat. number: 080016589

Msc International Business

Final Project

August 3rd, 2009

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Executive summary

Using a theoretical framework based on the resource-based theory of the firm, this paper

investigates the effect of joint-ventures on first-mover advantages in emerging markets. We

hypothesize that in an emerging market, ceteris paribus, joint-ventures enable early entrants to

enhance the advantages they acquire, develop new competencies and capabilities and that

moreover, they provide the synergy necessary to turn first-mover advantages into sustainable

competitive advantages. To test our hypotheses, we study the entry strategy of the French

retailer Carrefour in China, using mainly secondary data collection methods. This paper

shows evidence that joint-ventures, in combination with first-mover advantages, have a great

potential in developing and creating a bundle of resources –in particular knowledge-based

resources- generating sustainable competitive advantages.

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Table of contents

Executive summary .................................................................................................................... 1

Introduction ................................................................................................................................ 3

1. Literature survey .................................................................................................................... 3

1.2 Timing of entry into a new market ................................................................................... 3

1.2 Mode of entry ................................................................................................................... 6

2. Theoretical framework and hypotheses .................................................................................. 7

3. Methodology and Empirical analysis ..................................................................................... 9

3.1 Methodology ..................................................................................................................... 9

3.2 Empirical analysis: ......................................................................................................... 10

4. Policy implications ............................................................................................................... 14

5. Conclusion ............................................................................................................................ 15

Appendices ............................................................................................................................... 16

References ................................................................................................................................ 19

 

 

 

 

 

 

 

 

 

 

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Introduction

The last twenty years have witnessed intensification in retail foreign investments, especially

in the food and general merchandise retail sector. A small group of European and American

retailers have expanded their operations in the emerging market of Latin America, Central-

Eastern Europe and East Asia through sustained mergers and acquisitions activities (Coe,

2004). The study of international retailers’ entry strategy into East Asia is particularly

interesting as retail culture in East Asia is not only very different from the Western culture but

varies as well from one East Asian country to another.

Entry mode and timing have mainly been studied in European and North American

context. Few studies give empirical evidence that entry timing and mode of entry are

somehow interrelated but they do not explain to what extent the mode of entry chosen by a

firm may affect the competitive advantage arisen from pioneering in an emerging market.

This paper examines the relationship between mode of entry (joint-ventures in

particular) and first-mover advantages with regard to foreign direct investment in China.

Through Carrefour case study and drawing on the resource-based theory of the firm, we

hypothesize that in emerging markets, ceteris paribus, joint-ventures enable early entrants to

enhance the advantages they acquire, develop new competencies and capabilities and that

moreover, they provide the synergy necessary to turn first-mover advantages into sustainable

competitive advantages.

The paper will firstly review the literature of entry timing and mode of entry.

Secondly it will discuss the theoretical framework guiding our study and introduce our

working hypotheses. Thirdly, it will outline the results of our empirical studies and finally it

will draw on our discussion to provide policy implications before concluding.

1. Literature survey

1.2 Timing of entry into a new market

The question of the timing of entry into a new market has been extensively studied in the

economic literature. Timing of entry into a market can be critical to a firm’s success and

survival (Lieberman & Montgomery, 1988; , 1998). It is widely believed that early entrants

into newly developing markets secure a competitive advantage over later movers (Lambkin,

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1988). Lieberman and Montgomery (1988) defined first-mover advantages as the capacity of

the pioneering firms to gain positive economic profits i.e. profits in excess of the cost of

capital gain. Pioneering advantages can arise from the pre-emption of resources or from the

firm’s capabilities. Lieberman and Montgomery (1988) identified several types of resources

early entrants may pre-empt: geographic space, technology space or customer perceptual

space. First-mover advantages may as well arise from buyer switching costs. In addition, a

firm’s capabilities referred to as learning or experience advantages can give early entrants a

head start over later movers (Lieberman & Montgomery, 1988).

