to a Commerce Ministry spokesperson, China has too many suppliers and too few ma
ID: 463249 • Letter: T
Question
to a Commerce Ministry spokesperson, China has too many suppliers and too few major retailers. As a result, Chinese retailers have been able to exert their power by forcing sup- pliers to accept low prices based on bidding wars, stretched out payment terms, and the required payment of fees and commissions. While fees and commissions have been customarily set at 4 percent of sales, some merchants have secured com- missions of between 10 and 20 percent. As a manager of a Carrefour supplier says: “Only big manufacturers are tough enough to stop supplying Carrefour when it asks for higher rebates. Small suppliers like us just have to do as we’re told if it asks us to pay more rebates.” Some retail analysts fa- miliar with the Chinese market also suggest that the pricing issue has been partially caused by the autonomy given to Chinese retail managers. In an effort to attract price-sensitive Chinese consumers, many managers sought low prices by requiring kickbacks from suppliers. Recently, Carrefour began to reduce the power of regional and individual store managers. Carrefour and Wal-Mart, two of the world’s largest retail- ers and among China’s top five retailers, are not the only global retailers with problems in China. Home Depot (www.homede- pot.com) recently closed its sole remaining store in Beijing. Likewise, Mattel closed its Shanghai Barbie doll flagship store just two years after it opened. Best Buy (www.bestbuy.com), the electronics giant, also recently announced its plans to close all of its nine Chinese stores. According to Barbara E. Kahn, a Wharton marketing professor, Best Buy’s problems in China were largely the result of its using the same marketing strategy in China as in the United States. While Best Buy has high brand recogni- tion in the United States, it is virtually unknown in China. And unlike the U.S. market, China’s market for electronics is fragmented with a large number of small electronics re- tailers. In China, stores are located so close to one another that a new Best Buy store could have three competitors virtually next door. Because Chinese customers are very price sensitive, Best Buy’s U.S.-based strategy of for high customer service ac- companied by higher price levels was inappropriate for the Chinese market. In contrast, to keep prices low, two Chinese competitors—Gome (www.gome.com.hk) and Suning (www. cnsuning.com/include/english)—purchase goods on a con- signment basis and pay suppliers only after goods are sold. These Chinese retailers also require their suppliers to provide sales personnel for each of their stores.
Questions 1. How else could a foreign retailer exert additional power with its Chinese suppliers (and not face government restrictions)?
2. How can foreign retailers successfully position themselves in China?
3. Discuss the pros and cons of a retailer’s use of a standard- ized versus a nonstandardized retail strategy throughout the world.
4. How can a global retailer exert greater oversight with the personnel in its foreign stores?
Explanation / Answer
1) The success rate for any retailer in China is very low when compared to any other Asian countries. Chinese market aims at the middle class people. The consumers in China mostly prefer low cost products, which are highly available in the local market. So, any big retailer who is successful in United States or Europe or any other country may not be successful in China. The target market for China is very different.
For any foreign retailer who wants to expand to China need certain strategies in place. Any foreign retailer before entering into the Chinese markets need to do a survey on the consumer's choices and preferences, their cost of living, average income levels in the households, their thinking levels - traditional or sophisticated etc. Knowing the local language is a must to succeed in the Chinese markets.
Any foreign retailer should start its retail operations in the tier-1 cities. Look at how people are responding to the markets. A deal has to be made with the local suppliers for the supply of material and by luring them by giving advances, and lucrative deals in the retail outlets. Once the local suppliers are on track and in good terms with the retailers, they can try and expand their market presence to the tier 2 & tier 3 cities. Government will be involved in such situations.
2) Any foreign retailer should know and understand the preferences of the consumers, their buying patterns, their average income levels. This helps the retailers to look out for the options if one segment is not working. Chinese market focuses on the middle class people. The products sold there are mostly local made and that gives them more flexibility in understanding what local So, by understanding the pulse of the buyers and consumers, by selling low cost products, any foreign retailer can successfully position themselves in China.
3) A retailer cannot use their standardized retail strategy in China. China has a very different market, hence a different strategy is needed there. Any strategy which is used by the retailer globally in all the countries then it is a standardized strategy. If it is not used in the same way throughout the world then it is non-standardized strategy.
Let's take an example of the fast food giant Mc Donald's. Mc Donald's products and strategies are not acceptable throughout the world. Hence, it uses non-standardized strategies throughout the world. Coca Cola follows same strategy throughout the world, and it uses standardized strategy every where.
Pros - Cost of marketing and brand equity
A company need not use different marketing strategies in different countries. One marketing strategy is possibly used in different countries. Any strong brand in the market will have same presence throughout the world.
Cons - Sensibility issues
With the sensibility issues, not all markets perceive a product in the same way. For some markets a product can be a normal product but for some it could be luxury. The perceived value of the products make it more vulnerable to the sensibility.
4) Having a personnel of a global retailer in its foreign stores is always good. It helps the retailer understand the pros and cons of the business. If the personnel is a native of that country can be more advantageous. He will be a mediator between the organization and the local market. That's why most of the foreign retailers hire local people for their stores.
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