Foreign Retail Divestment From China A Multi-Case Study

Master Thesis
FOREIGN RETAIL DIVESTMENT FROM

CHINA: A MULTI-CASE STUDY
by
Student No.:
supervised by
Prof. Dr. Dirk Morschett

Chair for International Management
Fribourg, September 1, 2020

Table of Contents I
Table of Contents
List of Abbreviations.....................................................................................................IV
List of Tables.................................................................................................................V
List of Figures...............................................................................................................VI
1. Introduction................................................................................................................1
1.1. Chapter Overview...................................................................................................1
1.2. Contextual Background and Research Motivation.................................................1
1.3. Research Aim and Research Objectives...............................................................3
1.4. Thesis Structure.....................................................................................................4
1.5. Chapter Summary..................................................................................................4
2. Literature Review.......................................................................................................6
2.1. Chapter Overview...................................................................................................6
2.2. Internationalization.................................................................................................6
2.2.1. Uppsala Model..............................................................................................7
2.2.2. Transaction Cost Theory...............................................................................8
2.2.3. Network Theory.............................................................................................8
2.2.4. International Product Life-Cycle Theory.......................................................9
2.3. International Retail Divestment............................................................................10
2.4. An Overview of Chinese Economy.......................................................................13
2.5. Chapter Summary................................................................................................16
3. Theoretical Background of Variables......................................................................18
3.1. Chapter Overview.................................................................................................18
3.2. Internal Factors.....................................................................................................18
3.2.1. Parent Company’s Financial Health...........................................................18
3.2.2. Parent Company’s Leadership and Management......................................19
3.2.3. Market Entry Strategy & Ownership...........................................................22
3.3. External Factors...................................................................................................24
3.3.1. Cultural Distance.........................................................................................24
3.3.2. Economic Condition and Institutional Environment....................................26
3.3.3. Labor Cost...................................................................................................28
3.3.4. Competition.................................................................................................29
Table of Contents II
3.4. Conceptual Framework........................................................................................30

3.5. Chapter Summary................................................................................................30
4. Methodology............................................................................................................32
4.2. Philosophy of Science..........................................................................................32
4.3. Research Method.................................................................................................32
4.4. Case Study...........................................................................................................33
4.5. Multiple Case Studies Method..............................................................................34
4.6. Research Ethics...................................................................................................36
4.7. Chapter Summary................................................................................................37
5. Analysis of case studies..........................................................................................38
5.2. Retail Sector in China...........................................................................................38
5.3. External Factors...................................................................................................41
5.3.1. Cultural Distance.........................................................................................41
5.3.2. Competition.................................................................................................45
5.4. Internal Factors.....................................................................................................49
5.4.1. Parent Company’s Leadership and Management......................................49
5.4.2. Market Entry Strategy & Ownership...........................................................52
5.5. Discussion............................................................................................................53
5.6. Chapter Summary................................................................................................55
6. Conclusion and Recommendations........................................................................56
6.2. Theoretical Implications........................................................................................56
6.3. Managerial Implications........................................................................................57
6.4. Limitations and Future Improvements..................................................................63
6.5. Chapter Summary................................................................................................64
Bibliography.................................................................................................................66
List of Abbreviations/Tables and Figures III
List of Abbreviations
FDI Foreign Direct Investment
JV Joint Venture
M&A Merger & Acquisition
MNC Multinational Corporation
GDP Gross Domestic Product
FLE Frontline Service Employee
WB World Bank
List of Abbreviations/Tables and Figures IV
List of Tables
List of Figures
Introduction 1
1. Introduction
1.1. Chapter Overview
The goal of this introductory chapter is to set the sense for carrying out this thesis
study. In particular, it describes the focal subject of retail divestment within the
Chinese retail context to highlight the calling for the state-of-the-art knowledge of this
research topic from this particular market. This knowledge need is situated within the
extant scholarly marketing literature in order to indicate the research gap, attracting
the readers’ interest in exploring this topic. In response to this highlighted knowledge
paucity, the overall aim of this present thesis and the associated research objectives
are formulated clearly and explicitly to state what are to be accomplished in the end
of this thesis paper. This chapter also provides an outline for the remaining chapter
units.
1.2. Contextual Background and Research Motivation
Since the turn of the new century, the global retail sector has been emerging thanks
to the economic integration, reduction in trade barriers, globalization, rise of global
consumer segment, and the Internet booming. As a result, international retail
activities have been expanded and integrated rapidly on a global scale
(Yoder/Visich/Rustambekov 2016, p. 234). As a result of this tendency, many
Western retailers from the US and Europe have quickly occupied the global space by
increasingly adopting international expansion as a strategic movement to seize new
business opportunities presented by new lucrative foreign markets as well as to cope
with the saturation in the domestic market. Prominent goals for this strategic
movement could include improving sales and profit, avoiding hypercompetitive or
saturated home market, seeking new opportunities, gaining economies of scale
through global sourcing, and transferring know-how (Yoder/Visich/Rustambekov
2016, p. 233).
On the flipped side of the coin, although international activities have been expanded
remarkably over the past decades, this trend is also associated with a significant
amount of risk and therefore not all international expansions are successful as many
retailers have failed when operating internationally (Yoder/Visich/Rustambekov 2016,
p. 234). Retail divestment, which is expressed through different forms such as
closure of stores, early termination of business contract/agreement/franchising, or
market withdrawal (Alexander/Quinn/Cairns, 2005, p. 11), is increasingly being
reported as a growing phenomenon in the international retail landscape. In
academia, while literature in the discipline of retail internationalization has been well
established, foreign divestment has been an interesting topic that gains a lot of
Introduction 2
attention from both management scholars and practitioners (e.g. managers,

shareholders) as an emerging direction for understanding the contemporary
internationalization process. In the reality, international retail divestment can take
different forms, from store disposal to full market exist in a single market or in all
foreign markets. Therefore, this divestment within international retailing is perceived
to be a single continuum that ranges from large-scale divestment activities like full
withdrawal to subtle and informal forms (Palmer/Quinn 2007, p. 27).
Blending different methods, from systematic review, empirical method to case

analysis, researchers have addressed both negative and positive sides of the
emerging topic of international retail divestment through different perspectives. In
general, there are the two opposite schools regarding international retail divestment.
The first and traditional school supports the idea that divestment reflects a failure
when expanding business activities overseas. For example, Boddewyn (1979, p.352)
stated that divestment is caused by the lack of necessary conditions for foreign direct
investment (FDI) to be taken place whilst Burt/Dawson/Sparks (2003, p. 366-369)
suggests that divestment be an accumulated consequence of failures, including
market failure, competitive failure, organizational failure and business failure.
Additionally, Burt et al. (2002, p. 213), through the case study of Marks and Spencer,
pointed to the that divestment of this focal company in the US, Japan and European
markets is driven by management failure as the team did not take enough efforts to
understand local taste and cultural characteristics and hence failed to transfer the
company’s competitive strength in a cross-border environment.
On the contrary, the second and more contemporary academic school views
divestment as a strategic step toward redistributing the wealth and resources of the
parent company from poorly performing areas to more lucrative and promising areas.
This perspective is actually supported by many researchers, for example, Palmer
2004 (p. 1096) indicated that Tesco’s divestments in Three Guys, Ireland in 1986,
and Catteau, in France 1997, help this British retailer to redistribute its resources
aimed at supplementing its home market expansion and moving resources to
emerging markets where have more favorable conditions. Another instance in this
regard is the study of Xie/Ma/Lu 2016 (p. 2000), who recognized business exit as a
proactive step to grab new opportunities and to stay competitively in a global highly
competitive market. Likewise, Balto (2001, p. 40) investigated divestment in the UK
retail sector and revealed that Ahold, a Dutch multinational retailer, acquired the full
ownership of the online grocer Peapod in order to divest all horizontal market
overlaps which are regarded to be anti-competitive to comply with the US Federal
Trade Commission (FTC) regulations. This divestment through acquisition actually
opens up new investment opportunities in the US, and in this case, divestment
Introduction 3
activity is not an international failure, but it is a strategic part of expansion. Similary,

Fisch/Zschoche (2012, p. 806) stated that the decision to divest a foreign operation
could be driven by the rising and uncertain labor cost in that foreign market, thus
divestment is indeed shifting the production to new locations where labor cost is
cheaper.
Regardless of the different perspectives on divestment, it is undeniable that prior

divestment cases give valuable lessons to retailers which want to transfer their
business to foreign countries or engage in cross-border activities. Even if divestment
is perceived as a failure, lessons from such failures can help prevent investors from
repeating the same mistakes in future similar international expansions. Therefore, in
an attempt to generate a relevant knowledge of divestment with both positive and
negative aspects, this thesis paper is conducted so as to gain a comprehensive
understanding of the foreign divestment process as well as its associated driving
factors through using special case studies in China. Divestment in China is worth
investigating because, as the most emerging and promosing country, many Western
famous retail brand names entered this world’s biggest retail market but then quickly
existed and failed to maintain their business presence here such as UK-based
Tesco, France-based Carrefour, Dutch-based Ahold, or US-based Home Depot,
making this country become an ideal destination for exploring the topic of
international retail divestment. Indeed, although several previous studies have been
done in China with regard to divestment in retail setting, the results remain mixed and
inconsistency as well as contradictory, this present study thus provides a fresh
perspective on this focal research topic by shifting from domestic domain to
international domain. Furthermore, divestment-driving factors in retail context are, on
the one hand, examined disjointedly without a holistic view and, on the other hand,
mainly derived from manufacturing literature (Burt et al 2002, p.195), and the impacts
of such explanatory factors up to now are mostly discussed from a theoretical point of
view without a realistic component and the results are also mixed and contradictory.
Hence, this study addresses this theory-practice gap by making a highly practical
contribution to understanding divestment in international retail market through
comprehensively assessing divestment-driving forces using real-world case studies
in China.
1.3. Research Aim and Research Objectives
In line with the key research problem spotted formerly, the major aim of this thesis
paper is to investigate the practice of international divestment in the Chinese retail
sector. More specifically, this present study focuses on gaining empirical evidence in
order to achieve the following four particular research objectives:
Introduction 4
To examine the overall picture of international divestment within the context of

Chinese retail market.
To identify important factors that could account for international retail divestment
within this country.
To understand the impact of political, socio-cultural and institutional factors on

international retail divestment in China.
To provide managerial suggestions that can be insightfully useful and relevant to the
contemporary business practice in the global retail industry amid the COVID-19.
1.4. Thesis Structure
As stated, the major goal of chapter One is to establish the tone for this thesis
research as well as to formulate the specific research objectives, and the rest of this
paper is organized into the five consecutive chapters to help reach these objectives.
Chapter Two will cover the theoretical background of this research topic by
systematically reviewing the concept of internationalization and internationalization
theories as well as theorizing the term international divestment in the context of
retailing based on the existing body of marketing literature. An overview of China and
the retail industry within this nation will also be provided in chapter Two. Next,
chapter Three shall critically analyze and examine a number of possible internal and
external sources that theoretically could lead to international retail divestment.
Subsequently, chapter Four will address the methodology for undertaking this
empirical thesis study. Given the exploratory nature, the use of qualitative method,
shall be explained and justified carefully, in particular, multiple case study method will
be implemented in line with this qualitative nature. Subsequently, chapter Five will
focus on analyzing several case studies of retail divestment in China, linking these
real-life cases (e.g. Walmart) to the potential failure factors as reviewed in chapter
Three for discussion. Finally, chapter Six will wrap this thesis paper up by giving
implications for both theory and practice, thereby contributions to the extant
scholarship in international retail domain and practical recommendations for retailers
and marketers shall be highlighted within this last chapter. In the end, a handful of
limitations will also be acknowledged in conjunction with corresponding directions for
future research.
1.5. Chapter Summary
This initial chapter unit has established a sense of this study in order to help the
general readers understand the rationale behind conducting this empirical study.
Thereby, the retail context of Chinese market has been described in accordance with
Introduction 5
a large number of international retail divestments in this particular country,

highlighting the need for a comprehensive understanding of this phenomenal growth
within this specific market. Subsequently, associated research objectives have been
formulated to assist the readers to follow-up this thesis report. In the end, the
organization for the remaining chapters have also been outlined. In the ensuing
chapter, the literature related to internationalization and international divestment will
be systematically reviewed.
Literature Review 6
2. Literature Review
This second chapter is particularly focused on reviewing the literature underpinnings
under this current research. Specifically, as the focal interest, the general concepts of
internationalization and especially divestment in the retail setting are first
comprehensively reviewed from an international point of view so as to provide a full
understanding of these terms. At the same time, an overview of China and its
economy is also discussed in this chapter to help the readers understand business
and institutional characteristics of this country, building a theoretical base prior to
moving to the following chapters.
2.2. Internationalization
Figure 1: International Expansion Strategies
Source: Claver/Rienda/Quer (2007, p. 4)

Rapid technological change, Internet booming, increased travelling, higher demand
for knowledge sharing, and need for new business opportunities have become
important factors to drive the internationalization process in the 21st century
(Briscoe/Hall/Mayrhofer 2012, p. 72). By definition, internationalization is the process
of increasing the presence of business operating activities in foreign markets
Literature Review 7
(Welch/Luostarinen 1988, pp. 36). As can be seen above, Figure 1 depicts different
market entry strategies in the internationalization process, such as joint venture, own
subsidiary, strategic agreement or exporting. What can be inferred from this figure is
that there exists a trade-off between risk and control when selecting a market entry
mode, thereby risky entry offers a high degree of control and vice versa. In relation to
this, international business literature provides different theories to help explain the
rationale for choosing these entry modes. For the purpose of this current study, the
four primary theories are reviewed: Uppsala theory, transaction cost theory, network
model, and international product life-cycle theory.
2.2.1. Uppsala Model
The Uppsala model is a fundamental theory in international business, which
emphasizes the importance of market knowledge in successfully expanding into a
new overseas market, meaning that firms are more likely to succeed in a new foreign
market if they have previously acquired knowledge from similar markets (Forsgren,
2002, p. 262). This Uppsala theory explains firms’ propensity for international
expansion based on their base of knowledge gained, thereby, to enter a new market,
firms have to gain both general and specific knowledge about that market and
because firms less likely want to experience risks due to the lack of market
knowledge, most of them are prone to choose “close” markets in terms of proximity.
This geographically close choice is often associated with low-risk entry models such
as export or licensing (Hollensen 2008, p. 102). As a matter of fact, market
knowledge is an essential factor that significantly contributes to the entry decision,
firms with great market knowledge are therefore more committed to that foreign
market (Danciu, 2012, p. 33). In other words, MNCs usually select highly controlled
market entry strategies like acquisition or subsidiary (e.g. controlling for know-how,
strategic alignment, workforce) if the companies have obtained operational
experience in the prior international markets to allow them to manage high level of
risks effectively whereas multinationals often opt for low-control market modes like
exporting if they are not confident about their knowledge base of the host market,
reflecting a signal of market knowledge lacking according to this Uppsala theory
(Blomstermo/Deo Sharma/Sallis 2006, p. 213).
2.2.2. Transaction Cost Theory

