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The foreign retail companies in China have already been losing their “dividends” in brand, management, system and capital. The regional Chinese retailers and the local retailers based in large cities of China are nibbling away on the market share of these foreign giants.
These Chinese local retailers first established themselves in the cities where they originated. After having developed well and taking a dominant place in these places, they extended their arms to neighboring cities or even the whole country with selfowned logistics system.
When China entered the Year of Dragon, the retail expert expressed their opinions about the development orientation of the retail industry in China in the 12th Five-Year Plan(2011-2015). In their opinions, the competition between foreign and Chinese retail companies is no longer limited to the major and second-tier cities; instead, it has been spread to the whole country and the next few years might witness the turning point of this competition. It is widely held that the foreign retail giants are losing their advantages in brand, management, system and capital. Thus they are quite likely to be surpassed by the Chinese retail companies and meet the end of their fast expansion in China that has been lasting over 10 years.
Foreign Retailers No Longer the Leading Role
Ding Liguo, founder of the website Top-Retailing said that the Chinese retail market did not only have foreign retailers. For example, the Chinese companies always have a stronger presence in the sectors of department stores and home appliance retail. However, in the sectors of supermarkets and shopping malls, which are the most eye-catching subdivision of the retail industry, how will the competition between Chinese and foreign companies go on remains an appealing question.
In Ding Liguo’s opinion, no matter the Carrefour pattern or the Wal-Mart pattern had problems in China, which could be summarized as the “bottleneck of expansion”. Though they could still maintain a 20% annual growth rate in sales in China, the single-store performance is dropping and the management is haunted with problems.
The Carrefour’s supermarket has the director as the core, but the fast expansion of this French company gave too large a number of supermarkets in China along with an excessive number of directors – Carrefour has no time to train them all to turn them into qualified directors so some supermarkets with “bad” directors have quality problems and price fraud. When it wanted to take back the director’s power and set up regional purchasing centers, the conflict with its traditional culture leads to the loss of many employees as well as the deteriorating single-store performance and decreasing management level. The core of the Wal-Mart pattern is its headquarters. However, without a highly developed supply chain system it has in the United States, Wal-Mart also met the problems of low single-store performance and competitive power. It tried to decentralize the power but encountered the same problem as Carrefour, which finally led to the closure of its supermarkets in Chongqing.
Foreign supermarkets’ inability to take care of everything simultaneously gives Chinese local retailers great opportunities. At first they developed in their own territories and built selfowned logistics system before extending their arms to the whole country. Without directly competing with Carrefour, Wal-Mart and other foreign retail companies, they found their own development patterns.
Ding Liguo said that the change of the global economic situation might give more opportunities to the Chinese retail companies. The foreign giants met financial difficulties because of the problems in their own countries. Being engaged in putting out the fire in their headquarters, they might not focus on China as much as ever before, which allows the Chinese retail companies to take more actions in this period.“The situation is changing. Maybe later the Chinese and foreign retailers are well matched in strength or even the Chinese retailers are better,” said Ding Liguo.
Hu Chuncai, general manager of a Shanghai-based consultancy company UI Sharing, thought that the Carrefour, Wal-Mart and TESCO changed their leaders in China in 2011, showing that the foreign retail companies have run out of their development potential after years’ fast expansion in China.
Private Retailers’s Advantages
Hu Chuncai is bullish on the private retail companies having leading in a certain area. In his opinion, these companies could still have fast development even when they face the furious competition with foreign retailers. Their market share might increase instead of dropping. If they could see and focus on what they are good at, they may surpass the foreign retail companies sooner or later. He said that he was so confident that the private retail companies have their own advantages that foreign companies do not have.
Hu Chuncai attributed the foreign companies’ fast expansion in China in the past 15 years to the four “dividends” mentioned before.
