A Comparative Study of Strategies Adopted by Wal-Mart and Carrefour in China: A Resource-Based Perspective

By Yue, LIU
September 2007

Acknowledgements

I appreciate my dissertation supervisor Dr Wang, for his continuous patience, support, guidance and constructive comment throughout the period of my dissertation. I would like to thank the professors and lectures from whom I learned a lot throughout my master year. I also would like to show my gratitude to Nottingham University Business School that provided this value chance for my postgraduate studies as well as the chance to conduct this research.

I wish to acknowledge all those who helped me with the information and data, and those who showed their support and care during this period. Last, but by no means least, thanks to all members of my family.

Abstract

This research aims to provide an overview of links between a firm’s strategies and the firm possessed resources and capabilities. Two cases—Wal-Mart and Carrefour in China are chosen. By using resources-based theory, their development strategies in China are compared and analyzed. This research adopted documentary research method, particularly firms’ historical documentary review and analysis, for this qualitative research to study each case.

In China’s retail market, the competition is intensive and market conditions are evolving. To capture greater market share in this market, Wal-Mart and Carrefour adapted their strategies to cater local customers as well as economic and political conditions. Although Wal-Mart and Carrefour in the same market environment, there are still differences between the strategies adopted by each giant retailer. Therefore, it is probably safe to argue that the differences between strategies adopted by the two retailers, to certain extent, are due to their distinct firm-specific resources and capabilities.

1 The Timing and Scale of Entry 2.1 The Resource-Based Theory 2.1 Entry Modes 2.4 Human Resource Management and Resource-Based Theory (11) (11) (14) (17) (18) (19) (20) (23) (24) (26) (31) (31) (33) (35) (36) Chapter 3 Research Methodology (39) .5 Resource-Based Theory and Management Strategies 2.3.5.3.4 Human Resource Management 2.5.1.3 Aims and Objectives 1.5.1 HRM Adaptation to Local Context 2. Chapter 1 Introduction (5) 1.2 Differentiation 2.4 Structure of the Research (5) (6) (7) (8) Chapter 2 Literature Reviews (11) 2.2 Operating Strategies 2.2 Entry Modes 2.4.3 Positioning Strategies and Resource-Based Theory 2.1.3.2 Entry Modes Selection and Resource-Based Theory 2.1 Background 1.3 Focus Strategy 2.1 Cost Leadership 2.Contents Page No.3 Positioning Strategies 2.2 Research Questions 1.5.

6 Supplier Power 4.1 Research Design 3.1 About Carrefour 5.1.5 Substitutes and Complements 4.3.2.1.2 Carrefour 5.1.1 About Wal-Mart 5.3 Wal-Mart’s Development in China 5.2 Market Definition 4.6 Wal-Mart’s Sourcing in China 5.2.4 Entry 4.4 Wal-Mart’s Positioning in China 5.2 Wal-Mart’s Entry into China 5.1 Wal-Mart 5.3 Internal Rivalry 4.1.3 Case Design 3.3 Carrefour’s Development into China (59) (59) (61) (62) (64) (65) (67) (69) (70) (70) (71) (73) .2 Research Methods 3.1.2 Carrefour’s Entry into China 5.1 Industry Facts 4.5 Wal-Mart’s Local Adaptation in China 5.1.2.7 Buyer Power (47) (49) (49) (51) (53) (55) (57) Chapter 5 Foreign Retailers in China—Wal-Mart and Carrefour (59) 5.5 Summary (39) (41) (42) (43) (46) Chapter 4 Industry Analysis of Chinese Retail Market (47) 4.1.4 Data Collection 3.7 Human Resource Management and Public Relations 5.

2.5 Carrefour’s Local Adaptation in China 5.2.6 Carrefour’s Sourcing in China 5.1 Entry Strategies 6.2.2 Conclusions 7.5 Sourcing Strategies 6.2.1.1 Entry Strategies 6.6 Human Resource Management and Public Relations 6.2.2.3 Recommendations for Wal-Mart and Carrefour 7.4 Local Adaptation 6.1.1 Recommendations for Wal-Mart China 7.2 Expansion Strategies 6.2 Recommendations for Carrefour China 7.1 Findings of the Research 7.1.3 Positioning Strategies 6.1 Assessment of Two Giants’ Strategies 6.4 Limitations of the Research (100) (102) (103) (103) (105) (106) .4 Local Adaptation 6.1.2.4 Carrefour’s Positioning in China 5.5.2 Resource-Based Theory and Their Strategies 6.3 Summary (82) (82) (84) (86) (88) (90) (91) (92) (93) (94) (95) (96) (97) (98) Chapter 7 Conclusions and Recommendations (100) 7.3.7 Human Resource Management and Public Relations (75) (77) (79) (80) Chapter 6 Analysis of Wal-Mart and Carrefour’s Strategies (82) 6.2.2.2 Expansion Strategies 6.1.3 Positioning Strategies 6.3.1.5 Sourcing Strategies 6.

References (108) .

1 Background China has been developing rapidly in the last two decades.Chapter 1 Introduction 1. and they entered into China in 1996 and in 1995. A large number of famous international supermarket retailers such as Carrefour. Coupled with the trend of business globalization. Although there were still strict regulations in place to restrict the operation of foreign retailers at that time. foreign capital was allowed to enter Chinese retail sector. Wal-Mart has so far opened 68 stores in China and Carrefour 98. the implementation of these regulations was rather flexible and local authorities bypassed many of these restrictions to support these foreign retailers (Levy. Ito-Yokado appeared in China. Wal-Mart and Carrefour are the world number one and two retailers in terms of turnover and employment (Colla and Dupuis. respectively. Wal-Mart. Makro. 2002). This transition of economy system has stimulated the development of Chinese tertiary industry. especially after market-oriented economic reformation and entry into World Trade Organization (WTO). as evidenced by the profound revolution in the retail industry since 1990s. The development of Chinese retail market started since the 1980s when China started to move from a planned to a market-oriented economy. many multinational firms view China as a favored market with great potential of opportunities. In 1992. . 1996).

the two giants in China exhibited different performances in terms of market shares. The resource-based theory views . and with the specific market conditions.However.proquestreference. it may not be reasonable to say which particular strategy is better than the other. Carrefour performs as the market leader compared with Wal-Mart in terms market share (euromonitor. their entry and expansion strategies are quite different. It is possible that the different performances of the foreign retailers can be partly explained by their different entry and expansion strategies. While in China.com). and Carrefour as the second largest (asia. because the strategies adopted are related and interact with the firm-specific resources. What interested most is that although both Wal-Mart and Carrefour are in the same industry and the same Chinese retail market.info). 1. However.2 Research Questions Wal-Mart and Carrefour pursue different strategies when entering and operating in China. This is possibly because both Wal-Mart and Carrefour have their own distinctive resources and capabilities which enable them to follow distinctive sets of strategies even when they are in the same environmental setting—Chinese retail market. It is reported that Wal-Mart ranked as the largest retailer in the world.

and the consequence of its past managerial decisions and subsequent experiences. applies the resource-based theory to compare the two giants’ strategies in China. and the second research question is that why they differ in the perspective of resource-based theory. and development of supermarkets in China (Lo et al. To provide a comprehensive overview of the Chinese retail market. the research objectives of this study are as follows: (1). Lockett and Thompson (2001) state that “resource-based view emphasizes firm heterogeneity and path dependency. as each firm’s resource bundle is unique. the first research question is that how the strategies of Wal-Mart and Carrefour are different from each other. 1. According to Wernerfelt (1984). however. This study. In short.firms are heterogeneous and possess heterogeneity resources. There have been many studies on strategies of Wal-Mart and Carrefour (Colla and Dupuis.3 Aims and Objectives More specifically. the resource-based approach views the firm as a historically determined collection of assets or resources which are tied semipermanently to the firm’s management. the resource-based view provides a framework for management strategy development. in terms of . So could it explain why different firms adopted different strategies even in the same environmental context. 2001). 2002). it follows that so is each firm’s opportunity set”. Thus.

1. Therefore. The final objective is to link the resource-based view to these resources and present how the resource-based theory could explain these resources. positioning strategies. local adaptation strategies. to provide an overview of the relationship between the firm strategies and its possessed resources and capabilities. (2). (5).4 Structure of the Research . To implement a comparative study of the strategies of the two retailing giants. the overall aim of this research is.Porter’s Five Forces. The possible differences of strategies of the two retailers are mainly analyzed in terms of entry strategies. To analyze the strategies of Carrefour and how these strategies interact with Chinese government policies and local market conditions (4). and expansion strategies. by using the resource-based theory as the basic principle and using the two cases—Wal-Mart and Carrefour. human resource management and social relationship. sourcing strategies. To analyze the strategies of Wal-Mart and how these strategies interact with Chinese government policies and local market conditions (3). To make recommendations of strategies for the two retailers in the context of Chinese entry into the WTO and further opening of the retail sector.

including entry. Chapter 2 reviewed the literatures concerning with the strategies of a firm in a foreign market as well as the resource-based theory.Following this introduction. supplier power. why Wal-Mart and Carrefour are chosen as the cases to study. providing an analysis of why a firm prefers one strategy to another. operating and competing strategies. 2003). Chapter 4 provides a detailed analysis of Chinese retail market by applying Porter’s framework of five forces—internal rivalry. Chapter 6 compares and contrasts the similarities and differences between strategies . The strategies reviewed in this chapter include the entering strategies. expansion strategies. The third chapter introduces the methodology of doing this research. but also identify the opportunities and threats in this industry (Besanko et al. substitute and complementary products. It will not only identify the factors affecting firms’ performances in terms of both vertical trading and horizontal competitive relationships. and buyer power. It includes the analysis of why the case study research approach and documentary method are selected. and human resource management strategies. The resource-based theory is reviewed and also linked with the previous part in Chapter2. local adaptation strategies. and how the information and data collected. Chapter 5 provides the studies of the strategies adopted by the two retailing giants—Wal-Mart and Carrefour. positioning. entry. and human resource management and public relations.

Chapter 7 includes the findings and conclusions of this research. and recommendations will be provided to both Wal-Mart and Carrefour for their future development. This chapter also contains a brief analysis of the limitations of this research.adopted by Wal-Mart and Carrefour in terms of the above six aspects. . Then is the analysis of the comparisons using the resource-based theory and explanations why there are similarities and differences. Finally.

political and legal systems.1. there must advantages and disadvantages of each option. firm should consider market uncertainty and the potential irreversibility of investment. at this stage. expansion and development strategies available for foreign investors.1 Timing and Scale of Entry Ghemawat (1991) argue that when thinking of the entry timing and entry scale. these different systems determine the opportunity costs of how to enter and develop in that country. how to enter becomes another important issue. Indeed. no matter whether large scale entry or small scale entry.1 Entry Modes When firms have decided to enter a foreign market. involves great opportunity costs and commitment.Chapter 2 Literature Reviews Each country has different economic. and no matter early or late entry. This chapter reviews the entry. 2. companies need to consider the timing. 2. . Generally. scale. When a firm has made decision to enter a particular market. and mode of entry. especially investment to a foreign country. Any investment.

The second advantage is concerned with cost advantages. which are costs that early entrants bear and later entrants could avoid (Hill.Timing of Entry. 2004). by enter the market earlier. which refers that. A third advantage is that early entrants could create switching costs so that customers are unlikely to switch to the products or services provided by followers. According to Hill (2004). such as educating customers. 1997). Witchell and Yeung. However. p236). Liberman and Montgomery (1988) suggest that there are first-mover advantages if a firm pursues an early entry. They may arise in the form of time and effort spent on learning the rule of business systems in a foreign country. it is an early entry when an international business enters a foreign market before other competitors. A special condition when . there are still first-mover disadvantages (Shaver. the firm could produce at lower cost by moving down the learning curve faster through building a larger producing volume than competitors. 2005. there are several first-mover advantages for an international business. Usually. There are many causes of such pioneering costs as argued by Hill (2004). Pioneering costs also include the costs of promoting a new product to customers in a foreign market incurred to early entrants. The first is that the first mover could preempt rivals and capture demand by establishing strong brand reputation with suppliers and customers. and a late entry when after them. Mistakes that are made as a result of that the early entrant fails to understand the country he enters also brings pioneering costs. The idea of first-mover advantage is that “the initial occupant of a strategic position or niche gains access to resources and capabilities that a follower cannot match” (Grant. The most common one is known as pioneering costs.

Shave. The resulted strategic commitment has great as well as long-term impact on following development of the firm and difficult to reverse (Ghemawat. on one hand. avoid the mistakes and costs. but also in terms of restricting its own resources to further expansion. 1991). which may limit the further expansion into new market in another industry or country. on the other hand. Ghemawat (1991) continues to argue that such strategic commitment in the form of large-scale entry will influence the nature of competition in the market in terms of attracting customers and distributors in the long run and deterring entry of potential competitors. the size of entry is another important issue. and makes the potential entrants to reconsider their entry decision. Scale of Entry. the followers could learn from the early entrants’ experiences. a firm . the probability of survival is greater than otherwise. Hill (2004) argues that large scale entry requires commitment of significant resources and implies rapid entry.regulations change in a way that diminishes the value of an early entrant’s investment would put the early entrant at a server disadvantageous position. Therefore. In the conditions mentioned above. the large entry size is a signal to customer and distributors that this foreign firm make significant strategic commitment to its investment and thus gains customers and distributors trust and loyalty. as the firm have made significant commitment to its investment. Mitchell and Yeung (1997) have found that if international business could enter a foreign market after several competitors. When an international business enters a foreign market. Indeed. and ride on their investments. most its resources are inevitably been sunk into this foreign market.

Choosing an appropriate entry mode is a difficult decision for firms interested in entering a foreign market (Agarwal and Ramaswami. et al.should balance the risks and benefits of significant strategic commitment.g. Nevertheless. 2006). 1997. Hill and Kim. 2000. 1986. 2004). Hill. . Sometimes. there are six different modes for an international firm to choose: exporting. franchising. Hill. Generally. maintain or quit. A small size with little strategic commitment would allow the firm to learn about the foreign market with limited risk. wholly owned subsidiary (Hill. However. 2. 1990. e. licensing. turnkey projects. 2006). this small scale entry may have difficulties in capturing market share. a small entry scale also brings benefits as well as risks to a firm when entering a foreign market (Hill.2 Entry Modes A firm’s entry mode is how to enter the foreign market..1. 2004). joint ventures. 2004. Anderson and Gatignon.1. the firm could first collect information of the foreign market and then deciding whether to expand. and how to make its goods or services available to foreign customers (Bishop. By achieving this. 1992). They are summarized in Table 2. Brouthers and Brouthers. 2006). an international firm may use more than one entry modes simultaneously (Bishop. Each entry mode has its distinct characteristics (see. 1988. and creating switching costs. Bishop. achieving scale economies. Madhok.

