Carrefour's and Wal Mart’s success is due to the respect of the food habits of the Chinese population.
The consumption habits of Chinese are different from the country of Europe for example, with a high percentage of fresh products in the basic food basket, and a high frequency of purchase. (, )
They offer a wide variety of local products, often cheaper than in the traditional stores.
The retailers know that their ability to adapt to a customer is a demanding part of the keys to success.
But the problem remains the differences in classes. Indeed, a minority of the population can afford to buy products that are more high-end, but millions of Chinese have had barely enough to buy food at their convenience.
The criteria for selecting the most important are the price and service providers. Broadly speaking, the Chinese attach great importance to the search for information on a product before buying it. They are curious compared to the nature and composition of the product, particularly with regard to foreign products. (www.laposte-export-solutions.com)
Finally, like said before, Chinese customers prefer traditional retailers. But gradually, the foreign retailers like Carrefour and Wal Mart win market share and proposed the same things that the local retailers. So, the competition is very severe and nothing is play.
☞ PEST
PEST analysis is concerned with the environmental influences on a business. The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business. Thus, always connected with the third and fourth items, the tool PEST allows to analyse the macro-economic environment of China.
At first, concerning the aspect Political:
The Chinese government is implementing various strategies to reduce pollution. Thus, Suisheng Zeng, head of the economics of laws and regulations of Shenzhen has proposed for his city to establish a law prohibiting the distribution of plastic bags by traders. If this legislation is promulgated in this city, the other Chinese cities could take. If traders don’t respect the law, they must pay a fine of 5000 Yuan (667 dollars). ()
Since the Chinese government exports productions, there were several quality problems. Thus, the government has introduced few controls of exported products but also products consumed within the country.
Li Chuanqing, director of the State Bureau of Quality and Technical Supervision of China, said that compared with the revised law on product quality (2000), any person selling infringing items or of inferior quality will be severely punished.
The revised law further defines the responsibility of the State to improve the quality of products and corporate responsibility, which must accept the supervision of the quality of services.
China has launched a series of repression on counterfeit products of low quality in recent years. However, the production of poor quality remains a serious problem in China. ()
Then, about the second aspect: Economic
During 1990's, the Chinese state has privatized many of its company, and this has created a significant number of redundancies. That is why since 2002, the Chinese government has implemented a policy conducive to employment.
Thus, the unemployment rate is stabilizing now between 4 and 4.3% of the active population in China. A low rate result of rapid economic growth.
In addition the working population grew by 6.6 million people between 2002 and 2006. ()
However, China has continuously evolved over half a century. The new stability in the country has led to economic growth and social progress. According to the National Bureau of Statistics, China's GDP grew at an annual rate greater than 9% since 1979, reaching 13651, 5 billion Yuan in 2004, nearly double that of 1998. (10 Yuan = 1, 4 dollars)
China produces enough to feed one fifth of the world's population while the area of the country only account for 7% of the world total.
Thanks to increased governmental agreements and efforts of various social groups, China has reduced its rural population living in extreme poverty from 250 million in 1979 to 26.1 million in 2004.
So, thanks to these changes, the population can consume more and more because it is less poor.
Concerning the Socio-Demographical context:
Currently in China, employees and the poor, who constitute the majority, can only support their families. The costs of housing, medical services and education amounted to a very high level, which has an effect on consumption.
There are 20% of Chinese who would have 80% of the rich of the country. The reality worried the government and so it has decided to encourage the consumption of the inhabitants. (ibid)
Today, it recognizes that low income is the major reason for a low consumption rate. Thus, in 2006, agricultural tax has been abolished. The educational costs of compulsory nine years were removed in the countryside. A new cooperative medical system has been put in place in 60% of rural areas, in order to increase the incomes of farmers.
As for the urban areas, minimum subsistence level has been raised. The system of minimum wages is strictly applied in enterprises. In addition, the government wants to invest in the fight against unreasonable prices in the areas of education, health. In addition, it has planned to improve the political consumption of housing and food, and to encourage the consumption in culture and in tourism.
Finally, about the Technological aspect:
With the following graph, we can be noted that China has evolved considerably over its virtual marketplace. In the first quarter of 2006, e-commerce accounted for a turnover of 85.76 million Euros according to Analysis International. The institute estimated that the market for e-commerce has its progression to the efforts made by the merchants on online marketing and logistics. However it estimates the number of online buyers to 40 millions in 2004.
