Retailing in Emerging Markets

Malobi Mukherjee, Richard Cuthbertson, Elizabeth Howard, Malobi Mukherjee, Richard Cuthbertson, Elizabeth Howard

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317911173
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Einzelhandel

Retailing is changing extremely rapidly in the emerging economies, both as a driver of social and economic change, and a consequence of economic development and the rise of consumer societies. Changes that took many decades in Europe or North America are happening at a much greater speed in emerging markets, while regulations continue to be hotly contested in these markets, raising questions about appropriate business strategies for both globalising firms and local contenders.

While much has been written about retail in emerging markets, the focus has been primarily on the nature of entry strategies for Western retail companies. This book seeks to capture the impact of both internal and external regulations on retail development and strategy in emerging markets. It provides a comprehensive and up-to-date assessment of the development of retailing in a wide range of emerging economies, and seeks to capture the interplay between both retail policy and retail strategy and the theoretical implications of this on retail development as a whole.

This book will be of interest to academics, researchers and advanced students with an interest in retail development in emerging markets, international business/strategy and international marketing.

1 Introduction

Malobi Mukherjee, Richard Cuthbertson and Elizabeth Howard

Retail change is a key element of economic development in many countries, and a powerful driver of consumer and environmental change. Changes that took many decades in Europe or North America have been happening and continue to occur at a much greater speed in a number of emerging economies. We see the growth of large firms, the integration of supply chains, the presentation of wider ranges of goods, and the development of new malls and stores in new locations. The implications of such changes are profound. The urban and cultural landscapes as well as the business landscape are affected. Retailing is part of the everyday fabric of life and changes in it are hugely important for consumer welfare and lifestyles (Cuthbertson et al. 2005). Retail development is bringing a greater, more consistent, better quality supply of basic goods as well as luxuries to more and more people across the globe. The race for economic development and the efforts of governments of all kinds to improve the lot of their citizens are also dependent on the development of the consumer economy. Change can be seen to have both benefits and disadvantages, however, and there are varying interpretations of the significance of the social changes implied in increasing consumption, as well as of the disruptions of economic development. Regulation is often hotly contested in this situation. This is particularly so where foreign firms enter new markets as part of their internationalization strategies. We want in this book to explore what is happening in a variety of rapidly changing economies, and especially to look at the interplay between retail business and regulation. Our aim is to understand similarities and differences across countries.

There has been a great deal of retail change since the mid-twentieth century, part of a complex interplay of global and local economic trends with national regulatory changes. This book focuses on those from the mid-1990s until today. We would argue that there are strong converging trends in retail patterns across many countries, yet there are still profound differences among countries, and the outcomes of the interplay of regulation and enterprise vary.

The ‘Asian financial crisis’ of 1997 was one turning point, marked by a loosening of regulation and an upsurge in foreign investment in certain countries. Thailand is a prominent example of extensive deregulation and the book begins with an examination of its situation. Regional neighbours Malaysia and Indonesia have retail histories that are both similar and different in key aspects and discussions of them follow. Malaysia is a middle income, emerging economy where the political rhetoric is that it will soon be a ‘developed’ not ‘developing’ country and there have been government initiatives to make it a world class shopping destination. Indonesia – like many countries, but more than most – has been a battlefield of regulation seeking to protect small to medium enterprises while opening the market to foreign investment. Vietnam is the next Asian country in our study. A country that remained isolated from foreign retail development until much more recently, and where economic and social change is now happening more rapidly, is it a ‘new tiger’? We may ask what lessons may be being applied here from the experience of its neighbours.

Is retailing becoming more homogenised across the world? Are the public policy issues similar in different countries across the world? Examining change in the continent of South America helps to answer this key question. Brazil, a large and growing economy, has seen growth related to trade liberalization, but consequent questions about smaller firms and about agriculture. The contrasting case of smaller Columbia shows some of the same questions but also the strategic use of the development of law, which aims at achieving greater policy stability. Political and legal stability has been one of the major questions in the eyes of foreign investors in Russia. Chapter 8 examines how this large economy is and has been dealing with the interplay of consumer demand and business development.

China is of course the country with the largest scale change underway. The chapter here examines how it has moved from an entirely regulated system to the dynamic and rapidly growing market of today. India is the other huge globally significant country that we must examine if we are to understand global retail change. The story here is of much less deregulation.