1 Advantages and Disadvantages of Each Entry Mode Entry Mode Advantages Disadvantages High transaction costs Trade barriers Problems with local marketing agents Exporting Ability to realize location and experience curve economies Turkey Contracts Ability to earn returns from process technology skills in countries where FDI is restricted Creating efficient competitors Lack of long-term market presence Lack of control over technology Inability to realize location and experience Licensing Low development costs and risks curve economies Inability to engage in global strategic coordination Lack of control over quality Franchising Low development costs and risks Inability to engage in global strategic coordination Lack of control over technology Joint Ventures Access to local partner’s knowledge Sharing development costs and risks Political acceptable Protection of technology Wholly Owned Subsidiaries Ability to engage in global strategic coordination Ability to realize location and experience economies Source: Hill (2004). Khanna and . Table 2. such as host country factors. p409. resource commitment and cultural distance.According to Wei et al (2005) there are many factors affecting the entry modes. High costs and risks Inability to engage in global strategic coordination Inability to realize location and experience economies Host country factors are important in affecting the entry mode choice.

they should choose an entry mode with a high degree of control such as wholly owned enterprises rather than one with high risks and shared investment commitment such as joint ventures. 2000). As what Taylor et al. nonequity-based entry modes. the less likely that a firm will share the equity in a foreign market. Japanese multinational firms are more likely to adopt an entry mode with a lower . Cespedes (1988) argues that the resource availability and control determine the entry mode choice for foreign investors. According to Tse et al (1997). Hennart and Larimo (1998) argue that national culture is also widely believed to affect the entry modes decisions. such as joint ventures.Palepu (1997) argue that in some countries. although resource commitment is widely considered true. These would inevitably create significant risks for foreign investors and make business operations less efficient (Isobe et al. lack of reliable information. would like to be adopted by foreign investors rather than equity-based modes. Larimo (1993) and Hennart and Larimo (1998) argue that the larger the resource commitment to a foreign market. 1980). when firms have made significant investments into a foreign market. and an international firm’s decision on the entry modes will reflect characteristics of the home countries (Shetty. 1979). Countries vary in terms of psychological characteristics (Hofstede. Therefore. and lack of effective enforcement of contract law. there are extensive government intervention. As any business decision is made based on trade-offs between expected benefits and risks. (2000) have found.

2 Operating Strategies After the entry into a foreign market. The entry strategies are very important for a firm when they have decided to enter a foreign market. Concerned with the entry modes. and choose the most appropriated entry strategy. In addition. Wei et al (2005) has concluded several important factors that affecting the choice of modes. scale and modes of entry. how to organize and operate the business in the foreign market is also significantly important. resources and capabilities. According to Grant (2005). and organizational structure and system. while potential huge benefits are also associated with such a strategy. It is obvious that an early entry may gain several advantages.control even when resource commitment is high. he argues that strategy is viewed as . The entry strategies include the timing. there are six modes for a firm to enter a foreign market. costs and risks associated with each option. 2. but they must be balanced against the pioneering costs and risks. Large scale entry into a foreign market implies great strategic commitment that limit the flexibility of the firm. Erramilli (1996) concludes that firms from countries that are characterized as high power distance and low uncertainty avoidance may prefer an entry mode with full ownership control in a foreign market. every firm has three sets of key characteristics—goals and values. and each of them has its own distinct advantages and disadvantages. Firms that are going to enter a foreign market need to balance the benefits.

Firms that pursue a multidomestic strategy try to customize their product offering. but undertake limited local customization. Firms that pursue a transnational strategy plan to exploit experience curve effects and local economies. a global strategy and a transnational strategy (Bartlett and Ghoshal. There are four basic strategies for international firms to compete in a global environment: an international strategy. Firms pursuing a global strategy focus on increasing profitability through experience curve effects and location economies to achieve a low cost strategy.3 Positioning Strategies . Firms pursuing an international strategy try to transfer valuable skills and products that competitors do not possess to foreign markets.forming a link between the firm that embodied by the three characteristics and its external environment. 2. and Hill (2004) argues that international firms should choose the appropriate strategy based the pressures for cost reduction and for local responsiveness. 1989). Each of the four strategies has both advantages and disadvantages. marketing and all other business strategies to adapt the foreign national conditions to achieve maximum local responsiveness. which may enable firms simultaneously achieve both cost and differentiation advantages. and is mainly concerned with planning how to achieve its goals. transfer core competencies and focus on local responsiveness. a Multidomestic strategy.

3. to the end of product final sale. such as the design or research of a product or raw material purchases.1 Cost Leadership Cost Leadership is the strategy that a firm succeed by achieving the lower cost per unit of products than competitors’ without sacrificing a quality (Holt and Wigginton. By achieving cost leadership. Grant (2005) has concluded the principal stages of value chain costs analysis as follows. to build cost advantages. 1980). Cullen and Parboteeah (2005) argues that the efficiency achieved by cost savings could occur anywhere from the very beginning of the production. differentiation.When an international company has been settled in a foreign market. Besanko et al (2003) argue that a firm’s position in the market is one of the most important factors in determining a firm’s success. . it has to decide how to compete in the particular industry. 2002). the firm could gain significant market share. Therefore. and each activity along the value chain has different cost structure. 2. a firm needs to analyze costs structure and cost drivers of each activity along the value chain. and a firm’s generic strategy describes how it positions itself to compete in the market. and a focus or niche strategy (Porter. Grant (2005) suggests that every business can be viewed as a chain of activities that creates value. There are three generic strategies that establish basic models for strategic management: cost leadership.

Therefore. the firm therefore could identify the opportunities to reduce costs of each possible activity along value chain.2 Differentiation . and Figure 3 has summarized these drivers of cost advantage (Grant. However. Through the stages above. Cost drives are the factors that determine the level of cost for each activity. and hence could find out which activities the firm performs more efficiently and which not. the firm should compare the costs of identified activities with those of competitors. and hence the cost of one activity may be determined by other activities. the dissimilarity of activities and how the competitors perform a particular activity. 2005.3. it is crucial to identify this kind of linkages in order to identify the right cost drivers. After that. Then the firm should establish the relative importance of the activities that are the major source of cost in the total cost of the product. but firm should also consider the importance of an activity. p254).First. the firm needs to disaggregate its entire business into separate activities. such as wages rates and defects rates are important cost drivers for labour intensive activities. 2. Identifying the cost drivers of each activity is very important. the firm’s divisional structure is a useful guide. There are several ways for firms to achieve cost advantages. some business activities are interrelated. Usually. which requires full understanding of the processes from inputs to customer delivery.

Differentiation advantage is the strategy that firms provide superior value within the industry to customers (Cullen and Parboteeah. hedonic . and their willingness to pay for superior value. including multidimensional scaling that analyzes customer’s perception of different attributes of competing products (Schiffman. 2005). or all-round complementary services. As the demand side is concerned. Grant (2005) argues that. Usually. The basic reason is that. etc. higher quality. the key is to fully understand customers in terms of their requirement and preference of product features. firms should match customers’ demand for differentiation with the firm’s capacity to supply differentiation. 2005). to achieve differentiation advantages successfully.—every aspect of the way that the firm relates to its customers (Grant. Therefore. conjoint analysis that analyzes the customers’ preference among different attributes (Cattin and Wittink. et al. Therefore. 1982).. Porter (1980) argues that the perceived superior value as compared to industry competitors is the key for the firm to differentiate itself against competitors. firms could charge premium prices on the superior value of the product and thus enjoy more profits than competitors in the industry. through differentiation. Grand (2005) has concluded several useful techniques that can guide the firm’s positioning and pricing of their product. a successful differentiation depends on both the demand side and supple side of a product. firms could provide the superior value to customers through many ways such as unique product features. 1981).

Then along the value chain. On the other side. Many well-differentiated firms usually spend more on from product research and development. These social and psychological factors may not be captured by the statistical techniques. the firm’s ability to offer differentiation is also important to achieve differentiation advantage. firms should select the most promising differentiation variables for the firm. technology. Firm then locate linkages between the value chain of the firm and that of the customers so that a firm can identify the means by which it can create value for . because most customers choose a product that reflects their social goals and values to realize community with others or one’s own identity. distribution. However.price analysis that calculates the market price for each valuable attribute (Gondal. Grant (2005) argues that the above statistical market research techniques would not lead to an effective differentiation. 1999). Among the drives of uniqueness identified. hiring higher skilled people. to marketing. The first stage is that the firm should construct a value chain for the firm as well as customers. He continues to argue that what really matters is an understanding of customers on what and how they behave. the firm can identify the drivers of uniqueness in each activity in order to assess the firm’s potential for differentiating its product. 1994). and customer services ((Holt and wigginton. and value curve analysis that identifies innovative combinations of product characteristics that can create new market space for a firm (Kim and Mauborgne. Grant (2005) concludes several principal stages that use the value chain to identify opportunities for differentiation advantages for firm. 2002).

et al. The focus on a limited set of products enables the firm to enjoy benefits of economies of scale and . 2005). product specialization. the firm would not underserve or overserve customers who especially value certain attributes of a product or who do not. 2. It enables the firm to react more quickly and behave more flexible than rivals to customer needs. The key issue is competitive scope.customers and can evaluate the potential profitability of differentiation.3. can also be used to achieve competitive advantages by focusing on one segment of a market or concentrating on one good or services (Holt and Wigginton. and geographic specialization (Besanko. Product specialization means that the firm produces a limited set of products for a wide set of customers so that the firm could serve these group of customers especially well. 2003). 2002). Customer specialization means that the firm offers their products to cater the needs of particular class of customers. As a result. and also helps a firm to attract and retain customers.3 Focus Strategy Focus strategy. compared with the above two basic generic strategies. There are three common focus strategies: customer specialization. and the example of customer specialization is that clothes of Top Shop are designed for young and fashion people while those of Burberry are designed for classic and rich people. which represents how broadly a firm targets its products or services (Cullen and Parboteeach. Cullen and Parboteeach (2005) argue that focus strategy offers several strategic advantages for firms relative to broad-based competitors.

Indeed. Besanko. insulate the firm from competition. Without people. Scullion and Starkey. and to better serve local markets. plans. Cost leadership. 2000).learning economies. which would enable the firm to enjoy economies of scale such as in local marketing. differentiation. Therefore. Each of them can help a firm to realize success in the market with keen competition. Human resource management is the activities a firm carries out to use its human resources effectively. and focus are three generic strategies for firms to create their competitive advantages in order to compete in the market they are serving. In addition. 1992. The geographic specialization means that the firm offers their products within a narrowly defined geographic market. et al (2003) conclude that these three basic focus strategies. and hence formulate a suitable strategy and then implement it 2. firms need to recognize their internal strengths and weakness as well as external environment. decisions and strategies would not be carried out. and the basic . as limited customer demand in some segment of market could more benefit the only one focusing firm in this market in terms of little competition and substantial returns. people are the most valuable assets in a firm. and the competitive advantages would not be achieved. compared with broad-based strategies. the firm would not exist.4 Human Resource Management Human resource management is gradually from being viewed as a support function of strategy implementation to one of strategic importance (Pucik.

Researches on international human resource management can be categorized into three broad strands (Keating and Thompson. International human resource management concerns with meeting the needs of multinational configurations with little similarity to traditional organizations (Holt and Wigginton. De Cieri and Dowling. Bartlett and Ghoshal (1989) argue that an effective human resource management is vital for the successful implementation of international strategies for multinational firms. motivation and labour relations (Hill. 2004). Scullion. These studies particularly argue that the nature of both home-country and host-country affect the extent to which multinational firms implement their human resource management in the local subsidiaries (Ferner. Sparrow et al. 1993. 1997). and Adler and Ghadar (1990) indicate that international human resource management should be linked to external environment as well as internal business strategies.functions include staffing. this firm faces more complexity in human resource management. training. The first concerns human resource management in multinational firms. The second strand mainly focuses on culture differences relating to human resource . 1999). 1994. 2002). when a firm enters into a foreign market and hence an international context. which focuses on the management of human resource in international firms to effectively achieve its strategic objectives (Schuler et al. When human resource management is applied to the international setting. Taylor et al. 1995. 1996. 2005). Therefore. 2004). it becomes international human resource management (Cullen and Parboteeah.

The third is comparative human resource management.4. 1997. 2. They describe and explain differences of human resource management systems between different countries. 1996). which suggests that culture will influence the development and operation of human resource management policies (Hofstede.1 HRM Adaptation to Local Context Staffing. legal. Schneider and Barsoux. and argue that these differences are attributed to different national cultural. and the difference is that each of them has its distinct focusing explained point. values and norms affect employees’ behaviours and attitudes as well as management practices. and social environments. The three strands of international human resource management studies have the similar objectives—understanding and explaining human resource management. economic. 1980. Therefore. there is no universal model of management and management theories and practices are not transferable from one culture to another. 1990. 2000.management. 1986. Clark. Schein (1985) refers staffing policy as the selection of employees for particular jobs and it does not only involve selecting individuals who have the required skills. . Geringer et al (2002) also found that technical skills as well as a person’s potential to do to good job are important selection criteria for managers in 13 countries. They argue that cultures. Brewster et al. Laurent. 2003). which compare the human resource management systems and practices across different nations (Pieper. and therefore. but also a tool for developing and promoting corporate culture. Adler.

2004). 2004). By hiring home-country nationals. and lack of integration between headquarters and foreign subsidiaries (Holt and Wigginton. the firm can easily maintain unified corporate culture. Training. lower productivity and higher turnover rate. and will fail to understand host-country cultures that lead to “cultural myopia” (Hill. transfer core competencies to foreign subsidiaries. it also has disadvantages such as gap between host-country and home-country managers due to languages. there are three types of staffing policy: the ethnocentric approach—all key positions in management are filled by home-country nationals. and the geocentric approach—the best people regardless of nationality are recruited for key jobs. Hill. 2002. the polycentric approach—host-country nationals are recruited to manage subsidiaries and home-country nationals occupy key position at headquarters.the main objective for selection is to enable the firm to achieve and attain higher performance. however. but the often time-consuming and expensive creation of a cadre of makes this policy difficult to implement (Hill. social and business connections. On the other hand. According to Hill (2004). cultures and other differences. 2004). No matter whether the home-country nationals or host-country nationals . this will limit advancement opportunities that lead to resentment. The geocentric staffing policy enables the firm to build and make the best use of a cadre of international executives. Recruiting host-country nationals will enable the firm to avoid the problems of “cultural myopia” and enjoy the benefits that the local managers bring to the firm such as political. Each of the three approaches has advantages and disadvantages.

