The Retailing Chinese Market on a Global Scale - Research Paper Example

BTU) APPLIED RESEARCH METHODS FOR BUSINESS AND MANAGEMENT By Submission (BTU) Applied Research Methods for Business and Management Abstract The paper evaluates the retailing market on a global scale, and as such, explores the various market entry strategies used by retail chains and stores across the global scale. As such, the paper pays a particular focus on the market entry strategies used by retail centers to explore the Chinese retail market. The Chinese retail market is among the largest retail markets in the world, playing the same league as other leading retail markets such as the American retail market, as well as certain retail markets in Europe and Asia Pacific. The Chinese retail market is instrumental in the retail subsector because of its large population numbers, as well as the high purchasing power of consumers within the Chinese market, thereby offering the market players an exemplary opportunity to sell their goods and services through retail stores. The paper explores a brief introduction into the Chinese retail market, distinguishing the particular market structures within the Chinese economy that facilitate retail market growth and expansion. Furthermore, the introduction covers the key points of the research work which seeks to explore the market entry strategies used by retailers to enter the Chinese market. The literature review explores the different consumer patterns and behaviors evident within the Chinese market economies. These consumer behaviors determine the type of market approach that the retailers will embark on in order to explore and penetrate the Chinese retail market economy. The methodology explores the different methods of data collection applied by market researchers to explore the different market entry strategies used by retailers to penetrate the Chinese retail market. The research employs both qualitative, as well as quantitative data analysis techniques in analyzing the collected data. Retail Market Entry Strategies in China Introduction The Chinese retail market has steadily increased over the years becoming one of the most lucrative markets in the world. The GDP of China stood at US$ 9240 in 2014 hitting an 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, the Chinese retail market is largely fragmented in small to medium sized retailers. The consumer price index (CPI) grew by 2.6% with overall retail sales growing by 14.3% in 2012 (China Economy, 2015) There exists a study gap in retail internationalization in China, with no comprehensive studies developed to address the retail environment. As such, this study aims to address the broader conceptual framework in retailing in China by providing a detailed literature on retail internationalization. This research work evaluates the market entry strategies adopted by retail firms entering the Chinese retail market through foreign direct investment platforms, as well as carrying out further evaluations on the influences that drive these firms into making such critical choices in business growth and expansion. This therefore requires firms within such markets to come up with strategic plans on the best way to enter such a new market, and succeed in the new market without necessarily suffering from competitive forces, as well as enhanced market rivalry. Therefore, the 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 is the retail internationalization mode used in entering into foreign market like China? Literature Review Global expansion is a common feature experienced in most multinational corporations as they seek to take advantage of the great opportunity brought about by new and emerging foreign markets. As such, retail outlets and stores within the retailing market will also venture out into the risky and uncertain foreign market in order to take advantage of these emerging opportunities. However, it is essential for the retail stores to consider the most appropriate market entry strategies to adopt in order to be successful in the new market. This is in consideration of the competitions within the existing market, as well as other market uncertainties, such as rivalry, stiff competition, available resources, as well as company policy and strategy. The Chinese market presents retailers with the best growth opportunity, especially considering the large population numbers in most Chinese markets as China stands out to be the world’s biggest population country wise. Furthermore, the Chinese economy is the second best in the world, thereby giving exemplary purchasing power to the Chinese population. Researchers have identified unique characteristics in retail sector that differ from manufacturing firms. As such, these researchers established that these underlying factors in retail views compounded with financial constraints, marketing and management challenges (Bernhard, 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. Furthermore, these firms fear being left out of foreign growth opportunities as a result of low Foreign Direct Investments (FDI) or making late entry in the market (Katrijn, 2007). One of the factors to consider on foreign entry mode is the strategic formula to give the retail firm a niche or a sweet spot in order to counter competition, have a customer focus and get the company goals in the drive to expand (David, 2011). Diagram 1 (Thomas and Wheelen, 2012) Since particular market niches may bring about a metamorphosis process within the retail firm, the company may need to form a faster adaptation method. As such, the top management of the retail store may need to rediscover the need to carry out situational analysis in China in order to evaluate the most competitive and strong niche in the market. The decisions on this line come about from the demographics regulation and other barriers as illustrated in diagram one (Rothaermel, 2015). In addition, it is imperative for these multinational retailing companies to bear in mind the fact that consumer behavior differs across countries as retail firm considers internationalization (Frank & Kardes, 2011). As such, the expansion of these retail stores into new forign markets provides the consumers with a choice between the foreign retailers or local domestic retailers (Stella, 2012). Recent study shows that consumer receptiveness on to entry of foreign retailers. The retail stores seeking to enter the Chinese market also have to understand the consumer culture of the host country, as the market entry mode used by these foreign firms affects their purchasing power and behaviors (Peng, 2014). One of the factors that affect the shopper acceptance of a new foreign retail firm is the country of origin and others include store location and legitimacy (Nicholas, 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, 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 as selected in the market entry strategy (Hampton, 2009). As such, this requires the executive management of the company to undertake a cost benefit analysis on each of the