Source:
Analysis International
2006
During many years the development of the software market in China was almost insignificant in due to weak demand, too much fragmentation of local societies and the importance of piracy. While some of these problems exist today, a strong political will and the continued creation of innovative firms and foreign investment has enabled the sector to experience a real development. Thus, the local retailers premise was forced to obtain software in order to be able to compete with foreign companies in terms of supply and sales, for example. ().
Marks & Spencer in China ?
Finally, in order to understand the running of M&S, it is necessary to use tools. Indeed, in relation with the explanations of the articles of the literature review, the tool Marketing Mix is going to allow understanding of the behaviour in the Chinese Market.
☞ Marketing Mix
The marketing mix means the coherent set of policy decisions of product, pricing, distribution and communication of a product or a company brand.
Marks & Spencer has played a major role in the changes that have revolutionized the retail industry in the UK. Based on its experience, it has introduced some of its global best practices in the global market. Marks & Spencer sells its own branded products, and designed its stores (in Shanghaie) according to the habits of Chinese customers. In predominantly in sourcing local products, it can ensure their freshness and the quality for Chinese consumers.
At first, one of the different elements of the marketing mix is the Price. Indeed, we can ask if the price will be the same in China and in the UK.
The power of consummation isn’t the same in China than in the UK. Indeed, the British have the high wages so they are able to spend more money. So the price is of course much cheaper. But almost all the products sold by M&S are produced in China, so the production is also much cheaper.
Therefore, M&S must to adapt compared to the local retailers. Indeed, because they have an advantage concerning the customers, M&S must differentiate its stores.
The second term of the marketing mix is the Place. So, where M&S is setting up to sell more and more? Where is its strategic situation?
However, the two M&S supermarkets in 2008 were present in the biggest city (Shangai) in China. The central purchasing has to be reached in 10 Chinese cities, like others retailers (Wal Mart, etc, did.)
Marks & Spencer has to be present where there is the demand and where its competitors are in order to compete with them.
Then, there is the third aspect: Promotion
M&S uses different ways to promote its image and its product. First, because M&S established foreign stores in many countries, the Chinese have to be interested directly during its set up. Then, it is the “bouche à oreille” in French, that is to say, when a store is well, the Chinese know how to diffuse this information. The reputation of M&S was realised in this way, and has to keep it in china.
Because the Chinese teenagers use the internet a lot, it is a good strategy for M&S to set up a website to sell its product. Indeed, the teenagers influence a great deal the purchases of their parents.
Then regularly, M&S should propose promotion of its products. That is to say, during a day, certain products are cheaper. The Chinese are very interested by this system because the majority of Chinese hasn’t lots of money. Thus, they profit from these days to realise their purchases.
Finally, it is important to explain the last aspect, the Product:
In all its stores, M&S proposes a large product range with different prices. Indeed, M&S has its own product, but also low cost products and brand name products (Nestlé, Kellogg’s…). This satisfies all the demands of the customer.
In response a rich class is developing; M&S has also begun to offer products much more high-end, as imported cosmetics, in addition to milk products or to foreign wines and spirits. (www.carrefour.com)
Concerning the habit of Chinese, M&S adapts its products. Indeed, the consummation of Chinese is particular and M&S has understood, as we can see in its stores in Shanghaï. The concern nutritional of the Chinese is always taken seriously. Thus for them, if the food is good, they can not be sick.
That's why, the products like the rice, the fish and the soya are very important in their consummation.
Finally, presentation of its products has to be very well compared to its local competitors. Indeed, it has a presentation clearer, more cheerful and more attractive. ().
☞ PORTER
Always, in accordance with the articles of the literature review concerning the running of the foreign retailers, it is necessary to use the framework: Porter's 5 forces analysis.
Indeed, this tool summarizes the factors affecting a company's performance by five forces:
• The bargaining power of customers
• The bargaining power of suppliers
• The threat of potential entrants
• The threat of substitutes
• The intensity of competition
In the case of M&S, the analysis of these five forces allows for the group to know the key to success factors in its industry. In other words, the strategic elements that should be controlled in order to obtain a competitive advantage.
The power of customers:
Since 1960, the population has almost doubled. The Chinese are now more than 1.3 billion. The fact that China has developed, the standard of living has also evolved.
Unfortunately, for 80% of the Chinese, their wages were only enough to feed their families despite the low cost of living. In addition there are large gaps between socials classes so it is difficult to give a real purchasing power. Thus, we can say that by the number of inhabitants, consumers have a lot of power but seen in their wages, it is not really the case. (www.chinafrique.com)
Finally, some experts believe that Carrefour's success can be attributed to the fact that it has already established a stable consumer group.