Holt and Wigginton (2002) have identified several opportunities for local managers to gain knowledge and experiences. 1983. In addition. language training and practical training are useful ways to reduce expatriate failure for international firms. managers from host-country lack training at parent company as well as cross-cultural exposure. Although English is prevalent all over the world. so as to effectively deal with host-country subordinates and business affairs. many international firms send local promising managers back to school and hence many . Unlike expatriate managers. Therefore. First. they lack international knowledge and experiences. Black and Gregersen. they should be trained when they enter into a new international environment in order to perform better. Culture training is to prompt the home-country managers to understand the host-country culture. 1999. 1991).are recruited. there have been many distance learning as well as education alliances formed between local and western schools that create new and more learning opportunities for people all over the world. and therefore the expatriate manager and the family will be more easy and smooth to adapt to a foreign life and culture. Practical training refers to that firms often devote considerable effort to build expatriate community alike with good sources of support and information. communications in the language of the host-country will build rapport with host-country subordinates and improve the management effectiveness. Dowling and Schuler (1990) found that cultural training. It is found and estimated that there are high failure rate and costs of expatriation all over the world (Harvey. and hence although they have the potential to do a good job. Caudron. 1995). and only learn through their own experience (Cannon.

motivation is the stimulus that drives behaviors. and the creation of Motorola University in China to provide long-term education to aspiring young managers. so it is dangerous to motivate people from different cultures in the same way by the same phenomena. thus. In a word. management training is an important but also expensive investment for international firms. Even if an international firm has the best strategy and human resources. people’s perceptions may also vary among different social classes and occupational groups. Inglehart (2000) conducted a study of people’s . Mitchell (1997) defined motivation as the process that account for an individual’s intensity. motivation becomes more complicated as the cultural characteristics are not universal. However. exchange as well as modular development courses to attract them. Some employers also make substantial investment in training potential management such as mentoring programs adopted by Ford to match candidates to work alongside foreign managers on joint projects. and then help them to develop and give full play to their potential. it will not be successful if the management does not well motivate and lead employees in the host-country. and persistence of effort toward attaining a goal. Hofstede (1980) argues that human values and needs such as perceived importance of monetary rewards and achievement vary among cultures. direction. Hofstede (1983) found that even within the same culture in one country. because they often hire people with management potential. in the context with diversified cultures.leading American universities take this opportunity to offer resident. Motivating Employees.

attitudes toward work in 50 countries, and their work the World Values Surveys and European Values Surveys suggest that people from different nations place different magnitude of importance to their work functions. Indeed, people from some countries may place self-achievement at a higher priority while others may place monetary income at a higher priority. Therefore, management of the international firm should understand the working reasons of foreign employees. In addition, work centrality is also an important dimension of employees’ values to work. England (1986) refers work centrality as the degree of general importance of work relative to other interests for an individual. Parboteeah and Cullen (2003) examined work centrality differences in 26 countries and found that national cultures do have significant impact on people’s work centrality. They found that uncertainty avoidance and masculinity negatively affect work centrality, and individualism positively affects work centrality. Usually, people with greater work centrality usually work more and are dedicated, and hence lead to more effective organization (Collen and Parboteeah, 2005). Moreover, the value of rewards may differ among different nations and cultures. Holt and Wigginton (2002) argue that motivation is inextricably linked with employees’ perceived value of rewards that reflects the meaning of their efforts. They continue to argue that perceptions of rewards vary according to values of different cultures, such as people in a high individualism nation valuing more on individual achievement or personal recognition than those in collective nation, and people in masculinity culture more valuing motivation in terms of job toughness and competition.

Thus, it is serious error for international managers to generalize human values and motives across cultures. Alder (1997) argues that most motivation theories, such as Maslow’s hierarchy of needs, ERG, expectancy theory, etc., were developed in the context of American. As cultures are not universal, neither are these theories. However, the logic of these theories is important, such as Maslow’s hierarchy of needs in which the hierarchy can be adapted according to foreign national cultures. Therefore, managers should understand the host-country’s value about work, jobs and rewards, and make suitable motivation strategies in order to motivate employees effectively.

2.5 Resource—Based Theory and Management Strategies

2.5.1 The Resource—Based Theory

Every firm plans and implements various strategies in order to create competitive advantages so that they could outperform their competitors and earn a higher rate of profits in their industry. To achieve superior competitive advantage, Besanko et al (2003) argue that a firm must create more values, which depends on its stock of resources and distinctive capabilities of using those resources. For long-term profitability, a firm must ensure its successful strategies and the created competitive strategies are sustainable (Cullen and Parboteeah, 2005). Sustainable is critical and it means that strategies are not easily neutralized or attacked by competitors (Aaker,

1989), and its competitive advantage persists despite efforts by competitors or potential entrants to duplicate or neutralize (Barney, 1991).

Therefore, during 1990s, the resource-based theory of firm was developed, and it argues that any firm is essentially a pool of resources and capabilities which determine the strategy and performance of the firm; and if all firms in the market have the same pool of resources and capabilities, all firms will create the same value and thus no competitive advantage is available in the industry (Barney, 1991; Peteraf, 1993; Dierickx and Cool, 1989; Grant, 1991; Wernerfelt, 1984; Mahoney and Pandian, 1992). Lockett and Thompson (2001) state that “resource-based view emphasizes firm heterogeneity and path dependency, as each firm’s resource bundle is unique, and the consequence of its past managerial decisions and subsequent experiences, it follows that so is each firm’s opportunity set”. Resource-based theory also argues that, to

sustain competitive, a firm should possess resources and capabilities that are imperfectly mobile, valuable, nonsubstitutable and difficult to imitate. These four characteristics can lead to the asymmetries in the resources and capabilities of firms in the industry and serve as the basis of sustainability. Besanko et al (2003) suggest that these four characteristics can be induced or reinforced through isolating mechanisms that are defined by Rumelt (1984) as the forces that limit the extent to which a competitive advantage can be duplicated or neutralized through the resource-creation activities of other firms. There are two groups of isolating mechanisms: impediments to imitation that impede existing firms and potential entrants from duplicating

and thus the role of credible is instrumental.g. scale-based barriers and intangible barriers (e. superior access to inputs or customers. dependence on historical circumstances and social complexity.2 Entry Mode Selection and Resource-Based Theory . the resource-based theory has a high level of trailability—“the degree to which an innovation may be experimented with on a limited basis” (Rogers. Second. buyer switching costs and network effects. In addition. The final reason is that various high visibility forums and events have supported the resource-based theory. With the above attributes above. such as learning curve. resource-based view is compatible with both behavioral and economic schools of thought in strategy (Mahoney and Pandian. such as legal restrictions. reputation and buyer uncertainty. The third reason is that the logic of resource-based theory is simple and easy to understand. causal ambiguity.resources and capabilities. the resource-based theory is adopted by most firms all over the world. and early-mover advantages that increase the economic power of a competitive advantage over time. 1983. The first is that resource-based theory has greater perceived advantage due to its focus on firm-level determinants of company strategy and performance. Peng (2001) suggested several reasons for this. The resource-based theory has been diffused and accepted widely. 2.5. p15). 1992).

Hill (2004) has made some generalization for international firms about how to select an entry mode based on the resources they owned. Therefore. Usually. However. and each of these entry modes can bring both advantages and disadvantages to these firms. He suggests a distinction between firm’s resources and capabilities of the international firm in deploying its technological know-how and in management know-how. On the other hand. so a wholly owned subsidiary is the most rationale entry mode to protect technological know-how. the selection of the most appropriate entry mode involves significant tradeoffs and it is very important for the firm’s future development. licensing and joint venture arrangements should be avoided. Hill et al (1990) argue that a particular entry decision is closely related to the overall strategic resources and capabilities owned by the firm. and they possess value brand name and reputation. some firms create competitive advantages by deploying management how-how. and a wholly owned subsidiary is preferred.It has been suggested that there are several entry modes available for firms to consider after they have made an entry decision to a foreign country. technological know-how is one of the resources those are easy and rapid for competitors to imitate if not protected well. If a firm can create competitive advantages by deploying its technological know-how. licensing and joint-venture are often selected when the firm owning the technological know-how would like to reduce the risk of the technology being expropriated or when the firm expects imitation by competitors to avoid transitory. Based on resource-based theory. brand names .

Usually larger and more reputed firms may enjoy benefits of bulk purchases at a lower unit price. 2003). and R&D spillovers when ideas developed in one project are of help in another project (Besanko et al. differentiation requires high levels of technologies and services. economies of learning. These costs advantages can be achieved if the firms have superior advantages of purchasing.5. a cost leadership strategy is favored to create competitive advantages. several drivers of cost advantages have been identified. for firms with resources and capabilities that enable the drivers of cost advantages. requires significant superior information system supporting fast response capabilities. Therefore.3 Positioning Strategies and Resource-Based Theory Whether to purse a cost leadership or differentiation strategy also depends on the resources and capabilities that both the parent firm and subsidiary own. Usually. such as economies of scale. as a result many firms would choose a combination of franchising and subsidiaries to control the franchises in a foreign country. in turn.are protected by laws and regulations. 2. Grant (2005) argues that firms need to consider their internal strengths in terms of resources and capabilities to determine whether they have potential and advantages for differentiation compared with their competitors. and the subsidiaries may be in forms of wholly owned or joint ventures. In the early part of this research. which. As differentiation strategy is concerned. large coverage of advertisement at a lower advertising cost per consumer. etc. . advertising and research and development. production techniques.

some subsidiary growth is driven by its own distinctive capabilities developed through efforts by subsidiary management rather than parent management. Peng and Wang (2000) argue that it is not necessary that the resources and capabilities needed are a one-way process originating form headquarters. efficient order processing. and customer after-sale services (Grant. wide variety of product. The first is that the education. it has been argued that human resources are critical for the success of an international firm.training to support customer service excellence.4 Human Resource Management and Resource-Based Theory In this paper. Therefore. subsidiaries can develop their own. Grant (2005) also suggests a few kinds of resources and capabilities that human resources bring to the firm.5. training and experiences of employees determine the skills available to the firm. Moreover. fast delivery. In addition. each activity along the value chain is also very important. For international firms. 2005). the adaptability of employees contributes to the strategic flexibility of the firm. strong brand reputation. As Birkinshaw (1996) reported. such as quality of components and materials. 2. These resources and capabilities provide favorable conditions for firms to pursue a differentiation strategy. the choice of strategies does not depend on the resources and capabilities owned by parent firm. but also local subsidiaries. knowledge. and fast new product development. but rather. the social and collaborative skills of employees bring the . and reasoning and decision-making abilities (Grant. Human resources offer skills. In addition. 2005).

and hard to imitate resources. Bae & Lawler (2000) and Lee & Miller (1999) found that it is more likely to attain higher performance if firms value people as a source of competitive advantages. at the employee level. providing sufficient incentive to subsidiary (Gupta & Govindarajan. Finally. 1998). 2000).capacity of the firm to transform human resources into organizational capabilities. the commitment and loyalty of employees determine the capacity of the firm to attain and maintain competitive advantages. and seeking a fit between its human resources practices and local culture (Schuler & Rogovsky. the subsidiary and the employees. Finally. then resource-based theory suggests that the firm is able to create and maintain its competitive advantages compared with its competitors. these characteristics of human resources play significant role on the performance of the firm. and thus Carpenter et al (2001) argue that this kind of experience and knowledge are difficult to access and imitate for other international firms those do not possess. They suggest that top managers at the parent firm level present some of the most valuable. . Therefore. If these characteristics are inimitable and immobile. staffing subsidiaries with entrepreneurial managers (Birkinshaw et al. Taylor et al (1996) have studied three levels of human resources—the parent firm. Top managers of an international firm have significant international experience and specific tacit knowledge. are all suggested to be able to facilitate subsidiary capability development and knowledge sharing. unique. 1998). At the subsidiary level.

Therefore. and Barney (1991) argues that social relationships may be one of the most difficult to imitate resources. .Human resources possess complex social relationships. from the resource-based view of point. human resources are vital to propel the further progress in creating and sustaining competitive advantages in the industry.

Qualitative research has always been in an important place in the studies of international business (Marschan-Piekkari and Welch. 2004). the particular method or methods used in a given study. A methodology is “the analysis of. and how the resource-based theory contributes to the selection of an appropriate strategy. and in that type of study in general” (Jankowicz.Chapter 3 Research Methodology The previous chapter has reviewed the strategies for international firms to enter.1 Research Design This dissertation will find out the extent to which the strategies of Wal-Mart and Carrefour in China are different from each other and the reasons why they are different in a resource-based perspective. According to Van Maanen (1983. This dissertation will apply the qualitative method to conduct the comparative study of the two retailing giants’ strategies. Therefore. Blaikie (2000) suggests that it also includes a critical evaluation of alternative research methods. expand and develop in a foreign country. qualitative methods is defined as procedures for “coming to terms with the meaning . 3. There are two broad categories of researches: quantitative and qualitative research. This chapter will introduce the research methods used in this research. p9). it is generally a research approach for studied topics. 1994). and rational for.

Grounded theory. pp. According to Hartley(2004. The five research approaches include: 1. Ethnography. Phenomenological. concerned with an individual and their experiences. 2. feminism. 5. within . Cresswell (1998) listed five research approaches that each has a distinguished history in one of the social science disciplines and then explores their application in research design. critical theory. Biographical research. 3. concerned with experiences of more than one person in relation to a concept or phenomenon.323). I choose the case study to conduct this research. often with data collected over a period of time. Case studies. of phenomena. and maybe in the form of a self-report or autobiography or a biography prepared by another person based on oral reports and or written materials. concerned with a variety of different schools of thought (e. Considering the research questions. that emphasizing the first-hand collection of data based on the observation of people. concerned with a detailed and in-depth description and analysis of a “case” or “bounded system” using multiple sources of information. “case study research consists of a detailed investigation.). etc. concerned with generating or “grounding” theory in their observations rather than applying or using an extant theory.not the frequency of a phenomenon by studying it in its social context”. 4. structural functionalism.g.

including both pre-coded and open questionnaires. panels. it is an investigation of strategies adopted by Wal-Mart and Carrefour in the Chinese retail industry. In addition. that gather a group of people to have a free flowing. Fisher et al (2004) suggest several commonly used research methods: interviews. questionnaires. and documentary research by using documentary materials to take either an open or . and an analysis of the differences between the two in a resource-based theory perspective. and the aim is to provide an analysis of the context and processes which illuminate the theoretical issues being studied”. discussion on a particular topic.their context. either open or pre-coding observation. the research methods that are going to be used are also important. designing this paper in the form of case studies is the most appropriate. Therefore. observational research. 3. and when the researcher has little control over events and when the focus is on a current phenomenon in a real-life context. and semi-structured interview. Hartley also argues that case study is particularly suited to research questions which require detailed understanding of social or organizational processes. As this research is concerned. but focused. Yin (1994) suggests that case studies are preferred when “how” and “why” questions are to be answered. such as an open interview. pre-coded interview.2 Research Methods After designing the research.

but researchers need to identify and verify the authentic document required. This design of case studies is decided for several reasons. processes and attitudes within the organization. These requires critical scrutiny because they involve complicated relationship that researchers cannot easily assess. The first is that they are remnants of earlier processes in the organization and thus bear witness to activities in the past. History is regarded as a repository of facts and can be used to illuminate the present and future especially in the resource-based view. They tell the activities and events happened at that period of time.3 Case Design Two cases—Wal-Mart and Carrefour are selected to be studied in this research. particularly firms’ historical documentary review and analysis is adopted for this specific case study. 3. due to the aim of this research—to provide an overview of the relationship between the firm strategies and its possessed resources and capabilities.pre-coded form. The use of methods mainly depends on the nature and scope of data collected. documentary research method. De Geer et al (2004) argue that historical documents can be used in two different capacities. First. a comparative . In this research. these sources may tell numerous information about some hidden situations. On the other than.

studies of more than one firm in the same market context would be more convincing than one case studies. two cases are preferred in this research. Wal-Mart and Carrefour are the largest two retailers worldwide. By contrasting the different strategies adopted by different firms in the same context. 3. Two or three cases should be the better choice for a comparative study. the determinant factors—resources and capabilities are stressed as the main points. and then expand and develop together experiencing different periods of policy changing. In addition.4 Data Collection . However. Wal-Mart and Carrefour entered China in the same period of time. They have similar business scales and strength. but it becomes following Carrefour in Chinese retail market. This enables a successive analysis of the two retailers’ strategies from their entry until today. It is also a work burden. Furthermore. First. and hence they are comparable in terms of their resources and capabilities. the number of cases chosen cannot be too much. Wal-Mart and Carrefour are chosen as representatives depending on several factors. These three factors all enable a comprehensively comparative study of their strategies. In addition. although Wal-Mart ranked head Carrefour in the world. Due to time and words limitation of this research. Studying a great number of cases would result in verbose and repeated data interpretation and analysis.

