Entry into Chinese and Indian Retail Markets - Essay Example

Business Studies (Entry into Chinese and Indian Retail Markets) Retailing is the world's largest private industry. For any company entering an international market or a new country-market requires it to penetrate and then develop the prospective market. With no infrastructure for sales, marketing and little knowledge about the market, it is indeed a very challenging task for any company. But in today's globalization era companies take this type of situation like an extension of their business by devising suitable diversification/ expansion strategies. Porter (1986) argues that there is no single global strategy, which can be used as a model formula. He contended that a lot depends upon the differences in the extent of geographical location and the degree to which the company is centralized for decision making. International marketing is different from home-country marketing and the success or failure of the decision basically depends upon; The objectives of market entry The choice of market entry mode i.e. whether the company wants to go it all alone or ties up with some local company, whether the company desires to enter with low-intensity modes etc. The marketing entry strategy, (multi domestic, global or international, or transnational) The type of framework prepared for the overall evolution the international marketing strategy. International market situations happen to be multilevel in their decision focus, with a hierarchy of decisions from country assessment and performance measurement decisions through to more traditional marketing mix allocations and programs. For the purpose of this study, entry into Chinese and Indian retail markets is to be considered. In general for a superstore/ retail chain like Tesco, Asda, Walmart, Trust-Mart, Reliance etc. the marketing mix comprises; Product - this includes the quality levels, production costs, the packaging, the range of products and the product differentiation. Price - this includes appropriate pricing for the target markets, quality considerations depending upon the pricing and an attacking pricing (e.g. penetration) or a defensive pricing Place - depending upon the location of a superstore it is also called a convenience store, therefore the location is very important to reach to the targeted segments. Promotion - we are today living in a media-savvy world. The power of being seen in print or TV or being heard on radio can make or break a brand. Integrating the promotion publicity campaign with the marketing mix therefore becomes very crucial for gaining loyal customers. People - interface between the retail store and the customers are the people manning the counters and providing technical support and after-sales services. Therefore a friendly, uniformed, well informed and well behaved person at the counter can help in gaining widening the customer base. HR friendly policies help in attracting and retaining good human resources. Processes - how the retail store manages its front office, back office, system support, online services etc. will definitely help it in earning a good reputation amongst the customers. Physicals - this includes the premises, support vehicles, uniforms and the looks of corporate signature. Service - last, but certainly not the least, is the services part. In fact the retailing business has become more of service oriented now a days. Were all the functions and techniques of using a particular gadget/ equipment told to the customer before the purchase, how the customer felt after buying a new TV set, did it malfunction, did he feel any difficulty in switching it on and tuning it - are some of the issues which can only be known if the retail store has a good mechanism of taking feedback from its customers. China: A leading Economy China is the most populous country in the world; with 1.30756 billion people1 by the end of 2005 it has a share of 22% of the world's total. China's entry into the WTO on December 11, 2001 has ensured regular inflows of FDI. With its gross domestic product (GDP) growing at an annual rate of 6 per cent, it is expected that Chinese economy is said to come in after the United States to secure the second place by 2030. On August 16, 2006 the National Bureau of Statistics and the National Development and Reform Commission announced that they had confirmed with the World Bank that China's national per capita national income has reached US$1,740. That means the Chinese consumer is getting more purchasing power. For a retail store this is a good sign that the overall living standards are almost equivalent to that of a well-off society. The Chinese market is not a single market, but rather it's a very diverse market that is differentiated by geographical location. China is administratively divided into 23 provinces, 5 autonomous regions, 4 centrally administrative municipalities and 2 special administrative regions (SAR). The purchasing power of consumers on the east provinces of Guangdong, Fujien, Zhejiang, Jiangsu and the areas around Shanghai is about 5 to 10 times that of the rural consumer2. Therefore the retail store would have to devise strategies depending upon the market condition. Some of the salient features of Chinese market are; It is only after its signing of WTO pact in 2004 that China allowed foreign retailers to operate even without local partners. With a retail growth of about 13.7 percent in 2005, the market promises much more. Chinese government encourages formation of Trade unions3 even in retail stores. This could be some cause of concern for a foreign retailer. As for the market friendliness, it was since the late 1970s that China has been engaged in an incremental transition from a command economy to a market economy, from an agricultural society to an industrial society, and from a totalitarian state to a democratic state. This incremental 'reform and open door' strategy is to an extent characterized by the improvement of Pareto economic efficiency. This has resulted in improving the economic conditions of the people in general, thus increasing their purchasing power. The retail fashion market has shown significant growth, as a number of international brands have entered into China. Just as recently a March 7, 2007 European fashion retailer C&A made its debut4 in China. Wal-Mart operates more than 70 stores in 36 cities of China. Now it has also entered into a strategic alliance with the local Trust-Mart. India: The IT Hub and a Promising Economy India is the largest democracy and has the 'distinction' of having population levels second only to China. During the last century while the world's population grew three fold, India population grew four fold. The burgeoning IT enabled services sector, outsourcing, and the call centre phenomenon is giving plenty of opportunities as well as good amount of spare bucks to spend, to the youth of the day. Retail industry is the largest employer in India after agriculture. But retailing is still evolving as an industry and there's lot of scope. With a GDP growth of around 9%, facilitating government and favorable economic and social environment, India presents a better business opportunity for the retailing industry. Wal-Mart the topmost global Fortune 500 Company has also finalized its plans to enter Indian retail space. But there's also some opposition to its entry into the country owing to some of its so-called anti-employee policies in US. Company-operated retail stores accounted for approximately 84% of net revenues during fiscal 2004. AFL TouchWorld, Reliance, Sahara, Shoppers Stop, Subhiksha etc. are some of the leading retail stores in the country. These companies have been doing brisk business with good hold over the respective markets. They'll present a good competition to a new entrant. With greater per capita income and an increase in disposable income of middle class households and a growing population, retail industry has good prospects in the country. References: 1. China Development Gateway, available online at, http://www.china.org.cn/english/ 2. Eve Hicks and Paul Isaac, (2000), A Strategic Evaluation of the Effects of International Diversification on Firm Value, Kingston Business School, Kingston University 3. India retail market, available online at www.ficci.com/media-room/speeches-presentations/2005/feb/feb23-fdi.ppt (March 9, 2007) 4. Phillip Kotler, 'Marketing Management' 2nd Edition, Prentice Hall Inc, 1972 5. Reflections on China at the End of the Second Millennium. Available online at http://media.wiley.com/product_data/excerpt/28/04713772/0471377228.pdf (March 6, 2007) 6. Retail Marketing defined, On-Point Marketing &Promotions, available online at http://www.onpoint-marketing.com/retail-marketing.htm (March 7, 2007) 7. Shari Waters, 'Tips to Increase Retail Sales', available online at http://retail.about.com/od/marketingsalespromotion/a/increase_sales.htm (March 9, 2007) 8. KPMG. Indian Retail on the fast track. http://www.kpmg.cz/czech/images/but/2005_CONS_Indian_Retail_2005.pdf (March 9, 2007) Read More