Retail Internationalization in China - Research Paper Example

Retail entry mode internationalization in China By Department Saturday, 2 May, Introduction China retail market has steadily increased over the years becoming one of the lucrative markets in the world. China GDP stood at US$ 9240 in 2014 hitting a all-time high, with a disposable income of an average ¥ 28840 (TRADING ECONOMICS, 2015), this gives the impetus in retail market boom with households having more spending power. Unlike the US where the retail market is dominated by large chain retailers, China retail market is largely fragmented in small to medium sized retailers, the consumer prices(CPI) grew by 2.6% with overall retail sales growing by 14.3% in 2012 (China Economy, 2015). There exist a study gap in retail internationalization in China, with no comprehensive studies developed to address the retail environment. This study aims to address the broader conceptual framework in retailing in China by providing a detailed literature on retail internationalization. We shall evaluate the retail firms entering China on foreign direct investment and further evaluate the what influences them to make the critical choice in that decision. Research question will focus on answering the following questions; a) What is the preferred mode of retail entry between equity and non-equity models? b) What are the retail internationalization modes used in entering into foreign market like china? Literature review Researchers have identified unique characteristics in retail sector that differ from manufacturing firms; in that the underline factors in retail views compounded with financial constraints, marketing and management challenges (Bernhard Swoboda, 2009). Multinationals and other firms find themselves on cross-road in sinking substantial amount of resources in a new host market, amidst of market uncertainty, more so firms fear being left out of foreign growth opportunities as a result of low FDI or making late entry in the market (Katrijn Gielens, 2007). One of the factors to consider on foreign entry mode is the strategic formula to give the retail firm an niche or a sweet spots in order to counter competition, have a customer focus and get I the company goals in the drive to expand (David, 2011). Diagram 1 ( Source, Thomas L. Wheelen, 2012) Has the niches may metamorphosis the firm need to form a faster adaptation method, thus top management may need to rediscover the need to carry out situational analysis in China and evaluate the competitive strong niche, this is brought by the demographics (Rothaermel, 2015), regulation and other barriers as illustrated in the diagram one. Consumer behavior differs across countries as retail firm considers internationalization (Frank R. Kardes, 2011) and consumers have a choice between the foreign retailers or local domestic retailers (Stella Minahan, 2012). Recent study shows that consumer receptiveness on to entry of foreign retailers, that consumer culture of the host country are affected by an entry mode of foreign firm (Peng, 2014). One of the factor that affect the shopper acceptance of a new foreign retail firm is the country of origin and others include store location and legitimacy (Nicholas Alexander, 2000). Entry mode for foreign firm differ in strategies as defined by the situational analysis, risk and control of the resources as the top management requires to recoup their return on investment; thus there are two main entry modes (Katarzyna Twarowska, 2013) a) Non-equity mode which includes franchise and shop-in-shop methods of contractual agreement. b) Equity mode which includes company owned shops and joint ventures; The top management considers the lowest risks but also they can consider a higher risk of acquisition (Hampton, 2009). Conceptual framework Methodology We conducted a survey of the top 20 retailers firms worldwide via there top managers to investigate the entry path and foreign expansion mode. We used qualitative interviews to collect the data, the questionnaire was structured in that every top manager received the same likert scale questions (Coolican, 2014). The study shall use exploratory studies as the area of the investigation is vague and we shall explore the entry mode of retail firm in China (Donald R. Cooper, 2014). The study observed the code of ethics in carrying out the survey. We observed all naturalistic inquiry in that we involved top managers before and after the survey and drew appropriate boundaries between the researcher and the respondent, this was because the investigations was done in different countries with different laws (Elizabeth DePoy, 2011). Data analysis The data