Transaction cost theory is another primary theory within international business
domain that explains the process of internationalization through incurred operational
cost in the new foreign market, this cost consists of both implicit expense and explicit
expense for the international market (Contractor 2007, p 456). According to this
theory, the decision to enter a new market (and withdraw from that market) is reliant
on the rational perception of minimizing all related costs in a new market as much as
possible. In other words, companies enter foreign markets to reduce their transaction
Literature Review 8
costs relative to the home market. This perception of transaction cost also affects the
strategic entry choice (Donaldson/O`Toole, 2007, p. 216). For instance, if firms see
that the transaction cost in operating in a new international market is relatively lower
than that in the home market, joint venture or acquisition is preferred while if a
greater transaction cost is recognized for the new market, simpler entry modes like
exporting or licensing will be considered (Hollensen 2008, p. 123).
2.2.3. Network Theory
Network model is also an important theoretical framework that could explain the
process of internationalization through focal firm-related business network, which can
be formal or informal and can link firms’ international resources and activities
together (Sullivan Mort/Weerawardena 2006, p. 561). Under the view of this network
theory, market is a system or network of different players, including firms,
competitors, distributers, suppliers and consumers, therefore the decision to
internationalize business should not be made on the stand-alone basis of the
company itself but rather must be contingent upon these market parties
(Coviello/Munro 1995, p. 52). This also means that the entry market strategy is driven
by the relationship with other market participants given the interdependent
relationship between market players from the standpoint of network theory, and the
magnitude of this interdependence is salient over the time when the interaction
between market parties is enhanced. Importantly, Glückler (2006, p. 372) held the
idea that this relational network is of more significance than other indicators like
economic condition or cultural factors for a successful expansion, this is due to the
assumption that enterprises can gain market knowledge and get resources from its
relational participants like local suppliers before entering an international market.
However, on the downside, the increased level of interdependence in using
resources for internationalization is also often associated with the rising number of
participants in the network, which could lead to possible conflicts and different views
on using the resources (Forsgren 2016, p. 1139). Drawing upon this network theory,
exporting can be considered to be one of the simplest market entry strategies with
low risk cum low control due to the fact that exporting activity is strongly dependent
on logistics network in the host country
2.2.4. International Product Life-Cycle Theory
The final fundamental theory in internationalization is the international product-life
cycle theory, which helps to explain the process of internationalization in accordance
with different stages in the cycle life of a product, thereby a commercial product
should undergo the three consecutive stages in its life cycle: introduction, growth,
and maturity (Sikorski/Menkhoff 2000, p. 7). This sequece of internationalizing a
product is associated with the product life cycle as an underlying theory in marketing
discipline as being shown in Figure 2 below.
Figure 2: International Product Life Cycle
Literature Review 9
Source: Gao/Tisdell (2005, p. 41)

In the initial phase of introduction, the new product is mainly commercialized within
the domestic (home) market where it is made. Over a certain period of time, when
the product becomes more popular in the home market, it will be exported to other
foreign similar markets (Cao/Folan 2011, p. 650). Firms have to engage in mainly
exporting entry mode during this phase till they acquire sufficient market knowledge
in order to shift toward higher involved strategies. In the second phase of the life
cycle, when the demand for the imported product in the overseas markets becomes
high, multinationals will change to more involved strategies like greenfield or wholly
owned subsidiary through building a new factory to better meet this increased
demand of local consumers (Cao/Folan 2011, p. 650). At this stage, companies must
make the choice between standardization strategy for all foreign markets or
adaptation strategy to localize some elements of its product in each single foreign
market. In the final phase, the demand for company’s product in the major
international markets is going to be saturated, the profit margin declines and
companies have to think of the manufacturing cost (Cao/Folan 2011, p. 651).
Therefore, the production plant is usually moved to developing markets where have
cheaper labor and material costs to reduce the total production cost. The product
made at these developing markets will then be exported back to the previous more
developed markets in the second stage (Sikorski/Menkhoff 2000, p. 9). In sum, under
this international product-life cycle theory, the transformation from former stage to
latter stage helps companies lower cost and enhance their market knowledge.
Literature Review 10
Therefore, the knowledge gap between developed and developing markets is

decreased over the time.
2.3. International Retail Divestment
In parallel with the rapid expansion of international retail activities in the early 1990s,
big retail companies have been under an increased pressure to deal with divestment
as part of their corporate strategy (Cairns et al. 2008, p. 111). Retail divestment has
therefore recently gained a particular intention among scholars in the discipline of
international retail business. Many related terms are used to refer to divestment in
retailing such as divestiture, divesture, disinvestment or de-internalization. What is
more, while divestment research has been dominated by divestment activities for
manufacturers, similar research in service industry, particularly in retail sector,
remains largely under-investigated and limited (Cairns et al. 2008, p. 111), indicating
an extant literature paucity in relation to international retail divestment.
Benito/Welch (1997, p. 9) conceptualized international divestment as “voluntary or
forced actions that reduce a company’s engagement in or exposure to cross-border
activities”, this implies that divestment can be voluntary or involuntary. Meanwhile,
Wrigley/Currah (2003, p. 235) defined divestment as “de-internationalization” or
exist/withdrawal from one market or several regional markets at the same time.
Benito (1997b, p. 309) in this regard stated that since the exit is often seen as an
admission of failure, firms tend to treat divestiture in a secret way, making studying
divestment in retail sector more challenging than investment research. In fact, since
the existing literature within the discipline of international retailing has mainly dealt
with investment instead of divestment, a conventional way to build international retail
divestment literature is considered international divestment process is the opposite of
the international investment process (Alexander/Quinn 2002, p.112). For example, in
the early days, Boddewyn (1983, p. 346) developed a so-called foreign direct
divestment as opposed to foreign direct divestment. The author relied on the Porter’s
analysis of barriers to exit from industry-organization relation and on Vernon’s decline
phase of international product lifecycle to conceptualize foreign direct divestment as
the voluntary deliberate decline or removal of actively controlled overseas
subsidiaries/branches via liquidation or sale, which infers that the absence of FDI
factors can be regarded as an account of foreign direct divestment. However, this
approach is questioned if considering international divestment is just the withdrawal
of all factors required for an international investment because additional components
must be taken into account in addition to mutual factors shared by international
investment (Duhaime/Grant 1984, p. 303).
Burt/Dawson/Sparks (2003, p. 358) defined divestment as “the process of resource
allocation that reduces presence in a foreign market”, which can take different forms
associated with different levels of magnitude: closure of trading units, organizational
restructuring, market exit. Closure refers to channel/distribution level by closing
several retail units in the foreign market, it might not necessarily mean it completely
withdraws from the foreign market but can just be related to decreased intensity of
distribution network (Burt/Dawson/Sparks 2003, p. 358). Organizational restructuring
refers to altering the resources at corporate level, meaning that the trading in foreign
market will continue through a different organizational form that normally involves
less resources (Burt/Dawson/Sparks 2003, p. 358). Exit is equal to a complete
withdrawal from an overseas market to permanently cease its operational presence,
which could be done by selling assets or bankruptcy (Burt/Dawson/Sparks 2003, p.
358). Importantly, Burt/Dawson/Sparks (2003, p. 356) emphasized that while prior
literature in international business is focused on success of investment, one should
not always interpret divestment as a failure of investment (i.e. unanticipated under-
performance that results in operational losses in some or all of the trading units in a
foreign market). This view is consistent with the above argument that divestment and
investment are not two completely inversed processes. Indeed, it should be
recognized the fact that retailers sometimes reallocate their operational activities
from one country to another country (e.g. to reduce labor cost), and this divestment
associated with reallocating resources actually does not result in losses.
In a broader picture, the extant literature mainly provides two different perspectives
on the subject of the impact of divestment on the multinational retailer. In fact,
divestment can be seen from an aggressive or proactive perspective and reactive
perspective. A scholarly branch of researchers interpret divestment unfavorably,
which is viewed as an investment failure that distracts the company from its core
business and obviously weakens firm’s financial health (Burt et al. 2002, p. 192).
Burt/Coe/Davies (2019, pp. 178) regarded international retail divestment as a failure
or unexpected underperformance that is driven by the four inter-related causes. The
first is market failure, thereby the foreign market performs under initial expectations
of growth, thus profit goal is unmet. Macro changes (e.g. political and economic
conditions, social-regulatory factors) account for this market failure. The second is
competitive failure when the local players compete more strongly than initially
projected or when the performance is incongruent with the competitive level of the
local market. The third is operational failure which refers to the transfer of business
model and the way the unit operates but the transferred managerial skills and
knowledge are unsuitable for the host market environment. The fourth is business
failure when the divestment decision is made due to the changes within the wider
parental organization such as restructuring, or stakeholder’s new expectations. In line
with this scholarship, from a reactive point of view, the unit in the host country is
divested due to the situational and market changes that impede its competitiveness
and performance (Grunberg 1981, p. 14), this reactive perspective is consistent with
considering divestment to be a failure.
As opposed to the above scholarship, another branch of scholars looks at the

phenomenon of divestment in a positive manner as a tactical or strategic movement
to contribute to the firm valuation through proactively redistributing its resources
(Palmer 2004, p. 1096; Xie/Ma/Lu 2016, p. 2000). This is clearly stated as “Changing
corporate strategies, alternative opportunities and changes to resource availability
determine the shape and geographical location of activities and affect the nature of
the international investment and divestment process” (Burt/Dawson/Sparks 2004, p.
484). This is aligned with the aggressive perspective that considers divestment not a
passive response to market changes but rather parental companies could predict the
difficulties in the current foreign market and thus take a strategic approach to
reallocate resources and relocate operation in a new destination that is more
promising and/or cost-effective than the current market (Grunberg 1981, p. 14).
Similarly, Alexander/Quinn (2002, p.121) stated that “it is easier to divest
international operations than it is for an international company to divest domestic
operations when trading conditions are poor”, meaning that divestment could
sometimes be taken place because of strategic goals as analyzed formerly. Cairns et
al. (2010, p. 28) expanded this point by emphasizing the positive restructuring of
divestment to renew business format to adapt to the environmental changes.
Particularly, Palmer (2004, p. 1083) categorized the four “pro-active” patterns of
restructuring: financial restructuring to respond to shareholders’ new expectations;
portfolio restructuring stemming from merger and acquisition activities; organizational
restructuring as a result of changes in corporate structure, and spatial restructuring
due to change in geographical location or spectrum of operations.
Overall, those conflicting and inconsistent academic schools highlight the fact that
international retail divestment is an ongoing debating area of research that is worth
further investigating. Also, it appears too simplistic to assume that domestic
divestment and international divestment undergo an identical process although the
former could be a good starting point for viewing the international divestment
(Alexander/Quinn 2002, p.112). As a consequence, literature for domestic retail
divestment should be used to refer to that for international retail divestment with a
caution.
In addition to understanding the nature of divestment, understanding the process of
divestment is of significance for practitioners. From the processing standpoint,
divestment should be initially activated by the decision to divest, this decision is then
followed by the engagement in the process. Eventually, the disengagement shall
shape an influence on the performance of parent company that made the divestment
decision. Therefore, an international divestment process consists of the three basic
consecutive phases: Decision, Process, and Effect. The initial stage of decision is
affected by a number of variables: conditions, motives and precipitating
circumstances (Alexander/Quinn 2002, p.114). Conditions include factors that are
related to the parent’s firm itself like its financial strength, interdependency with unit
(subsidiary), return on equity (ROE), and managerial attachment (Duhaime/Grant
1984, p. 304). Motives can be classified into defensive motives that refer to long-term
issues which require a lot of managerial time such as outdated equipment, and
aggressive motives as strategic change to take new opportunities such as
transferring resources to a different marketplace (Alexander/Quinn 2002, p.115).
Meanwhile, precipitating circumstances put the above conditions and motives in a
particular period of time such as during economic recession (Alexander/Quinn 2002,
p.115). The next phase is Process that involves: specific steps to be taken;
timeframe that should be planned; and type of divestment (Alexander/Quinn 2002,
p.116). The final phase is Effect, which mainly addresses the influence of divestment
on different financial measures and indicators of the parent’s multinational
(Alexander/Quinn 2002, p.116).
2.4. An Overview of Chinese Economy
Prior to analyzing the Chinese retail market, it is relevant to first have an overview of
the economy of China. Since opening the market and pursuing trade-oriented
economic pattern, Chinese economy has significantly grown to become the worlds‘
most emerging economy. Figure 3 illustrates the rapidly expanding volume of the
gross domestic product (GDP) of China from 2012 to 2024. In 2012, its GDP was just
about $8570 billion dollars but this size is projected to almost triple in 2024, making
China overtake the US to become the biggest global economy (Statista, 2020a).
Consistent with this, Figure 4 continues showing the GDP growth rate in China. In
particular, over the last decade, the GDP growth rate of China has constantly been
higher than 6%, excepting for 2020 when this second’s largest economy is severely
influenced by the COVID-19 pandemic, leading to the growth rate of less than 2%
(Statista, 2020b). That said, the overall high GDP growth rate indicates the strong
development of the Chinese economy over this span of time.
Figure 3: China’s GDP Volume between 2012 and 2024
Source: Statista (2020a)

Figure 4: GDP Growth Rate in China between 2011 and 2021
Source: Statista (2020b)

Figure 5: GDP Per Capita in China from 2012 to 2024
Source: Statista (2020c)

In pace with the rapid economic growth as described above, the number of middle-
income people in China has also soared. Figure 5 demonstrates the impressive
improvement in the GDP per capita in China between 2012 and 2014. In 2012, the
GDP per capita only reached around $6,330 but this number is estimated to nearly
trebles in 2024 to reach over $15,000. With remarkably increased disposable
income, Chinese consumers have stronger demand for retailing and this increased
consumption becomes an important driver of the Chinese retail market.
On the other side, in line with the emerging economic development, China has also
witnessed a growing inflow of foreign trade investment (FDI) into the country over the
past three decades. Figure 6 depicts the FDI influx into China from 1979 to 2019 and
it can be clearly seen from this diagram that the trend of FDI in China started to
quickly increase in the early 2000s. This is the period when many international
retailers began to enter this world’s most populous market. The increase in FDI is
largely driven by a lot of incentives provided by the Chinese government in order to
attract multinational corporations (MNCs) to come to China (The World Bank 2010).
The government has successfully attracted multinationals to operate their business in
coastal cities along the Eastern region and other industrial parks as well as special
economic zones across the country (The World Bank 2010).
Figure 6: FDI Inflow into China from 1979 to 2019
Source: The World Bank (2020)