The power of suppliers:
80% of the products sold in competitor’s hypermarkets in China are purchased from more than 22300 local suppliers. (www.carrefour.com)
Indeed, after his setting up, M&S has to develop a large network of point of purchase.
It enables its Chinese suppliers to sell their products across China and realised advertising.
The threat of entrants:
The arrival of new competitors is limited since the major groups worldwide are already established in China (Wal Mart, Metro ...). However, since the opening of barriers in 2004, many foreign companies have a real desire to establish business in China.
However, in order to compete with them, M&S need maturity. But also, a lot of experience, a significant capital, the ability to provide the low-price with the quality of products, and finally, a good knowledge of the market.
The threat of substitutes:
The main threat of substitutes is the local retailers in China who still very appreciated by the Chinese customers. There are also the online retailers. But these ones with their opening hours, their proximity and their easiness of purchase are a low threat.
Indeed, competitors have also a variety of product, low costs.
The competitive rivalry:
There is a very large competitiveness in the Chinese market retailer. Indeed, there is a fierce war between competitors (Carrefour, Wal-Mart, Tesco and Metro), but also with its Chinese rivals which have decided not to stay without doing nothing.
Indeed, according to Eric Legros, executive director of Carrefour China, “What makes the competitiveness of the Chinese market is that in China there are a lot of local distributors who are extremely powerful. We must not forget that a local distributor, which dominates in the Beijing area, is working on a market as large as Spain" (www.france24.com)
Thus, we can deduce that the foreign competitors are a threat to M&S because, like seen previously, the first retailer in the world "Wal-Mart" is going to maybe take the first place of in China instead or Carrefour. M&S is also impressed by the local retailers because they are in their country and the consumers are in the habit of buying in their stores. But, M&S has to be confident about its quality of products and of services that can make a difference with its competitors.
☞ The SWOT
Finally, thanks to the SWOT framework (Strengths, Weaknesses, Opportunities and Threats); it is possible to carry out an analysis of internal and external business. Following the ideas of the articles, this framework is going to allow understanding of the internal and external environment of M&S.
CONCLUSION
In order to finish this study, it is necessary to conclude with a summary of the different reasons for whereby M&S could became a main foreign retailer in China.
First, as explained in the Background, M&S is a very famous retailer anywhere in the world. But M&S has to deal with high competitors. The objective is that customers have to be accustomed to shop in these stores.
The first reason is undoubtedly the expansion of China. Indeed, the past 20 years, China has grown very rapidly with a population of over 1.3 billion of people.
Carrefour has taken root in China in 1995; China has since changed its policy of trade following its accession to the WTO. Thus, foreign companies can develop much more freely without restriction.
The second reason is undoubtedly the differentiation of the group over competitors. Indeed, M&S emphasizes customer service that the Chinese are not used to having in other stores. In addition, the group is very well placed in terms of price compared to its competitors. Finally, M&S has a very good distribution network which facilitates competitive advantage, thanks to its position over the world.
The third reason is that M&S is able to develop throughout China. Indeed, the group would able to develop in areas such as wealthy major cities and coastal regions. But also further inland where the development of urbanization is booming. M&S has to be where the demand is and this places it in front of its competitors.
The fourth reason is that M&S offers a wide range of products at all the prices so it can meet any demand from China.
With these points, M&S can manage to make the difference to be a good outsider today of foreign retailers in China.
Unfortunately, there are some elements which M&S must be careful…
REFERENCES
Website references:
Background
Business in China, 2005. Information about the food retail in China [online] Available at:
Main Body
Analysis of the Chinese Market
Chine information, 2008. Cinq questions sur la fiscalité en Chine [online] Available at:
David Houstin (2007) Les salaires en Chine [online] Available at:
La poste (2007). Information about the consummation behaviour of the Chinese [online] Available at:
Marketing expert (2007) Information about the strategy of diversification [online] Available at:
Population data (2007) Information about the Chinese population [online] available at:
Chine Information (2008) Hausse du salaire moyen des travailleurs urbains en Chine [online] Available at:
Chine Information (2007) La Chine annonce un taux de chômage aux alentours de 4% [online] Available at:
Chine information (2008) La distribution en Chine [online] Available at:
China Radio International (2004) Le secteur de la distribution cherche un développement dans la concurrence et la réorganisation en Chine [online] Available at:
Cogez, D., (2007) Les grandes manœuvres de la grande distribution [online] Available at:
Mission économique (2006) Le marché des logiciels en Chine [online] Available at:
People’s Daily (2000) New Product Quality Law Implemented in China [online] Available at:
Xinzhen, L., (2008) “Information about the consumption in China” [online] Available at:
Information about the competitors in China
Information about China
Books/Reports:
McMillan K. and Weyers J. (2007) “How to write Dissertations & Project Reports?” Pearson Education Limited
Literature review
Reports
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& (2003) “Internationalisation strategy: in pursuit of the China retail market”
-
Gamble J. (2006) “Multinational Retailers in China: Proliferating
‘McJobs’ or Developing Skills?” Business Source Premier (Digital Library)
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Khavul S. (2007) “Learning during and after internationalization by entrepreneurial firms from emerging economies” Business Source Premier (Digital Library)
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Li & Fung Research Centre (2004) “The Growing Power of Foreign Retailers in China” Business Source Premier (Digital Library)
Book
-
Central of union of Hong Kong (2004) “A QUI PROFITE LE MIRACLE? Ou comment les travailleurs chinois payent le prix fort du boum économique de leur pays ?
