The Study of International Hypermarket Retailer's Market Expansion Strategy in China

CHAPTER 1 INTRODUCTION

1.1 Background

Since China's enter into WTO and 100% releasing the restriction on foreign retailer, the China retailing market witnessed unprecedented fast development as well as fierce competition. The global retailer giants had been playing very aggressive role and introduced brand new retailing system and management concept to the market. In recent 10 years international retailers have gradually acquired some dominant place in some major market and channels through in-depth expansion that brought tremendous threats and forces to China local retailers. The recent world economic crisis and consequent declining domestic consumption in developed countries urged the multinational retailers to strengthen their focus on emerging market, China is no doubt in the top list. According to the global management consulting firm A.T Kearney, China went back to the top of Year 2010's Global Retail Development Index (GRDI) for the first time since 2002 (see appendix 1), this means China is still the most attractive retailing market in all emerging countries. Lured by the huge market potential and rising domestic consumption ability, more and more new comers are eager to enter China. However, not everyone has successful and smooth way in China, nowadays even those successful former entrants such as Carrefour, Wal-Mart, Metro etc. who had tasted " fruits " of the fast growing market are encountering more challenges than ever, such as market saturation in 1st and 2nd tier cites, rising cost, more stiffer competition and counterattack from international and local rivals.

1.2 Problem Definition and Objectives

In the thesis, I would like to conduct study and analysis of the evolution of the foreign hypermarket retailers' market expansion strategy in China since their first entry to China market and then explore key successful factors and lessons of those retailers as well as the profound impacts on China retail market. As the most typical and influential representative, grocery hypermarket will be the only focus in the thesis. The major reasons for choosing this format are:

1. Hypermarket is one of the earliest-entry foreign retailer format with long history in China

2. The business of hypermarket was directly related to the livelihood of the people

3. The foreign hypermarket retailers exerted most profound influence on transformation of China Retail market

4. The Foreign retailers had leading position in the hypermarket retail market

5. There are most fierce competition in the hypermarket retail marekt

Through the study and analysis of the market expansion strategy of case companies in the thesis, I would like to find the common and differentiated underlying factors that drove these companies' quick and successful development in China market, meanwhile investigate what challenges and pitfalls they have ever encountered, and what's the future strategic trend facing the more and more severe competition and challenging environment. Given the fact that the international retailers' development did influence and push Chinese retail market's development and transformation so deeply, the study of their market expansion strategy will must provide practical and insightful meaning to both local and new join foreign retail companies.

1.3 Thesis Structure

To make the thesis more logically and well-organized, I will follow the below thesis structure:

CHAPTER 2 THEORETICAL FRAMEWORK

2.1 The General, Industry and Market Environment

The retail industry is a sector of the economy that is comprised of individuals and companies engaged in the selling of finished products or services to end user consumers. Retailing comes from an old tradition is rooted in the social fabric. Retail comes from the Old French word retaillier , which means " to cut off, clip, pare, divide", this refers to one of the fundamental retailing activities which is to buy in larger quantities and sell on in smaller quantities. However, with long history evolution, modern retailing have extended for more than that, retailing now is a very complicated system which involves whole supply chain through manufacturing, distribution, marketing to final end customers service. As directly linked with daily livelihood of the people, retailing activity has been considered as a significant contributor to the whole economy in general. In the last two decades of the 20's century, most of developed countries such as UK and US have witnessed the big economies change from being manufacturing-led to being service led, it terms of wealth creation, employment and investment (S.C Bhatia, 2008, P5). The retail industry's development is a good example of it. The retail price index (CPI) is frequently now considered as one of key economic indicators. As well as making a significant contribution to the economy, the retailers has played quite important role in our personal and social life. "From a very early age we are introduced to shopping environments and they became familiar and comfortable places in which to spend time. As we get older we use shops as reference points when learning about the world and its opportunities", S.C Bhatia described the close linkage between our life with retailers in his book.

Nowadays, retailing is increasing a global business. A more structured retail industry with more multiple retailers is a sign that an economy is developing, as organizations specialize and gain economies of scale. Among this, emerging markets becomes a real (although highly complex) opportunity for matured retailers, particularly if they are encountered with high levels of retail provision and therefore strong competition in their traditional and home markets. Then how to set up a strategic entry and expansion plan for the emerging markets must be the 1st consideration of the retailers. First of all, they need to understand their external and internal environments. (see Figure 2.1.1)

2.1.1 Retail External Environmental Analysis

Retailing external environment can be categorized into two

sub-environments: Macro Environment and Market Environment

Macro