Formulating a theoretical knowledge of international retail divestment is of
importance to better understand the divestment cases in China. This current chapter
has therefore attempted to provide a theoretical background in relation to the focal
research topic in this thesis paper. The concept of internalization together with the
four related theories (Uppsala theory, transaction cost theory, network model, and
international product life-cycle theory) has been reviewed to provide an
understanding of different motives for a foreign market entry. Next, the main focus on
international retail divestment has carefully been conceptualized and theorized from
different perspectives to highlight the literature scarcity of international retail
divestment. Subsequently, a brief overview of the Chinese economy has also been
described in the end of this chapter to provide background information about the
unique and distinct business and institutional characteristics of this particular market.
This brief description has provided a panorama of the retail market in China. In the
following chapter, the theoretical underpinnings related to specific factors driving
international retail divestment will be critically analyzed.
Theoretical Background of Drivers 18
3. Theoretical Background of Variables

The focus of this present chapter is on a number of driving-forces of divestment. These
variables are critically examined in the milieu of retailing industry to build a theoretical
base for the following chapter of case analysis. The end of this chapter summarizes this
review work by presenting a conceptual model linking those predicted factors to
international retail divestment.
In an attempt to gain a better understanding of the phenomenal growth of divestment,
scholars have attributed poorly performing operation to the main cause that leads to
divestment. However, this is just the surface of the problem because there are different
factors that could account for this poor performance in foreign market, relating to the
company itself and the influence of both industry and country characteristics (Berry
2013, p. 246). Therefore, this present chapter is particularly focused on the two primary
potential sources of divestment: internal factors that are related to the focal parental
company or its unit/subsidiary and external factors that refer to characteristics of the
host country. This way of classification is supported by Palmer/Quinn (2007, p. 27) who
analyzed the reasons for international retail divestment within the two broad areas:
operational focus (internal factors) and non-operational focus (external factors).
3.2. Internal Factors
3.2.1. Parent Company’s Financial Health
In order to successfully enter and maintain the business in a foreign market, the most
underlying base for parent firms is financial resource. Therefore, financial health of the
parent companies plays an essential role in any international operation, which means
that the divestment is likely to occur if the parent companies encounter financial
difficulty (Easterwood 1998, p. 130). This is because, in such situations, parent
companies tend to withdraw resources from the overseas subsidiaries in order to shift
back those resources for their recovery in the home country, in response to the fear of
losing main investors and stockholder’s preference in the home market as well as to the
potential that bad performance will be reported publicly on media, news and press to
affect firm’s corporate image and stock price (Alexander/Quinn 2002, p.121). In sum,
corporate financial strength of the parent company is considered a primary condition
that could result in the divestment of the subsidiaries in the foreign markets. Poor
financial performance in the home country pressures top managers to divest their
overseas operations and also heightens the need to alter the corporate portfolio (Berry
2013, p. 247).
Furthermore, Wrigley/Currah (2003, p. 237) stated that “global reach” of multinational
retailers is highly dependent on the suppliers of finance (e.g. investment banks). This is
because a strong flow of capital helps to accelerate the internationalization process.
Moreover, Wrigley (2010, p. 293) investigated the influence of the financial leveraging
on the US retail restructuring and divestment and the author found that divestment, in
several cases, is an inevitable part of the internationalization process for companies that
seek to diversify into its global presence by acquiring retailers in other markets. From
this perspective, divestment activities should be viewed in a positive fashion as a
strategic action of financing.
3.2.2. Parent Company’s Leadership and Management
In addition to financial resource, operating in a foreign market requires know-how,
expertise and especially human resource, and human capital is therefore very crucial for
gaining international success. In fact, when internationalizing operations, retailers often
involve in international assignment, and many Western MNCs have relied on competent
international assignees to manage their business operations in culturally distant markets
like China in order to help them maintain the control over the unit as well as develop
their competency using the human mobility (Global Mobility Trends Survey 2017).
Assignees or expatriates are defined as those who are assigned a certain role at an
overseas market during a specific span (Littrell et al. 2006, p. 367). In general,
international assignment is conducted for either learning-driven purpose (pulling driver)
which benefits assignees more or demand-driven purpose (pushing driver) which
benefits company more (Pinto/Cabral-Cardoso/Werther 2012, p. 2298). Examples of
demand-driven purpose include filling a certain gap in the host country (e.g. shortage of
managerial or technical skills), transferring technology, strengthening local business
relation while examples of learning-driven purpose are career development or
managerial training (Pinto/Cabral-Cardoso/Werther 2012, p. 2301). Importantly,
managing international assignment for retailing activities is an increasingly challenging,
leading to expatriate failure in different forms such as premature termination of
assignment or return prior to the planned contractual period, and this expatriate failure
can be deemed as a starting point of the divestment (Harzing 2002, p. 131).
The practice of international assignment largely depends upon multinationals’
perspective on the foreign market. In particular, multinational retailers can perceive
consumers in a certain international market in one of the three general folllowing ways.
The first is considering local market as part of global market in which consumers (i.e.
global consumers) have similar and homogenous consumption patterns, Western
consumption trends like McDonaldination or Cocacolonization enables such Western
products to be popularized in many other countries (Manrai/Manrai 2011, p. 169). The
second is treating local market as a unique entity that must be targeted and attracted
distinctly so as to incorporate local cultural values and norms (i.e. national consumers)
(Manrai/Manrai 2011, p. 169). The third is regarding several countries within a particular
region as a single market unit and thus regional consumers represent a unique segment
(Manrai/Manrai 2011, p. 169). These different perspectives lead to different approaches
for international assignment: ethnocentric orientation; polycentric orientation;
regiocentric orientation; and geocentric orien-tation, as follows:
Ethnocentric staffing approach is consistent with the notion that personnel in the home
market have a superior performance as compared to personnel in the host market
(Hollensen 2017, p. 19). Therefore, multinational retailers under this orientation tend to
select managers from their home country (usually from parental company) to take
management positions for the unit at the host market. Using this ethnocentric staffing
approach helps to ensure that unit’s managers represent the parental interests and
govern the operational initiatives in such a way that is aligned with the multinational
objectives (Sebastian Reiche 2007, p. 525). On the downside, this approach makes the
unit lose the local perspective and inflates the labor cost as hiring personnel from home
developed countries is often more costly than hiring locals.
Polycentric staffing approach is associated with the belief that each international market
is unique and should thus be targeted in a different way (Hollensen 2017, p. 19). As a
result, multinational retailers are prone to hire employees from the local (host) market in
order to take management positions of the unit. As opposed to ethnocentric staffing
approach, the advantage of this approach refers to market knowledge gain because
local personnel who are normally hired with low payment are better to understand local
cultures, regulations and norms (Sebastian Reiche 2007, p. 525). The drawback of this
polycentric staffing approach is that the subsidiary or unit in the host country may be
unconnected to the parental objectives because of the potential miscommunication
between multinationals and local personnel (Sebastian Reiche 2007, p. 525).
Regiocentric staffing approach relies on the view that the global market consists of
several regions and each region, given the alike political and institutional as well as
cultural background among countries, represents a unique segment (Hollensen 2017, p.
19). As a consequence, multinational retailers under this staffing perspective are
inclined to divide their global operation into regional units. This staffing approach can be
deemed as an extended version of polycentric staffing in which personnel are recruited
within the region and can flexibly move across regional countries (Hollensen 2017, p.
21). This also means that the strength and weakness of this staffing orientation are very
similar to those of polycentric staffing when considering a particular region to be a single
unit market. The establishment of regional economic areas like the European Union
(EU) has facilitated many retailers to adopt this staffing approach (Isidor/Schwens/Kabst
2011, p. 2167).
Finally, geocentric staffing approach is commensurate with the perception that global
market is a single market composed of global consumers who share homogeneous
needs regardless of their location and nation (Hollensen 2017, p. 19). This perception
allows multinationals retailers to standardize their business activities across different
foreign markets. Thus, personnel are recruited from the global pool of talented
candidates and moved between different markets to help retailers build a
standardization strategy consistently throughout various international markets. That
being said, this approach requires personnel to have the capability of understanding
different cultures or cross-cultural capability, which is often associated with high training
cost (Sebastian Reiche 2007, p. 526).
In general, expatriate failure as a sign of divestment is primarily affected by the two
factors, namely family and gender. For family, given the fact that ethnocentric staffing
approach is still widely adopted by most MNCs and that the majority of expatriates (from
home country) have spouse and children when moving abroad, this dual role (family
role and career role) creates a burden for them: adaption to new society that may
disrupt their family life routines, concern about low quality of new living, discomfort from
family members; education of children; threats of political issues and terrorism
(Haslberger/Brewster 2008, p. 334). But, as a matter of fact, not all these concerns are
properly managed by the parental multinationals to support international assignees.
Failure in managing gender equality also contributes to the expatriate failure. In a global
competitive market, ensuring gender diversity is one key for enhancing human capital.
In particular, female workforce becomes an important pool because some positions are
particularly suitable for women given their natural characteristics but gender inequality is
still largely reported in the global retail industry as women employees are discriminated
against their motherhood or their capability to carry out foreign tasks (Sinangil/Ones,
2003, p. 468). More broadly, Fischlmayr (2002) indicate that the management
propensity for discriminating women in international assignment is driven by both
external factors and internal factors, whereby external factors include stereotype from
HR managers due to their misperception that female workers are less competent in
STEM (Science, Technology, Engineering, Math), and cultural obstacles whereas
internal factors may contain low self-confidence, resistance to adaption, and gender-
based role. In a nutshell, ineffective management of human resource in the host country
would be a primary factor that triggers a divestment.
Leadership would also be considered when it comes to international business
landscape. From a contemporary point of view, international divestment should be
regarded as an integral part of corporate strategy, leadership thus plays a vital role in
managing international divestment. In relation to this, Cairns et al. (2010 p. 29) held the
idea that managers for overseas markets should be hired from the local/host country
instead of being hired from the home country because local managers are believed to
have a better understanding of local workers in order to implement a proper leadership
style. Burt el al. (2002, p. 194) have also contributed to divestment literature in this
regard by highlighting that inappropriate management strategy is attributed to the
primary cause behind an international retain divestment, in particular, the authors
examined the case of the clothing retailer Marks and Spencer and revealed the wrong
strategy implemented by the senior management teams with a focus on new market
expansion instead of leveraging its existing international markets plays a major role in
divesting international operations of existing international markets.
On the other side, the lack of experience to manage the unit would represent another
potential for divestment. In fact, prior international experience plays a key role in helping
retailers quickly acquire a competiveness in the new market, thus the lack of
international experience might be associated with the absence of this competitive edge,
making the subsidiary lag behind other local competitors which are more experienced in
their home yard (Burt/Dawson/Sparks 2008, p. 30). This resonates with the scholarship
that stresses parental prior experience in international operation as an important for new
entry. Accordingly, practical skills and knowledge gained from the previous markets
become necessary for the companies in internationalization, especially when entering
similar markets. In particular, relationship with suppliers, governmental officials, state
authorities and logistics and distribution system from the former foreign markets can
foster the pace of expansion and be useful to quickly establish the new business in the
foreign markets. (Benito 1997a, p.1372).
3.2.3. Market Entry Strategy & Ownership
The proportion of ownership at the overseas subsidiary is an important prediction of the
likelihood of divestment, and research on this is split into the two different schools.
Figure 7, which is the result of a systematic review work, supports this idea by showing
that entry and ownership (at subsidiary level) would contribute a major driver of
internaitonal divestment in the retailing sector (Schmida/Morschettb 2019, p. 9). The
first scholarship argues that higher ownership intensifies the chance of divestment.
Consistent with this reasoning, Benito (2005, p. 240) indicated that acquisition tends to
have a greater propensity for being divested as compared with joint venture or
greenfield investment because the acquired company (in the host market) is controlled
by the parent firm and supposed to strongly adhere to the original structure and
orientation of the parent company in the home market. As a result, this acquired unit is
inflexible due to the high control level and therefore subject to many contextual factors
that threaten its operation. This is supported by Mata/Portugal (2000, p. 554) who
confirmed that entering a new market through greenfield entry would lead to a longer
presence relative to acquisition entry. The authors emphasized that parent companies
usually decide to expand international operation in order to reorganize their business
and this strategic reorientation favors a subsidiary that can operate more independently
and to adapt to the local characteristics and culture more easily. Likewise, Lord/Saito
(2017, p. 71) studied the interrelationship between acquisition, as part of corporate
diversification, and firm’s subsequent announcement of discontinued operations and
found that companies, especially large-sized companies, are less likely to report
divestiture right after a cross-border acquisition but then more likely to discontinue their
operations after that. This indicates that highly diverse firms which often engage in
cross-border acquisition are very likely to divest their assets.
Figure 7: Review of Antecedents of International Divestment
Source: Schmida/Morschettb (2019, p. 9)

In contrast to the above scholarship, some researchers have protected their opposite
idea. For example, Praet (2013 p. 37) stated that, with higher percentage of ownership,
parent companies are given the empowerment to control for know-how and strategic
alignment with the parental goals and in the retail sector, this high ownership allows the
retailers to rapidly adapt to the local market because the decisions for the operations of
foreign unit are made and implemented quickly by the parent multinationals (e.g. they
do not need to depend on local partners and their approval). Therefore, under this
school, highly controlled modes like acquisition should be negatively associated with
divestment likelihood.
Alternatively, Duhaime/Baird (1987, p. 485) focused on the fit between parent
company’s size and unit’s size to evaluate the chance of divestment. That is, the
mismatch in size between the two would lead to the disparity in organizational structure
and arrangement that promotes the great likelihood of divestment. This is because this
misalignment hinders the adaption to the local environment due to ineffective
management and results in a slowdown in the establishment of partnership with local
suppliers, which are a critical factor in the retail industry (Burt/Dawson/Sparks 2008, p.
31).
3.3. External Factors
3.3.1. Cultural Distance
Within the context of cross-border business, culture is defined as the entire system of
both implicit practices, including beliefs, norms, values, attitudes, and explicit practices,
including language, know-how, that are learned and shared among members of a
national market in order to shape the frame of reference representing the local
consumers (Dupuis/Prime 1996, p. 31). At national level, these commonalities present
the identity with unique and specific characteristics of the national culture that are
associated with business practices in the retail industry (Dupuis/Prime 1996, p. 31). In
relation to this, Hofstede (2001) conceptualized the four national cultural dimensions
that differ between the West and the East: power distance, collectivism-individualism,
masculinity-femininity, and uncertainty avoidance.
Those national cultural dimensions could be viewed at national level, organizational
level and individual level. At national level, for example, collectivism refers to “we” to
present the interdependence in making buying decision while individualism refers to “I”
to represent independence when making purchases (De Mooij 2010, p. 113). This
implies that Easterners prefer holistic thinking and are inclined to rely on other social
consumers (e.g. word-of-mouth) to make their purchases (i.e. social influence) while
Westerners prefer analytical thinking and tend to make more independent choices
based on their personal needs and evaluations (Monga/Roedder John, 2007). At
organizational level, power distance is associated with hierarchy, and companies which
are high in power distance (e.g. East Asian cultures) often have a centralized structure
while firms with low power distance usually opt for decentralized pattern
(Farh/Hackett/Liang 2007, p. 717). At individual level, uncertainty avoidance is a
personal reflection on perceived uncertainty toward a certain purchase or choice, which
is congruent with perceived risk in retail shopping (Frijns et al. 2013, p. 2461).
Understanding these differences at different levels is critically essential for international
retailers and marketers to not only have appropriate marketing strategies but also
proper adapted management practice in each foreign market (De Mooij 2010, p. 113).
Importantly, those national cultural characteristics above form cultural differences
between the home country and the host country to influence the choice of entry mode.
Kogut/Singh (1988, p. 414) examined the three different entry modes, namely
greenfield, joint venture, and acquisition, in relation to cultural differences and revealed
that joint venture could be a strategic choice to deal with cultural differences in
international business by assigning management tasks to local partner who is better to
manage the relationship with local suppliers, purchasers and governmental officials.
Therefore, when cultural differences are significant, acquisition is less likely to be
chosen by multinational enterprises (Kogut/Singh 1988, p. 414). More broadly, when
entering a new foreign market, cultural differences always pose a major threat and
Barkema/Bell/Pennings (1996, p. 155) in relation to this stated that divestment is likely
to happen when companies expand into a new culturally different market. In this regard,
disparity in values, norms, beliefs, or attitudes shapes a significant impact on foreign
activities and on the potential of divestment as well.
In international business research driven by Uppsala school, the term “psychic distance”
is specifically used to capture the above cultural distance. Formally, psychic distance is
the combination of different factors that prevent a foreign company from learning,
understanding, and gaining new knowledge about the new international market
(Håkanson/Ambos 2010, p. 195). In other words, it reflects the level of perceived

