Importance of the Research Topic
Chinese economy is comprehensively and gradually increasing the challenges of the global retailers’ brand strategies . Before the Chinese economy’s rise the retailers in the US and Europe have had the dominant position in the world and were using China only as a cheap labor market. Nowadays, the country has a comprehensive economical advantage and it is not long until the native Chinese brands will make a decent competition to the major players in the global retail business from the U.S. and Europe. Meanwhile, the Chinese market is far away from saturation and is very attractive for these major players of the global retail industry. In many economic aspects, China has persistently surpassed the well-developed countries, which symbolizes that it started to compete with and challenge the US, Europe and Japan on economic status, weakening their superiority and tremendously influencing their dominant position (Acedo and Casillas, 2010).
Background of China’s global economic superiority
While Chinese economy was fast growing, the world economy has experienced the serious financial downturn twice, precisely 1979 Southeast Financial Downturn and 2007 American Loan Crisis. In course of these world financial recessions, China has not only demonstrated the supremacy and reliability of the socialist market system in the resistance of economic downturn and decline, but has successfully avoided crisis’s negative influence on its economy. Moreover, the country was able to help some other countries, which economies were seriously damaged by the slump, to overcome the unfavorable consequences of the global crisis. China’s open policy and reformative breakthrough of the new economic system and developmental strategies have unquestionably influenced other developing countries and increased the world profits. In addition, the process of risingof the Chinese economy appeared to be a peaceful economic development, which is different from the economic development of many Western countries. Therefore, China has a profound and steadfast influence in respect of a long-term stability in the world economic development (Arnot, 2009).
Being an emerging market with about 1,400 million people, China has become the world-class center of such industries as textile, electron appliances, electric and engineering ones. Moreover, nowadays all these industries sustain the dominant positions in the world. China is a country, where about 30% of the global manufacturing industry is concentrated; in course of such economic growth, it has altered the world industry chain connections enormously, which provided the country with considerable power in the world economic equilibrium. Stimulated Chinese economy had a favorable impact on the well-being of the Chinese people. Simultaneously, the Chinese consumption market grew significantly. It provided the major financial infusion into the Chinese economy from all over the world, and altered the equilibrium of global industry. The economic balance nowadays is shifting the center of entire world economy to Asia (Borgman, 2011).
Along with China’s economic growth, the multinational idea of RMB (Chinese Currency) became not that theoretical. Several countries, particularly China’s close neighbours, have begun to apply RMB in order to conduct the trade business. In December of 2008, the Chinese Central Bank issued an agreement of standard exchange currency within Chinese Hong Kong, South Korean, Indonesia, Malaysia, Argentina, Belarus, Singapore and Iceland. This fact demonstrates that the process of RMB internationalization is speeding up. In the meantime, China and several developing countries have also gained the augmentation of power in the IMF (International Monetary Fund). China and those emerging industrial countries have already had enough power and strength to resist any kind of harmful monetary policy from Europe or the US. Such shifts in the global turnover of money indicate that the power of economic authority does no longer belong to the minority of previous worlds champions, like the US and some European countries. Such changes in the international monetary and finance systems will have further influence on major retailers that have hundreds stores all over the world (Glanzel, 2010).
In the Chinese market, domestic retail chains have prevailing position. However, the major global retailers are expanding swiftly; they have focused their efforts on cities of 2, 3 and 4 rank. The Metro Group with its cash-and-carry format expanded in China by adding 10 more stores to its 52 already existing ones in 2012; moreover, Metro has plan to launch 40 more stores by 2015. Consumer electronics chain, Media Market, is dynamically developing e-commerce business solutions. The shopping malls with multiple entertaining establishments and other different areas of functioning – cinemas, shopping galleries, restaurants, amusement parks, among other attractions - are flourishing in cities with rank 1 and 2. The total number of shopping malls has doubled in the past three years (Borgman, 2011).
China has recently become the world’s largest market for distribution of the luxury goods; the total quantity of sales equals to 12 billion dollars per year. There are more than a hundred active brands, which are rising fast with an average growth level of 30 % for the past three years. Such famous player as Louis Vuitton Mo?t Hennessy (LVMH) has added twenty-seven stores in 2012. For Apple, China is the second major market after the U.S. (Glanzel, 2010).
China is the largest market of Spanish brand group Inditex, which consists of such brands as Zara, Bershka, Stradivarius, Massimo Duty, Pull & Beer, Zara Home and Oysho. Inditex opened 132 stores in 2011 and then 112 more in 2012. In the same 2012, the famous British apparel retailer, Gap, grew its presence in China from 14 stores to 45. Moreover, Gap is also considers introducing it’s another brand, “Banana Republic” to the Chinese market (Glanzel, 2010).
Justification of the Research
Emerging market of China represents a major change in the world competitive landscape — a tendency that will only reinforce, as the country grows in population and economic power, establishes domination and searches for the new business opportunities beyond its traditional domestic and neighboring markets. In particular, China will likely develop in the following directions:
- Emerging Chinese market can become a powerful force in retail on the world arena;
- China’s growing population, welfare, and economic prosperity are increasing the new consumer growth and urbanization. Therefore, there is a necessity to learn the tendency of population and prosperity growth. It helps to predict the percentage of growing consumer demand;
- China takes the third place in the rank of GRDI (Global Retail Development Index). The country’s potential retail growth is positive; it is expected to produce a double-digit increase in the annual sales. However, the rents are growing up 30% every year due to the creeping inflation, as well as labor costs continue to rise by 15% a year (Mannion, 2011).
- China’s market attractiveness for retailers consists of 53,4 % (100 % is maximum of attractiveness), comparatively law risk of failure for retailers 72,6 % (100% is the lowest risk), and 17,4 % of market saturation (100% is completely saturated market). However, the urgency to enter is 100% (Mannion, 2011).