variables are qualitative with nominal attributes as we are conducting exploratory studies. All the variables were operationalized as shown in the appendix 1. Descriptive statistics Figure 1 Figure 1 indicates that most firms prefer Shop-In-Shops strategic ownership with 20% preferring owning the outlet 100% Figure 2 Figure 2 shows that Hong-Kong and Taipei have 50% prefer ability of retail direct investment than the mainland China. Figure 3 Figure 3 indicates that most investors prefer most Franchise and Shops-In-Shops mode of expansion due to the low risk in dissemination of assets and desire for direct control in strategic and operational management is low. Figure 4 Most investors prefer to entering mode using bank loans and company reserves as shown in Figure 5, with Taipei being a preferred destination for FDI. Figure 6 The figure 6 shows that the mode of entry by FDI is franchised store and Shops-In-Shop. Inferential Statistics Table 1 Hypothesis Test Summary Null Hypothesis Test Sig. Decision 1 The categories defined by Major barriers in investing in China = (Language) and (Cultural environment, Legal and political environment, Work relations, Infrastructure, Economic environment) occur with probabilities 0.67 and 0.33. One-Sample Binomial Test 2.432E-61 Reject the null hypothesis. Asymptotic significances are displayed. The significance level is .05. 1Exact significance is displayed for this test. The binomial test conducted on the barriers indicate statistical significance level .05. This can be illustrated by nations entering trade treaties to remove barriers with proper legal agreement that indicate the area of cooperation between the nations (Ronald J. Ebert, 2013). The p < .000 we reject Ho and conclude that the trade barriers hinders FDI in China. Figure 7 The Figure 7 indicates a z-value of -4.7, and a normal curve = 000 showing the chances of obtaining the mean value is high, hence the frequencies are distributed as hypothesized = .67 thus there is higher barrier brought about by language in China in retail enter mode (Bruce L. Bowerman, 2014). Table 2 Hypothesis Test Summary Null Hypothesis Test Sig. Decision 2 The categories defined by City you would prefer to invest in = (Hong Kong) and (Beijing, Shanghai, Taipei, Guangzhou, Other City) occur with probabilities 0.67 and 0.33. One-Sample Binomial Test 1.472E-41 Reject the null hypothesis. Asymptotic significances are displayed. The significance level is .05. 1Exact significance is displayed for this test. The binomial test indicates a statistical significance at level .05, thus we reject the null hypothesis and conclude that the FDI destination city has preferences in determining the location of the retail outlet. Figure 8 The Figure 8 shows a z value = -3.8 and a normal curve = .000 and indication that the frequencies are distributed normally at hypothesized value = .67, hence Hong Kong is preferred destination of entering mode of a retail shop (David R. Anderson, 2011) . Table 3 Hypothesis Test Summary Null Hypothesis Test Sig. Decision 3 The categories defined by Managerial appoach as at home = (Very different) and (Different, Neutral, Close, Very close) occur with probabilities 0.67 and 0.33. One-Sample Binomial Test 2.174E-51 Reject the null hypothesis. Asymptotic significances are displayed. The significance level is .05. 1Exact significance is displayed for this test. The test indicated a statistical significance p < .05, rejecting the null hypothesis indication that the management are willing to adapt new management style in Chinese retail outlets at a probability of 67%; a high return value (Paul Newbold, 2013). Figure 9 Human resources create a fundamental challenge internationally. Like the Walmart strategy of keeping the wages low by application of non-unionize-able policy to the workers, Walmart had to make there worker unionize-able in China as trade unions are heavily backed by the government (Dessler, 2013). Thus Figure 9 indicates that the foreign management are willing to apply different strategies to counter inter-country differences, with a z score of -4.2 and normal curve = 000 at a hypothesized value of .67 is a strong signal in entering mode in retail in China. Table 4 Hypothesis Test Summary Null Hypothesis Test Sig. Decision 4 The categories defined by Financing the new retail outlet = (Bank Loans) and (Company reserves, Shareholders capital injection) occur with probabilities 0.67 and 0.33. One-Sample Binomial Test .1821 Retain the null hypothesis. Asymptotic significances are displayed. The significance level is .05. 