Empirical studies on first-mover advantages have provided mixed results. Early entry

does not always seem to guarantee success. While some studies have shown that early

entrants enjoy long lived market share advantages and outperform later entrants in term of

asset turnover (Lambkin, 1988; Luo, 1999; Mascarenhas, 1992; Urban, Carter, Gaskin, &

Mucha, 1986), others showed that late-movers may have advantages and first-movers

disadvantages (Shankar, Carpenter, & Krishnamurthi, 1998). Lieberman and Montgomery

(1988) posit that late-movers can outperform early entrants if they can acquire the same

technology at a lower cost, produce cheaper or better products, be quicker in capturing

consumers’ tastes shifts and make more intensive investments. Thus, Lieberman and

Montgomery (1988) concluded that profits gained by first-movers cannot be attributed to

pioneering per se but rather to proficiency and luck. First-mover advantages may depend on

other factors such as industry growth, competition, firm size, entry mode, resource

commitment and marketing intensity (Cui & Lui, 2005; Isobe, Makino, & Montgomery,

2000).

Past studies have mostly examined the determinants of first-mover advantages in a

domestic context. Some have analysed this issue in an international context but have mainly

focused on either multinational corporation investing in USA or on American multinationals

entering foreign markets (Isobe, Makino, & Montgomery, 2000). Though some studies have

revealed that order of entry in a foreign country has a significant effect on the performance of

firms’ overseas subsidiaries (Luo, 1998; Mascarenhas, 1997; Pan & Chi, 1999), studies about

order of entry in foreign markets are rather limited (Cui & Lui, 2005). The few empirical

studies are contradictory. Some have shown evidence that early mover in China reached

higher performance in local competitive position, sales growth and profitability, leading us to

think that there can be first-mover advantages in emerging markets (Isobe, Makino, &

Montgomery, 2000; Luo, 1998; Luo & Peng, 1998; Pan, Li, & Tse, 1999). It has been posited

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that competitive advantage could arise from being the first to enter the market or from being

the first to see opportunities in developing markets (Li, Lam, Karakowsky, & Qian, 2003).

Luo (1997, 1998) found that differential benefits between early and late investment strategies

appear greater in emerging economies such as China where political and economic transitions

result in industry and market transformations and preemptive opportunities for the early

entrants. However, some researchers contradict these results, showing that in an international

market context, early entrants are more inclined to fail compared to early followers as the

latter take advantage of the experience gained by the former (Isobe, Makino, & Montgomery,

2000). Two other reasons have been suggested to explain this failure. Firstly, early entrants

may not be fully aware of market uncertainties. Secondly, investments may be higher than the

returns as early entrants bear the costs of doing a business in a new market: searching costs,

switching costs and start-up costs (Luo, 1997).

A few researchers attempted to conceptualise the mechanisms by which first mover

advantages can be enhanced. However studies on whether pioneering is sufficient to maintain

a sustainable competitive advantage1 as the market evolves and the mechanisms behind it

remain inconclusive or contradictory (Li, Lam, Karakowsky, & Qian, 2003). Past literature

failed to understand “why” and “how” early entrants have succeeded in sustaining a

competitive advantage when others have failed to do so (Frawley & Fahy, 2006). Agarwal

and Gort’s (2001) empirical study shows evidence that while first-movers market shares may

decline because of the speed of competitive entry, they still enjoy large market share long

after their position in the market has been diminished. Several factors have been found to

contribute to retention of market shares: buyer switching costs, learning by doing, network

externalities, scale economies, setup and sunk costs (Agarwal & Gort, 2001). Surprisingly,

few studies have established to what extent the mode of entry chosen by a firm influence the

gains from early entry.

                                                                                                                         1 The definition of sustainable competitive advantage in this paper does not depend on the period of calendar

time during which a firm enjoy a competitive advantage. A competitive advantage is sustained if it remains after

efforts to duplicate that advantage have ceased (Lippman & Rumelt, 1982).