market entry strategies that it decides to adopt. The entry strategy adopted has to be beneficial to the company in the sense that it does not take so much of the company’s resources and time before beginning to bear the intended fruits. On the other hand, the costs incurred during such a venture need to be minimal and affordable for the company. The entry strategy adopted must also enable the company to make a statement in the market, especially in relation to the level of competition within the market. As such, the market entry strategy adopted has to ensure that the retail company enters the Chinese market effectively without losing significant market control to the existing market players. This will ensure that the retail store makes sells, expands and develops within the new market economy. In addition, the choice of an entry strategy should ensure that the company finds favor within the local Chinese market in the sense that buyers and other potential consumers do not shun away from it because it is a foreign retail store. Methodology The research study conducted a survey of the top 20 retailers firms worldwide via their top managers to investigate the entry path and foreign expansion mode. The researchers used qualitative interviews to collect the data. As such, the structuring of the questionnaire was in such a manner that every top manager received the same likert scale questions (Coolican, 2014). The research work also employed further exploratory studies as the area of the investigation is vague, and the research focused on exploring the market the entry mode of retail firm into the Chinese (Donald and Cooper, 2014). The study observed the code of ethics in carrying out the survey. The research 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 is because the investigations took place in different countries with different laws (Elizabeth, 2011). Ethical Issues to Consider in the Research Work Every research work needs to consider particular ethical practices in order not to contravene the privacy, as well as the rights and privileges of the participants concerned. As such, the researchers need to consider and implement certain ethical practices while undertaking the research work in order to be in line with the set rules of research work. For instance, one cardinal rule of conducting research work is to get an informed consent from the participants in the research work. This demands that the researchers get the participants to give their informed consent to their participation in the research work, after they know and understand what the research is all about, as well as the effects of the research on their work. The researcher should inform the participants of any consequences and benefits that they may incur following their participation in the research work, and then let them make an informed decision based on these factors. In the event any benefits accrue from such participation, then the participants must get these benefits as well. Secondly, the research work has to employ privacy and discreetness while undertaking this research work in order not to compromise the participants of the research work in any way. This is because exposure of participants for the role they played in the research work may lead detrimental consequences either at a personal level, or at a corporate level, such as losing one’s job, or suffering massive losses respectively. Therefore, it is essential for the research work to maintain maximum privacy, especially in particular cases of the questionnaires as well as the interviews, whereby they should disclose the identity of the person or persons answering the questionnaires or participating in an interview for the research study. This will protect the participants from any victimization or consequences emanating from the research work. Finally, the analysis and reporting of the results obtained from the research work have to be impartial and unbiased in the sense that they report the true findings, and as such, do not report fabricated or manipulated findings on the report just to achieve a personal or a selfish agenda. For instance, some researcher report what people want to hear, or what people expect to be the norm from the research, instead of laying bear the truth of the matter in a particular research scenario as evidenced from the results of the research work. Data Analysis Data analysis is the most important aspect of the research work as it analyses the collected data in order to get the necessary information needed to establish the foundation of this research work. As mentioned above, the research work seeks to explore the different market entry strategies used by retailers to explore the retail market in China, especially considering the key issues in foreign markets entry and penetration, such as the particular Foreign Direct Investments (FDI) policies used by the Chinese market regulators to control entry of foreign markets into the Chinese market space. As such, the data analysis methods employed include both qualitative data analysis methods, as well as the quantitative data analysis methods. These two methods analyze both numerical, as well as structured data collected for this research work. 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 4, with Taipei being a preferred destination for FDI. Figure 5 The figure 5 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 tests 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 hinder FDI in China. Figure 6 The Figure 6 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. 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 7 The Figure 7 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 Table 3 Hypothesis Test Summary Null Hypothesis Test Sig. Decision 3 The categories defined by Managerial approach 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 8 Human resources create a fundamental challenge internationally. Like the Wal-Mart strategy of keeping the wages low by application of non-unionize-able policy to the workers, Wal-Mart had to make their workers unionize-able in China as trade unions are heavily backed by the government (Dessler, 2013). Thus Figure 8 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 9 The graph in Figure 9 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. 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. Reference List Bernhard, S. (2009). Internationalisation of Retail Firms. State of the Art after 20 Years of Research, Volume 2, pp. 105 -126. Bruce, L. & Bowerman, R. (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/ Coolican, H. (2014). Research Methods and Statistics in Psychology, 6th ed. East Sussex: Psychology Press. David, R. & Anderson, D. (2011). Statistics for Business and Economics, 11th ed. Mason: Cengage Learning. David, R. & Anderson, D. (2012). An Introduction to Management Science, 13th ed. Mason: Cengage Learning. David, F. (2011). 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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  Appendix B Conceptual Framework Read More