Firstly, the brand dividend made foreign retailers more appealing for Chinese local commercial property. The property owners usually gave these foreign retail companies more preferential conditions than the domestic companies in order to have them establish their business in their places. However, in recent two years, the blind admiration for foreign companies gradually faded away even in the thirdand fourth-tier cities. This means that the foreign companies’ brand dividend has almost been run out. The second dividend comes from the management. Carrefour has set a good example in the scientific marketing and meticulous management. But now many of the management and marketing talents have moved from foreign companies to Chinese local companies. And the foreign retail companies have to endure the fact that their market share and profits based on their management dividend are gradually taken away by Chinese local companies.
The third one is the system dividend. In the past, the employees in foreign companies had much higher salaries than the ones in domestic companies and foreign companies were willing to spend a lot of money in training employees. The high salary and the good career development system allowed foreign companies to recruit the best talents in the retail industry. But now, the Chinese companies could provide the same salary with foreign companies. In addition, the Chinese local executives in these foreign retailers seemed to reach the ceiling in the recent one or two years – they could not jump to the level of top decision makers of the foreign companies’ China branches, which are taken by foreign executives sent by the foreign headquarters. Their positions are not stable as before. Wal-Mart and Carrefour once laid off many intermediate executives in China with different reasons.
The capital dividend is the last one. Most foreign retailers are listed companies and thus are easy to raise capital. In recent years, however, Chinese retail companies represented by Gome, Suning, Hyper-Mart and Ren Ren Le Group, were listed and got the capital support. “As the foreign retail companies lost the dividends of brand, management, system and capital, the gap between them and the Chinese local companies are getting smaller,” Hu Chuncai said.
According to Hu’s analyst, right now it is hard for Chinese local retail companies to surpass the foreign companies in brand, management and capital dividend. But they can get close to foreign companies in these fields. Meanwhile, the Chinese retail companies, especially those private companies, have found their own system dividend. When they can bring this system dividend into full use, their status in the Chinese retail market will rise again.
In spite of that, Ding Liguo gave his advices for the Chinese local retail companies, reminding them of not being too optimistic. “If Wal-Mart and other foreign companies got rid their trouble in their homes and returned to China, they could increase their number of supermarkets in a dramatic speed. With a huge number of supermarkets, as well as the fast and efficient nationwide logistics system, they could be unbeatable again.” In addition, in the fast moving consumer goods retail market, the foreign companies have a 20% growth rate, much higher than domestic ones.
These Chinese local retailers first established themselves in the cities where they originated. After having developed well and taking a dominant place in these places, they extended their arms to neighboring cities or even the whole country with selfowned logistics system.
When China entered the Year of Dragon, the retail expert expressed their opinions about the development orientation of the retail industry in China in the 12th Five-Year Plan(2011-2015). In their opinions, the competition between foreign and Chinese retail companies is no longer limited to the major and second-tier cities; instead, it has been spread to the whole country and the next few years might witness the turning point of this competition. It is widely held that the foreign retail giants are losing their advantages in brand, management, system and capital. Thus they are quite likely to be surpassed by the Chinese retail companies and meet the end of their fast expansion in China that has been lasting over 10 years.
Foreign Retailers No Longer the Leading Role
Ding Liguo, founder of the website Top-Retailing said that the Chinese retail market did not only have foreign retailers. For example, the Chinese companies always have a stronger presence in the sectors of department stores and home appliance retail. However, in the sectors of supermarkets and shopping malls, which are the most eye-catching subdivision of the retail industry, how will the competition between Chinese and foreign companies go on remains an appealing question.
In Ding Liguo’s opinion, no matter the Carrefour pattern or the Wal-Mart pattern had problems in China, which could be summarized as the “bottleneck of expansion”. Though they could still maintain a 20% annual growth rate in sales in China, the single-store performance is dropping and the management is haunted with problems.
The Carrefour’s supermarket has the director as the core, but the fast expansion of this French company gave too large a number of supermarkets in China along with an excessive number of directors – Carrefour has no time to train them all to turn them into qualified directors so some supermarkets with “bad” directors have quality problems and price fraud. When it wanted to take back the director’s power and set up regional purchasing centers, the conflict with its traditional culture leads to the loss of many employees as well as the deteriorating single-store performance and decreasing management level. The core of the Wal-Mart pattern is its headquarters. However, without a highly developed supply chain system it has in the United States, Wal-Mart also met the problems of low single-store performance and competitive power. It tried to decentralize the power but encountered the same problem as Carrefour, which finally led to the closure of its supermarkets in Chongqing.