 

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1.2 Mode of entry

When penetrating a new market, a firm has to choose the mode of entry that will better serve

its strategy. Johnson and Tellis (2008) identify five main categories (listed in order of

increasing control): export, license, franchise, alliance, joint-venture and wholly owned

subsidiaries [Appendix 1 for definitions]. To Anderson and Gatignon (1987) what mainly

differentiates the different modes of entry is the degree of control it gives to a firm over its

marketing resources. A firm will choose one or a combination of these entry modes (Johnson

& Tellis, 2008). Different entry modes imply different level of resource commitments (Calvet,

1981; Hill, Hwang, & Kim, 1990; Vernon, 1966) and control over the foreign operation

(Calvet, 1981; Hill, Hwang, & Kim, 1990).

The resource based theory and the transactional theory predict two different outcomes

as control increases (Johnson & Tellis, 2008). The resource based theory suggests that the

firm’s chance of success increases with the degree of control as the firm can unfold key

resources essential to success (Johnson & Tellis, 2008). These resources can be intangible2 or

tangible3. By controlling such assets a firm increases its chances of success. In the context of

emerging market such as China, it facilitates internal operational control, indispensable to a

firm success in emerging market. This is contradicted by the transactional theory which holds

the higher the degree of control desired by the firm, the higher the resource commitment and

the higher the cost (Johnson & Tellis, 2008; Luo, 2001). Pan and Chi (1999) concluded in

their study that high level of resource commitment required by joint-ventures and wholly

owned subsidiaries make them costly mode of entry.

Entry timing and mode of entry have been studied at great length, they have often been

treated separately and a few studies have tried to link timing and mode of entry (Johnson and

Tellis, 2008; Claude-Gaudillat, 2006, Papyrina, 2007, Cui and Lui, 2004). Though these

studies contribute to the overall discussion on timing and mode of entry, they have one

important limitation: these researches give empirical evidence that entry timing and mode of

entry are somehow interrelated but they do not explain to what extent the mode of entry

                                                                                                                         2  E.g.:  marketing  knowledge.  

3  E.g.:  patents.  

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chosen by a firm may affect the competitive advantage arisen from pioneering in an emerging

market.

2. Theoretical framework and hypotheses

This paper employs a theoretical framework based on the resource-based view theory of the

firm. The resource-based view contends that the control and effective deployment of

resources are the main source of a firm competitive advantage (Wernerfelt, 1984). When

entering a market, first-movers may acquire five main advantages:

1. Experience curve benefits as they accumulate experience. In the standard learning

curve model, unit production costs decrease as output increases (Lieberman &

Montgomery, 1988).

2. Scale benefits accrued to early-entrants as they produce the volume necessary for mass

production before late movers (Chandler, 1977).

3. Pre-emption of scarce resources: first-movers take control of assets that already exist

rather than those created by firms through development of new technology (Lieberman

& Montgomery, 1988).

4. Reputation: first-movers may establish a reputation for quality, transferable to

additional products through umbrella strategy and other strategies (Lieberman &

Montgomery, 1988; Wernerfelt, 1988).

5. Buyer switching costs: when competitors’ products become available to buyers,

switching costs can stem from the investments buyers have to make in adapting to the

new seller’s product4. They will find it costly to switch to new products. Thus, first-

movers enjoy the protection of a resource position barrier (Wernerfelt, 1984, 1985).

These advantages seem even more pronounced in emerging markets such as China where

industry and market transformations bring about greater preemptive opportunities but as well

higher operational risks for early entrants (Cui & Lui, 2005; Luo, 1998).

                                                                                                                         4  Buyers  switching  costs  include  for  instance  the  time  spent  in  qualifying  a  new  supplier.  

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First-movers may acquire superior resources and capabilities but early entry itself is

not enough to sustain pioneering advantages. As Lieberman and Montgomery suggested,

though entry effects exist, “they are better specified as interactions than as direct effects”

(Lieberman & Montgomery, 1998, p. 1116). Various mechanisms may enhance the magnitude

and the sustainability of first-mover advantages. This paper argues that joint-venture may be

one of them.

