The Rise of Transnational Retail

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The Rise of Transnational Retail

• Neil Wrigley
• University of Southampton

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• Internationalization of retail nothing new
• e,g. F.W. Woolworth expanded its 5-and-Dime
  stores out of USA into UK Canada in early 20th
  Century
• Also, both US food retailer Safeway and French
  retailer Carrefour operated in UK and Southampton
  in 1970s

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• Retail landscapes often littered with debris of
  past waves of internationalization, even when
  original firms/chains disappeared in home
  countries
• e.g. core US Woolworths chain closed in 1997,
  but remains (under different ownership since
  1982) in UK

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• Traditionally social scientists viewed retail
  internationalization as marginal to economic
  globalization
• Saw retailers as essentially domestic market
  (perhaps cross border) operators lacking
  transformative capabilities of manufacturing
  multinationals
• View challenged in mid 1990s by Gereffis
  conceptualization of retailers as lead firms in
  buyer-driven commodity chains, and gradual
  emergence of retailer-driven global sourcing
  networks
• But retail ( distribution more generally) still
  profoundly ignored in debates on economic
  globalization

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• Curious question to pose as there had been
• Step change in intensity of retail
  internationalization from mid-1990s
• Number of Countries of Operation
• 1990 2002
• Carrefour 6 30
• Ahold 2 28
• Wal-Mart 1 11
• Tesco 1 11

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• Emergence of embryonic group of
• retail transnational corporations (TNCs)
• Rapid transformation by retail TNCs of commercial
  landscapes/consumer societies in emerging markets
  of East Asia, Latin America, Eastern Europe
• Also emergence of largest retailers as major
  industrial powers in many western economies
• - e.g. Wal-Mart worlds largest industrial corp.
  from 2000 onwards

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• Dramatic acceleration in internalization driven
  by
• Consolidation of western retail markets with
  mature rates of growth, increasing regulation
• Emergence of lead firms able to leverage home
  market scale free cash flow for expansionary
  investment
• Longer-term higher-growth rate opportunities
  offered by emerging markets with underdeveloped
  distribution systems
• Facilitated by
• access to low cost capital, financial market
  support
• policies of full or partial liberalization of
  retail FDI in emerging markets

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• Result was emergence, by early 2000s, of around
  15 retailers each deriving over 10 bill p.a.
  from foreign markets
• Typically operating across 10-40 countries a
  level of internationalization comparable with
  many manufacturing TNCs
• Mainly food general merchandise retailers,
  dominantly European

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• Argument therefore is
• Rapid rise of retail TNCs since mid 1990s
  undeservedly neglected merits urgent atttention
  in both theoretical empirical terms
• Deeply rooted productivist bias of existing
  debates on economic globalization inappropriate
  in world in which distribution-based TNCs have
  become powerful players
• Profound impacts of retail TNCs on host economies
  societies in emerging markets raises issues of
  considerable conceptual importance to debates in
  social science

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• Tesco gone from having 8 of its operating space
  outside UK/Ireland early 1998 to over 50 by 2005
  in East Asia, E. Europe
• Now in 13 countries announced entry into USA,
  poised to enter India
• International sales currently lags
  international space - but set to ramp up
  explosively in both absolute percentage terms

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• Themes for conceptual debate 1. level of the
  firm
• How can we conceptualize the organizational
  characteristics of the retail TNCs and the
  challenges they face?
• What processes define the organizational
  globalization transforming these firms to what
  extent are they becoming very different kinds of
  organization as they enter different types of
  market regulatory environment?
• How does organizational learning adaptation
  operate in retail TNCs what are the
  characteristics of spaces of corporate learning
  in these firms?

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• 2. At a territorial level
• What are the main dimensions of the host
  economy/society transformative impacts of retail
  TNC expansion in emerging markets?
• What types of inter-firm and extra-firm networks
  are retail TNCs forging in these emerging
  markets?

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• 2. At a territorial level
• How are the retail logistics technologies
  supply chain management methods of the retail
  TNCs transforming traditional supply chains in
  emerging markets?
• What is the regulatory experience of retail TNCs
  in these markets?

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• Agenda for Discussion
• What are the defining characteristics and key
  challenges of retail TNCs?
• What are main dimensions of their host
  economy/society transformative impacts?
• What is the extent of the adaptation of the
  practices of retail TNCs to the markets they
  enter, and in what areas?

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• 4 broad areas of retail TNC host economy/society
  impacts
• Retail competitiveness
• Local supply chain dynamics
• Consumption practices
• Regulatory frameworks
• Also, reciprocally, on retail TNCs themselves

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• Tesco in East Asia
• Explosive growth no presence in region until
  1998 but by end of 2004 operated over 10 mill sq
  ft of retail space (23 of Tescos global total)
  across 6 countries Thailand, South Korea,
  Taiwan, Malaysia, Japan, China
• Entered after Asia econ crisis of 1997/98
• Regulations restricting retail FDI eased
• Costs of land, construction, labour fell
• Local conglomerates urgently needed cash
  injections

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• Market entry via majority acquisitions/partnership
  s with leading domestic conglomerates
• Thailand acquired 75 of Lotus chain from
• C P Group
• South Korea acquired 81 of Homeplus chain from
  Samsung
• No local partner in Taiwan struggled to achieve
  momentum, so reverted to partnership mode in
  Malaysia (Sime Darby), China (Ting Hsin).
  Announced exit from Taiwan, Sept 2005