Foreign supermarkets’ inability to take care of everything simultaneously gives Chinese local retailers great opportunities. At first they developed in their own territories and built selfowned logistics system before extending their arms to the whole country. Without directly competing with Carrefour, Wal-Mart and other foreign retail companies, they found their own development patterns.
Ding Liguo said that the change of the global economic situation might give more opportunities to the Chinese retail companies. The foreign giants met financial difficulties because of the problems in their own countries. Being engaged in putting out the fire in their headquarters, they might not focus on China as much as ever before, which allows the Chinese retail companies to take more actions in this period.“The situation is changing. Maybe later the Chinese and foreign retailers are well matched in strength or even the Chinese retailers are better,” said Ding Liguo.
Hu Chuncai, general manager of a Shanghai-based consultancy company UI Sharing, thought that the Carrefour, Wal-Mart and TESCO changed their leaders in China in 2011, showing that the foreign retail companies have run out of their development potential after years’ fast expansion in China.
Private Retailers’s Advantages
Hu Chuncai is bullish on the private retail companies having leading in a certain area. In his opinion, these companies could still have fast development even when they face the furious competition with foreign retailers. Their market share might increase instead of dropping. If they could see and focus on what they are good at, they may surpass the foreign retail companies sooner or later. He said that he was so confident that the private retail companies have their own advantages that foreign companies do not have.
Hu Chuncai attributed the foreign companies’ fast expansion in China in the past 15 years to the four “dividends” mentioned before.
Firstly, the brand dividend made foreign retailers more appealing for Chinese local commercial property. The property owners usually gave these foreign retail companies more preferential conditions than the domestic companies in order to have them establish their business in their places. However, in recent two years, the blind admiration for foreign companies gradually faded away even in the thirdand fourth-tier cities. This means that the foreign companies’ brand dividend has almost been run out. The second dividend comes from the management. Carrefour has set a good example in the scientific marketing and meticulous management. But now many of the management and marketing talents have moved from foreign companies to Chinese local companies. And the foreign retail companies have to endure the fact that their market share and profits based on their management dividend are gradually taken away by Chinese local companies.
The third one is the system dividend. In the past, the employees in foreign companies had much higher salaries than the ones in domestic companies and foreign companies were willing to spend a lot of money in training employees. The high salary and the good career development system allowed foreign companies to recruit the best talents in the retail industry. But now, the Chinese companies could provide the same salary with foreign companies. In addition, the Chinese local executives in these foreign retailers seemed to reach the ceiling in the recent one or two years – they could not jump to the level of top decision makers of the foreign companies’ China branches, which are taken by foreign executives sent by the foreign headquarters. Their positions are not stable as before. Wal-Mart and Carrefour once laid off many intermediate executives in China with different reasons.
The capital dividend is the last one. Most foreign retailers are listed companies and thus are easy to raise capital. In recent years, however, Chinese retail companies represented by Gome, Suning, Hyper-Mart and Ren Ren Le Group, were listed and got the capital support. “As the foreign retail companies lost the dividends of brand, management, system and capital, the gap between them and the Chinese local companies are getting smaller,” Hu Chuncai said.
According to Hu’s analyst, right now it is hard for Chinese local retail companies to surpass the foreign companies in brand, management and capital dividend. But they can get close to foreign companies in these fields. Meanwhile, the Chinese retail companies, especially those private companies, have found their own system dividend. When they can bring this system dividend into full use, their status in the Chinese retail market will rise again.
In spite of that, Ding Liguo gave his advices for the Chinese local retail companies, reminding them of not being too optimistic. “If Wal-Mart and other foreign companies got rid their trouble in their homes and returned to China, they could increase their number of supermarkets in a dramatic speed. With a huge number of supermarkets, as well as the fast and efficient nationwide logistics system, they could be unbeatable again.” In addition, in the fast moving consumer goods retail market, the foreign companies have a 20% growth rate, much higher than domestic ones.