In recent years, multinational corporations have increasingly used international joint-

ventures to expand their operation overseas. A joint-venture happens when two or more firms

decide to pool a portion of their resources within a common legal firm specific market

opportunity. They then share profit, risks (losses and liabilities), control and/or management

(Lin & Fang, 2004). In emerging countries such as China, many joint-ventures result from

government pressure on multinational companies to use the form of equity joint-ventures

rather than wholly owned subsidiaries. They may require a foreign firm to form an alliance

with a local, business or governmental organization to enter their market. During the first ten

years of the ‘Open Door Policy’ in China, the majority of foreign direct investments were

done under equity joint ventures (A. Yan & Luo, 2001).

Past literature acknowledged that though joint-ventures bring about managerial

complexities, they supply as well effective means of procuring required sources. In a market

where institutional uncertainty is high, joint-ventures can be utilized to rectify resource

deficiency. As firm pool their assets, they create a cluster of resources that would not be

available to either partner (Papyrina, 2007). By combining knowledge of the host country

organization with the technical skills of the entering firm, joint-ventures can as well reduce

transaction and operation costs (Lin & Fang, 2004).

Furthermore, through joint-ventures foreign firms can access the network of local

relationships and gain knowledge about the host country business environment (Beamish &

Banks, 1987). In the resource-based framework, joint-ventures may be a significant source of

competitive advantage (Harrigan, 1988; Papyrina, 2007). This lead to our first hypothesis:

Hypothesis 1: In an emerging market, ceteris paribus, the advantages acquired by a first-

mover when it enters a market can be enhanced through joint-ventures.

Assuming joint-venture will increase the magnitude of the advantages earn by early

entrant, will it turned them into sustainable competitive advantages that will enable a firm to

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maintain its strong position? The resource-based view theory argues that for advantages to be

sustainable, the firms key resources must be valuable, rare, inimitable and non-substitutable

(Barney, 1991). The sustainability of the competitive advantage however depends upon “the

possibility of competitive duplication and only if it continues to exist after efforts to duplicate

that advantage have ceased” (Frawley & Fahy, 2006, p. 287). Lieberman and Montgomery

suggest that “the sustainability of a first-mover advantage depends upon the initial resources

captured by the pioneer, plus the resources and capabilities subsequently developed, relative

to the quality of resources and capabilities held by later entrants” (Lieberman & Montgomery,

1998, p. 1113). Therefore sustainability lies in the firm’s capacity to exploit existing resources

and develop new capabilities. Joint-ventures may add unique, valuable, rare and inimitable

resources to the entrant firm existing resources and create the necessary synergy to cultivate

these resources and achieve a sustainable competitive advantage. This will be our second

hypothesis:

Hypothesis 2: In an emerging market, ceteris paribus, joint-ventures create the necessary

synergy to turn first-mover advantages into sustainable competitive advantages.

3. Methodology and Empirical analysis

3.1 Methodology

To test the above hypothesis, we study the entry strategy of Carrefour in China. As China was

partially opening its retail sector, Carrefour [Appendix 2], a France-based firm, was the first

foreign retailer to enter China in 1995 and emerged as the undisputed leader. Though

Carrefour’s case is unique in its own right, it may allow us to gain a better understanding of

the complex issues surrounding the relationship between first-mover advantages and joint-

venture effects in the context of emerging markets.

We mainly used secondary data collection methods to gather qualitative and

quantitative data as primary data were not easily obtainable. To alleviate observation bias, we

used diverse sources of information, from Carrefour’s report to newspaper and professional

newsletters.

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3.2 Empirical analysis:

Hypothesis 1: In an emerging market, ceteris paribus, the advantages acquired by a first-

mover when it enters a market can be enhanced through joint-ventures.

Firms entering emerging markets have been reluctant to reveal specific information on

performance and researches have only recently focus on the factors that drive firms’ success

or failure in such market. As a result, it is unclear how entry mode and timing affect a firm’s

performance in a market such as China. There is no reason to discard the principles of first-

mover advantages (Pan & Chi, 1999), however, according to Lieberman and Montgomery

(1998) the magnitude of first-mover advantages varies greatly among geographic markets. In

China, the heterogeneity of the market and the industrial structure between the firm’s

economy and China (Dunning, 1981) and the ‘Open Door Policy’ would result in more pre-

emptive opportunities for multinational enterprises (Luo, 1995). Thus, early movers get

access to first-choice resources and locations and benefit as well from the regulations set by

the Chinese government [Appendix 3].