The main sources of these historical information that could be used are through companies’ websites. newspapers and magazines.Orbell (1987) suggests that most sufficient information for historical documentary method can often be collected. annual reports. Company internal ‘house magazines’. √ Conference papers. academic journals. collated and indexed in secondary sources • Books of readings 9collations of journal articles). Academic journal articles. √ Data organized. or online database and so on. without having to contact companies. Unpublished research reports (available from author). trade associations. documents or websites published by government. and the ticked ones are the sources available to use for this research. √ • Trade associations. √ Company price lists. √ • Consumer organizations Data recorded in primary sources • • • • • • • • Monographs (books on a single topic). textbooks. in public sources available to most of people. Table 3. Newspapers and magazines (some features and news items) √ Company annual reports. . • Patent offices. • Research organizations and professional bodies. • Local employer networks.1 Sources of Information Data generated by individuals and organizations • Government bodies. √ • Private companies. • Trade unions.1. The available sources of information are listed in Table 3. and research organizations and professional bodies.

Bibliographies. Dictionaries..• • • • • • • Textbooks. Both provide the information year by year. √ Source: Howard and Sharp (1983). √ Academic journal review articles. √ • Librarians. Online public published newspapers. which enable the collected information’s reality and reliability. √ Academic journal annual index pages. Annual review books (of topics in academic disciplines). which provides convenience and reliability for researchers. • Your tutor. textbooks and etc. . especially with great reputation. will provides reliable and just information and analysis of the activities and strategies of Wal-Mart and Carrefour. The websites of local companies provides their activities and strategies in China. academic journals. and Ministry of Commerce China. Some important figures and policy documents can be obtained through governments’ official websites. √ Encyclopedias. As this research is concerned. as well as their possessed resources and capabilities.R. Those are summarized and signposted in tertiary sources • Subject guides.C. √ • On-line databases. the websites of parent companies are good sources of the overview of Wal-Mart and Carrefour. such as Central People’s Government P. • Library catalogues and indexes. magazines. √ • Information services.

Through documentary research method.3. edition and reputation. Due to the strict approval.5 Summary According to the research aims and objectives. . these sources of information and data are believed to be just and reliable. magazines. this research chooses Wal-Mart and Carrefour as two cases to conduct a qualitative cases study. All the information and data about Wal-Mart and Carrefour will be gained through companies’ websites. textbooks and etc. both Wal-Mart and Carrefour’s historical documentary are reviewed and analyzed. governments’ official websites as well as other public published newspapers. academic journal articles.

supplier power and buyer power.com. and adopting . Meanwhile. Davies (1994) found that after free market retailing was permitted. the most fundamental transformation and most intensive competition. By the end of 2001. the number of retailing stores in China grew explosively from 1 million in 1979 to 10 million in 1992. the retail sector is growing more mature and complete. and Chinese retail sector grew exponentially (Davies. is differentiating itself to realize its distinct position in this industry.1 Industry Facts It is probably safe to argue that. from domestic to foreign ones. Since 1979 the free market retailing became legal again.Chapter 4 Industry Analysis of Chinese Retail Market Industry analysis provides a framework for assessment of industry and firm performance. the number of retail businesses reached around 20 million units (euromonitor. 2003). since the Chinese economy reformation occurred in 1979. Every retailer. substitutes and complementary products. identification of key factors affecting performance. 4. 1994). retail sector is one of the sectors with the most rapid changes. et al 2003). entry. This chapter conducts an industry analysis by applying Porter’s Five Forces framework—internal rivalry. determination of how changes in the business environment may affect performance and identification of opportunities and threats in a particular business context (Besanko.

took an important step in the opening policy. This is believed to indicate that China. (3) they cannot operate wholesale businesses. China opened its retail market gradually to foreign retailers. Accompanied with the large market with great profit potential. In July. Dalian and Qingdao. In June 1996. and five Special Economic Zones. At the end of 2004. especially the retail industry. the central government of China issued Commercial Retail Areas on the Issue of the Use of Foreign Investment Approvals. and on the other hand. which started to allow one or two foreign retailers to open business as pilots in Beijing. This openness policy brings both opportunities and challenges to Chinese retail industry.advanced management models and technologies. and also allowed foreign retailers to operate wholesale businesses. The most important event in Chinese retail industry is the market openness policies for foreign investment started in 1992. . (2) they must form joint ventures or cooperation to enter the market. it leads to industry revolution. amount and shares structure. (4) the proportion of imported goods. there are four conditions for these foreign investments: (1) the Chinese partner must have a stake more than 51%. 1992. China removed all limits on business location. Tianjin. However. Guangzhou. the foreign investments greatly accelerate the pace of entering China. it brings intensive competition to domestic retailers. the central government of China expanded the number of experimental cities to all provincial capital cities and several separated planned cities. On one hand. shall not exceed 30% (Marketing Briefs). Shanghai.

as well as online retailing and television retailing. Others. Due to the economy reformation in China. internal rivalry refers to the jockey for shares by firms within a market. are considered as substitutes in this analysis. market definition requires identification of both product market and geographic market.2 Market Definition According to Besanko et al (2003). Retail can be defined as the function and activities involved in the selling of commodities directly to consumers (www.3 Internal Rivalry According to Besanko et al (2003). Porter’s five forces framework (illustrated in Figure *) will be performed to analyze the retail industry in China. It might be thought that each metropolitan is a distinct geographic market. 2003).com). the product market can be considered as providing brick-and-mortar stores with a large range of commodities and services for consumer shopping. such as Chinese traditional wet markets and street market. Market definition is a cornerstone of industry analysis (Besanko. we will define the geographic market to be studies as the entire Chinese retail market.thefreedictionary. and consumers of a metropolitan area tend to visit retailing stores in the same vicinity. et al. Consumers tend to shop locally. considering the aims of this research. However. the number of . 4. Therefore.4.

China has planned to create its own large domestic retailers.1 The Rank of Retailers in China Sales in 2006 Rank Retailer Name (Billion RMB) 1 2 3 4 5 Gome Electric Appliance. Especially after China officially became a member of WTO. There are a few domestic retailers engage in a fast and large development. Furthermore. With a few number of international retail giants. the foreign retailers enter China market as well as expand in China in a significant rapid pace. in this retail market. According to Besanko et al (2003).95 37. each competitor may have different cost. the Chinese retail market meets the criteria for fierce internal rivalry.09 60.85 36. There is also substantial excess capacity for each retailer. China Bailian Group.1 shows the a few top retailers in China consisting both domestic and foreign ones. China 86. Therefore. In addition. the competition in China retail industry is inevitably intensive and sharp. Table 4.competitors in Chinese retail industry is increasing rapidly. According to China Internet Information Center News (2002).14 820 6280 520 2250 182 Number of Outlets . Table 4. these characteristics of retail market tend to heat up price competition. China Suning Appliance Chain Store. China China Resources Vanguard.93 77. China Dashang Group. customers often have low switching costs.

Carrefour. USA Lotus. Therefore. the best performing foreign retailer took the sixth position and Wal-Mart took the fourteenth. and the rest of 10% will be owned by regional retail giants.03 13. However. UK 24. although some of the domestic retailers have occupied the leading position. the openness policies become more relax and flexible. new entrants will erode current .4 Entry In an industry. they are still face severe challenges.30 95 71 75 33 47 Source: Each company’s website From the table. and 30% will be owned by Chinese national retail giants. France Wal-Mart. 4.6 14 17 23 24 Carrefour. and they own a significant market share in Chinese retail market. Thailand Metro. in recent years.37 9.80 15.50 9. It is estimated that in the next few years. Germany Tesco. more and more foreign retailers landed China. Most of them have completed their strategic layout of their stores over China perfectly. argued by Besanko et al (2003). 60% of Chinese retail market will be owned by 3-5 world-class retail giants. it is easy to find that domestic retailers occupy the top five retailers in terms of sales in 2006.

players’ profit in two ways: (1) entrants will divide the market demand among more sellers. the barriers for both domestic and foreign retailers to enter Chinese retail market became smaller. operating retail stores was considered as a good way to make profit due to the small entry barriers. Retailers’ reputations are not significantly important. Usually. meanwhile. As a result. which encourages competitive firms to realize scale expansion. China central government has introduced policies to regulate and promote the development of retailing. More and more powerful domestic and foreign potential entrants will enter this market. the number of retailers increased rapidly. and (2) entrants will decrease the market concentration which will in turn heat up internal rivalry. there are many kinds of entry barriers in an industry. and to reorganize assets that are cross-sector. because small retail stores still make profits with lower cost. In the early years after economy reformation. as the goods they sell to customers are less different. trans-region and cross-ownership. Especially when China central government completely removed the limitations of foreign retailers to enter and develop in China. Recently. This. there was no foreign retailers allowed to enter China. leads these enterprises to become larger and stronger. and Chinese central government encouraged and supported the development of new retailers. Therefore. It does not entail significant economies of scale or experience curve. . Retailers can access to buyers easily and there are no network externalities.

many experts conclude that there is still huge potential for further development and opportunities for investment. Kearney found that the attractiveness of Chinese retail market in 2006 showed a downward trend (www. the competition is inevitably considered as intensive.T. However. First. on the other hand. A report from A. from Chinese retail market’s overall growth trend.com). the RMB revaluation indicates the real prices of imported goods decrease. According to China State Information Center. which will benefit the retailers and encourage potential entrants. In addition. the retail market in China will maintain an annual growth rate of 8% to 10%. small entry barriers. if there is RMB revaluation. which will encourage more entries.chinabgao. As Besanko et al (2003) suggested expectations about post entry competition are also important. and market is gradually saturated. As more and more enter this market. . the consumers’ real purchasing power will increase and hence the retailers will benefit from this.However.5 Substitutes and Complements Substitutes and complements are two important factors influencing market demand. discourage potential entry to this industry. the value of RenMinBi (RMB) will also influence the potential entrant to the retail market. 4. Second.

while complements would boost the demand and hence enhancing profit opportunities in this market. and space is divided among counter-service departments. online and television shopping are considered to be time and cost sufficient. sales on Internet and television become more and more popular. Combined with the increasingly fast paced lifestyle of society. these wet markets and street markets are strong substitutes of retailing stores. In 2001. on the other hand. nowadays. and outstanding services provided by retailing stores attract more and more customers. The competitive advantages of wet markets and street markets lie in cheaper prices and fresher food. Wet markets are large and enclosed. Advanced technology enables the online and television shopping transactions to be gradually fast and safe. a comfortable shopping environment. In the early days. In addition. the Internet retail sales had hit RMB 1200 billion that is more than one third of . sell fresh food in the open by private sellers with tiny stalls. wide variety of goods. Furthermore. The environments of both are dirty.Substitutes would divide the profits and intensify the competition in this market. Chinese traditional markets—wet markets and street markets—are considered to be substitutes of retailing stores in Chinese retail market. Street markets. crowded and noisy. With the improvement of people’s living standers. the demand of online and television shopping is increasing.

the traditional retailing format with sales of RMB3230. Suppliers with indirect power charge the downstream industry according to the supply and demand in the upstream industry.6 Supplier Power Besanko et al (2003) argue that the supplier power is the ability where industry’s upstream input suppliers to negotiate prices that extract industry profits. restaurants and hotels. and also can sell their goods and services to the highest bidder. If suppliers are in a competitive market. There is no doubt that online and television retailing brings great challenges and threat to traditional brick-and-mortar retailing stores. . they also suggest that suppliers may have two kinds of power over a downstream industry.6 billion (euromonitor. Besides. However. Supplier have “direct power” if the industries of suppliers are concentrate. The presence online will increase the exposure of the retailer. online shopping will complement and can boost the demand for brick-and-mortar retailing stores. Both Chinese traditional market and modern online and television retailing reap the market demand in this retail industry. 4. In addition. other industries such as tourism. will also boost the sales of retail industry in one city. then they have “indirect power”.com). or there is relationship-specific investments between suppliers and buyers. and give the potential customers a full introduction of this retailer.

com. manufacturers in such a difficult situation have to seek domestic retailing channels to distribute their goods and services.Suppliers with direct power can raise prices of the goods and services they provide without destroying that market. Retailers are the most important customers for the manufacturers. In addition. Therefore.chinadaily. with the further and fast development of retail industry. . the revaluation of RMB leads to the decreased competitive advantages on exporting prices.cn). many retailers are becoming larger in terms of their operating scales and hence their purchasing scales. It is possible that the retailing stores have become the most important distribution channels with great development potential. In China. This will lead the retailers to a position with strong bargaining power. relationships between retailers and suppliers have become increasingly important (www1. recently. However. Especially in China. retailers would benefit in terms of their bargaining power as well as the prices and quantities these suppliers provide. On the other hand. the suppliers have weak power over retailers. Both direct and indirect power will erode the profit of downstream industry. there are a lot of medium and small suppliers and the intensive competition often makes the fittest to survive. As a result. Before that. especially after China’s entry to the WTO. Chinese manufacturers have tremendous competitive advantages in exporting.

and buyers also have direct and indirect power over retailers (Besanko. Due to the sustained growth of GDP in China. With fast economic growth. China central government issued Central Government’s proposal on the Fifteenth Five Year Plan Project of National Economy and Social Development. This policy was mainly issued to further increase the income of residents. and analogous to supplier power. This enables Chinese retail industry to enter a good stage of development. . et al. 2003).cn). In 2005. and hence to support the retail industry to develop more healthy and continuously (www.Therefore. and therefore this further stimulates citizen’s consumption level. 4.7 Buyer Power Buyer power refers to the ability of individual customers to negotiate purchase prices that can extract profits from sellers. the Chinese consumption level is expected to grow continuously (Luo. it is probably safe to argue that the suppliers of Chinese retail industry have low bargaining power. 1998).gmw. enhance consumers’ confidence. promote potential consumption. and they impose little threat to the profit of retail industry. It is estimated that during the period of the fifteenth Five Year Plan (2006-2010). the growth rate of consumption sales will reach between 13% and 15%. citizen’s personal incomes are rising.

