Both Carrefour (www.carrefour.com) and Wal-Mart (www. walmart.com) were recently

Question

Both Carrefour (www.carrefour.com) and Wal-Mart (www. walmart.com) were recently charged with conducting bait- and-switch tactics in China. The two retailers were accused by China’s National Development and Reform Commission of attracting shoppers into their stores with massive promotions and then charging these customers more than the advertised prices. Carrefour and Wal-Mart were fined the equivalent of $76,000 for each offending store—a total of 19 stores for the two companies combined. This was the largest fine ever as- sessed in China against any retailer. Carrefour’s difficulties are based on an imbalance of power that exists between retailers and suppliers in China. According 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.

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) China is a country which focuses on the middle class people. China has a lot of manufacturers but a few retailers, and the cost of the products sold to the consumers are generally low cost items. Hence, large and international retailers like Walmart and Carrefour could not sell a high cost items there and hence to attract the customers, they lure them with discounts.

If any foreign retailer wants to enter the Chinese market, there are certain things that needs to be kept in mind.

If the communication terms between the foreign retailer and the local manufacturer is healthy, how could government restrict for the trade?

2) Any foreign retailer can position himself in the Chinese market by knowing the pulse of the buyers. It means, by knowing the tastes, preferences, buying patterns of the local buyers is very important for starting a business there. In China, most of the people come from the middle class. It means, they prefer buying low cost items. They live an economically low lives there. In China, the number of manufacturers are more than the retailers. This is considerably an opportunity for the foreign retailers.

3) Standardized retail strategy means, using standard procedures every where in the world. Non-standardized retail strategy means, using different strategies at different countries based on the country's policies, people an process.

Standardized & non-standardized retail strategy -

Pros - By using the standardized retail strategy, the consumers will have an idea of the quality they can expect. There will not be any differences in the quality in the home country or in the foreign country. The marketing will be the same throughout the world. People will have an idea of what the brand offers universally and when they look at the caption they can actually remember and correlate the product with the brand. If the organization enjoys a strong good will and reputation, it is carried through out the world.

Cons - Different markets have different tastes and preferences, by giving the standardized products, it may become vulnerable. One product which is positively received by one country may not be positive for an other. This could give away market share to the competitors.

4) Having the personnel of the retailer in the foreign stores is always very helpful. Since the foreign retailer does not have the knowledge of the local language, any local personnel from the foreign retailer's pay rolls could help the retailer gaining more insights on the local business.

By hiring the local people from the foreign country to work with the foreign retailer can help the foreign stores to a great extent. This happens only by being proactive. By this type of the hiring, there will be job generation in the foreign markets.

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