As an early entrant, Carrefour benefited from the China liberalization policy and

acquired first-mover advantages. We identified two main classes of advantages:

1) Market advantages

- Pre-emption of geographical location: being the first one to enter, Carrefour had the

possibility to set up stores in major cities such as Shanghai and Shenzhen, two leading

economic centres in 1996 (Chan, Li, & Tao, 2007) and Beijing and Guangzhou later (Child,

2006). Those locations gave Carrefour access to the well-developed region inhabited by

middle class population whose retail spending is higher and whose disposable income is

rapidly increasing.

- Buyer switching cost creation: When Carrefour’s store opened in Beijing in 1995, it was the

first time Chinese consumers could select good on shelves by themselves and buy fresh, high-

quality goods in a clean and comfortable environment (Jie, 2008). Urban consumers gradually

shifted their preferences from state-owned stores to foreign retail stores like Carrefour. With

the entrance of international retailer such as Carrefour, Chinese consumers got sensitised to

new ways of consumption. Carrefour therefore may have benefited from buyers switching

costs. Moreover, past researches showed that as buyers face imperfect information regarding

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the quality of products, they may rationally stay loyal to the first brand they encounter that

satisfies them (Schmalensee, 1982). That may as well have benefited to Carrefour.

- Lack of strong foreign competition as Carrefour was the first one to enter the China’s retail

market in 1995.

2) Resource access advantages

- Information access: Before setting up a news store in a new location, Carrefour would send

the regional manager and a local staff familiar with the area to study the population growth

rate, degree of urbanization, the local lifestyle, consumption patterns, traditional customs,

proportion of middle-class population and women (Chan, Li, & Tao, 2007). Thus Carrefour

developed a know-how that became a competitive weapon against its competitors. Its

knowledge of the local environment enabled it to respond quickly to local competitors.

- Human resources: As the first entrant, Carrefour was able to recruit local staff familiar with

the area and thus those local employees’ skills enhanced Carrefour’s know-how.

Carrefour’s early entry did not only bring advantages. As the first one to enter China’s

retail market, Carrefour had to face high research and development costs, fragmented

customer bases, haphazard distributions (Economist, 2008) and other market uncertainties as

in the early phase of opening up to FDI, regulatory environment can be extremely uncertain

and even hostile (Luo, 1998). However, nine years after Carrefour entered China’s retail

market, it was ranked third in terms of annual revenues among all retailers (Chan, Li, & Tao,

2007), becoming the only foreign-owned company in the top ten retailers in China [Appendix

4]. In July 2006, Don Lee commented on Carrefour’s success in China: “By joining with

Chinese partners, adapting to local culture, and employing a supply chain that includes 18-

wheel trucks and three-wheel bicycles, Carrefour has become the biggest foreign retailer

operating in China.” (Lee, 2006). How did joint-ventures enable Carrefour to capitalise on the

first-mover advantages it acquired?

To expand internationally, Carrefour has often formed alliances with local partners5.

In 1995, Carrefour followed the same strategy in China and established a joint-venture

company Jia Chuang Business Management Company (CBMC) (in which it held the majority

                                                                                                                         5  Its  first  international  venture  was  set  up  in  1969  in  Belgium  with  Delhaize  Frères-­‐Le-­‐Lion  (Comité  des  travaux  historiques  et  scientifiques,  1993).  

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of shares) with the Chinese consultancy firm Zhong Chuang Business Company (ZCBC). Its

local partner ZCBC set up a local subsidiary Chuang Yi Jia (CYJ), a commercial company.

As a local company, CYJ was able to do business in the retail sector without any restrictions.

CYJ later granted CBMC full control of its operations. The hypermarket was named CYJ but

the signboard displayed Carrefour’s name. As a major shareholder of CBMC, Carrefour thus

set a foot in China’s retail market with little restriction (Chan, Li, & Tao, 2007).