2 Five Forces Analysis of Chinese Retail Market Forces Internal Rivalry Entry Substitutes/Complements Supplier Power Buyer Power High Medium to High Medium Low to Medium Medium Threat to Profits . Generally. Table 4. Table 4. it is reported that. of which government policies play a more important role in China than in other countries. In addition.In retail market. With the increase of citizen’s income levels.2 summarizes the five forces in the recent Chinese retail market. each retailer faces intensive competition and challenges as well as great opportunities in this market. more and more people are seeking a better lifestyle. 2002). sales of high quality consumption goods have started enlarging in small market because more and more middle-class income residents are able to afford the spending on those high quality goods (China Country Report. due to the lower import duties and tariffs after China’s accession to WTO. The increase of car ownership and improved transportation links enable people to travel to and shop in farther retailing stores. buyers’ lifestyle and psychology play very important role. The profitability of this industry depends on many factors.

com). Wal-Mart has opened nearly 6. in 1962 in Arkansas. and employs more than 190 million peoples. In 2005. With the same slogan “Low Prices Everyday” and . Wal-Mart and Carrefour are chosen as two representatives of foreign retailers in China. Therefore. who is believed to be the legend of the retail industry worldwide. 5. located in 14 countries.wal-martchina. US.Chapter 5 Foreign Retailers in China —Wal-Mart and Carrefour In this chapter.4 billion.1 About Wal-Mart Wal-Mart was established by Mr. Wal-Mart has reached the sales of $312. and especially how their strategies interact with Chinese government policies and local market conditions. After 40 years of development. It is estimated that there are about 176 million visits per week (www. it is more convincing if these two foreign retailers are used to provide an overview of how foreign retailers enter and develop their business models in Chinese retail market. Sam Walton.800 shopping stores globally.1. They are two of the largest foreign retailers in China and enter China in an early time.1 Wal-Mart 5. Currently. The objective of this chapter is to analyze the two giants’ entry and development strategies. Wal-Mart has become the largest chain retailer in the world.

Wal-Mart makes its first foray into Central American retailing by buying a stake in the region’s top retailer from Dutch retailer Royal Ahold.000 employees. Wal-Mart acquired the ASDA Group plc. Wal-Mart has won a large number of customers.140. There is no doubt that Wal-Mart is always the industry leader in terms of . making the company the largest private employer in the world. on Oct.1 Wal-Mart Histories 1962 1969 1972 1983 1987 1988 1990 1991 1992 1996 1997 1998 1999 1999 2000 2001 2002 2002 2002 2003 2004 2006 Company founded with opening of first Wal-Mart store in Rogers.S. 1 retailer. Wal-Mart held its shareholder meeting on March 4 in Shenzhen. and Nicaragua. EI Salvator. Wal-Mart topped Fortune’s Global 500 and ranked first among the “Most Admired Companies in America. which has stores in Costa Rica. Wal-Mart approved and listed on the New York Stock Exchange. in the United Kingdom (229 stores). China. Wal-Mart introduces the Neighbourhood Market concept with three stores in Arkansas. Wal-Mart became nation's No. Wal-Mart named by FORTUNE Magazine as the 3rd most admired company in America. Company incorporated as Wal-Mart Stores. Wal-martchina. First Supercenter opened in Washington.com “Satisfactory Services” all over the world. 31. Wal-Mart Satellite Network (largest private satellite communication system in the U. China becomes Wal-Mart’s most important purchasing centre in the world. Ltd. Wal-Mart entered China through a joint-venture agreement with Shenzhen International Fiduciary Investment Co. Wal-Mart had 1. Inc. H.) was completed. After then Wal-Mart has opened 27 outlets in China by August. First SAM'S CLUB opened in April in MidWest City. Guatemala. Source: www. Lee Scott named president and CEO of Wal-Mart Stores. Hoduras. Oklahoma. Missouri. Arkansas. President George Bush presented Sam Walton with the Medal of Freedom. International market entered for the first time with the opening of a unit in Mexico city.Table 5. Wal-Mart opened its first outlet in Beijing in July. Inc. Wal-Mart signed JVs with Zhongxin Company for future stores in Shanghai and nearby. Wal-Mart replaced Woolworth on the Dow Jones Industrial Average.

before its formally entry. Table 5.1 highlights some of the important events during the 40 years’ development. foreign retailers must follow the regulations from Chinese central government to start their businesses.foreign market expansion as well as management models. and one of regulations was that their businesses must be in form of joint ventures or cooperation with one Chinese partner and the Chinese partner must own a stake more than 51%.com). which is four years after the allowance by Chinese central government. Therefore. In the following year 1996. which illustrates that Wal-Mart considered this as mature and great opportunities for its entry into Chinese retail market. 5.2 Wal-Mart’s Entry into China Wal-Mart entered China in 1996. in 1996.1. Wal-Mart did not enter until the further openness policy in China. Wal-Mart opened its first super center and Sam’s club store in Shenzhen (www. Ltd. where foreign retailers are allowed to operate their businesses.szitic. and established “Shenzhen Wal-Mart & Pearl River Department Stores Ltd” in August 1995 (www.wal-martchina. As stated in the previous chapter.. Wal-Mart and Shenzhen International Trust & Investment Co. It is also the time when China central government increased the number of experimental cities. China. signed Agreement on Joint Ventures. .com).

5.1.3 Wal-Mart’s Development in China

Stores Formats. After entering in Chinese retail market, Wal-Mart tried with different store formats. Supercenter is always the principal format for Wal-Mart retailing since its first supercenter opened in March 1988 in Washington. Today, Wal-Mart has over 1,000 supercenters all over the world and China has 81 supercenters. Wal-Mart’s supercenters have become the customers’ favorite store formats, and they lead to the positive development of Wal-Mart. Another format is Sam’s Clubs, which act as procurement agents for their members, and provide the branded merchandises at preferential prices to companies and individuals. The products in Sam’s Club are packed in large packages, and the shopping environment is like warehouses. Hence, these lead to lower margin costs and thus, enable members to experience lower prices. Wal-Mart also began to test smaller neighborhood supermarkets in communities. Although there are now two neighborhood supermarkets, they seem to fit better with consumers’ buying behaviors in China.

Store Locations. At a news conference in Beijing, Joe Hatfield, CEO of Wal-Mart Asia, said, ”Wal-Mart evolved by starting in smaller cities and moving into the larger cities” (Meredith, 2004). Indeed, when Wal-Mart took Shenzhen as their first step of entering China, the store distribution network implied its “second tier cities” expansion direction. This can be easily proofed when Wal-Mart limited its store locations in South of China such as Shenzhen, Dongwan, Xiamen and etc. between

1996 and 2001. Until 2001, Wal-Mart gradually moved to bigger cities, such as Guiyang, Changchun and Nanjing. In the two largest cities—Beijing and Shanghai, Wal-Mart only opened three stores in each city in a late stage. In addition, most of the stores are located in communities and the junction of urban and rural areas that are far from the prosperous areas.

Expansion. Although Wal-Mart ranks No.1 in the worldwide, its growth in China is not aggressive. Table 5.2 shows the expansion list of Wal-Mart in China. It can be found that, in the early years of Wal-Mart’s entry, the speed of expansion was slow. Wal-Mart started to accelerate its expansion in 2004 when the central government of China announced the removal of restrictions. to foreign retailers. In addition, before Table 5.2 Wal-Mart China Histories
1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 Wal-Mart opened the first supercenter and Sam’s Club in Shenzhen, Guangdong Province. The second Wal-Mart supercener was opened in Dongwan, Guangdong Province. Wal-Mart stepped out of Guangdong and opened its fifth supercenter in Kunming, Yunnan Province. Wal-Mart opened it first supercenter in Dalian, Liaoning Province, which is the first supercenter in the North of China. Wal-Mart entered Fujian Province; opend 7 stores totally this year in China. The first neighborhood market opened in Shenzhen, Guangdong Province; opened 7 stores totally this year in China. Wal-Mart opened Sam’s Club in Beijing, and opened 8 stores totally this year in China. Wal-Mart opened 11 stores totally in China, which is the year that opens the most stores. Wal-Mart entered Shanghai for the first time, and opened the first supercenter in Shanghai Wal-Mart opened its Shanghai’s second store. Wal-Mart bought 35% of shares of Trust-Mart.

Source: Shanghai Business Daily, (www.shbiz.com.cn) 2006, the expansion of Wal-Mart in China took the form of opening new stores.

However, in 2007, Wal-Mart spent $1 billion acquiring Trust-Mart, which is also one of the leading retailers in Chinese market. The main attraction of Trust-Mart to Wal-Mart until Wal-Mart willing to invest such large amount of capital is that Trust-Mart has large number of stores and its leading position in China. Undoubtedly, this acquisition enables Wal-Mart to capture much more competitive advantages in China.

5.1.4 Wal-Mart’s Positioning in China

“Everyday Low Price” is Wal-Mart’s promise to consumers. This is attractive to Chinese consumers, since the average income of Chinese population remains low. Therefore, Wal-Mart must enable its costs to be low enough so that its low price competitive advantages can be realized. Therefore, Wal-Mart in 2002 announced that they would not charge suppliers’ administration fees for the products entered their store. The aim of this announcement is believed to lower the cost of suppliers and hence enable the suppliers to lower the prices offered to Wal-Mart. This not only helps Wal-Mart to achieve its lower costs position, but also promote the good relationship with suppliers.

In addition, Wal-Mart’s modern information system enables the lower stock-holding costs. Wal-Mart requests suppliers to adopt electronic data interchange system, which can transfer information swiftly and can save stock-holding costs. Each store sends

Wal-Mart has a strict control over the goods they are purchasing. In addition. 2004.5% compared with their competitors (Stern and Stalk. www. on the meanwhile of controlling costs. 1992).cn). Wal-Mart faces the embarrassment that their prices are not low enough compared with the prices of Carrefour (Qin. Consequently. as the No. Wal-Mart is able to reduce stock-carrying and transportation costs and therefore increase profitability by 2. in fact.5 Wal-Mart’s Local Adaptation in China Wal-Mart. They even purchase from overseas if suppliers provides a lower prices.gemag. Wal-Mart orders and replenishes the stock of goods directly from the manufacturers. They need change in order to adapt the special environment of retail market in . the goods purchased have a good quality and price assurance in Wal-Mart. started to learn to do things the Chinese way. Wal-Mart appealed some purchasers who accepted bribes in court.1 international retailer.com.information and orders to its suppliers via the Internet and has products replenished in on-average two days versus five days of their rivals (Huey and Walton. Thus. 1998). However. 5. Its complete storage management system enables Wal-Mart to replenish goods twice a week (once bi-weekly to their rivals) and reduce storage space and delivery time. Usually.1. Wal-Mart makes efforts on assuring the products quality. Therefore.

The buying behaviors of Chinese consumers are different from those of Americans. and many other factors. According to Govindarajan and Gupta (1999). In addition. Relationships with Local Suppliers. Wal-Mart also accepted that most Chinese buy small quantities of goods. As Wal-Mart discovered that food products are critically important to create and maintain a strong customer base (Trunick. when Wal-Mart announced that it would not charge suppliers any administration fee for the goods entering in its . In the early days of Wal-Mart. or even killed in front of them. and they insist on requesting foods to be freshly harvested. and will tailored their marketing approaches according to language and culture differences. income. Taking the food purchase for example. live fishes and killing in front of costumers. Chinese shoppers prefer to select their own fresh vegetables. fruits. 2006). it began to adapt to customers needs in the way of displaying uncovered meat. 2006).China. Satisfying Customers’ Needs. In 2002. Wal-Mart in China has put in demonstration stations for cosmetics where customers can be shown how to apply various cosmetics products (Trunick. live fish and seafood (Trunick. due to the differences in culture. 2006). 2006). Chinese shoppers were not satisfied because Wal-Mart was trying to sell them dead fish as well as meat packaged in Styrofoam and Cellophane (Naughton.

Wal-Mart is known as non-union policies in the US. and enables the continuous and good cooperation relationship. Wal-Mart soften and agreed to accept unions in 2004. Ministry of Commerce China and China Chain Store & Franchise Association. 2006). This decision of Wal-Mart allows suppliers to yield more profits in the market. The first is that products are . Relationships with Governments. it won acclaim from its suppliers. and in 1996 the purchasing reached $2 billion. and for return. Naughton (2006) suggests that after eight years’ hard line in China. Chinese government favored this exporting scale. Thus Wal-Mart China has three options for its sourcing. This makes its competitors surprised and embarrassed. In addition. Wal-Mart is always keeping a good relationship with both Chinese central and local governments.supercenters. furthermore.1. However. China forces foreign companies to allow trade unions under a proposed legal amendment (Fong. this is also good chance to maintain good relationship between Chinese governments. both awarded Wal-Mart as Chinese Retail Industry’s Top Employer. In 2003 and 2006.6 Wal-Mart’s Sourcing in China Wal-Mart always purchase merchandises from manufacturers and suppliers directly. Partly because Wal-Mart realized organized labor as a cultural and political imperative in China. Wal-Mart gets the permit to opening its first store. This is a good strategy for Wal-Mart’s development in China. 5. As Wal-Mart has a large scale of purchasing in China.

