Chinese retail: global or local?

Internationalisation is not a simple process as supermarket chains Carrefour and Wal-Mart have found in China.

China is a magnet for ambitious Western supermarket Chains with an annual growth rate of 13 percent a year.The Chinese market is predicted by Business Monitor International to grow in value by $1.2 (~ 0.84) trn between 2009 and 2014.520 million people are expected to join the Chinese upper middle class by 2025.

Two leading Western companies in the Chinese retail market are French supermarket chain Carrefour and the world's largest retailer, the American Wal-Mart.The two companies have had very different strategies.French supermarket chain Carrefour was the first to enter the Chinese market in a substantial fashion, entering in 1995, after six years' experience in neighbouring Taiwan.Carrefour is following a decentralized strategy except in Shanghai where it has several stores.Carrefour allows its local store managers, scattered across the many different regions of China, to make their own purchasing and supply decisions.By 2009, Carrefour was the fifth largest retailer in China, though this meant only 0.6% overall market share.Wal-mart was close behind with 0.5% share.Wal-Mart's initial approach had been based on its standard centralised purchasing and distribution strategy supplying as much as it can from its new state of the art distribution centre in Shenzen.In 2009 however, Wal-Mart experimented with a smaller-scale local store format which it intends to roll out nationally.It is also integrating the Chinese operations of a budget Taiwanese retailer.

One early discovery for Wal-Mart was that Chinese consumers prefer frequent shopping trips buying small quantities each time.While Wal-Mart assumed the Chinese consumers would drive to out-of-town stores and fill their cars with large frozen multi-packs on a once-a-week shop like Americans, in fact Chinese customers would break open the multi-packs to take just the smaller quantities they required.Now Wal-Mart supplies more of its frozen foods loose, offering customers a scoop so they can take exactly the amount they want.Wal-Mart also now allows trade unions into its stores, in marked contrast to its policy in the rest of the world.

Another discovery for Western retailers is the amount of regional variation in this vast and multi ethnic country.In the north of China, soya sauces are important, in Central China, chilli pepper sauces are required, in the south, it is oyster sauces that matter.For fruit, northeners must have dates; southerners want lychees. In the north the cold means more demand for red meat and because customers are wearing layers of clothing, wider store aisles.Northerners don't have much access to hot water so they wash their hair less frequently, meaning that small sachets of shampoo sell better that large bottles.And unlike other Chinese, apparently the citizens of Zhejiang province like their toilet paper as rough as sand paper.

The growth of companies such as Carrefour and Wal-Mart demonstrates that there is a substantial market for the Western retail model.Carrefour, for example, was a pioneer of 'private label' goods in China, while Wal-Mart brings logistical expertise. But progress has been slow and Chinese companies such as market-leader COME have imitated.Wal-Mart has yet to make a profit in China; Carrefour finally is, but its 2-3% margins are significantly below the nearly 5% margins it enjoys in France. In 2008, Carrefour suffered from a Chinese boycott after Parisian protest over Tibet associated with the Beijing Olympics and in 2009. Carrefour was obliged to deny that it was considering leaving China.

Sources: Financial Times, Wall Street Journal and Euromonitor (various)

Required:

Identify and discuss the different China strategies pursued by Carreflour and Wal-mart in China.