Foreign retailers were required to form joint-ventures under Chinese law. However,

the resource-base theory can explain why Carrefour was particularly keen to follow this

strategy. Accumulating local knowledge and adapting quickly is crucial to early entrants if

they want to successfully overcome operational risks and capitalize on their first-mover

advantages (Luo, 1998). According to the resource-based theory, firms are endowed with

specific resources they want to develop or complete to be competitive in specific market (Hitt,

1999). This leads firms to seek strategic alliances to gain local market knowledge and

leverage their competencies through alliances with partners with complementary capabilities

and unique competencies (Hitt, Dacin, Levitas, Arregle, & Borza, 2000). Throughout its

expansion in China, Carrefour established joint-ventures and sought local partnerships

[Appendix 5] to make up for its lack of knowledge of the Chinese market. Thus, it was

important for Carrefour to form partnerships in the regions it wanted to set up its stores to

develop its pre-existing knowledge and acquire know-how. Its partnership with Lianhua, one

of the two major local retailers, contributed to Carrefour’s leadership position (Gehlen, Jones,

& Lasserre, 2005).

Carrefour not only used joint-ventures to enhance its resources endowments and

increase its organization learning but as well to gain control over geographic areas. In 1992,

China decided to open six major cities6 to foreign retailers, along with five Special Economic

Zones7. However, restrictions were applied: only one or two foreign-invested retail firms were

allowed in those cities. Foreign-invested enterprises could not set up stores in other cities

(Chan, Li, & Tao, 2007). Carrefour planed its expansion in a systematic way by establishing

joint-ventures and partnerships in the East China region and in the Northwestern region.

Carrefour carefully selected the store locations and local partners. It set up its stores in urban

centers, residential areas inhabited by the newly emerged middle-class. Thus it could cater the                                                                                                                          6  Major  cities  opened  to  foreign  retailers:  Beijing,  Shanghai,  Tiajin,  Guangzhou,  Dalian  and  Qingdao;  

7  SEZ:  Shantou,  Shenzhen,  Zhuhai,  Xiamen  and  Hainan.  

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needs of this class seen as having the most purchasing power (Chan, Li, & Tao, 2007).

Carrefour would choose as well strong local partners that would help him overcome obstacles

but it would keep the majority stake and assign a non-operational role to its local partners. In

2000, it had become the number one foreign retailer with 27 stores, outperforming Wal-Mart

which entered the market in 1996 (Fernandez & Shengjun, 2007). Thus, joint-ventures

enabled Carrefour to expand its presence over China and erode its competitors’ strategic

positions.

Hypothesis 1 states that the advantages acquired by a first-mover when it enters a

market can be enhanced through joint-ventures. Our analysis provided support for this

hypothesis. Through joint-ventures, Carrefour has been able to enhance its resource

endowments and organizational learning but as well to expand its presence over China and

deter competitors from entering certain areas (pre-emption of geographical space).

Hypothesis 2: In an emerging market, ceteris paribus, joint-ventures create the necessary

synergy to turn first-mover advantages into sustainable competitive advantages.

Carrefour saw joint-ventures as a way of merging the company’s systems and formats

with the local knowledge of merchandise preferences, vendor relationships and human

resources possessed by their local partners (Holtreman, 2000). Scholars have noted that

knowledge-based resources such as marketing, managerial and technological capabilities

could be important source of sustainable competitive advantages (Teece, 1998) and are more

important than other assets (Levin, Klevorick, Nelson, & Winter, 1987). Nevertheless, early

entrants like Carrefour have no guaranty that these advantages will be enough to secure a

sustainable competitive advantage. The resource-based theory holds that sustained

competitive advantage arises “from a continual competency accumulation which both

generates and replenishes causal ambiguity and the barriers to imitation that permits

sustainability of advantage over rivals" (Reed & DeFillippi, 1990, p. 101). Therefore, to

acquire sustainable competitive advantages, early entrants must: 1) accumulate the right

resources, 2) develop inimitable capabilities and competencies over time. According to

resource-based theorists, joint-ventures enable firms to accumulate efficient resources8 and

thus capture economic rents (Rumelt, 1984). A firm alone do not possess all the necessary