Chinese certain special conditions pose challenges for Wal-Mart and its suppliers. It is widely believed that the global success of Wal-Mart is mostly attributed to the excellent logistics management that combines advanced information system and traditional transportation. According to Govindarajan and Gupta (1999). Wal-Mart is unable to establish distribution and operation centers in large scales. the second option is that Wal-Mart can purchase products from global suppliers and the products are manufactured in China. However. In addition. Therefore. which is a combination of option two and three. but also reduce the pressures from local government to purchase domestic goods. and Customs clearance for imports. Huffman (2003) argues that Chinese provincial autonomy and self-sufficiency hinder interprovincial trade and pose difficulties for road transportation. 2001). Wal-Mart established three distribution centers supplying its supercenters in China. Wal-Mart in China often . Wal-Mart establishes international procurement headquarters that provides sourcing information of local retailers and centralized sourcing practices and then directly distributes goods to each distribution centre (Lin and Liang. Wal-Mart China chooses to purchase 85 percent of its merchandise from China. private and commercial trucking. but it does not sound like much of a logistics network to support its operations.purchased from global suppliers and the products are not manufactured in China. and Wal-Mart can purchase goods from local suppliers. due to the small number of stores. This does not only meet the needs of Chinese consumers for high standards imported products.

according to Trunick (2006). as the first program in celebration of the tenth anniversary of its entry into China.establishes distribution centers first and then opens stores in cities nearby. (www. Inc. president and CEO of Wal-Mart Asia points out that training takes place every day in every store (Trunick. Wal-Mart sends employees with good skills and potentials to US to attend Walton Institute.wal-martchina. Senior Vice Chairman of Wal-Mart Store. In November 2005.1.com). This inevitably limits the speed of expansion by opening new stores as well as increases the costs of expansion. Joe Hatfield. 2006). and share Wal-Mart’s ten . Wal-Mart pays particular attention on employees’ training programs. Wal-Mart invited more than 120 employees whose tenure was 10 years and their families to come to Shenzhen headquarters to attend “Wal-Mart 10th anniversary celebration for staff”. but also as a wonderful source of new ideas. whereas those who do not speak English fluently are provided with other trainings such as computers and management programs.7 Human Resource Management and Public relations. especially in an area where skills are in short supply and job poaching is common. Our people really do make a difference!”—Don Soderquist. In addition. Wal-Mart China has a 16% employee turnover rate which is the lowest among any operation worldwide. 5. “The undeniable cornerstone of Wal-Mart’s success can be traced back to our strong belief in the dignity of each individual we view our associates as much more than a pair of hands to do a job.

Recently it was awarded as Most Generous MNC Donors in China by Forbes China (www.4 million. but contribute to the community we live and disseminate good things.wal-martchina. Wal-Mart’s corporate social responsibility programs focus on five areas: environmental protection. “We should not ask for benefits from life.2. Carrefour stepped outside .com). In 1969.000 man hours to these activities. Carrefour opened its first supermarket in 1960 and then invested and opened its first hypermarket in 1963. 5. Carrefour entered Belgium and opened its first store outside France by forming alliance with local partners. to local charity and welfare organizations over the past ten years.”—Helen Walton (Sam Walton’s wife) (www. with the meaning of its name— “crossroads” expressing convenience. child welfare. community involvement and disaster relief. Wal-Mart China has donated funds and support worth more than $3.years of glorious achievements. education.1 About Carrefour The Carrefour Company was created by the Fournier and Defforey families in 1959 in France. Wal-Mart China associates have also denoted more than 130.com).wal-martchina.2 Carrefour 5.

Carrefour did form a joint venture with a Chinese company called Zhongchuang Commercial Company. Carrefour has opened over 12.carrefour. At that time. It was still the period of tight control over foreign retailers by Chinese central government. Then Zhongchuang registered another company called Chuang Yijia Commercial City and Jiachuang took over the businesses and management of Chuang Yijia. (www. Carrefour has reached 30 countries in Europe. Latin American and Asia. the Carrefour group has become the world’s second largest retailer and the largest in Europe. Today. Table 5. but exploit a loophole of this regulation.3 listed the some important events during its development. Carrefour signed a joint venture agreement with Zhongchuang Commercial Company. After Chuang Yijia opening the chain store at Beijing International Exhibition.2 Carrefour’s Entry into China Carrefour entered China in 1995.500 stores all over the world. Carrefour as the main shareholder of Jiachuang controlled .com). and large scale of operation was the main objective since its first entry.Europe in 1975 by opening a hypermarket in Brazil.9 billion and 456. with sales in 2006 of $114. 5. and established Jiachuang Commercial Management Company.2. Currently. and only allowed to own less than 49% of shares in their joint ventures or cooperative enterprises. foreign retailers were only allowed to operate in several particular cities. Over the past 40 years.000 employees.

The first Carrefour hypermarket opens in Asia. Carrefour continues to grow in Asia. Carrefour inaugurated 17 Carrefour service stations on France’s motorway networks and became the largest food retailer in Argentina. Carrefour opened its first store in China by a JV with Zhongchuang Company.the chain store and named it Carrefour in public. Korea and Hong Kong to its list. in Taiwan. Carrefour shares listed on the Paris stock exchange. all Continent hypermarkets become Carrefour stores and supermarkets adopted the Champion name in France. Development of hard discount: Carrefour created Ed chain in France and Dia banner in Spain. Carrefour launched online supermarket Ooshop and opened its first hypermarket in Japan.cn). Carrefour opened its first supermarket in Annecy. Therefore. Carrefour entered in Taiwan and opened the first . Carrefour and Promodes merged to create the largest European food retailing group and second largest worldwide. Haute-Savoie. Carrefour opened its first hypermarket outside France in Belgium.carrefour.3 Carrefour Histories 1959 1960 1963 1969 1970 1975 1979 1985 1989 1995 1996 1999 2000 Carrefour Company was created by the Fournier and Defforey families. The first hypermarkets were found in France. After the two groups merge. Carrefour opened its first hypermarket in Brazil. Carrefour was under fire for imposing unfair charges on food suppliers in June. Carrefour announces the sales of its share in Modelo and its purchase of 13 hypermarkets in Poland from Ahold. Carrefour sold its 35% shares of 27 stores in China to Chinese companies due to disobeying the government regulations. adding Thailand. 2001 2002 2003 2003 2004 2005 Source: www.rednet. Carrefour had absolute control over the interests of its chain store and started to expand in China through similar way (hn. Carrefour acquired 6 hypermarkets in Taiwan and 2 other projects currently from Tesco. Carrefour invested a new store concept – hypermarket.com Before coming to Mainland China. Carrefour operates 39 hypermarkets in China and set up ‘GoWest’ plan.com. Table 5. Carrefour brand-name products were introduced.

2. It is obvious that. although the economic systems are different between Taiwan and Mainland China.Carrefour hypermarket in Asia in 1989. However. Carrefour operates three store formats in China: Carrefour hypermarkets. Lean-Luc Chereau. 5. Therefore. 2006). Carrefour opened its first Champion supermarket in Beijing as asked by Beijing government to do something to modernize the small retail business (Child. both the life and business cultures are fairly similar. .cn). and small chain stores by comprehensive goods. hypermarkets were the principal format for Carrefour expansion. 2006). He also suggests that this hypermarket format poses challenges to both large department stores by lower prices. in an interview by Child (2006) stated that entering Taiwan brought a fantastic advantage when entering China in terms of learning how to adapt and deal business with Chinese. In 2004.3 Carrefour’s Development in China Store Formats. Champion supermarkets.com. Yan (2003) argues that this hypermarket format fits the countries like China who is developing fast due to low prices of products. Since Carrefour entered China in 1995. Chereau found that Beijing consumers often use a hypermarket as a supermarket and hence he saw a very difficult future for supermarkets (Child. experiences in Taiwan are more valuable for international business than experiences in Europe or the United States. and Dia discounted convenience stores (www.carrefour. the head of Carrefour China.

Carrefour. Carrefour was . Yan (2003) argues that Carrefour’s strategy of store location enables its leading position among foreign retailers. at the end of 2006. Expansion. The development of Carrefour is rapid. but faces fierce competition from 7-Eleven stores from Taiwan. was ranked the 6th in Chinese retail market in terms of sales with 95 stores. Table 5. transportation conditions and marketing expansion capabilities in Shanghai compared to Shenzhen where Wal-Mart’s headquarter located. Today. Carrefour has almost finished its strategic networking establishment in coastal cities and prosperous cities. Store Location. Therefore. He continued to argue that the decision of selecting Shanghai as the headquarter location enabled Carrefour’s rapid strategic expansion in China. 2004). due to a better sourcing environment. China that until June 2004. 2006).Carrefour opened 150 Dia discounted convenience stores in Shanghai and 100 in Beijing in 2003 (www.cn).4 shows the development histories of Carrefour in China. Carrefour would more likely to learn from and follow 7-Eleven in the convenience store niche (Child. and this can be proofed by the report from Ministry of Commerce. China is still a country with a relative low income level and hence the mainstream power of consumption remains in large and prosperous cities and city centers.carrefour. Carrefour establishes their stores in first tier cities and also in more prosperous and business areas (Li.com.

Carrefour entered Shanghai and Shenzhen. Carrefour stopped expansion and development operations for 18 months due to the failure of getting approval from central government but only local government (Child. Zhuhai. 2006).4.4 Carrefour China Histories 1995 1996 1997 1998 2000 2002 2003 2004 2005 Carrefour opened first hypermarket in Beijing. and Dongwan. However.com. Chereau announced that Carrefour may acquire at least ten Chinese retailers as part of its expansion strategy (Wall Street Journal Asia. in the year 2001. 2003).2. Carrefour opened store in Hangzhou. Carrefour opened stores in Tianjin. and Dia Discounted convenience store entered Shanghai and Beijing The first Champion supermarkets opened in Beijing Carrefour opened its 60 store in Chongqing. it is clear that the expansion form of Carrefour is only to open new stores. in 1999 Carrefour was warned for its expansion by China central government as the shares that Carrefour held was more than regulated in its retail joint venture (Yan. Carrefour opened 5 hypermarkets to speed up its expansion.cn 5. Table 5. After that.ranked the first with sales of $0. In 2001. Carrefour opened 35 hypermarkets in 20 cities.97 billion and 50 stores among foreign retailers in China (Li.carrefour. th Source: www. Carrefour continued its fast expansion. However. 2004). 2006). From Table 5.4 Carrefour’s Positioning in China The slogan of Carrefour China is “Happy Shopping in Carrefour” and the mission is . Carrefour entered Chongqing. Wuhan.

oil and so on. Furthermore. according to Qin (2004). and in the range of the best goods (www. It is suggested that Carrefour adopted various and rather flexible sourcing methods. This lower prices strategy provides Carrefour a competitive advantage in the retail market competition and leads more and more competitors to imitate.to fulfill customers’ needs with full effort and provide the best prices to customers in every country. In terms of low prices. Li (2004) suggests that the prices of goods in Carrefour are lower than those in Wal-Mart. there are various restrictions when customers request. such as local stores can purchase their own goods as long as the prices of purchased are low. the limited car parking spaces bring inconvenience to customers. Carrefour positions itself as providing both good shopping environment and low prices. in every retailing format. Therefore. “You found the cheaper prices elsewhere.com. there are many complaints on the difference between the prices on shelf and actually paid. although there is poster saying. as most of Carrefour hypermarkets are in city centers. and this leads to famous fake white wine affairs in Carrefour China (Qin. In addition. especially the prices of living necessities such as rice. In Shanghai.carrefour. food. The lower prices come from lower costs of purchasing goods. 2004). the actual shopping environment contradicts with its “Happy Shopping in Carrefour”. .cn). However. you get twice the prices differences payback”.

Carrefour also believes that customers group for each store are different and unique.5 Carrefour’s Local Adaptation in China It is probably safe to argue that the leading position among foreign retailers is attributed to its local adaptation to some extent. Therefore. and to display the above products at lower prices in a better and cleaner environment (Child. Carrefour brings in and explains them to customers. 2004). and its experiences in Taiwan play an important role. Chereau indicated that Carrefour is trying to be a quarter-hour ahead of the customers. In addition. . This undoubtedly provides a fresh market image that Chinese customers are accustomed to. so Carrefour organize each store differently to adapt the needs of their local customer group in terms of products varieties. In addition. since their first entry in Chinese market. which means that the products will not be too advances or too late (Child. and most of these adaptation decisions are made by local store management flexibly (Qin.5.2. Gaining valuable experiences in Taiwan has made Carrefour understand the buying behavior and habits of customers in Mainland China. 2006). and their places and orders on shelves. For some new but not too advanced products. Satisfying Customers’ Needs. 2006). Carrefour decided to adopt fresh-market style for vegetables. fishes and other seafood.

Shanghai Seed and Nut Roasters Association proposed to stop supplying to Carrefour in order to protect the benefits of more than 5000 members in the association due to high administration fees (www. Carrefour’s remarkable volume of goods purchase win favor and support from local government. 2004). in order to realize its rapid strategic expansion. Relationships with Government. 2003). and if a supplier would like his products enters Carrefour hypermarket. Carrefour has a strained relationship with Chinese central government. according to Yan (2003).people. some of Carrefour stores transfer the loss of discounting. In addition. Carrefour disregards the regulations on foreign retailers from central government. Yan.Relationships with Local Suppliers. However. 2003).gov. as it generates a large export profit margin for local government (www.gzii. and exploit the loophole of the regulation differences between local governments and central government (Yan. Charging suppliers administration fees is created by Carrefour in Chinese retail market. Carrefour always has a good relationship with local governments. The relationships between Carrefour and its suppliers are believed to be strained (Li 2004.cn). This inevitably leads to more costs to suppliers. The main reason is believed to be that. In 2003.cn). Li (2004) argues that Carrefour often reaps profits by charging suppliers’ administration fees and asking suppliers for financial support in festivals. product wear and tear as well as negative balance of proposed sales to suppliers. Chinese . the supplier needs to pay six different kinds of fees that may reach 36% of expected sales of his products (Li.com.

com). Zhejiang Province (yiwu. 2004). 5. This was not resolved until Carrefour sold its illegal shares in its joint ventures and announced the decision to establish 10 sourcing bases in China for Carrefour’s global purchasing (Li. In addition. each store is also empowered purchasing rights for its own stock (Cai and Zhang. each store of Carrefour has around 85% of its stock procured locally and has them distributed directly to each store. Carrefour believes that this flexibility of purchasing strategy does not only cater the needs of local customers. and hence put Carrefour in the blacklist and commanded Carrefour to stop to reorganize its share proportion and expansion strategies in China. Carrefour was reported already established 11 sourcing bases in big cities in China since 1995 and plans its 12th sourcing base in Yiwu.6 Carrefour’s Sourcing in China Similar to Wal-Mart.gov. Carrefour also purchases most of its goods within China.ipr.2. but also can lower the purchasing costs (www. Guangzhou and Wuhan. However.cn).supplychainer.central government was annoyed by this. Carrefour headquarters empowered purchasing rights to four local sourcing centers: Beijing. this lack of centralized sourcing and distribution systems is considered to be . Shanghai. the empowerment also reflects Carrefour’s flexibility in management. 2003). However.