Books
-
Cabestan J.P. and Choukroune L. (2002) « L’accession de la Chine à l’OMC : un tournant historique ? »
-
Garner J. (2005) “The Rise of the Chinese Consumer”
-
Shuming B., Shuanglin L., Changwen Z. (2006) “The Chinese Economy after WTO Accession”
APPENDIX
Appendix 1
Evolution of the GDP between 1993 and 2006
Source:
Appendix 2
Source:
Appendix 3
Evolution of the population from 1961 to 2003
Source:
LITERATURE REVIEW
The literature review is an overview of the topic.
In this part of the thesis, various academic articles will be discussed, explained and criticized. Indeed, in agreement with the subject, the various pieces will be used to understand better the current situation with regard to internationalization. But also receive news of the market in China and the environment of foreign retailers in China. Thus, through these articles, the various viewpoints will be discussed and compared with others.
First, the definition of the various terms of the issue of research is needed.
The establishment of a society is for a company to locate in a new country, the "host country" in order to develop its customer base and its market share at the international level.
China is seen as an important strategy for retailers who want to develop a strong international network, in order to strengthen their bargaining power over suppliers and strengthen their position in the global market. The accession of China to the World Trade Organization in December 2001 has been accompanied by promises of removing all restrictions on foreign direct investment in the retail sector.
Finally, Marks & Spencer is an English distributor who wishes to develop its market share and develop its brand in China.
Today, more and more companies want to expand their market share and build their businesses around the world. But some countries are more promising than others.
At first, Au-Yeung and Henley (2003) explain that the international firms have many reasons to go into business in China. In fact, after an interview with eight retailers in the world, they discovered that the changes in purchasing power and the prospect of increasing profitability are the main engines.
Then, they said, domestic markets are often saturated (e.i UK), so they want to have an international image and a corporate goal of becoming a major global retailer. In addition, some retailers believe that national boundaries are ignored in the endless search for opportunities to make money. Indeed, the main desire of a company is to create benefits if the domestic market is saturated, they need to internationalise. And often, retailers will investigate very well on the market needs and if it is quite promising, they are going to settle in the country. This is the case with China. In detail, the different retailers are attracted by the potential of consumption of 1.3 billion people in China and the rapid economic development. Indeed, each year, the growing population and more and more people can buy into these companies.
Finally, the entrepreneurs said they had always wanted to contribute to the modernization of China and the retail distribution of the industry.
Both authors explain that it is important to note that there are many reasons for the foreign companies. So this justifies the number of new companies who want to enter the Chinese market.
Then, despite the different motivations for investing in China, there are some problems.
We can see that, thanks to a report by Li & Fung Research Centre (2004), China has the largest potential consumer market in the world. Indeed, in the year 2003, China had a population of 1.3 billion and a growth rate of 9.1% in retail sales of consumer goods. China is very optimistic for many foreign investors...
The foreign retailers have established a strategy during their introduction in the Chinese market. Indeed, they tried to market occupied major cities and only after the vicinity. After the policy change in 2004, it is a risk to take the market to local retailers both in large cities than in smaller ones. That is why, at this time, local retailers were very worried. They allege that the foreign retailers are not true and that they have entered China illegally before 2004.
In fact, before 2004, foreign retailers must have official approval from the regional and central government. But more often, it was only the approval of the regional government. Thus, it has created tensions between the rivals. For example, in the year 2002, 300 foreign retailers have opened stores in China, while only 56 of them had received the approval of the central government.
For example, Carrefour was charged with an offence under the regulations imposed on foreign retailers. According to the report, Carrefour has opened many stores in China, but it had never formally requested to the central government for the right to open these stores.
Thus, Carrefour had to give explanations to government and answer for its actions.