                                                                                                                         8  Efficient  resources  are  resources  with  potential  to  create  sustainable  competitive  advantages  (Dierickx  &  Cool,  1989)  

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resources, capabilities and competencies to develop sustainable competitive advantages

(Culpan, 2002). Therefore, following the resource-based theory, by pooling their resources

together through joint-ventures, firms can deploy unique and inimitable resources. When

Carrefour partnered with the Chinese retailer Lin Hua, it combined its supply chain

management and hypermarket management expertise with Lin Hua local market expertise to

develop consumer values and competitive advantages. Thus, Jean-Luc Chéreau revealed that

Carrefour success in China was mainly attributable to the firm ability to respond to local

market demand, ability contingent upon their knowledge of Chinese consumers (Child, 2006)

and the expertise of their local partners (Fischer & Elci, 2008).

Through joint-ventures, Carrefour exploited its local partners and leveraged its

existing competencies and resources. Moreover joint-ventures provided Carrefour with a high

degree of control over its operations. High foreign ownership and control facilitated

replication of organizational leaning and consequently made it easier for its local partners to

use Carrefour knowledge resources and benefit from them (Zhan, Chen, Erramilli, & Nguyen,

2009). The synergy resulting from the interaction between Carrefour and its local partners

created sustained competitive advantage, which supports our second hypothesis.

4. Policy implications

Some interesting policy implications emerged through this discussion. Firstly, though

considerable studies conclude that international joint-ventures in China are doomed to fail

(Economist, 2008; Fischer & Elci, 2008), our study contradict this outcome. Though joint-

ventures have been imposed by the Chinese government in the context of the ‘Open Door

Policy’, our study showed that they positively influence the advantages acquired by first-

movers.

Secondly, given that timing and mode entry are endogenous to the firm, firms’ success

or failure must be related to the fundamental nature of the firms’ resources and capabilities.

The resource-based theory therefore offered the perfect framework to analyse to what extent

joint-ventures affect first-mover advantages. It explained not only how joint-ventures

enhanced a first-mover existing capabilities and the resources it acquired when entering an

emerging market, but as well how join-ventures provide the synergy to develop new

sustainable advantages.

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5. Conclusion

The purpose of this paper was to address the lack of theoretical and empirical studies on the

relationship between mode of entry –in particular international joint-ventures- and entry

timing. Lieberman and Montgomery (1988, 1998) have stressed the endogenous nature of

first-mover advantages and the importance of theoretical modelling of factors that may

influence entry order. The present paper tested the timing of entry and mode of entry

relationship in the context of emerging market. In particular it tested how in an emerging

market, the resources and competencies acquired by a first-mover when it enters a market can

be enhanced through joint-ventures and how those joint-ventures create the necessary synergy

to turn first-mover advantages into sustainable competitive advantages.

This paper showed evidence that joint-ventures, in combination with first-mover

advantages, have a great potential in developing and creating a bundle of resources –in

particular knowledge-based resources- generating sustainable competitive advantages.  

While our study gives a better understanding of the interactive impact of joint ventures

on first-mover advantage, it has limitations as well. Our study is not cross-sectional. The food

retail sector cannot be considered as representative of the whole retail sector and our finding

may not be generalised. Furthermore, the effect that local partner selection may have on the

synergistic effect of joint-ventures has not been considered and shall be the subject of further

studies.  

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Appendices

Appendix 1: Johnson and Tellis’ five main classes of market entry:

Export – a firm’s sales of goods/services produced in the home market and sold in the host nation through an entity in the host nation. License and Franchise – A formal permission or right offered to a firm or agent located in a host nation to use a home firm’s proprietary technology or other knowledge resources in return for payment. Alliance – Agreement and collaboration between a firm in the home market with a firm located in a host nation to share activities in the host nation. Joint Venture – Shared ownership of an entity located in a host nation by two partners-one located in the home nation and the other located in the host nation. Wholly Owned Subsidiary – Complete ownership of an entity located in a host nation by a firm located in the home nation to manufacture or perform value addition or sell goods/services in the host nation. Source: (Johnson & Tellis, 2008)

Appendix 2: Carrefour overview

Corporate name and address Carrefour S.A.