In addition. Therefore. a centralized procurement system is difficult and costly to operate.problematic.com. and it aims to train Chinese staff to take positions with more responsibility. department managers and mandarins. supervisors. 5. 2006). and that is a huge amount of money. Carrefour’s flexible sourcing and logistic strategies enable Carrefour to save costs on distribution as well as catering the different needs of stores in each location. Cui (2003) argues that this imperfect physical distribution systems and delay of information system development in China brings higher costs and difficulties to large retailers as most suppliers are still at the stage of workshop that are unable to provide accurate and complete services on delivering. and provides both general and specialized knowledge for their career development (www. This significantly reduces employees’ turnover rate in Carrefour . but if staff stay for five years and more.cn). as the special conditions of Chinese provincial autonomy and self-sufficiency. by relying on the distribution systems of suppliers. Carrefour needs them to sign a three. to retain trained and talent people.carrefour.or five-year contract: any staff who go to work with a competitor have to pay back the money Carrefour spent on training. However. they are given a super bonus that is several times of salary (Child. Training covers staffs.7 Human Resource Management and Public Relations Carrefour established its first Carrefour China Institute in Asia.2.

In addition. . In 2004. such as actively sponsoring for public welfare events and community building. Carrefour China makes effort on being an enterprise citizen with full responsibilities on society all over the world. whose aim is to promote the food safety. Carrefour established Carrefour (China) Food Safety Fund Foundation.China. Carrefour China was awarded as Top Ten Foreign Enterprises with Outstanding Contribution in China.

positioning strategies. 6. local adaptation.1 Entry strategies . while some need to be adjusted for further and better development. and human resource management and public relations. are planed and implemented highly interacting with Chinese government policies and market conditions. expansion strategies. This chapter will firstly compare and contrast the similarities and differences between strategies adopted by Wal-Mart and Carrefour. These strategies.1. This section will provide an assessment of the two giants’ strategies in terms of entry strategies.1 Assessment of Two Giants’ Strategies Both Wal-Mart and Carrefour entered China in the mid-1990s. and there are both similarities and differences of the strategies adopted by the two giants according to the previous chapter. as analyzed. Some of these strategies lead a competitive position for Wal-Mart or Carrefour.Chapter 6 Analysis of Wal-Mart and Carrefour’s Strategies The previous chapter provides analysis of strategies adopted by Wal-Mart and Carrefour respectively. 6. The second part of this section will explain the link between the resources and capabilities that they possess and the strategies they adopted by using resource-based view as basic principle.

This is consistent with Carrefour’s objective to build large a large scale in a short period in China (Li. Although the entry modes are chosen according to the government regulations. Wal-Mart entered China in 1996. However. and formed a nominal joint venture with Zhongchuang Commercial Company. China. Although the entry modes that two giants adopted were the same. China. Wal-Mart formed a joint venture with Shenzhen International Trust & Investment Co. but controlled most of shares and management in their business. it is probably safe to argue that joint ventures are the optimal entry modes for the two retailing giants to enter China. political systems and market conditions. Carrefour exploited the loophole of regulation.. Carrefour is able to engage in its expansion strategies more flexibly and without loss of knowledge from local partners. By controlling more shares and business management. foreign retailers can benefit form local partners’ knowledge of the host country on cultures. languages. and Carrefour entered in 1995.Wal-Mart and Carrefour both entered Chinese retail market in form of joint ventures with local companies. Before 2004. Ltd. Therefore. 2004). Although . there are differences in details. As listed in Table 2. First. when Chinese central government cancelled limitations on foreign retailers’ entry mode. In addition. both Wal-Mart and Carrefour expressed that they would still enter in form of joint ventures if there were no such regulations. relationship networks. joint ventures were the only mode that foreign retailers can choose.1. and followed government regulations strictly.

city economy.com). especially for future expansion. 6. foreign retailers were only allowed to enter 11 cities throughout China. on the other hand. Chinese central government allowed foreign retailers to enter all provincial cities and some other cities. government supports. Wal-Mart had prepared for four years and made great efforts.2 Expansion Strategies . Wal-Mart’s later entry also provides competitive advantages in terms of more flexible choices of location for its entry. entered Taiwan firstly where the cultures as well as customers preferences and buying habits are closely similar with those of Mainland China. before 1996. in 1996. Carrefour.1. In 1992. This undoubtedly helped Wal-Mart to select a better strategy to enter according to its researches.there is only one-year difference. This early entry also provides Carrefour first-mover advantages by earlier establishing strong brand reputation and stable customer groups. After learning and gaining successful experiences in Taiwan. However. GDP. Indeed. Wal-Mart received a charter in Chinese retail industry. As mentioned in the previous chapter. the government policies on foreign retailers changed significantly. national income. The researches mainly concerned on economic policies. before its entry into China. and consumers’ habits (sying. their entry was easier and more confident. and set up its agency in Hong Kong to conduct researches on Chinese retail market.

Before end of 2006. at the end of 2006. and it is believed that Wal-Mart’s acquisition encouraged Carrefour to seek acquisition for future expansion.The speed of expansion for both Wal-Mart and Carrefour were not rapid enough. This is the first acquisition for Wal-Mart in China. it is slow and risky to establish new stores. Carrefour and Wal-Mart ranked only the 6th and 14th respectively. Acquisitions are quick to execute. and they have strengths and powers to expand aggressively to become the market leader in Chinese retail industry. operating routines and so on. according to Chéreau. On the early stages of . However. However. 2006). but they also fail because of clashes between cultures in two firms. Carrefour is still keeping expanding by opening new stores. and did push Wal-Mart’s position in the rank forward significantly. preempt competitors and less risky. both two giants expanded through opening new stores. on the other hand. Carrefour ranked the 6th by opening 95 new stores and Wal-Mart the 14th by opening 71. difficulties in integrating resources of two firms. This market structure changed when Wal-Mart acquired Trust-Mart which have101 stores. foreign firms could have a greater control over the forms of its subsidiary stores such as cultures. with sales no more than one third of the market leader. during more than 10 years development in China. Obviously. Wal-Mart and Carrefour are the largest two retailers in the world. on one hand. According to Hill (2004) there are advantages and disadvantages for both opening new stores and acquisitions. By establishing a new store. At the end of 2006. and inadequate preacquision screening. Carrefour is considering to do an acquisition as well (Child.

6. Wal-Mart prefers to locate stores in second tier cities. and hence it allows Wal-Mart and Carrefour to spend time on expanding by opening new stores. Wal-Mart and Carrefour adopted different strategies for locations. Carrefour. so acquisition becomes a competitive option for Wal-Mart and Carrefour to expand further in China. as the retail market in China opening further. more developed cities and city centers are still the mainstream of higher consumption levels that lead to higher sales for retailers. especially in the supermarket niche. Therefore.3 Positioning Strategies As Besanko et al (2003) argued a firm’s positioning strategy is one of the most important criteria in determining a firm’s success. and their strategy is to start in smaller cities and then move to larger ones. however. Expanding by opening new stores is considered to cost time and money. which can be seen from their marketing slogans . the competition is more and more intensive. the competition in Chinese retail industry. China is still a developing country with a relative low level of people’s income.1.Wal-Mart and Carrefour’s entry in mid-1990s. was not intensive. Store locations are important for retailers. Today. This provides advantages for two retailing giants to build its brand image and reputation in Chinese retail market. Wal-Mart and Carrefour adopted different positioning strategies. particular emphasizes its stores to be located in big cities and city centers or prosperous areas.

both retailing giants understand that prices are vital for Chinese consumers.respectively. 2004). Carrefour. and Fu means happiness. In the retail industry. on the other hand. lower the prices of people’s necessities to attract customers. It conveys to customers that it is always the right choice to shop at Wal-Mart since the prices are cheap everyday. It expresses the shopping environment in Carrefour will bring joy and happiness to families shop there. The Chinese name of Carrefour is Jia Le Fu. Although Wal-Mart emphasizes its low prices in its slogan. Flexible sourcing methods also enable Carrefour’s competitive advantages. the main sources of costs are procurement and stock management. it is found that prices in Wal-Mart are not lower enough or even higher than those from Carrefour. as local stores purchase products individually as long as the prices are low. However. the facts contradict with positioning strategies for both of Wal-Mart and Carrefour. As prices are concerned. Carrefour. with “Happy Shopping in Carrefour”. and it is also widely agreed by customers (Qin. The slightly lower prices of products enable Carrefour to gain more market shares than Wal-Mart. as well as the costs of stocking. Wal-Mart also stops charging products administration fees to suppliers so that pay less when purchasing from suppliers as these suppliers bear less cost. aims to emphasizing its good shopping environment. however. in which Jia means family. Wal-Mart emphasizes “Low Prices Everyday”. . Le means joy. Wal-Mart takes its advantages of its advanced information system that can reduce the costs of sending and receiving information and orders with suppliers.

there are also complaints on the car parking problems. Wal-Mart wins Carrefour slightly. 2005).For shopping environment.4 Local Adaptation Having a good relationship with customers. However. and hence the quality of products cannot be assured for customers. This is the differentiation strategy that firms provide superior value within the industry to customers (Cullen and Parboteeah. there have been many scandals concern with Carrefour’s products qualities. Wal-Mart always has tight control over the products they sell. expand.1. This differentiation allows firms to charge premium prices on the superior quality of products and comfortable shopping environment. All products are purchased directly from suppliers. suppliers and. Wal-Mart is in a competitive position in its differentiation advantages. . Wal-Mart prohibits close and abnormal relationships between purchasers and suppliers to avoid corruption that lead to unsatisfied product qualities. even some of them from another country. and even survive. 6. They are all determinant factors for a foreign firm to develop. In addition. especially with government of China is important for foreign enterprises in China. The main reason is that Carrefour pursues flexibility and low costs purchase and not all products are purchased from suppliers. as most of stores are located in city centers. The unmatched actual treatment to customers with promised by Carrefour also reduces the reliability of Carrefour. so by keeping prices low everyday.

which leads to lots of complaints from suppliers. as at the early stage of development Wal-Mart still relied on the same form of selling food in America or Europe. and allows suppliers to yield more benefits. Wal-Mart and Carrefour adopted totally different strategies in dealing with suppliers. Carrefour. both Wal-Mart and Carrefour adopted the Chinese traditional wet market selling models but provides a better shopping environment for customers. Carrefour also charges many other various kinds of fees to suppliers. Products administration fees were created and promoted by Carrefour in Chinese retail industry and become the main source of retailer’s profits in China. Wal-Mart sets store by the relationship with suppliers. Today. is widely considered to reap profits from suppliers. In addition. However. Wal-Mart took a tortuous way in understanding Chinese customers’ buying habits. to cater the buying habits of Chinese customers. while Carrefour does not. however. both Wal-Mart and Carrefour adjust their selling models especially for foods. It is obvious that Wal-Mart establishes a good relationship with suppliers. It is believed that harmony relationships with suppliers would promote a healthy and continuous future development and expansion of . and sold vegetables. fishes and seafood.Catering the needs and preferences of local customers is critically vital for foreign retailers. Carrefour adopted fresh-market style for vegetables. On its first day of entry. It stopped charging administration fees to suppliers. Therefore. dead fish and seafood in Styrofoam and Cellophane.

5 Sourcing Strategies Sourcing and logistics are important for retailers. when entering and developing in China. Both of the two giant retailers have more than 80 percent of their products purchased from within China. As both are two retailing giants in the world. both have good relationships with both local and central governments. foreign firms need to understand. and hence they make great contribution to local and national economy and receive great favors from governments. and governments intervene for both political and economic reasons. Therefore. The only difference lies in the attitudes towards government regulations on foreign retailers’ development.retailers. Wal-Mart and Carrefour adopted totally different strategies for their sourcing and logistics. As relationship with government is concerned.1. However. Wal-Mart emphasizes central . Huffman (2003) suggests that the effective management of sourcing and logistics is always high on many retailers’ lists of goals. Wal-Mart is always following regulations from its first entry until its expansion and development. In 2001 Carrefour was warned for its disregard of regulations and was forced to stop further expansion. China is a highly central controlled country. whereas Carrefour often exploits the loopholes of these regulations to reap its benefits. respect and follow the government regulations. 6.

1.sourcing and distribution for all stores within China. Carrefour emphasizes flexibility of sourcing and distribution. it is more suitable to Chinese inter-provincial conditions. established 12 sourcing bases in China. and the costs of such strategies would be more. Centralized sourcing and distribution would be better in terms of products quality and delivery control. and goods are then distributed to each distribution center. However. and each of them is empowered with purchasing rights. and therefore each store have their own rights and decisions on their goods purchasing and stocking. Especially. however. China’s special conditions—provincial autonomy and self-sufficiency. However. For the empowered sourcing strategies adopted by Carrefour. pose challenges for centralized strategies. It provides sourcing information to local retailers and centralizes sourcing practices through the procurement headquarters. the amount of stores that Wal-Mart has in China is still small. 6. Wal-Mart has three distribution centers in China for all of its stores.6 Human Resource Management and Public Relations Both Wal-Mart and Carrefour attach great importance on its employees training and . There are both advantages and disadvantages for the two strategies. and the flexibility of these strategies enables Carrefour to save a lot of costs and time in purchasing and delivery. Carrefour. it is argued that the products quality and delivery cannot be assured.

awarded employees who worked for 10 years on its 10th anniversary celebration. Therefore. although managers from host countries may have good management knowledge. they lack cross-cultural exposure and they only learn through their own experience. Carrefour. and it refers to the idea that businesses have a responsibility to society beyond making profits (Cullen and Parboteeah. 2005). Corporate social responsibility is closely related to business ethics. Both Wal-Mart and Carrefour devote much time. These do not only lead to better environment and society in China. Employee motivation is also important for firms’ human resource management. but they are also ways to marketing themselves and build brand image in the society. sponsor education. skills and potential.2 Resource-Based Theory and Their Strategies . use competitive remuneration contracts to avoid trained employees to leave for competitors and to retain the talent staying for longer time. and join community activities as well as other public activities. They exert themselves to promote environment protection. money and effort to Chinese social welfare affairs. 6. both Wal-Mart and Carrefour send good and potential management employees to their head offices in parent countries to learn for their future career development. Wal-Mart. for example.retaining. This would reduce the rate of employees’ turnover and help talent retaining. As argued by Cannon (1995).

the strategies are planned depending on resources and capabilities a firm possesses.1 Entry Strategies Hill (2004) argues that the choice of entry modes depends on the type of know-how that a firm possesses. As management know-how is accumulated through business development process and gained by experience. On the other hand. whether technological know-how or management know-how. by forming a joint venture with local partners.2. Therefore. economic and political conditions. the opportunity set for each firm is distinct from others. Their successes depend largely on their management know-how on every aspect relating to retailing businesses. This section will use resource-based theory as basic principle to explain the relationship between resources and capabilities possessed by Wal-Mart and Carrefour and the strategies they adopt. Wal-Mart and Carrefour both adopted joint ventures as their entry modes and also will continue with this method during their further development. As each firm has a distinctive bundle of resources and capabilities.Firms plan and implement strategies in order to create competitive advantages to outperform competitors. joint ventures are good options for their . In the last section of this chapter. it is path dependency resources and difficult to imitate. the two retailing giants are able gain valuable knowledge on Chinese market. Therefore. strategies adopted by Wal-Mart and Carrefour are compared and contrasted in terms of six aspects. Wal-Mart and Carrefour both are successful and ranked the first two large retailers in the world. 6.