A second problem exists concerning foreign retailers. Indeed, they are accused of exploiting suppliers and employees through their power. Walt Mart is already worrying. It imposed the low pay and long working hours for its employees. In addition, with regard to suppliers, it was charged with enjoying its powers to impose the low of prices. But, by law, the retailer is entitled to claim rebates. And at the root of the plight of the workers is actually an overabundance of manpower and complicity on the part of the Chinese government.
Secondly, Lowther Betsy (2004) explains that when China joined the World Trade Organization in 2001, it was engaged to change its policy concerning the entry of foreign retailers. Indeed, before the foreign retailers had to cooperate with Chinese retailers and they were limited of a few stores in big cities only. They couldn’t set up their companies as they wanted. Thus, when a retailer found a Chinese retailer, it wanted to keep this partner.
After three years, China lifted its restrictions, thus, that allowing the retailers to enter and expand in the market much more easily. In order to ease the access, China removed lots of red tape. Therefore, from a legal perspective, since this change, foreign investors in the Chinese retailing business are now on equal footing to that of Chinese companies. They can set up company easily.
Furthermore, the author says the competition for the Chinese retailers is going to be more and more severe.
Then, concerning the Chinese market after the change of policy in 2004, the foreign retailers had to adapt their habits to the Chinese customers. Thanks to Gamble (2006), we can understand the change of behaviour. At first he says that for the foreign companies, the Chinese’s have more expectations concerning the customer service and have more requirements than that of local companies.
For example the Chinese are very particular about the quality, the composition of the product and also the origin of the product. The demanding nature of Chinese customers can be attributed primarily to the low-trust retail environment.
What is more, it is very difficult to rival for the foreign retailer, only thanks to the price. Indeed, the local retailers are already habit to have a low margin. In consequence, it is difficult for the foreign retailers to differentiate. That’s why the international retailers are very quickly differentiated thanks to the importation of technologies and practices such as product displays, use of bar codes and returns policies.
However, the advantage gained was often short-lived, as rivals rapidly copied and adopted these features. Therefore they can't conserve their competitive advantages. So they must search always a new strategy.
These companies have intensified the customer service. Crucial for the success of a company, this advantage is very difficult to copy. As a result, the foreign retailers have developed the training of the employees in order to they know perfectly the product, to have good contact with the customers and to listen to their requirements. As a consequence, training and development of competences are becoming the key word for the multinationals.
(Finally, Khavul (2007) ***))
The most important change after the reforms has been the restructuring of the companies owned by the State. Indeed, these companies have become private firms. That had created lots of unemployment. In reality, since 1995, the number of State society had been reduced to (300000 to 150000 units) which provoke the unemployment of 53 million workers. During the same time, the employment in the private firms had created 16 million employees. But, it stays at this time 43 million of unemployed.
Therefore, lots of companies have been created but few of these offer good conditions of work concerning the wage, the hours of work the environment, the social protection. Thus, the workers are in a delicate situation with little unions to help them. Thus, the author has presented the difficulties of the workers in China.
In order to explain more in detail these theories, in the third part of the main body, there will be an application of the tools Marketing Mix, Porter analysis and Swot analysis.
To conclude for this literature review, we can see that because the national markets are often saturated, the companies have wanted to spread in international market. Attract by a potential of consumer (more 1, 3 billions), China is becoming the target of multinationals. Thus, more and more of foreign companies come in to establish their firms in China. Even if they are minority compared to the local retailers, they are more and more present. However, as said by a report of Li & Fund, lots of companies have invested in China before 2004 and in an illegality. So this has created conflicts with the local retailers who have fear for their market share.
The foreign retailers also have a problem with the suppliers and the workers who claim their exploitation. We can so conclude for this theory that China has a potential to welcome the foreign retailers and create a growth but that creation will be a severe competition. Therefore, the local retailers, the suppliers and the workers feel ridiculed by newcomers.
Concerning the second theory of this literature review, that is to say the opening of China Market, we can notice that there was lots of change. Indeed, since the cancellation of restrictions in 2004, enormously of foreign retailers are becoming established in China. They have the same statues as the Chinese retailers because they can create their firms in legality and to be in competition with the local retailers but with famous products of their brand. It is a success for them. But we can see thanks to Gamble that the Chinese are more worried and that they want a good customer service. This is the success of the multinational because this service can’t be copy by the competitors and it is a competitive advantage.
We can conclude this literature review saying that the internationalization of the foreign retailers in China is fruitful for them and for China. China is a gold mine for them. But there are two negatives side especially concerning the competition, the workers and the suppliers who are threatened by the giants of retailing.