Ranking (2008) No. 1 in Europe and No.2 Worldwide

Net income from recurring operations, Group

share (2008 results) €1,256m (-32.8%)

Consolidated net sales (2008 results) €86,967m (up 5.9%, +6.4% at constant exchange

rates)

Regional operations Europe, Latin American and Asia (present in 31

countries)

Number of stores

Europe: 13,189 stores

Latin Americ:a 1,106 stores

Asia: 574 stores

Franchisee-partner countries: 261 stores

Source: www.carrefour.com

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Appendix 3: Foreign investment in China’s retail industry

Before 2004 After 2004

Geographic Restraints Retail limited to certain cities like Beijing, Shanghai, etc.

Restriction on retail lifted from December 2004

Form of Vehicle Only Joint Venture Wholly foreign owned

enterprises (WFOE) allowed from December 2004

Prerequisites for Retail JV

Annual sales volume of at least US$ 2 billion, assets at least US$ 200 million

Good reputation No breach of national laws

Pre requisites for Wholesale JV

Annual sales volume of at least US$ 2.5 billion, assets at least US$ 300 million

Good reputation No breach of national laws

Minimum registered Capital for retail JV/WFOE

RMB 50 million (US$ 6.4 million)

RMB 300,000 (US$ 36,245)

Minimum registered Capital for wholesale

RMB 80 million (US$ 9.7 million)

RMB 500,000 (US$ 60,408)

Approval authority Ministry of Foreign Trade and Economic Cooperation (MOFTEC)

Provincial commerce authorities, MOFCOM

Based on: Source: Retail Outlook for China, KPMG from www.kpmg.com.cn/en/virtual_library/Consumer_markets/Retail_outlook_for_China.pdf

Appendix 4: Top 10 supermarket operators in China by revenue, 2003-2004

(US$ millions)

Supermarket 2003 Supermarket 2004

Lianhua Supermarket 2969.36 Lianhua Supermarket* 3743.98

Hualian Supermarket 2228.22 Hualian Supermarket** 2471.27

Beijing Hualian 1680.46 Carrefour (China) 2006.80

Carrefour (China) 1660.32 Beijing Hualian 1977.02

Shanghai Nonggongshang 1529.84 China Resources Suguo 1715.06

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China Resources Vanguard 1275.67 Shanghai Nonggongshang 1693.19

Suguo 1183.74 Wumart 1640.55

Wumart 1050.91 TrustMart 1482.76

Wal-Mart(China) 723.22 China Resources Vanguard 1360.93

Metro 694.55 Xinyijia 1050.29

Note: The revenue figures include sales generated at the group level, including directly operated outlets and franchised outlets. All revenue data include VAT. *Lianhua Supermarket and Hualian Supermarket are now under the Shanghai Brilliance Group. Lianhua’s revenue in 2004, including sales from direct operations and franchised outlets, was reported to be US$3.74 billion. **Hualian’s data is an estimate. Source: China Chain & Franchise Association; Ministry of Commerce; China Business Herald 21 January 2005; Smith Barney’s estimates.

Appendix 5: Carrefour’s partners in China, 1998-2002

Year City Partners

1998 Wuhan Hanshang Group

2000 Shanghai Lin Hua

2002 Kunmig Kunmig Department Store Co.

2002 Xi’an Jin Hua Group

2002 Guangzhou Guangzhou Department Store Co.

2002 Liaoning Liaoning Chen Da

2002 Harbin Harbin Dong Li

2002 Tianjin Tianjin Quan Ye

Source: Jean Kinsey, Min Xue, “Supermarket Development in China,” Globalization, China and the Industry Studies Program, Solan Workshop, MPI Worcester Polytechnic Institute, June 16-17, 2005.

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