2. Carrefour had more experiences in internationalization as well as developing new market overseas. they adopted different store location strategies. buying habits as well as the location of mainstream of high-level consumptions. the experiences gained from operation in Taiwan by Carrefour also provide great competitive advantages for its development in China. In addition. Carrefour opened its first store outside France in Belgium in 1969. but they also gained valuable knowledge on Chinese conditions.entry. not only their valuable resources—management know-how is applied while protected in Chinese market. and now there are only 15 countries that Wal-Mart has entered. Carrefour understands more on consumers’ needs. and now Carrefour has presented in 30 countries globally. and the speed of expansion of Carrefour is slightly more rapid than that of Wal-Mart. Wal-Mart would more likely to choose . 6. Therefore. Through joint ventures. These differences are generally due to different experiences in internationalizations of the two retailing giants. Wal-Mart entered Mexico and opened its first oversea store in 1991. As the choice of stores location is concerned.2 Expansion Strategies During the expansion of Wal-Mart and Carrefour. These experiences resources provide Carrefour great capabilities in exploiting new market as well as developing in China. preferences.

Wal-Mart and Carrefour are both large retailers in China. their buying powers are relative high than other retailers. and hence provides experiences to Wal-Mart for the same development strategies. advertising. cost advantages can be achieved if firms have superior advantages in purchasing. . and research and development. As Lin and Liang (2001) suggest. they also enjoy the benefits from advertising.2. US and continues to develop new stores in smaller cities more than in big cities to avoid intensive competitions. Wal-Mart also possesses advanced information system that enables its lower costs on stocking and information communicating. this is also due to the past experiences during its development processes. For Wal-Mart’s choice. because their larger coverage of their advertisement enables lowers advertising costs per consumers. As most of their products sold worldwide are purchased in China. In addition. this enables the two retailing giants to purchase at lower prices. As argued in previous chapters. 6.3 Positioning Strategies Both Wal-Mart and Carrefour adopt cost leadership strategy and offer low prices in order to capture more market shares.smaller and second tier cities in China. This has been traditions for Wal-Mart to develop internationally. Wal-Mart always adopted a “circumvent big cities” strategies to steadily cultivate talents and accumulates experiences. whereas Carrefour would more likely to expand to larger and more developed cities. Wal-Mart started in a small city in Arkansas. Therefore.

Carrefour is . Wal-Mart outperforms Carrefour in terms of this aspect. It also pays more attention on customers’ complaints and requests. Carrefour adapted on the first day of its entry.Both Wal-Mart and Carrefour also aim to achieve differentiation strategies. compared with Wal-Mart.4 Local Adaptation During the development of Wal-Mart and Carrefour. the company’s image will also gradually built as good shopping environment. Wal-Mart also especially regulates its staff to keep “ten-foot attitudes” and “eight-tooth smiles” for customers. 6. differentiation requires high levels of technologies and services.2. Regardless of whether Carrefour’s strategies are good or not. both retailing giants make great efforts on its local adaptation. With gradually accumulated customers’ satisfaction. As retail industry is concerned. such as food selling as well as exploiting the loophole of government regulations. Wal-Mart insists on ordering and purchasing goods from suppliers directly to assure their qualities. which are valuable resources to achieve differentiation advantages. According to Grant (2005). 2001). However. Carrefour and Wal-Mart both emphasize the creation of a friendly atmosphere at every store where employees wander around to replenish goods and see if any assistance is required (Lin and Liang. These are its distinct strategies for its expansion and development in China. customer services are the key to achieve competitive advantages.

Through six years’ operation in Taiwan. economic and political condition. This advanced distribution system is argued to depend heavily on locations and destinies of stores. Carrefour does possess competitive advantages in local adaptation strategies. . and buying habits as well as Chinese social cultures. Therefore. Although Wal-Mart took four years in researching Chinese market.5 Sourcing Strategies The sourcing strategies adopted by Wal-Mart and Carrefour are totally different. technologies and management of centralized distribution system are valuable resources for Wal-Mart. 6. and they can be obtained or imitated by any competitors.2. these research results are not unique. This is also due to the difference resources that each of the two retailing giants possesses. communication cultures and business cultures. preferences. Therefore. and Wal-Mart use its own lorries to distribute goods to stores that are no far than 24 hours’ driving distances. Wal-Mart is famous for its logistics system and it is widely considered as one of the most important factors that lead to global success of Wal-Mart. Carrefour undoubtedly gained great knowledge on customers’ needs. Take Wal-Mart in US for example. This may be attributed to Carrefour’s experiences in Taiwan. a distribution center with satellite system is capable to distribute for 120 stores.more adapted to Chinese market environment and hence expands and develops faster. These experiences provide great advantages for Carrefour’s local adaptation strategies.

Wal-Mart’s centralized distribution systems in China will provides significant competitive advantages (Li. although Wal-Mart costs more money and time on its distribution system. the strategy that Wal-Mart adopted is more smooth and steady. 6. it may benefit more than Carrefour in the long-run. Since each firm has its unique . they are mostly affected by the resources and capabilities that each firm possesses. Generally.Although the distribution systems in China now are not as sufficient as those in the US. This is due to Carrefour’s lack of technologies and management know-how and also the lower costs of such a strategy. it is believed that with the increase of the number of stores. and hence the distribution of goods relies on local sourcing base and suppliers. market conditions and so on. enforcing long-term development and sustainability. There are both similarities and differences. however. These strategies adopted by each firm depend on various factors. while Carrefour’s strategy is more aggressive and focusing on rapid short-term development. Therefore. However. adopted decentralized and empowered sourcing strategies. Carrefour.3 Summary This chapter conducts a comparative study of strategies adopted by Wal-Mart and Carrefour respectively. such as government regulations. 2004).

bundle of resources and capabilities that determine opportunity set for each firm, strategies adopted by firms may different. Therefore, it is reasonable to find that although Wal-Mart and Carrefour are in the same industry with the same context, the strategies adopted are different and it is determined by the resources and capabilities they possess respectively.

Chapter 7 Conclusions and Recommendations

The previous chapters have analyzed and compared the strategies adopted by Wal-Mart and Carrefour, and provided the explanations of links between the strategies adopted and resources and capabilities possessed. Confronted with intensive competition in Chinese retail market especially after China’s entry into WTO, foreign retailers need to plan and implement their strategies tightly according to market conditions and their firm-specific resources. This chapter will first conclude the findings of aims and objectives of this research. A conclusion will be drawn in the following part. There are also recommendations to both Wal-Mart and Carrefour for their future development in China. At the end of this research is the limitations of this research.

7.1 Findings of the Research

This research aims to provide a comparative study of strategies adopted by Wal-Mart and Carrefour in a resource-based view, and the purpose is to provide an overview of the relationship between firms’ strategies and its possessed resources. Through the analysis of Chinese retail industry, studies of Wal-Mart and Carrefour’s strategies in China, comparing and contrasting the similarities and differences of these strategies adopted, and combining the resource-based theory with the comparative studies, findings of objectives are as follows.

Since the transition of Chinese economy system occurred, the government policies on retail market gradually become open to foreign retailers, especially after Chinese entry into WTO. Therefore, the retail market in China also evolves with these changes. Based on Porter’s Five Forces framework, in Chinese retail market today, the internal rivalry is highly intensive, potential entry level is medium to high, the influence of substitutes and complements are medium, suppliers of retailers have low to medium level of power, and the power of customers are medium. Therefore, it can be concluded that competition in Chinese retail market is fairly intensive.

Wal-Mart always adopts steady development strategies focusing on long-term and adapts its strategies to the local market conditions and government policies. Carrefour also adapts its strategies according to Chinese market condition. However, Carrefour pursues aggressive development strategies and sometimes disregards and exploits the loophole of government regulations.

Through a comparative study of the two retailing giants’ strategies, it is found that there are both similarities and differences between their strategies. The choices of their strategies are selected largely based on the resources and capabilities they possess, such as management know-how, experiences, technology and etc.

Undoubtedly. the competition is very fierce.2 Conclusions In conclusion. after China’s entry into the WTO and policies are more open to foreign . Although the importance of regulations decreases with gradually further openness of Chinese market to foreign investment. It can be found that although the retail market in China is of great potential. In addition. the resources and capabilities are the critical factors in determining strategies. there is also space for further improvement of both Wal-Mart and Carrefour’s strategies. their successes also rely on the strategies exploited based on their resources and capabilities. as they provide unique opportunity sets for each firm. market and political conditions. This research employs case studies research method and uses Wal-Mart and Carrefour and Chinese retail industry as representatives to illustrate foreign firms’ entry and development in China. foreign firms need to plan its entry and development strategies based on economic. China is always an attractive market for foreign investment especially after China’s entry into the WTO. Through the analysis of strategies of Wal-Mart and Carrefour. it is found that both giant retailers plan strategies according to local market. In addition. However. government policies play important role in foreign retailers’ strategies. Therefore. economy and government conditions and achieve great competitive advantages on their local adaptations.7. establishing good relationships with government and paying attention on government regulations are very important for foreign investors. However.

the firm needs to consider how to create a substitute of or imitate the competitors’ distinct resources. as Wal-Mart and Carrefour’s strategies in China are concerned. Some of the strategies may lead to competitive advantages.3. 7. and some of these foreign entrants are successful worldwide. the firm needs to consider how to adjust it for its future positive development. 7. and they bring advanced technologies and management knowledge. business models and experiences proved to be successful in other countries would not be successful in China.investors. They pursue harmony . more and more foreign investment come into China.1 Recommendations for Wal-Mart China Wal-Mart’s strategies are considered to focus on long-term development and they are based on regulations of every level of governments in China. while others are not. However. there are both similarities and differences between the strategies adopted by Wal-Mart and Carrefour. Therefore. If the strategies that do not lead to benefits. some recommendations are made for their further development in the context of China’s entry into the WTO and further opening of the retail sectors. Internal resources and external environment are both critically important for foreign investors. If it is the unique resources and capabilities that lead to competitors’ success.3 Recommendation for Wal-Mart and Carrefour From the previous analysis.

and thus Wal-Mart needs to make effort on integrating resources of the two firms to achieve greater competitive advantages. First. and it can be proved by its expansion and distribution strategies. . the mainstream of consumption power still lies in developed cities and prosperous areas. although “circumvent big cities” strategies are used to accumulate experiences. China’s provincial autonomy and self-sufficiency pose difficulties in interprovincial transportation. It may be a great opportunity for Wal-Mart to gain more market shares as well as profits.relationships with customers. Wal-Mart should consider a more flexible logistic system to lower the costs of distribution currently. Wal-Mart keeps developing very steadily. In addition. governments and the whole society. In addition. it has been more than 10 years since it entered China. Wal-Mart acquired Trust-Mart at the end of 2006. it is time for Wal-Mart to invest more in large and prosperous cities and areas. These inevitably increase the delivery time and costs. However. to be more flexible. Wal-Mart still focuses more on opening new stores in second tier cities. Therefore. Distribution systems of Wal-Mart also need to be more flexible. and the number of stores in developed and large cities is still low. In addition. it is still difficult for Wal-Mart to realize economies of scale in centralized distribution system. Due to the small number of stores in China. but it still may be great challenges for Wal-Mart. However. there are still some strategies to be adjusted or paid more attention to for its better development in future. suppliers.

The most important issue is that Carrefour needs to attach importance on the relationship with customers and suppliers. and hence the expansion and development of Carrefour are more rapid and fluent than those of Wal-Mart. Although the prices of products in Carrefour are widely considered to be cheaper than Wal-Mart. such as acquisitions in Canada. then the acquired firm will stay profitable.2 Recommendations for Carrefour Carrefour’s strategies are more aggressive since its first entry into China.3. 7. and therefore. and warning from government. In addition. However. Resources integration is important for firms involved in acquisition. Wal-Mart needs to contribute more on integrating resources and avoid culture clashes. Compared with Wal-Mart. then the acquired firm will continue to make loss. if Wal-Mart acquired a failed firm. Mexico and UK. Therefore.Learned from Wal-Mart’s acquisition experiences worldwide. Trust-Mart that Wal-Mart acquired is a firm with significant loss. its rapid and aggressive expansion makes Carrefour neglect some important issues. the customer services are also vital for survive of a retailer. Carrefour always reaps great profits from suppliers. if Wal-Mart acquired a profitable firm. Carrefour received more complaints from customers and suppliers. and hence suppliers can . whether it is a good acquisition or not largely depends on the integration of the resources and capabilities.

company websites. It uses Wal-Mart and Carrefour as two cases representatives and studies their activities and strategies in Chinese retail market.obtain a small profit margin. having an integrated supplier network for its sourcing and distribution centers should be more important than opening more and more new stores. company reports and etc. In addition. 7. which will save significant costs and benefit Carrefour’s stock management in the long-term. . journal articles. Carrefour should develop advanced information systems on communicating with suppliers and stocking. Empowered purchasing and distribution rights and management hinder the delivery quality of goods.4 Limitations of the Research This research aims to provide an overview of the relationship between the firm strategies and its possessed resources and capabilities. it is dangerous for Carrefour if these suppliers leave and stop supplying in the future especially when Wal-Mart have a stronger buying power. The research relies on qualitative research methods by collecting data and information from government websites. In addition. Therefore. For example. which is critically important for retailers. Carrefour needs to focus on its long-term development and plan strategies to create values resources in order to achieve competitive advantages. textbooks. These public published sources of information improve the quality and reliabilities of data.

. more data and information would be collected and two cases would be studied better and more completed. In addition. Moreover. and their future development responding to the other’s evolution.However. the research would be more convincing. and if there were interviews or surveys conducted the research would be more inductive. interviews and surveys are important methods in case studies. this research only chooses two cases to study their strategies and possessed resources and capabilities. Further research should focus on a comparative study on the resources possessed by domestic retailers and foreign respectively and how theirs strategies differ form each other. so if there were more cases such as Tesco and Makro. the analysis and recommendations are based on the strategies and activities accessible. As a result. If a longer period is given. the data and information may not be the latest. and therefore they may be preliminary and more detailed and in-depth ones need to be developed. Furthermore. and some of the latest reports does now allow to access. there are still limitations of this research.

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