uncertainty regarding a particular international market as a result of socio-cultural and
institutional differences between the home and the host countries (e.g. language, legal
and political system, norms, management practice) (Evans/Mavondo, 2002, p. 517).
The magnitude of this cultural distance is highly salient between the two culturally
dissimilar contexts, such as between Western culture and Eastern culture. Li/Guisinger
(1991, p. 220-221) in this regard have found that Japanese firms, which partnered with
local US companies, faced a higher failure chance when operating in the US. Overall,
high cultural distance often results in uncertain conditions and hence multinationals in
general tend to adopt an entry mode with low level of control (i.e. lower risk), which
provides a flexibility to cope with this uncertainty in the new foreign market (Pattnaik/Lee
2013, p. 179). Indeed, as an unwritten rule and accepted principle in international
business, retailers seek more familiar environments and hence initially look for
geographically proximate markets to reduce cultural distance prior to expanding into
more distant markets during international expansion process (Alexander/de Lira e Silva
2002, p. 301). This principle of international retailing is demonstrated by the fact that
retailers usually first transfer from home developed market to other neighboring
developed markets (Alexander/de Lira e Silva 2002, p. 301), which is consistent with the
perspective of the international life-cycle theory that has been mentioned earlier.
In a bigger picture, the above concept of cultural distance or psychic distance is actually
derived from the umbrella terminology of business distance, which is related to the
school of Uppsala to explain the selection of international market based on “short”
distance in terms of political, economic, cultural, geographic and legal factors
(Dupuis/Prime 1996, p. 32). Put it in a different way, when the business distance
becomes larger, international expansion is more risky and costly. Importantly,
Dupuis/Prime (1996, p. 32) emphasized that the measurement of this business distance
must be reliant on several elements, such as political and economic system, system of
values and beliefs, business environmental conditions and in the specific context of
retail internationalization, this business distance is equivalent to the perceived gap
between home market and host market on these four core dimensions that determine
the competiveness of a retail format: network, consumers, outlets, and environment
(Dupuis/Prime 1996, p. 32). In the particular setting of retailing, Williams (1992, p. 11)
also further conceptualized the term psychological distance to reflect the proximity being
perceived by top managers between home (domestic) market and host (foreign) market
when considering the decision to expand internationally.
Literature in divestment also states that organizational learning could help to mitigate
the negative relationship between cultural distance and business failure. That is, those
companies that can gain a sufficient understanding of the market knowledge are able to
adjust their operations and offerings to be better suited to the local taste and local
consumers, hence reducing the chance of divestment (Barkema/Bell/Pennings 1996, p.
157). Alternatively, multinationals could lower the cultural barriers by learning the prior
experience from other foreign businesses in the host market in order to select the
proper mode of ownership structure (Barkema/Bell/Pennings 1996, p. 152).
3.3.2. Economic Condition and Institutional Environment
Aside from cultural distance, the economic and institutional framework of the host
country represents a primary source of divestment. Place of operation is said to affect
the ways in which multinationals execute their internationalization process and operate
their unit (Dicken 2000, p. 282). As a matter of fact, economic condition (e.g. market
growth) is one of the fundamental motives for stimulating companies to expand their
international business (Alexander, 1990, p.81). When the home (developed) markets
where giant retailers are headquartered are to be saturated soon, this saturation
pressures them to look for new opportunities in other promising foreign markets so as to
maintain their sales growth. This is supported by Hoskisson/Turk’s (1990, p. 462) point
that emphasized that when the current performance in the domestic market is
unsuccessful, firms are prone to shift the focus toward subsidiary operations overseas
and high market growth signifies a great potential for firms to leverage their
performance in foreign markets given a high demand there. Therefore, if the host
country faces an economic crisis, this economic potential is erased and retailers are
likely to withdraw their business from the host market, due to decreased retail demand,
in order to relocate their resources in new more lucrative markets. Consequently, it is
quite obvious that there is an adverse link between host market growth rate, which is
normally measured by GDP growth rate, and divestment (Song 2014, p. 282). Put it in a
different way, managers always try to fix problems in poorly performing markets by
moving their sources in such markets (i.e. divestment) to relocate in new target markets
(Berry 2013, p. 248).
In a broader picture, the social elements of the host country can also strongly affect the
performance of a foreign business based on the institutional theory. These elements
establish local norms that MNCs should comply with. These norms refer to certain
unwritten rules and acts that must be adhered by multinational retailers to be accepted
in that country (Scott 1987, p. 499). For example, guanxi is a local norm when doing
business in China, which focuses on building the interpersonal relationship between
businesses and other stakeholders such as between salesperson and customer to
enhance trust in the retailing sector (Lee/Dawes 2005, p. 28), however, this emphasis
on mutual relationship in Chinese culture also partly explains the problem of corruption
and bribery as an unwritten rule to build relationships here. What is more, drawing upon
the institutional theory, when moving to a new international market, companies have to
transfer its management practices that have formerly been developed in a different
institutional setting to adjust to the local characteristics, thus adaptation approach is
favored under the perspective of institutional theory (Bianchi/Arnold, 2004, p. 152).
In the formal environment, the stability of the political system influences the
governmental policies (e.g. tariff, quota, tax) and regulatory and institutional structure, in
turn affecting subsidiary operations through promoting or impeding the transfer of
organizational practices (Kostova 1999, p. 311). More broadly, institutional
characteristics influence not only strategic entry mode but also the success of
subsidiary’s performance. Countries which are politically stable create a less volatile
institutional climate to reduce risks (i.e. because the status quo for policies are less
likely to be changed) and to encourage parental retailers to bring their knowledge,
personnel and resources to invest in subsidiary (Berry 2013, p. 249). In contrast, when
the political institutions are transitional and non-democratic, this is often associated with
politically instable structure that creates a complexity and enables policy makers a great
degree of discretion, leading to rapidly, easily and frequently changing policies that risk
foreign businesses (Henisz/Delios 2004, p. 391).
On the other side, when it comes to institutional environment, corruption and regulations
are two primary concerns. Corruption is a prominent business practice in the majority of
developing markets, discouraging foreign investors to conduct the business ethically
while encouraging the unethical practice of lobby and bribery (Rodriguez et al. 2006, p.
738). This low level of transparency as a result of high corruption might benefit foreign
enterprises in the short-run but threatens the sustainable growth of the unit in the long-
run (Soule/Swaminathan/Tihanyi 2013, p. 1037). Meanwhile, the unfriendly and
unfavorable regulations also limit the operation of the unit in the host market, these
could include high taxation rate or trade restriction. Trade restriction could be regarded
as a special form of economic protectionism in which the host government enacts
different policies and incentives to protect domestic firms against foreign businesses,
creating an unfair business environment for competition (Burt/Coe/Davies 2019, pp.
182). Examples are tariff or restricted quota for imported goods. In particular, Benito
(2005, p. 243) contended that import restriction through tariff, quota can limit the
operation of the subsidiary in the new foreign market. Meanwhile, Leal-Arcas/Grasso
(2016) pointed to the fact that bilateral free trade agreement (FTA) between the home
and the host countries or multilateral trade deal that both are members could sustain the
business to mitigate the potential of divestment.
3.3.3. Labor Cost
Many retailers have moved their production to developing markets to take the
advantage of cheap and plentiful labor in order to lower the operation expense, thus
labor cost is known to play an essential role in the international expansion decision,
especially in such industries are labor-intensive like retailing (Morschett/Klein/Zentes
2015, p. 30-31). This also means when the labor cost is increased, the operation cost in
the host market will also be increased and this lessens the profitability of the
multinationals, in turn leading to the divestment. And divestment driven by inflated labor
cost can be perceived from a proactive point of view because such divestments could
be to strategically reallocate the firm’s resources by relocating the operation in a new

marketplace where offers a lower workforce cost (Grunberg 1981, p. 14), reflecting an
active adaption from parent companies to environmental changes in the host market.
China is a good example in this regard because this country was an attractive
destination for many foreign investors in the past based on its comparative advantage
with the provision of cheap workforce but when the minimum wage is considerably
increased, many MNCs want to move their factory to Vietnam, Indonesia or India where
the labor cost is cheaper than that of China (Song/Wang 2018, p. 190).
In comparison with the manufacturing sector in which the labor cost significantly
accounts for the total fixed cost, labor cost in retail sector makes-up a smaller portion
but still represents a considerable proportion of total expense such as staff at retail
outlets or supermarkets. In services, when retailers offer similar products and the format
of stores is easy to be mimicked, the key differentiation to stand out in the market will be
associated with the superior quality of service which is delivered by frontline service
employees (FLEs) who provide assistance and interact with customers to enhance their
shopping experience (Yuen/Chan 2010, p. 225). Therefore, retailers have invested a lot
of money in training professional frontline service employees and in offering competitive
compensation package as well as other non-financial benefits (e.g. healthcare). This
then pressures retailers in developed markets where benefits of workers are a key
priority or when the sales performance is declined and retailers must pay a lot of salary
for their rented staff (Fisch/Zschoche 2012, p. 811). On the other hand, the important
role of staff in distributing the services within retail sector creates a huge burden for
retailers to divest their operations if the labor cost in the foreign markets is soared.
3.3.4. Competition
Competition in the host country is theorized as an essential account of divestment
activities. Indeed, the Porter’s five forces framework stresses the interrelatedness
between threat of new entrants and competitive rivalry (Porter 1985, p. 135). This
should be interpreted that a new entrant (new international retailer) is more threatening
to local players if the level of competition in the domestic retail industry is low and vice
versa. Therefore, new multinational retailers are less likely to succeed if the competitive
intensity is extremely tough in the local marketplace. Also, Colla (2004, p. 48) in relation
to this noted that governmental policies can increase or decrease the intensity level and
nature of this competition in the retail sector, indicating the interaction between macro-
level factor and industry-level factor.
In general, Colla/Dupuis (2002, p. 105) listed the three different approaches for
multinational retailers to cope with the local competition in the host market: merger &
acquisition, digitalizing business, and vertical integration. The quickest way to remove
the rivalry from local competitors is to acquire them and this is a common practice in the
retail industry as many global brands, with strong financial resource, implement
acquisition strategy by taking over domestic chains as their entry mode to enter a new
market (Colla/Dupuis 2002, p. 105). Meanwhile, since the turn of the new century, many
retailers have turned their business to virtual environment to target a growing number of
online shoppers, and although this digital transformation might not be profitable in the
short-run due to high investment cost but could shape a competitive edge for the
retailers as first movers toward e-business (Colla/Dupuis 2002, p. 105). Another
approach is related to vertical integration, whereby a number of large-scale retailers like
Walmart have relied on vertical integration to enhance their competitiveness in order to
compete with host market’s retailers. That is, they concentrate on building a closed
value chain in the foreign markets by controlling entirely or partly thier production and
distribution, this turns them into vertical players that are highly competitive on price (i.e.
vertical integration to control the value chain helps to reduce cost). On the other side,
since the competition in the retail sector is mainly focused on pricing between large
international and national chains and between different formats (e.g. supermarkets,
department outlets, convenience stores), this, from a positive point of view, motivate
retailers to innovate and enhance the differentiation in terms of format, offerings and
services to eventually foster the domestic retail development (Colla 2004, p. 62).
3.4. Conceptual Framework
Figure 8 presents the theoretical framework which helps to understand the fundamental
drivers of international divestment in the retail industry. In line with the literature review
above, an international retail divestment can be caused from both internal source
(financial health and management as parent company-related factors and ownership as
subsidiary-related factor) and external source (cultural distance, competition, macro
conditions, and labor cost as host market-related factors). This theoretical framing
provides a useful framework for analyzing multiple case studies in chapter Five.
Figure 8: Theoretical Framework
Financial Health
Internal Source
Management
Divestment
Market Entry Mode
Cultural Distance
Macro Conditions External