- Regardless of a lot of the successful stories and general attractiveness of the Chinese market, China can be a battlefield for some major retail players, as they struggle with regulations, suppliers and location. For example, during 2012, British retailer B&Q had to close all stores in Nanjing and Qingdao after failing to satisfy sanitation regulations. Another retailer, Korean E-Mart, had to close 10 of its 25 stores, and Wal-Mart had to close three Smart Choice stores in Shenzhen. Therefore, there is a necessity in more extensive and comprehensive research to examine in details all possible advantages and disadvantages of expansion into China (Raan, 2012).
Project’sAim and Objectives
The aim of this research is to examine the China’s market and the readiness of its legal and political conditions to facilitate more rapid expansion of the global retailers. This evaluation will determine the effects and challenges influencing different global retail chains. Identification of the issue in any situation gives the stakeholders an opportunity to create a basis for solving the problem. This will enhance their competitiveness and improve the overall performance. Results will also help marketing specialists in formulating solutions to such problems; thus, creating a basis for an ideal economic environment. Relating the research and literature from different scholars is also among the key aims of the research; this ensures that learners are using the suggested solutions in order to solve their behaviour challenges (Pillania and Fetscherin, 2010).
- To analyse the potential of the native Chinese industries and retail brands in order to assess their chances to successfully compete with the retail giants that have already been present on the global market for decades and have won the dominant position;
- To analyse the readiness of legal and tax policies in China for conducting successful retail business. To define the ways of minimization of an impact of the poor readiness of the legal, tax and political conditions. To determine the sources of other challenges in expanding global brands into China. To define why entering China is so time-sensitive matter;
- To define which strategy of entering China is more real and beneficial for the global retailers: franchising or opening their own retail stores;
- To analyse the necessity of the global retailers to search for the less expansive labour and raw materials markets due to the rising costs on Chinese labour force and raw materials;
- To carry out a literature review on the vital conceptions of marketing strategies of the global retailers in China.
The following data from the reputable sources, such as ISI Web of Knowledge and Questia.com databases is used in the course of the research. Reviewing the literature, a lot of studies that examined international marketing strategies of the global retailer chains were found. Nevertheless, quantitative and statistical data is majorly limited by the general information. Initially, the literature from a diverse newspaper articles, academic journals, and books was used. The following sources offer an extensive data on the world expansion and, particularly, in China, of such apparel retailers as Inditex, GAP and Benetton: White and McCain, 2009; Winters, 2012; Shuxun and Wolf, 2009. The following books offer an interesting and relevant data on the leading food retailers’ expansion into China: Glanzel, 2010; Pasadeos, Renfro and Hanily, 2011. Expansion strategy of Metro is described in the book by Reeves and Borgman dated 2011. The leading tendency of the global retailers is described in a literature source that is written by Arnott in 2009. Global advertising and promotion strategies are outlined in a source that was written by Kim and McMillan in 2009. In a literary source by Acedo and Casillas from 2010 there is a lot of data and other useful information about international management. International businesses are thoroughly described in the book by Pillania and Fetscherin, which was published in 2010. The book “International Franchising in Emerging Markets: China and Other Asian countries”, written by Diana Elsh and Ilan Alon, comprises the comprehensive information about the advantages and disadvantages of franchising expansion into China.
Literature Review is based on the assumption that the researchers publish their most recent important findings in scholarly journal articles and base their research predominantly on other previously published materials (Van Raan, 2012). The analysis of paper written by Kim and McMillan in 2009 showed that the global retailers will have to move their production from China to other countries with less expensive labour force and raw materials. The publications of Peng et al. from 2010 and Quer et al. from 2012 help to identify the brands’ strategies and centres of global influence, as well as “map out” the most important research directions.
The following framework of possible strategies was identified from the literature review:
- The global retail brands can expand their presence in China through franchising or opening their own stores;
- The global retail brands have to strengthen their position under the threat of potential globalization of Chinese native brands;
- The global retailers have to search for the less expensive labour and raw materials markets due to the rising costs of the Chinese labour force and raw materials. The global retailers will potentially have to move their production to such countries, as Vietnam or various African countries, where the labour force and raw materials are still comperatively inexpensive.
Data for the research was gathered in November 2012 from ISI Web of Knowledge and the Questia.com databases. It comprises data and information on journal, newspapers, and online articles and books written only in English. The publications that were considered valuable for the research had to be published over the period from 2009 to 2012. The starting point for the research is the first year after the world financial crisis of 2008. From this period it has already been obvious that the integration of China’s economy into the global economy was essential. The paper will review 15 scholarly sources of literature, related directly to the research. However, it does not constitute a complete and comprehensive review of the examined theme due to the extremely wide range of all kinds of studies, theories and literature, as well as impossibility to review them all.
In order to gather more complete and comprehensive data, the four step approach is used:
First, the publications, articles and books have to be searched according to the topic including a combination of the key words. They are: China, retail, retail chain, Asia, China emergency, strategies of the global retailers, economic dominance, emerging economies;
Second, after gathering the relevant information, all articles have to be examined to extract the necessary information. In research, the two types of information were used: quantitative and qualitative. Quantitative data is represented by statistics that was gathered and prepared by the authoritative agencies, whereas qualitative data is represented by observations;
Third, to assess the quality of these sources a comparative analysis of gathered information according to its content in order to “cross-check” whether the selected literature is appropriate for analysis was used. 19 articles and 12 books that dealt with China in general, with emerging economies, other than Chinese, and global strategies of expansion, other than retail industry were excluded. As a result, 15 relevant literature sources were identified.
For each article and book the information was gathered on article title, book title, author’s name or names of multiple authors, as well as name of journal, volume number, edition number, and publisher.