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• Partnerships vital to Tesco re
• Knowledge gained of local business conditions,
  regulatory environment, local consumer culture
• Political influence obtained
• Maintenance of local nature of customer face
  Samsung name esp imp in S. Korea
• Retention of market-specific retail skills of
  management of operations acquired

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• Since entry, capital injections by Tesco
  considerably diluted share of local partners
• C P Group reduced from 25 to zero
• Samsung reduced from 19 to 11 and further to
  1 (in two stages) by 2011

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• What can we now say about the local supply chain
  impacts of Tescos selling networks in East Asia?
• What has been Tescos experience of, and response
  to, regulation in the region?
• What does that tell us about the extent of
  adaptation by transnational retailers when they
  penetrate new markets?

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• Supply chain impacts
• Tesco imported UK-style retail logistics
  technologies supply chain management methods,
  built around large centralized distribution
  centres
• Instrumental in transforming local supply chains
  both directly and also via emulation of practices
  by indigeneous retailers
• Local vendors have had little option but to
• Adopt practices/make investments which allow them
  to participate in distribution systems run on
  those lines
• Implement private standards of Tesco (and other
  retail TNCs) regarding quality safety of
  products

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• Has resulted in
• new intermediaries emerging in these markets,
  side stepping/transforming traditional wholesale
  systems
• Important dimensions of inclusion/ exclusion
  within transformed systems
• Rise of quasi-formal/formal contracts in
  previously informal markets

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• Tesco clearly very active agent of transformation
  in local supply chains
• However, for commercial long-term regulatory
  threat reasons has attempted to position itself
  as supportive agent
• Offering technical expertise training for SMEs
  in support of Gov. industrial promotion
  programmes
• Developing a supply chain inclusive of small
  vendors

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• Regulatory impacts
• Entered E. Asia during period of retail FDI
  deregulation following Asian econ. crisis
• But since early 2000s faced regulatory tightening
  across region as intense debates rage over
  large-format retail development and desirability
  of multinational driven retail change
• In Thailand, for example, faced progressively
  tightening land-use zoning laws (first in
  Bangkok, then up country), competition fair
  trading policies, and store opening hour
  restrictions (impacting large stores)

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How has Tesco reacted to tightening regulation

• Via agility/adaptation
• Rapid pre-emptive development site acquisition in
  metro Bangkok in face of prospective zoning
  tightening
• Format adaptation learned in UK to circumvent
  tightening land-use planning regulation via small
  format skills transferred knowledge to Thailand

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• Began infilling hypermarket network in Bangkok
  with small Express convenience stores (300 sq m).
  
• End of 2002, 9, 2004, 47, 2005, 140
• Unanticipated benefit of protecting against
  trading hours regulation
• Circumvented tightening development control in
  low-income up-country towns by developing
  low-build cost (3 mill per store) Value format.
  11 by end of 2004.
• Essentially, 35,000 sq ft hypermarket core
  surrounded by local fresh food vendor market

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• Via deepening of embedding process
• Huge stress being placed on explaining value of
  Tescos inter-firm and extra-firm relations to
  Thai economy (e.g. on employment , supply chain
  modernization, infrastructure investment, skills
  training, export gateway benefits)
• Considerable work with local communities to
  counter regulatory pressures attempts to
  explain possible co-existence of traditional and
  modern retail system

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• Via drawing on political connections/advice of
  domestic conglomerate (C P Group) with which it
  partnered

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• What are the defining characteristics and key
  challenges of retail TNCs?
• What are main dimensions of their host
  economy/society transformative impacts?
• What is extent of the adaptation of practices of
  retail TNCs to the markets they enter, and in
  what areas?
• Progress on many of these topics several
  disciplines contributing (dev studies, agric
  econ, sociology, management, econ geog)
• However, more market specific case studies
  necessary partic interest likely in China, also
  India as it opens to retail FDI

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• But What of Fashion/Luxury Goods Retail?
• Clearly fashion retail TNCs firms from Gucci
  Prada to Gap, Zara and HM important symbols of
  globalizing retail consumer culture
• Have characteristics
• Stronger emphasis on brand brands without
  boundaries
• Smaller format focus/more limited set-up costs
• which have facilitated international expansion
• Seen as suited to
• Lower cost/control marked entry methods
  -licensing/franchising
• Involved in search for economies of replication

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• But significantly smaller in scale than elite
  food general merchandise retail TNCs
• Developmental implications of expansion,
  arguably, not as profound??
• Result by passed slightly in debates on retail
  TNCs
• Pity, as fashion TNCs, include some
  transformative firms (Zara?) and pioneering
  processes reshaping global supply chains
• via fast fashion trends at cutting edge of shift
  from lean to agile supply chains in global
  economy
• via flagship concept store developments at
  cutting edge of reshaping urban consumption
  spaces consumer culture

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• Prada epicentre, Tokyo
• by Herzog de Meuron

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• Louis Vuitton, Tokyo
• by Jun Aoki

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• by Rem Koolhaas

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• Comme de Garçons,
• New York.
• Exterior

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• Comme de Garçons,
• New York.
• Interior Entrance