Source
Labor Cost 3.5. Chapter Summary
This chapter has specifically focused on
Competition
critically analyzing different potential factors that could lead to an
international retail divestiture, which are categorized into the two
main groups: internal drivers that are related to the parent company itself (two variables)
and/or subsidiary (one variable); and external drivers that refer to a number of industry-
level and macro-level factors in the host market (four variables). Overall, this chapter
has looked at international divestment from both internal and external perspectives. This
helped to establish a theoretical base for examining multiple case studies in chapter
Five. The next chapter will discuss the methodology being implemented for this current
study.
Methodology 31
4. Methodology
This chapter provides the explanation for the methodology being executed for this
current study. First of all, given the exploratory nature of this research, interpretive
philosophy is thoroughly justified as the appropriate philosophical approach being
applied to this study. In line with this, the use of qualitative method, namely multiple
case study, is clearly explained to help understand why qualitative method is more
suitable than quantitative method for the purpose of this present research. In the end,
several ethical considerations are addressed.
4.2. Philosophy of Science
The most underlying methodological component for social science research lies
principally with identifying the right philosophy of science, which is often fallen into one
of the two common approaches: positivism and interpretivism. Positivistic philosophy
seeks scientifically driven evidence (e.g. numerical data) to explain an observed
phenomenon using mathematical language, thus this approach looks at the focal
research problem in an objective but standardized manner (Saunders/Lewis/Thornhill
2016, p. 124). Because this present study is a secondary research which only involves
collecting secondary data, obtaining numerical data for purely statistical analysis is
difficult given the nature of the secondary data here (i.e. reports, articles), and also
infeasible as numerical data are usually gathered via primary methods like survey or
experiment. This implies that positivism seems an inappropriate scientific philosophy. In
contrast, interpretive philosophy emphasizes the importance of observation in exploring
and interpreting the research phenomenon in the light that each phenomenon is relative
by nature, depending on many contextual factors, and purely relying on numbers and
figures is insufficient to understand the focal problem, this philosophy hence favors
exploratory ways to understand the research problem (Saunders/Lewis/Thornhill, 2016,
p. 124). Since this thesis paper focuses on examining international retail divestment in
the specific context of China, institutional and contextual factors play an essential role in
helping explain this internationalization process, meaning that interpretive philosophy
would be more suitable for the exploratory purpose of this present research study.
4.3. Research Method
When it comes to the method, there are the two fundamental methods that should be
considered for this management thesis research, namely quantitative method and
qualitative method. The purpose of quantitative method is to describe the relationships
between factors or variables by using different statistical techniques such as regression,
Methodology 32
ANOVA, T-test, or F-test. These technical tools enable the researchers to yield
statistical outputs that provide evidence to assess the correlational linkage between
variables paper (Saunders/Lewis/Thornhill, 2016, p. 166). As mentioned previously,
given the limitation of secondary research, implementing statistical analysis for the
collected secondary data is impractical, which means that quantitative method, which is
often associated with positivism, is actually unfitted into the main goal of this present
research that focuses on exploring the topic of international retail divestment. On the
contrary, qualitative method is highly exploratory by nature and particularly concentrated
on understanding the central research problem in an open and probing manner using
unstructured and non-numerical data (Saunders/Lewis/Thornhill, 2016, p. 167). In
particular, qualitative method is associated with interpretive philosophy because it takes
into account socially constructed meanings to express the phenomenon being
interested. In other words, research context is of importance for qualitative method to
gain in-depth understanding of the central research problem from a social perspective
(Saunders/Lewis/Thornhill, 2016, p. 168). From this explanation, one should be strongly
convinced that qualitative method offers a better suitability for the exploratory purpose
of this current study, thus this method was executed this present study.
4.4. Case Study
In line with interpreting and analyzing secondary qualitative data for this research, case
study is applied as the main method for helping to reach the research goal of this thesis
paper. Case study is considered to be a proper method for those studies that want to
investigate a relatively less known and unexplored social phenomenon through real-life
instances and is a useful method for theory building purpose. It should be noted that the
term “case” in case study method must be viewed broadly as it can be related to a
particular period of time when the phenomenon occurs or to a group of objects (e.g. set
of different multinational retailers in this study) (Saunders/Lewis/Thornhill, 2016, p. 202).
In this report, case method involves collecting data from multiple secondary sources
such as firm reports or market reports.
In comparison with quantitative method, qualitative method using case study is more
challenging because the method for data collection and the technique for data analysis
are not well formulated and established given the exploratory nature of qualitative
research (Saunders/Lewis/Thornhill, 2016, p. 204). On the flipped side of the coin, that
said, qualitative case study method enables answering “why” through gaining deep
insights into the social phenomenon whilst quantitative method is only useful to help
answer “what” (Yin, 1994, p. 102). In other words, case method is capable of deepening
our knowledge of the focal research phenomenon through addressing different
variables in a long period of time simultaneously (i.e. longitudinal approach). Indeed, it
is inappropriate and infeasible to implement quantitative methods like survey or
Methodology 33
experiment if a study contains many variables/concepts/factors to be considered but

qualitative case method makes this massive inclusion possible (Ghauri/Grønhaug 2002,
p. 223). Because this current study wishes to investigate a variety of potential factors
driving international retail divestment in the particular milieu of Chinese retail market,
the use of case method is justified in this regard.
4.5. Multiple Case Studies Method
When it comes to case study method, an important question to be asked is that how
many cases should be examined? And there are the two answers to this question:
single case and multiple cases. The deployment of single case is only appropriate when
the researchers want to pilot test an established theory to gain insights as the first step
before moving to a more comprehensive study (Ghauri/Grønhaug 2002, p. 226). This
implies that single case should only be utilized as a preliminary study rather than a
formal main study in conducting qualitative research. In contrast, comparative or
multiple case method might study the same social phenomenon in a more holistic view
by examining different cases in a comparative manner in order to draw generalizable
findings. More broadly, the goal of comparative case method is to replicate the central
phenomenon systematically so as to explore different aspects and dimensions of the
focal research problem or to examine different variables related to this problem
(Ghauri/Grønhaug 2002, p. 226).
To reinforce the use of multiple cases method, several concerns regarding the
implementation of single case study method should be recalled. The first is the lack of
methodological rigor because researchers are unable to follow well-established
procedures and standards, leading to biased views that direct the conclusions and
results in different ways (i.e. inconsistency). While this lack of rigor is less likely to be
emphasized when deploying quantitative strategies like survey or experiment that focus
on formulating specific procedures and standards to follow, it is a big concern for
qualitative single case method (Yin 2003, p. 10). Multiple cases method mitigates this
weakness of lack of standardization by establishing a general framework that is
mutually applied to all cases. The second is that single case study method often leads
to massive or unreadable outcomes that are difficult for the readers to comprehend and
understand due to the unstructured nature of case study data (Yin 2003, p. 10), multiple
cases method, with using different cases, can produce findings that could be organized
in a more structured way. The third, as the most significant issue, is related to the
limited generalizability of single case method, meaning that how the results are
generalized from an only singe case should be questioned. Asking the same question
for using quantitative methods like experiment, quantitative scholars are actually not
relied on a single experiment but rather normally replicate the same research issue in
different conditions (research contexts) through multiple experiments in order to yield
Methodology 34
their scientific facts. Thus, to respond to the third concern of single case study method,
the answer is the same: using multiple case studies instead of single case to enhance
the research generalization (Yin 2003, p. 11).
Overall, this current paper implements multiple case studies method, as the most
essential tool within the qualitative international business domain (Werner 2002, p. 280),
to analyze different divestment cases in the Chinese retail market. In particular, different
foreign retail divestment cases in China, which are global leading retailers, will be
critically analyzed to explore the insights into this divesture within this particular context
as well as to examine driving factors behind. The data for the chosen international
retailers and their divestment in the Chinese market were collected mainly through
annual reports, online news, media and other academic sources. Various cases are to
be analyzed following this method, including Tesco, Walmart, Ahold, Carrefour, Best
Buy and Home Depot. The analysis will be consistent with Chapter 3 by analyzing these
failure cases according to both internal and external sources, following the classification
of Chapter 3.
From the theory building perspective, the eventual purpose of multiple case studies is to
construct an explanatory theory at middle-range level (Frederickson 1983, p. 568).
When it comes to middle range theory building, the emphasis is placed on disagregating
the complexity of the context into more discrete, well-defined chunks and then re-
incorporating these bits into explicit examination of their context. This approach helps to
overcome the lack of rigor in single case study method that mainly focuses on enriching
an exploratory description of an organization to only provide partial support to a specific
theory (i.e. theory testing) with limited generalizability (Yin 1994, p. 66). This is aligned
with Pauwels/Matthyssens’ (2004, p. 121) point that indicated the four following
fundamental pillars for using multiple case studies method: theoretical sampling;
triangulation, pattern-matching logic, and analytic generalization. These dimensions are
described in more detail as follows:
For theoretical sampling, Pauwels/Matthyssens (2004, p. 121) held the idea that the use
of multiple case studies method over single case study is not because the former
enables the results to be replicated in an external way. In fact, this is a misconception
based on a false argument about the statistical significance of multiple case studies
method. That is, the deeply rooted reason for using multiple case studies is to create
more theory-driven variance through data divergence, which means that sampling
different case studies must be associated with a theoretical basis
(Pauwels/Matthyssens 2004, p. 121). Therefore, the investigation under multiple case
studies method must have both typical and a-typical cases. Ideally, typical cases must
embrace the core of the main theoretical framework and analyzing these cases allows
reinforcing the literal and theoretical aspects of the main theoretical model. On the other
Methodology 35
side, a-typical cases need also be examined in order to yield contradictory findings that
challenge the theory used (Pauwels/Matthyssens 2004, p. 122). Taken together, the
main theory shall be assessed from both sides when using multiple cases method as
compared to single case method.
For triangulation, the importance of this pillar lies principally with the integration of
multiple data sources, that is, the drawback of each single data source is compensated
by the counter-balancing advantage of another data source (Pauwels/Matthyssens
2004, p. 122). As a result, various aspects of the focal phenomenon are examined
through a combination of different sources, hence enhancing the research internal
validity (Yeung 1995, p. 316).
For pattern-matching logic, the notion of this dimension is that when different events are
explained and relevant to a certain set of mutual characteristics, these events (cases)
together can conceive a unified system. This system or pattern is actually composed of
different propositions, a common way in qualitative research for addressing the
relationships between variables (concepts) (Pauwels/Matthyssens 2004).
For analytic generalization, in social science, there are the two different approaches for
scientific generalization: statistical generalization and analytic generalization.
Importantly, because qualitative method does not fit with statistical generalization that
must be relied on a defined population and on random sampling principle, analytical
generalization is an appropriate approach for validity testing of the theory. In other
words, this analytical perspective allows the researchers to figure out the incompatibility
and disparity with the extant theories, which supports the rationale for building a mid-
range theory as analyzed previously (Yin 1994, p. 192).
4.6. Research Ethics
Although this current study is categorized as a secondary research that does not
directly deal with recruiting human subjects, ethics still represent an integral part of this
thesis work and should be carefully considered. According to the American
Psychological Association (APA, 2017), there are the five ethical principles required for
a social research: justice, beneficence, respect for people, responsibility, and integrity.
As mentioned, since this is not a primary research, the first three Belmont’s ethical rules
can be waived while the fourth principle is only those studies that involve multiple
researchers, which is actually not the case for this solo project. Therefore, this study
fully respects the fifth principle of integrity, which covers accuracy and honesty concerns
(APA, 2017). Accordingly, all sources of secondary data being used for this study
remain unchanged, meaning that there is no falsification or fabrication for these publicly
available sorts of data. At the same time, literature is cited and referred in such a way
Methodology 36
that maintains the original content and ideas of the paper authors to comply with the
rule of honesty. Overall, there should be no ethical issue for this present thesis work.
This present chapter has addressed the methodology that was applied to undertake this
secondary research study. In particular, given the exploratory essence of the research
topic, the qualitative method has been justified as the appropriate method (versus
quantitative method) for carrying out this current study. In line with this, case study
strategy, namely multiple case studies method, has been explained carefully as the
accurate method for analyzing different international divestment cases in the Chinese
retail market. Understanding the rigor of the used methodology is of significance to
appreciate the empirical and relevant findings generated from this current research
work. Eventually, research ethics, as an integral part of any social science, have also
been mentioned thoroughly. The subsequent chapter will present the case studies
examination.
Analysis of Case Studies 37
5. Analysis of case studies

Consistent with the justification for qualitative multiple cases method being implemented
for this thesis, this present chapter critically examines representative divestment cases
within the Chinese retail sector. In particular, several divestment cases (e.g. Walmart)
are critically analyzed in relation to the Chinese retail market and the main examination
particularly focuses on analyzing the deeply rooted causes behind these chosen
divestment cases by applying international retail theories and knowledge that have been
discussed in chapter Three. The end of this chapter then compares and discusses the
new findings in relation to the extant body of scholarly literature as having been
reviewed in chapter Two.
5.2. Retail Sector in China
The emergence of the retailing industry in China is in accordance with the rapid
economic growth in this East Asian country. Since the removal of the centrally planned
economic model that emphasized the direct control of the state, trade-focused and
openness policy has primarily driven the retail sector in China (Shin/Kim/Kim 2020, p.
1). In general, with two primary drivers, namely rapid economic development
accelerated by commerce and huge population size, Chinese retailing is the world’s
largest and most promoting market. Since participating in the World Trade Organization
(WTO) in 2001, together with tax incentives, many multinational corporations (MNCs)
have increasingly entered this emerging market. In pace with this tendency, many
global retailers have entered the Chinese retail market in late 1990s and early 2000s to
seize business expansion opportunities here and increase their global revenue
(Shin/Kim/Kim 2020, p. 1). In face, together with economic expansion in late 1990s-
early 2000s as mentioned previously, the retail sector in China began to upsurge during
this period. As can be seen in Figure 9 beneath, the growth rate of retail industry in
China was very high, above 20%, in the late 1990s. This is the time when numerious
international retail brands started to appear in the Chinese retailing map. Figure 10
shows the timeline of a range of international retail expansions into China throughout
this period of time. Various brands from Japan (e.g. Seven-Eleven), Hong Kong (e.g.
Diary Farm), France (e.g. Carrefour), the US (e.g. Walmart), and the Netherlands (e.g.
Ahold) entered the Chinese retail market within this decade. However, many of them
have failed and left the country only after a short period of operating due to different
reasons (Hardaker 2017, p. 66).
Figure 9: Chinese Retailing Market Growth between 2000 and 2020
Source: Trading Economics (2020)
In reality, the high potential of the Chinese retail industry also means that the
competition in this sector is very tough. Local brands and international brands (e.g.
Tesco, Carrefour, Walmart, Korean Lotte) have engaged in an intensifying rivalry to
capitalize their market share, especially in big cities like Beijing and Shanghai. At the
present, the Chinese grocery market is projected to be soon saturated, particularly in
big cities, and this makes the competition in retail sector at big cities in China even
fiercer (Shin/Kim/Kim 2020, p. 1). Examining the case of the Chinese retail market and
the competition between local brands and foreign brands in this particular marketplace
is very useful to understand the retail internationalization (Shin/Kim/Kim 2020, p. 2).
Figure 10: Timeline of Foreign Grocery Retailers Entering China in the 1990s
Source: Hardaker (2017, p. 55)

In the contemporary landscape, the Chinese retailing market is featured by the

substantial shift toward online environment. In particular, since the turn of the new
decade in 2010, the Chinese retail industry has dramatically transformed from the
physical outlets to online outlets, this trend not only drives the online shopping but also
reshapes the shopping habit of local consumers. Figure 11 depicts the annual growth
rate of the Chinese e-commerce between 2014 and 2018. Accordingly, this diagram
highlights the rapid expansion of this emerging sector with the average annual growth
rate of up to around 10% (PwC 2020, p. 2). In fact, e-commerce (or e-retailing) in China
has quickly been popular among local consumers due to the rise of Internet and
smartphone booming. With a huge demand from the local market due to its population
size, e-commerce has quickly been trendy among young consumers. Figure 12
illustrates that, as compared with the avarage of the world, Chinese consumers are
more proactive in adopting e-retailing as their online purchases via mobile phone, PC
and tablet are considerably higher than the global average rate. This motivates many
retailers in China, including foreign brands, to transform into online platforms as the new
front of the competition (PwC 2020, p. 5). At the present, livestreaming e-commerce is
evolving in China and recognized as the latest form of e-retailing in this country beside
social e-commerce rise (i.e. online shopping via social media platforms) (Hu/Chaudhry
2020, p. 1019).
Figure 11: Chinese E-Retailing Growth between 2014 and 2018
Source: Global Consumer Insights Survey 2019 China Report (p. 2)