1Exact significance is displayed for this test. The Table 4 indicates the results of binomial test conducted, there was non-significance at p = .18 at 95% CI thus we can conclude that the retail entering mode thus we accept the null hypothesis that source to fund the retail outlet is a combination of multiple sources (David R. Anderson, 2012). Figure 10 The graph in Figure 10 shows that z-value -.9 and normal curve of .18 indicating, that the frequencies is not distributed normally an indication that the financing of the outlet may be the management are considering of multiple sources. Conclusions and summary Foreign entry mode in China depends on number of factors that prevail for the company. Most Investor would prefer joint Shop-In-Shop or franchising, this is because the non-equity mode is of low risk and counters many barriers such as languages, social-political barriers and regulations (Hill, 2008). Most retailers prefer to locate outside mainland, mainly due to less regulations and culture is more westernized like in Hong-Kong and Taiwan. Human resources plays a key role in equity mode of entry as top management has to make a crucial decision of making using the foreign model to operate the local retail shops or employ the locals to run the retail shop exposing the investment to the high risk. Works Cited Bernhard Swoboda, J. Z. a. S. E., 2009. Internationalisation of Retail Firms. State of the Art after 20 Years of Research, Volume 2, pp. 105 -126. Bruce L. Bowerman, R. T. O. E. S., 2014. Business Statistics in Practice. 7th ed. New York: McGraw-Hill/Irwin. China Economy, 2015. The China Perspective. [Online] Available at: http://www.thechinaperspective.com/topics/industry/consumer-retail/ [Accessed 27 April 2015]. Coolican, H., 2014. Research Methods and Statistics in Psychology. 6th ed. East Sussex: Psychology Press. David R. Anderson, D. J. S. T. A. W., 2011. Statistics for Business and Economics. 11th ed. Mason: Cengage Learning. David R. Anderson, D. J. S. T. A. W. J. D. C. K. M., 2012. An Introduction to Management Science. 13th ed. Mason: Cengage Learning. David, F. R., 2011. Strategic management: concepts and cases. 13th ed. Upper Saddle River: Pearson Education, Inc.. Dessler, G., 2013. Human Resources Management. 13th ed. Upper Saddle River: Pearson Education, Inc.. Donald R. Cooper, P. S. S., 2014. BUSINESS RESEARCH METHODS. 12th ed. New York: McGraw-Hill/Irwin,. Elizabeth DePoy, L. N. G., 2011. INTRODUCTION TO RESEARCH: UNDERSTANDING AND APPLYING MULTIPLE STRATEGIES. 4th ed. St. Louis: Elsevier Inc.. Frank R. Kardes, M. L. C. T. W. C., 2011. Consumer Behavior. Mason: Cengage Learning. Hampton, J. J., 2009. Fundamentals of enterprise risk management. New York: Amacom. Hill, C. W. L., 2008. Global Business Today. 5th ed. New York: McGraw-Hill/Irwin,. Katarzyna Twarowska, M. K., 2013. INTERNATIONAL BUSINESS STRATEGY. Zadar, Make Learn. Katrijn Gielens, M. G. D., 2007. The Entry Strategy of Retail Firms into Transition Economies. Journal of Marketing, Volume 71, pp. 196-212. Nicholas Alexander, H. M., 2000. The retail internationalisation process. International Marketing Review, 17(4/5), pp. 334 -353. Paul Newbold, W. L. C. B. M. T., 2013. Statistics for Business and Economics. 8th ed. Upper Saddle River: Pearson Education, Inc.. Peng, M. W., 2014. Global Business. 3rd ed. Mason: Cengage Learning. Ronald J. Ebert, R. W. G., 2013. BUSINESS ESSENTIALS. 9th ed. Upper Saddle River: Pearson Education, Inc.,. Rothaermel, F. T., 2015. Strategic management. 2nd ed. New York: McGraw-Hill Education. Stella Minahan, P. H. C. B., 2012. Costco and the Aussie Shopper. International Review of Retail, Distribution and, 22(5), pp. 507-527. Thomas L. Wheelen, J. D. H., 2012. Strategic management and business policy : toward global sustainability. 13th ed. Upper Saddle River: Pearson Education, Inc.. TRADING ECONOMICS, 2015. TRADING ECONOMICS. [Online] Available at: http://www.tradingeconomics.com/china/gdp [Accessed 27 April 2015]. Appendix I 1. Do you have any expansion plans in the next 5 years?  Yes  No 2. What are the main barriers are there in entry in Chinese market? Language  Cultural environment  Legal and political environment  Work relations  Infrastructure  Economic environment  3. Which city would you prefer in investing in China Hong Kong  Beijing  Shanghai  Taipei  Guangzhou  Other City  4. Would you apply the same managerial practice as in mother country? Very different  Different  Neutral  Close  Very Close  5. Which financing method would you prefer in entry mode in China? Bank Loans  Company reserves  Shareholders capital injection  6. Which method of owning or operating the retail out let would you prefer? Company owned 100%  Franchised store  Shops-In-shops  Plural form  Composite form  Read More