Figure 12: Chinese E-Retailing Emergence in 2019
Source: Global Consumer Insights Survey 2019 China Report (p. 5)
5.3. External Factors
This section is particularly focused on examining the two external variables that have
led to retail divestments in China, including cultural distance, and competition.
5.3.1. Cultural Distance
As mentioned previously, when it comes to international business environment, culture

becomes an primary consideration. In fact, culture plays a critical role in explaining the
failure for many Western divestment cases in China, of which Tesco is a prime example
to be discussed here. This British retail giant entered the Chinese retailing marketplace
quite late in 2004, after 11 other international grocery retail chains, by taking over 50%
ownership of the local Ting Hsin International Group to establish a new brand name
called Tesco 乐购 , and this multinational retailer had to officially exist the Chinese
market in early 2020 this year by selling its current stake to the state-owned partner
China Resources Holdings (CRH) (James 2020). The main reason behind this
divestment is attributed to its failure in understanding Chinese cultures. In the initial
days, Tesco implemented clubcard, which is very popular in the UK as its home market,
as a secret weapon in order to gain an advantage over domestic rivals. However, it did
not take into account the cultural differences here. In fact, the effectiveness of this
loyalty program is overestimated as Chinese consumers are ill-suited to the clubcard
approach (Pendrous 2013). In particular, around two-thirds of Chinese consumers who
joined this clubcard program of Tesco also held the loyalty card from four or even more
other retailing chains. Chinese consumers generally want to take more choices for
controlling their shopping power and seeking more satisfying shopping experience
(Pendrous 2013). Chinese purchasers prefer to carry multiple cards to shop around and
this means that clubcard program, which was successful in the UK, was not appealing
to Chinese customers who are not particularly tied into a certain retailer. This mistaken
replication without considering carefully shopping habits failed to help this British retailer
to gain a competitiveness in the Chinese market. More broadly, in a collective society,
interdependence through building mutually beneficial relationships is important in China
(i.e. guanxi culture) and it appears that Tesco, which already entered too late, was
unable to realize this cultural business practice in China (Hopkins 2015). Until 2013, it
conducted a merge of 131 own outlets with 2,986 stores from the China Resources
Enterprise (CRE), the purpose was to take advantage of the good relationships of CRE
with the local government as well as gain better market knowledge (i.e. reducing
psychic distance) (Hopkins 2015). However, as said, it is late for this British retailer to
make any changes.
Figure 13: Number of Walmart Outlets in China between 2013 and 2020
Source: Statista (2020d)
Another instance related to culture is the case of Walmart, which was recognized as
one among very initial major international brands that opened the first outlet here in
1996. Regardless of this early expansion, so far, Walmart only has just-above 400
outlets in China and the number of stores in China remains almost unchanged over the
past decade (see Figure 13). It even discontinued 29 stores in 2013 (Clayton 2017).
Although this American retailer does not officially withdraw from the Chinese market, it
is largely considered a failure case in this lucrative and rapidly growing retail market as
its attempt to make expansion get stumbled here. Overall, aside from political barriers,
one of the underlying reasons attributed to this unsuccessful expansion of Walmart is
that the retailer fails to read Chinese consumers and provide a suitable outlet model to
the local market. This prevents Walmart from seizing the chance to capitalize during the
golden time for retailing growth in China.
Like Tesco, Walmart fails to understand the role of guanxi in Chinese context. For
example, workers at Walmart China only receives an average of salary of $300 USD
per month although they keep requesting for improving this wage rate and Walmart
rejected this demand (Clayton 2017). This example illustrates that Walmart has been
unsuccessful in building the warm relationships with both people and local government
as well as suppliers. Recently, Walmart seems to recognize the importance of guanxi by
partnering with JD.com as the domestic biggest e-commerce retailer to rely on its
relationships but similar to Tesco, it seems too late for this American giant to make a
substantial change in the Chinese market (Clayton 2017). It could still survive in China
due to its advantages derived from an early entering, not from successful relationship
buildings. Another illustration to show that Walmart failed to understand the Chinese
market is that the company applied the same algorithm as it does in the home market to
determine inventories in stores but this prediction is often not accurate because of
remarkably changing consumer shopping habits in China (Clayton 2017).
To make comparison, Sun-Art retail group, which is a local retail brand, has been
extremely successful in China. This is because this is a local retailer and better at
understanding consumers behaviors and tailoring the local tastes as compared to
foreign brands like Walmart (Clayton 2017). Another very successful case is RT-Mart
from Taiwan, which is widely deemed as one of the most successful foreign retailers in
China at the present, although this latecomer just expanded into China in 2013
(Shin/Kim/Kim 2020, p. 1). This is due to the fact that both Taiwan and China share
many similar cultural features given the history of both nations and geographical
proximity, and this suggests that the psychic distance for RT-Mark be very low as the
company can easily understand the Chinese market and consumers and do not
encounter many cultural barriers here. For instance, unlike Walmart and Tesco that
hesitate to make cooperation with local chains, right after entering, RT-Mart
collaborated with the domestic brand Auchan as the leading physical food retailer in
China in order to quickly access the knowledge of store operation management
(Shin/Kim/Kim 2020, p. 2). The success of RT-Mart is an unusual case because as of
2017, only after four years, RT-Mart had totally 383 stores across China with revenue of
RMB 9.5 billion in the same year, making an impressive breakthrough with exponential
expansion in this world’s largest retail market (Shin/Kim/Kim 2020, p. 2). This quantity is
equivalent to that of Walmart that entered China before RT-Mart almost two decades.
Another successful factor for RT-Mart is their localization strategy that has constantly
been employed since entering in 2013 (Shin/Kim/Kim 2020, p. 2). This Taiwanese brand
shows a strong willingness to make flexible adaption to the Chinese culture better than
other Western counterparts.
In both failed cases above, namely Tesco and Walmart, the mutual underlying reason is
related to the failure to understand guanxi cultural feature. As the Chinese culture is
deeply rooted in the Confucian values, the business environment here is heavily reliant
on interdependent relationships in order to accomplish the success. This very unique
Chinese business culture is also known as “guanxi” that is focused on the mutual
relationships between sellers and buyers, and between sellers and other stakeholders
such as suppliers or government (Chuang et al. 2011, p. 446). This guanxi is formally
constructed as the interrelated relationships and social connectedness based on mutual
benefits and interests (Lee/Dawes 2005, p. 28). Figure 14 presents the comparison
between China and the US on different Hofstede national cultural dimensions and it is
apparent from this figure that the two countries are significantly different in terms of
individualism as China is scored very low on this dimension while the US follows an
opposite pattern. In other words, Chinese society is highly collectivistic, which helps to
explain why guanxi network really matters when doing business in this world’s most
populous market.
Figure 14: National Cultural Comparison between China and the USA
Source: Hofstede-Insights
5.3.2. Competition
The fact that the Eastern part of China is more developed than other parts of the
countrY since this area consists of many coastal cities like Shanghai or Shenzhen. As a
result, when entering the Chinese retail market, the majority of international retailers
chose to open first stores and focus on the retail segment in these Eastern cities. This
makes the competition in these major cities like Shanghai or Beijing very tough. For
example, Figure 15 shows the high level of rivalry in Shanghai in early 2000s, the time
when many foreign brands expanded into China. Most of international brands faced stiff
competition when initially operating their business in this part of China. Carrefour
decided to concentrate on the retail segment in Shanghai and this forced this French
retailer to encounter the competition with many other brands such as Ahold from the
Netherlands, Metro from Germany, FamilyMart from Japan or domestic brand Auchan.
Figure 15: International Grocery Retailers’ Entry Locations until 2000

The first instance related to the tough competition in the Chinese retail industry is Best
Buy, which is regarded as one of the world’s biggest home appliance and electrics
chains. Best Buy entered China in 2006 by taking over Jiangsu Five Star as a domestic
fourth largest retailer of consumer electronics in China (Xie et al. 2016, p. 132). This
expansion was largely driven by the participation in the WTO of China in 2001
(Amankwah-Amoah/Zhang/Sarpong 2013, p. 298). However, Best Buy encountered a
tough and cut-throat competition from local chains which are famous for offering cheap
electronic products. Many domestic retailers like Suning or Gome sacrificed their profit
margin to pursue low-cost strategy so as to gain large market base, this low pricing
strategy helped these brand to occupy up to 70% share in big cities in China. When
entering China, Best Buy’s goal of changing the landscape of electronics market by
offering high-quality digital products failed because in 2000s, Chinese consumers were
still highly price-conscious. Especially, with the focus on online selling, Best Buy
attempted to differentiate its business model through superior quality of services.
However, local websites like Yihaodian, 360buy.com or Taobao where offered very
cheap products became the main obstacle for this differentiation strategy of Best Buy,
which was perceived by local consumers to be “too expensive”. This made Best Buy
products less competitive in the online market in China (Amankwah-
Amoah/Zhang/Sarpong 2013, p. 299). In fact, Best Buy was uncompetitive in China due
to its wrong pricing approach. It charged premium pricing given the added values of
services, which were aimed at shaping the competitive edge for Best Buy in China.
Unfortunately, such services could easily be available in other local stores where sell
similar products with considerably cheaper price. This American business model failed
in China at the time when many local consumers were still very price-sensitive (Xie et
al. 2016, p. 132). Plus, the intensity of rivalry was high for Best Buy from both physical
and online stores. For example, Gome and Suning, two local names, already created an
oligopoly with over 100 outlets in different cities in China with strong distribution network
to lower their price. Best Buy as a latecomer was toughly competed by these domestic
chains. Another competitor of Best Buy was Apple, while Apple can implement its
differentiation via the unique features of both superior owned products and services, it
was hard for Best Buy, which was less reputable, to do the same thing (Xie et al. 2016,
p. 132). Also, the bargaining power of customers in China is very high as they have a
variety of choices from both online and offline stores. Eventually, a stiff competition and
failure in differentiating the products associated with higher pricing model forced Best
Buy to leave China in 2011 (Amankwah-Amoah/Zhang/Sarpong 2013, p. 298).
While Best Buy mainly faced the fierce competition from online front, Home Depot is
another case that encountered the intensifying rivalry in the traditional physical front.
Home Depot entered the Chinese retail market in the same year as Best Buy, 2006, by
acquiring 12 local outlets from the Home Way, a local chain Buy (Xie et al. 2016, p.
133). In 2012, this American home improvement retailer must leave the country after
seeing a continuous loss in six consecutive years. As a latecomer, Home Depot could
only select suburban areas to open its stores and these inconvenient locations are too
far to attract middle-income people who mainly reside in downtowns or urban areas.
Thus, as customers in these suburban locations are more price-sensitive, Home Depot
faced the same issue as Best Buy (Xie et al. 2016, p. 133). The competition was really
tough and one of the main foreign rivals for Home Depot was IKEA, which already
became popular and gained a huge market share in China before Home Depot entered.
IKEA offered low-pricing model and provided low-cost assembling service for Chinese
clients with guidance while Home Depot could not do the same thing (Xie et al. 2016, p.
133). Chinese retail market is a crowded marketplace with many local and foreign firms,
a lot of domestic chains like QM Quanu, TaoBao and Gome also competed with Home
Depot. In reality, Home Depot with very limited number of outlets (reducing from 12 in
four cities in 2006 to only 7 in three cities in 2011) cannot establish its economies of
scale in China. This small scale was therefore not attractive to suppliers to strike the
deals, this made Home Depot much less competitive in terms of pricing because it failed
to target price-sensitive customers with only less than 10 stores across the country
(Gao 2013, p. 182). Although Home Depot was listed in Fortune 500, this reputation
was useless with very tiny market share due to limited number of outlets in China. As
such, this small sales volume led to the fact that Home Depot could not compete with
others on prices (i.e. as it cannot gain economies of scale to pursue a cost-leadership
model, Banker/Mashruwala/Tripathy 2014, p. 875) and must exit China in 2012.
Another case for the tough competition in China is Walmart. As being illustrated in Table
1, both retail unit and square feet of Walmart, two important indicators to assess the
retail performance, only see a very marginal and sligtht increase in China from 2014 to
2018. In comparison with other international markets like Chile and Argentina in the
Latin American region, it is apparent that Walmart performed poorly in the Chinese
market because both unit count and square feet in Argentina and Chile increase rapidly.
This obviously demonstrates the unpromosing sign of its performance in China while
China is the largest market in Asia-Pacific region for Walmart with the biggest number of
stores (see Table 2). The number of Walmart stores in Japan, the second largest
market in Asia, was 336 in 2018, which was just-above three-fourths of that in China
(424 outlets). One of the reason for the unexpected performance of Walmart in China
comes from the intensifying competition of local brands, and Sun-Art Retail Group is the
main domestic competitor of Walmart in China. Table 3 compares the number of stores
of major supermarket chains in China over two decades from 1996 to 2015. In 1996,
Walmart already entered the Chinese market to take advantage of first mover while Sun
Art retail group, which owns the local Auchan and RT-Mart from Taiwan, was not
established yet. However, in 2015, Sun Art group had turnover of €15.47 billion with 409
outlets while Walmart only gained total turnover of €10.55 from a slightly high number of
432 outlets. This difference highlights the poor performance of Walmart in China as
compared to this main local rival, which can basically be attributed to the tough rivalry
from such local chains as Sun-Art group.
Table 1: Walmart Retail Unit and Square Feet in 2018
Source: Walmart Annual Report (2018, p. 11)
Table 2: Walmart 2018 Geographical Market
Source: Walmart Annual Report (2018, p. 11)

Table 3: Top Supermarket Chains in China, Comparing between 1996 and 2015
5.4. Internal Factors
This section is specifically concentrated on analyzing the two primary internal variables
that resulted in divestments in the Chinese retail sector, namely parent company’s
leadership and management, and market entry strategy & ownership.
5.4.1. Parent Company’s Leadership and Management
One of the most illustrative examples about failed management is Carrefour. This
retailer entered the Chinese market very early, in 1993. This early expansion helped this
French retailer to gain initial success and grow very fast in China in early 2000s as one
of the first comers (Hardaker 2017, p. 55). However, since the turn into digitalized era,
Carrefour has failed to adopt the digital business model and this becomes the primary
reason for leaving the country in June 2019 by selling 80% of its stake to Suning
International that belongs to the Suning Group, which is a local retailer. After nearly
three decades of operation, Carrefour had to exit the worlds‘ most emerging market due
to its failure in upskilling the orientation toward e-commerce (Siebers 2019). In 1993, it
entered China by establishing a joint venture and opening the initial store in Beijing.
This early expansion allowed Carrefour to enjoy a fast-growing pace by forming a
handful of flagship outlets and procedures for high-quality food provision in China
(Siebers 2019). Since 2010, however, while the Chinese retail sector has begun to
quickly digitalize in the wave of e-retailing upsurge, Carrefour has still struggled with
closing its physical stores, which are mainly hypermarkets. It responded slowly to the
transformation from in-store shopping experience to online shopping experience in the
world’s biggest e-commerce market (i.e. China represents up to 40% of the global e-
commerce volume) (Siebers 2019). Aside from the slow adoption of e-commerce
tendency, Carrefour also did not pay enough attention to supply chain process. In 2015,
after more than 20 years of operating in China, it just formulated its first six warehouse
distribution and logistics centers in major cities in China (Siebers 2019). This move is
very late as compared to other competitors and it is thus too late for this French chain to
regain its market share in China, which is highly fragmented and capitalized by a
mixture of both domestic and foreign brands. Moreover, since changing the CEO in
2006, Carrefour has pursued the profit-seeking model that only focuses on short-term
profitability. Its cost-effective orientation led to the lack of investment in material, human
and financial resources (e.g. it just opened first distribution centers in 2015 due to this
strategy). This shortage of resources did not allow Carrefour to maintain its
competencies and competitiveness gained as first mover to survive in the Chinese retail
market (Siebers 2019). This could be considered from the resource-based view that is
identified as one explanation for foreign retail divestment (Schmid/Morschett 2020, p. 1).
That is, without sustainable sources, Carrefour failed to build its competitive edge in
China.
Another case to be analyzed here is Walmart. As stated formerly, although Walmart still
maintains its presence in the Chinese retail market, this American giant can be
regarded as an unsuccessful case when expanding business into China. With the focus
on cost leadership strategy to gain the competitiveness, Walmart implements different
tactics to gain its low pricing goal as it does in the US home market: low wage, EDLP
(every-day-low pricing), tough pressure on suppliers to lower logistics cost, harsh anti-
union policies and aggressive expansionism. In China, Walmart replicates and relies on
these tactics asssociated with every day low pricing model (Trefis, 2014). Nonetheless,
with increased disposable income and rising number of middle-income people, Chinese
customers are not price-driven anymore and many of them become more interested in
customized items as well as shopping servicescape associated with local tastes, which
are unfortunately not fulfilled by Walmart outlets with poor design and confusing
inventory arrangement. While local consumers tend to pay more attention to authenticity
and high quality of products, Walmart fails to understand this ever-changing
expectations, and every day low prices (EDLP) makes Walmart products perceived as
cheap and unsafe in China (Trefis, 2014). Thus, this strategy actually backfires in the
Chinese market. In this regard, Matusitz/Minei (2013, p. 7) emphasized that flexibility is
the key for survival in international markets, which should be interpreted as

implementing glocalization that is focused on an adequate degree of cultural adaptation.
Although Walmart competed on pricing in China, this pricing-focused strategy failed as
explained above because the company does not take a local perspective to make
adjustments. Overall, this indicates the wrong management strategy that Walmart has
been implementing to manage its business and operation in the Chinese retail market.
This inappropriate leadership style makes foreign brands like Walmart lag behind local
brands when these international retailers failed to gain adaptation and local knowledge
and expertise while Chinese retailers quickly caught up with foreign counterparts in this
battle (Hardaker 2017, p. 65).
Table 4: Comparing Different Determinants among Foreign Retailers in China
Source: Shin/Kim/Kim (2020, p. 2)
In the latest publication surveying local consumers who have experienced with all
Walmart, Tesco, and RT-Mart, the results indicate that British Tesco lagged behind
Taiwanese RT-Mart in various factors: quality of product, location and convenience (due
to Tescos’ late expansion), atmosphere, price, and frontline employee service provision
(Shin/Kim/Kim 2020, p. 1). This survey was taken place in nine main cities throughout
China and targeted 909 local customers who shopped with these three brands in the
past. On 5-point Likert scale, Table 4 shows that the mean for Tesco on quality of
product, price, location, convenience, brand, atmosphere, and service is statistically
lower than that of RT-Mart from Taiwan. This helps to explain why Tesco had to leave
China in a highly competitive marketplace. Specifically, it should be noted that location
undoubtedly plays a vital role in the retail market and RT-Mart takes a very strategic
move by not focusing on big cities like Shanghai or Beijing where the competition is
fierce but rather mainly concentrating on less competitive second and third-tier cities.
This helps to avoid the tough competition with other local and international brands as
being seen in big cities. Importantly, unlike Tesco that struggled to find good locations,
RT-Mart from Taiwan could quickly find good locations to open their stores in second
and third-tier cities in China (Shin/Kim/Kim 2020, p. 2). Overall, the inferiority of Tesco
to RT-Mart signifies the inappropriate and poor leadership style of top managers of
Tesco in the Chinese market.
5.4.2. Market Entry Strategy & Ownership
Ahold, a Dutch international retailer, expanded into Asia 1996 by opening initial stores in
both China and Malaysia under Tops brand name. In China, it partnered with a local
supermarket chain named Zhongui to establish a joint venture (see Table 5). Its original
goal was to offer fresh foods through improving the supply chain and warehouse system
(Palmer/Quinn 2007, p. 37). Surprisingly, in October 1999, after only three years of
operating in China, this Dutch brand announed its divestment in China to concentrate
on other Asian markets like Thailand. The reason behind this failure is due to the poor
partnership with the local Zhongui. In the Chinese market, Ahold’s Tops faced the tough
competition from Hua Lian and Lian Hua, which are two state-owned chains that
received a lot of tax incentives from the Chinese government, this two chains occupied
up to a half of market share in Shanghai, a focal competitive hotspot (Palmer/Quinn
2007, p. 38). Meanwhile, by collaborating with Zhongui, which is just a private and less
powerful company, Ahold was unable to get any supports from the government in terms
of taxation and location. In fact, with the poor strategic parnership, Ahold chose the
wrong format by using small stores to target Chinese customers whereas hypermarkets
already started to be popular during this time in China (Aholds‘ size of below 10,000
square feet as compared to from 100,000 to 300,000 square-feet of hypermarkets from
other rivals like Auchan, Carrefour or Auchan. These small stores were also located in
very disadvantaged areas as Zhongui was not really a big retail name in China at that
time and this local brand, as a private retailer, was also not favored by the Chinese
government. Plus, the price model of Ahold was too hight to attract local consumers
who were highly price-conscious in the mid 1990s (Palmer/Quinn 2007, p. 38). These
together forced the company to leave the country very soon, which is the consequence
of its poor ownership and entry mode.
Table 5: Ahold’s Divestment in Asia in the Second Half of 1990s
Source: Palmer/Quinn (2007, p. 36)
5.5. Discussion
Table 6 summarizes the examination of different divestment cases in the Chinese

market that have been critically analyzed previously.
Table 6: Summarization of Variables
Variables Cases
Cultural Distance Tesco, Walmart
External Sources Competition Home Depot, Best Buy, Walmart
Parent Company’s Leadership and Management Carrefour, Tesco, Walmart

Internal Sources Market Entry Strategy & Ownership Ahold
The main focus of this section, however, is not to provide that summarization but rather
to critically discuss and compare the results of those multiple cases analysis that has
been presented thoroughly with the prior academic literature that was reviewed in
chapter Three. A number of key points are particularly noted as below:
First, there is in general a consistency between theory and practice. In particular, while
literature provides theoretical knowledge of classification on international retail
divestment causes, practical findings support this base of knowledge with confirming
that international divestment in the context of Chinese market can generally be driven
by both internal source that is related to parent firm or unit and external source that is
related to industry-level and/or macro-level characteristics of the host country.
Second, without compromising the above consistency between practice and theory, it
should still be noted that not all theoretical factors work in practice as found in this case
analysis. For instance, although a number of global chains had to leave the Chinese
market due to an increase in labor cost (Song/Wang 2018, p. 190), economic conditions
would not be a barrier (factor) to be analyzed in this chapter as the Chinese economy
and especially its retailing market have grown quite stably over the past decades. Thus,
it is unlikely that international retailers must exist China due to the poor potential of the
Chinese retail sector.
Third, Burt/Coe/Davies (2019, p. 177) stated that the extant literature in the domain of
international retail divestment mainly provides divestment-driving factors that work
independently while lacks a discussion on the interaction between these factors,
meaning that it is possible for variables to interact with each other in order to jointly
result in an international market failure. This current study responds to this calling by
having shown the interactive relatedness between the suggested variables. Overall,
these variables/factors in this thesis are not mutually exclusive but rather inter-related.
For instance, the cultural misunderstanding of Walmart and Tesco is actually linked to
their poor management practice in China. More broadly, what can be inferred from this
is that divestment failure should be perceived from the perspective of multiple sources,
contradicting the idea that divestment is caused by a single source.
Fourth, while competition is an underlying external factor, the source of competition can
come from either global landscape or local landscape. Therefore, the rivalry in Poster’s
Five Forces framework for the Chinese retail market is sourced from both local and
global sides.
Fifth, cultural differences are indeed a critical reason for international retail failure. The
lack of understanding of local consumption patterns and cultures due to unsuitable entry
mode and shortage of market knowledge and expertise threatens the business
operation. Meanwhile, national cultural differences such as high index for collectivism in
China also represent severe challenges that many global chains have under-estimated
when expanding into this world’s most populated country.
Finally, unlike what is theoretically reviewed, all cases that have been examined within
this chapter imply the negative and reactive perspective on retail divestment. That is,
divestment is the result of the market failure and is not a strategic movement of the
multinational retailers to reallocate resources to new markets. This thus contradicts the
prior scholarship supported by a number of management scholars looks at international
retail divestment in a proactive and positive fashion (cf. Cairns et al. 2010, p. 28;
Grunberg 1981, p. 14; Palmer 2004, p. 1083). This also highlights a gap between theory
and practice as not all theoretical arguments are correct when particularly applying them
to a practical context.
This is an important chapter within this thesis report because its central emphasis has
been placed on analyzing multiple divestment case studies in the Chinese retail
industry. The analytical strategy in this chapter has been associated with chapter Three
in which internal factors and external factors that drive international retail divestment
have been examined separately. While management and market entry strategy have
been analyzed as two primary internal variables, competition, cultural distance, and
macro conditions have been carefully addressed as three external variables. In each
branch, different case studies have been taken as examples to support or contrast the
theoretical base. In the end of this chapter, a discussion has been made to compare the
case analysis part with the theoretical part in chapter Three. In the next chapter,
implications for both theory and practice derived from this current thesis study will be
discussed in detail.
Conclusion and Recommendations 55
6. Conclusion and Recommendations

This final chapter wraps this thesis paper up by suggesting the implications derived from
this current study. In particular, several ways that this research could contribute to the
existing scholarly marketing literature, especially within retail divestment domain, are
highlighted while practical recommendations to retailers are also addressed based on
the previous analysis of case studies, these insights are expected to serve as a
benchmark for future international retail expansion. Subsequently, some limitations are
acknowledged together with the according directions for further improvements in further
research.
6.2. Theoretical Implications
It should initially be noted that theoretical building is a main emphasis for qualitatively
focused studies as compared to quantitatively based studies because qualitative
method like case study is highly associated with inductive approach that is particularly
focused on theory building (Eisenhardt 1989, p. 534). Therefore, the theoretical
contribution of this present thesis paper should not be under-estimated. In particular,
this research study would contribute to the extant scholarship within retail domain in
several following ways:
First, when it comes to international business and marketing research, literature within
this particular discipline provides abundant results on successful factors of international
investment, however, research on the opposide side of the coin, namely international
divestment, is in general less competent in both quality and quantity, leading to the
mixed and scarce results when considering factors that drive international retail
divestment. This current study reacts to this literature paucity by proposing a range of
internal and external factors that could account for divestment in international retailing,
thus remarkably contributing to this ongoing academic conversation.
Second, within the domain of international divestment research, although prior studies
have already examined Asian contexts like China where many international retail
divestment cases have been reported (e.g. Chuang et al. 2011; Yu/Ramanathan 2012),
the findings remain mixed and contradictory. This study responds to this research
inconsistency in this particular market by examining multiple divestment cases that were
recognized in China, thus providing a scholarly source of international retail divestment
that can support further divestment research for this chosen marketplace.
Third, while past research has provided an inconsistent and ambiguous picture
regarding driving-forces of international retail divestment, this current study attempts to
review those factors in a systematical manner in order to classify them into internal and
external sources. Indeed, this is among first studies that establish a well-structured
classification of divestment-driving factors within the discipline of retailing research as
most of prior systematic review papers (e.g. Palmer 2004, p. 1078) have failed to
provide a holistic understanding of international retail divestment from the reasoning
perspective.
Finally, Burt/Coe/Davies (2019, p. 177) stressed that the extant body of literature within
international retail divestment area mostly looks at divestment-driving factors
independently while lacks a discussion on the interaction of these variables. This study,
despite examining proposed factors separately, has contributed to this calling by
addressing and highlighting the interrelatedness between different factors within the
particular context focus of this study.
6.3. Managerial Implications
In pace with economic integration and globalization, global retailers have increasingly
expanded their overseas operations but mostly focused on the critical success factors
and key competencies for market entry while paid insufficient to factors that could result
in the failure (Burt/Coe/Davies 2019, pp. 177). In relation to this, Benito (2005, p. 247)
highlighted that since divestment is an integral part of business practice, it is critically
strategic for retailers to deal with this practice by understanding potential factors that
could lead to discontinuing the foreign operations in order to prevent it. In other words,
in parallel with considering factors that guarantee the success for a new expansion,
retailers need also to take into account factors that might hamper their entry. This
section therefore provides guidelines for international retailers that look for new
business opportunities via a physical presence in a foreign country. In particular, the
managerial recommendations here are linked to the findings of the examination of case
analysis in the previous chapter, which are particularly discussed as follows:
First, it is important adapt to the local culture of the host market. As being shown
previously, multinational retailers which are unable to carry out an effective adaptation
to the local culture and a compliance with domestic norms encounter difficulty to
operate and monitor the unit successfully. Retailers must therefore be well prepared to
absorb the cultural differences, otherwise they will be in risk. Some multinationals,
based on their reputation in the global market (e.g. Walmart in China), seem
overconfident to expect similar performance will be gained as seen in their home market
and underestimate the importance of domestic market culture and social norms (e.g. not
hiring local workforce), and this wrong perception actually backfires. In the reality, it is
not unusual that many retailers are better known on a domestic level than they are on
an international level, thus relying on domestic reputation as the motive for international
expansion is risky. To overcome this, it is strongly suggested that global retailers hire
local talents and employees who can understand the domestic market better than
foreigners from the home country (i.e. polycentric staffing), in order to provide services
and products that are suited to local taste and meet local consumers’ needs. In this
regard, polycentric staffing approach, as discussed formerly, reflects a local perspective
in recruiting employees for subsidiary unit, thereby MNCs are prone to recruit local
personnel from the host market to take management positions in the unit
(Konopaske/Werner/Neupert 2002, p. 761). Furthermore, conversation with local labor
force is also useful to figure out efficient ways that can connect with local shoppers
through marketing mix 4Ps and customer relationship building.
Second, when expanding into a new market, the competitive edge must be obtained
quickly in the host market, this is essential to mimic the competitiveness in the home
market so as to rapidly gain economies of scale to compete with local chains and to
capture the host country’s market share. Because the retail industry largely competes
on the pricing (i.e. cost leadership strategy), gaining economics of scale is the way for
enjoying high profit margin based on a massive amount of sales, instead of relying on
the premium pricing model. Hence, prior to make an expansion, parent companies
should carefully evaluate their existing advantages and consider those that can be
replicated in the new market. If not possible, alternative solutions that can generate
equal advantages must be thought in advance to ensure a successful entry. To
successfully attain this competitive advantage, retailers have to expend cost for cultural
adaption to foster the market learning process (i.e. gaining market knowledge).
Furthermore, the likelihood of gaining this competitiveness is strongly contingent upon
the level of competition in the host market, which could come from both local chains and
other foreign chains that have already entered. As retailers often offer similar products
and goods, only competing on pricing does not guarantee a success for multinational
retailers in their international expansion. Therefore, they must also differentiate
themselves from other players through their supply chain system, such as vertical
integration to lower price and control the suppliers and distributors.
Third, given the rise of e-commerce on a global scale, e-retailers like Amazon or
Alibaba reshape the global retail industry and really threaten the traditional retailers like
Walmart, Home Depot, or Tesco. In fact, online shopping has significantly boomed
thanks to widespread Internet access and smartphone popularity and become an
intrinsic part in the daily life for millions of young people (Nielsen report 2018, p. 2). This
implies that when entering a new market, multinational retailers compete with not only
local and foreign players but also online shopping sites, this aspect of competition was
not addressed in chapter Five because most of divestment cases in Chinese were taken
place in 2000s when e-commerce was not so popular. In this battle, focusing on
technologies is a good strategic step toward gaining a competitive edge because

research shows that those retailers who are able to implement advanced technologies
can take advantages as first movers to enjoy the market share gain (Demoulin/Djelassi
2016, p. 540). For example, self-service technologies (SSTs) like unmanned stores are
increasingly being adopted in retail industry to allow buyers to just scan and pay for their
chosen items via smartphone without the assistance from service staff, but most of
retailing giants just trial SSTs in the home market (e.g. Amazon Go in the US, Tesco
shop and go in the UK) (Wood 2018). According to the latest Zion Market Research
report (2018), the global retail self-service technology sector has kept expanding and is
projected to reach totally $37.75 billion by 2021 (please see Figure 16). Given this
meso-business emergence, unmanned stores scheme needs to be expanded into other
foreign markets because investing in this new technology, as part of omni-channel
retailing that integrates online channel and offline channel for seamless shopping
experience, is the only way for traditional brick-and-mortar retailers like Tesco to directly
compete and keep pace with online retailers in foreign emerging markets where online
shopping becomes more popular and accounts for an increased share of the total retail
industry.
Figure 16: Global Retail Self-Service Technology Market between 2015 and 2021
Source: Zion Market Research (2018)

Four, while entering a new overseas marketplace requires a combination of both

adaptation strategy and standardization strategy, it is vital that the parental retailers take
a global mindset in order to leverage their degree of global competitiveness. This should
be understood that localization should be made with carefulness that does not
compromise the globalization of the companies aimed at helping them reach the
success on a global basis. If retailers implement a totally different strategy in each
single market, they cannot form unique competency on a global scale, not mentioning
the high cost of this over-localization. This requires retailers to have global knowledge,
which can be obtained by hiring globally talented employees who have cultural
understanding across different cultures, and to have the flexibility in their global
expansion so that the specific strategy in each international market can be adjusted
(Ryu/Simpson 2011, p. 7). It is important to recall here that in today’s international
business practice, many multinationals have increasingly adopted glocalization strategy
that integrates both global element and local element (Hollensen 2017, p. 122). While
global component is the core of these international retailers, gaining local component
such as cultural and market understanding, effective advertisement and distribution
network, relationship with local suppliers, or social acceptance requires multinationals to
translate and localize its home-based successful recipe (i.e. think global but act local).
In the retail food industry, franchising is a typical example in the light that standardized
quality among outlets is the primary priority but at the same time food retailers also
adopt local taste to better serve local consumers.
Fifth, institutional characteristics of the host country are of importance that should be
taken into account and carefully researched prior to expanding internationally. Also,
high cultural distance is associated with the great likelihood of being divested, meaning
that when the foreign market is the same cultural cluster as the home country, the
cultural distance is trivial and thus the divestment is less likely to happen as compared
with a culturally distant market. Depending on the prior international experience and
market knowledge gain, retailers have to think strategically to reduce risks as a result of
cultural distance when entering a culturally different market from the home country,
which means that the decision to choose a market entry strategy must be reliant on a
number of factors: prior international experience, cultural difference learning, and
psychic distance between home market and host market.
Sixth, the deeply rooted motive for international retail business activities is driven by
economic globalization but the world’s economic picture is now highly dynamic and
unpredictable. Protectionism and nationalism under Trump’s precidency and Brexit are
showing signals of so-called anti-globalization (Ghemawat 2017, p. 112), and this
predicts the trend of this anti-globalization in the future. Multinational retailers should
therefore taken into account this tendency in planning their future international
expansion. This is particularly concerned given the current situation of COVID-19

outbreak that spreads globally and forces many governments to limit or close their trade
activities, and this pademic definitely affects the expansion of multinational retailers in
the short-term and the whole global retail industry in the long-term. In fact, this status
quo puts local retail chains in many countries at risk of bankruptcy and thus creates an
ideal condition for nationalism that protects these domestic retailers in order to reduce
unemployment rate because a large portion of labor force in many markets is employed
in retail sector (Roberts 2020), in turn intensifying the entry barrier for international
retailers who want to make foreign expansion during this special period of time. This
also encourages consumers to switch to e-commerce as a socially distant solution that
threats the traditional brick-and-mortar retail industry (Roberts 2020). In a nutshell,
given the tendency toward anti-globalization and the outbreak of COVID-19,
multinational retailers are strongly recommended to make changes in their overseas
business model to adapt to this situation such as focusing more on online ordering and
quick delivery service. The latest market research conducted by Statista in February
2020 in the UK retail market (covering health, beauty, fashion, and food categories), as
seen in Figure 17, indicates the negative impact of this COVID-19 on their sales growth
as three-fourths (75%) of surveyed retailers peceived a significant level of this adverse
impact, alarming global retailers to have planning in order to cope with this difficult time
when expanding internationally.
Figure 17: Perceived Impact of COVID-19 on Retail Sales
Source: Statista (2020e)

Finally, it is of relevance to consider the impact of the COVID-19 on the Chinese retail
market. The latest survey being conducted by Deloitte China (2020, p. 5) and targeting
a large number of local supermarkets, convenience stores, and shopping centers
reveals that most of local retailers perceive the strong negative influence of this COVID-
19 pandemic on the number of physical customers in the traditional domestic retailing
industry. This is also consistent with the rapid shift toward online shopping. Especially,
Figure 19 shows the change in sales of various product categories in the Chinese retail
market in the first two quarters of 2020 (i.e. COVID-19 time). Accordingly, while the
demand for most of products decreases, the demand for western medicine, daily
necessities, foods, and communication devices increase. These are needed items that
local consumers want to buy when they stay at home more due to travel restrictions and
lockdowns as a result of the epidemic. Therefore, any international retailers that wish to
enter China during this special time might consider to adjust their supply chain and
warehouse for more inventories on these kinds of producs.
Figure 18: Perceived Impact of COVID-19 on Number of Customers in China
Source: Deloitte report (2020, p. 5)
Figure 19: Revenue Changes in Chinese Retail during COVID-19
Source: Statista (2020f)

6.4. Limitations and Future Improvements
Whilst this current study has basically accomplished the initial research objectives as
being set in the beginning of this paper, there remain a number of limitations that should
be discussed and acknowledged here for future improvements purpose. These are
particularly listed as below:
Firstly, perhaps the biggest drawback of this current thesis paper lies principally with the
use of secondary data. Indeed, as a secondary research, this study is limited within only
secondary sources of data which are already available. Although secondary data are
abundant, easily accessible and cost-effective, given its nature, secondary data do not
perfectly fit into this current study. Plus, since secondary data are not collected by the
principal investigator, this sort of data might not always be reliable but the researchers
still have to totally rely on such secondary sources for reaching the research goal
(Castleberry 2001, p. 197). Obviously, the sole use of secondary data poses a major
limitation for this current study. Future researchers may therefore want to consider
implementing primary research, for example, in-depth interview with managers of global
retailers can also be conducted to explore the topic in a qualitative fashion.
Secondly, the exploratory nature of this present research study enabled implementing
qualitative case study method in order to explore different causes behind international
retail divestment in China. Further research might want to take an alternative
perspective by quantifying those variables in this study that are correlated with
divestment through deductively hypothesizing approach. For example, quantitative
survey method can be conducted to sample a large number of employees working for
international retailers, and the continuous (i.e. numerical) data from this survey can be
statistically analyzed to help figure out which significant factors or variables that account
for divestment in the retail sector.
Thirdly, because the examination of divestment-driving factors in this current thesis

paper has particularly focused on the milieu of China market by using real cases in this
context, this defined scope limits the generalization of this study. In other words, the
findings of this current research do not necessarily apply to other retailing cases,
meaning that the results must be generalized to other contexts or to other cases of
retailers with a caution. As part of future work, perhaps future researchers may wish to
conduct comparative research by comparing retail divestment between China and other
countries or regions like South America.
Lastly, the timely relevance or practical implications in this study might be questioned
given the fact that many divestment cases in China already happened long time back
(e.g. some in late 1990s-early 2000s like Ahold), which means that the lessons learnt
from these cases might therefore not be so relevant to the contemporary international
business. To address this shortcoming, further researchers might take more updated
cases in order to yield findings that are strongly relevant.
This final chapter has carefully discussed this thesis’ implications that are related to the
extant theoretical scholarship within the area of international retail divestment research.
What is more, it has suggested a number of managerial recommendations that could be
relevant to business practice when it comes to international business landscape. This
present chapter also acts as a summarization to provide a comprehensive, holistic and
full understanding of international retail divestment phenomenon within the particular
context of Chinese market.
6.6. Thesis Synthesis
In pace with the economic integration and globalization, international retail activities
have rapidly been expanded. However, many of international expansions in the retail
industry are unsuccessful and international retail divestment has therefore been
increasingly recognized on a global scale but literature in the retailing domain provides
mixed and inconsistent results regarding the valence of this divestment on parent firm’s
performance as well as the potential drivers of such international divestments. In
response, this current thesis paper has attempted to give a comprehensive knowledge
of the phenomenal growth of international retail divestment within the specific context of
China. Chinese market is an ideal context to study the phenomenon of divestment
because, as an the most emerging country, this market has attracted a number of
Western multinational retailers from the US and the EU to expand into this market over
the last two decades but many have failed and exited the market. By using qualitative
multiple cases method to analyze the withdrawal of several Western retailers such as
Walmart, Home Depot or Tesco in this world’s most largest retail market, this present
research thesis paper has successfully accomplished the four primary research
objectives that were set in the beginning of this research paper: (1) To examine the
overall picture of international divestment within the context of Chinese retail market; (2)
To identify important factors that could account for international retail divestment within
this specific country; (3) To understand the impact of political, socio-cultural and
institutional factors on international retail divestment in China; and (4) To provide
managerial suggestions that can be insightfully useful and relevant to the contemporary
business practice in the global retail industry.
In sum, these two following primary findings are confirmed. First, the impact of an
international divestment on the parent’s company in this particular setting is negative,
thereby it is a market failure and not a strategic action of the parent firm to reallocate
resources and relocate the production. Second, the causes behind international retail
divestment can come from both internal sources (e.g. ineffective parental firm’s
management practice, inappropriate market entry mode) and external sources (e.g.
tough competition in the host market, cultural distance, unsupportive macro conditions).
Aside from valuable lessons learnt from such failures in China market to provide
benchmarks and implications to global retailers in their future international expansion,
this current thesis paper has thereotically contributed to the existing scholarship
international retail divestment domain.
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Foreign Retail Divestment From China A Multi-Case Study

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Master Thesis

FOREIGN RETAIL DIVESTMENT FROM

Prof. Dr. Dirk Morschett

Fribourg, September 1, 2020

3.4. Conceptual Framework........................................................................................30

M&A Merger & Acquisition

MNC Multinational Corporation

GDP Gross Domestic Product

FLE Frontline Service Employee

1.2. Contextual Background and Research Motivation

attention from both management scholars and practitioners (e.g. managers,

Blending different methods, from systematic review, empirical method to case

activity is not an international failure, but it is a strategic part of expansion. Similary,

Regardless of the different perspectives on divestment, it is undeniable that prior

1.3. Research Aim and Research Objectives

To examine the overall picture of international divestment within the context of

To understand the impact of political, socio-cultural and institutional factors on

1.4. Thesis Structure

1.5. Chapter Summary

a large number of international retail divestments in this particular country,

Source: Claver/Rienda/Quer (2007, p. 4)

2.2.2. Transaction Cost Theory

Source: Gao/Tisdell (2005, p. 41)

Therefore, the knowledge gap between developed and developing markets is

As opposed to the above scholarship, another branch of scholars looks at the

Source: Statista (2020a)

Source: Statista (2020b)

Source: Statista (2020c)

Source: The World Bank (2020)

3. Theoretical Background of Variables

Source: Schmida/Morschettb (2019, p. 9)

(Håkanson/Ambos 2010, p. 195). In other words, it reflects the level of perceived

be to strategically reallocate the firm’s resources by relocating the operation in a new

Macro Conditions External

4.2. Philosophy of Science

4.3. Research Method

4.4. Case Study

experiment if a study contains many variables/concepts/factors to be considered but

4.5. Multiple Case Studies Method

4.6. Research Ethics

4.7. Chapter Summary

5. Analysis of case studies

5.2. Retail Sector in China

Figure 9: Chinese Retailing Market Growth between 2000 and 2020

Source: Trading Economics (2020)

Source: Hardaker (2017, p. 55)

In the contemporary landscape, the Chinese retailing market is featured by the

Source: Global Consumer Insights Survey 2019 China Report (p. 2)

Figure 12: Chinese E-Retailing Emergence in 2019

Source: Global Consumer Insights Survey 2019 China Report (p. 5)

5.3. External Factors

5.3.1. Cultural Distance

As mentioned previously, when it comes to international business environment, culture

Source: Statista (2020d)

Figure 15: International Grocery Retailers’ Entry Locations until 2000

Source: Hardaker (2017, p. 60)

Table 1: Walmart Retail Unit and Square Feet in 2018

Source: Walmart Annual Report (2018, p. 11)

Table 2: Walmart 2018 Geographical Market

Source: Walmart Annual Report (2018, p. 11)

Source: Hardaker (2017, p. 61)

5.4. Internal Factors

5.4.1. Parent Company’s Leadership and Management