The choice of countries for the book chapters shows a mix of retail progress (very rapid in some cases, such as Malaysia), retail slowdown (very rapid in the case of Russia) and slow progress despite their varying market attractiveness and country risks. We acknowledge that the coverage of emerging economies is far from comprehensive, but we believe that this selection of countries will provide an overview and perspective on the multifarious and complex issues that concern us.

Key issues in retail development in the emerging markets

Traditional vs modern retailing

In the environments described, how do large and small retailers, international and local firms, compete and develop? Consumer demand is increasing hugely but issues about fair competition can be seen, as bigger firms start to influence markets. In the emerging economies we examine, the competitive situation is evolving very quickly, with a complex battle between international and local firms, and between large firms (which are sometimes local and sometimes foreign) and small ones, and between those with new formulas and small or medium sized firms with more traditional offers.

We would argue that a key (but not sole) driver of strategies in the countries we examine is the influence of international retailers, and the responses of indigenous firms to them. Globalisation takes many forms. Retailing ideas are just as important travellers as retail firms, and it is not only the arrival of particular new competitors that produces change. Waves of modernisation in many countries demonstrate the strategic ambition of local firms as well as of global ones – ambition to respond to growing consumer prosperity (see Table 1.1). The most successful retailers have been riding those waves of change.

Existing theoretical models have been developed, applied, criticised and refined to capture the nuances of retail development, retail change and international retail strategies, but the context of this research has usually been Western mature markets (the US and Western Europe), so we must question applicability elsewhere. Academic interest in emerging markets has been on the rise since the early 1990s and with the backdrop of successive global slowdowns. Perhaps there are parallels between the current context of retailing in emerging markets and the environmental context of the Western markets during the 1970s and 1980s (Bates 1976; Davidson and Rodgers 1981) that might promote the relevance of theories developed then and there. Moreover, if we take into account that modern retailing is an accumulation of incremental steps over time then such retail development theories such as the retail life cycle, the wheel of retailing, the scrambled merchandising/retail accordion may be valid and useful in the study of retailing in emerging markets. We may, however, gain further support for the many criticisms of the state of retail theory, as applied in mature markets, in this look at emerging markets. We will return to this question in the concluding chapter, with a particular look at the nature of change itself. Is it disruptive, or part of a more orderly and managed process, and how much do countries vary in their experience?

Table 1.1 Forecast for personal disposable income per head in USD up to 2016

Country/region	2013	2014	2015	2016
Brazil	7,490.00	7,970.00	8,450.00	9,000.00
China	3,130.00	3,610.00	4,140.00	4,720.00
Colombia	5,850.00	6,170.00	6,530.00	6,940.00
India	1,270.00	1,450.00	1,640.00	1,850.00
Indonesia	1,180.00	1,310.00	1,500.00	1,690.00
Malaysia	4,700.00	5,060.00	5,540.00	5,910.00
Thailand	2,860.00	3,030.00	3,220.00	3,450.00
Vietnam	692.00	759.00	811.00	851.00
Russia	7,930.00	8,370.00	9,030.00	9,900.00

Source: Adapted from Economist Intelligence Unit, 2013.

One particularly important point that will arise through the following chapters is that, as modern retailing institutions and practices move towards greater global acceptance, the need to identify the opportunities in emerging markets and gain insights into the role of smaller (but dominant) retailers in these markets becomes an imperative (Evans 2011). Lenoartowicz and Balasubramaniun (2009) noted from their analysis of the operational business model of smaller retailers that an understanding of the smaller retail formats in emerging markets is fundamental to contemporary academic retail research. Global retailers will not only compete with them in the future but market entry strategies will need to account for the competitive advantage the small stores have in terms of light infrastractural requirements, personalised relationships with consumers, understanding of the local demographics and flexible distribution models.

A combination of global and local economic trends, changing socio-demographic patterns and the resultant shifts in cultural trends over the years have given rise to an aspirational class of consumers in emerging markets. Rising aspirations suggest that there will be an increase in hedonic shopping attitudes. However, where increasing modernity exists in parallel with traditionalism, where poverty and affluence exist side by side, there is unlikely to be a simple movement along the consumer behaviour spectrum. The combination of changing aspirations and existing traditionalism therefore creates opportunities for a number of retail formats to evolve over a period of time. A key question for us is how and to what extent a combination of traditional and modern retail formats can continue to exist. One assumption is that big box formats, large firms and integrated supply chains benefit from economies of scale and scope unlike the traditional retailers who are eventually driven out of the market. The chapters in this book show, however, that it is not a simple story: agglomerations of traditional and modern continue to exist in emerging and developed markets. The pertinent question to ask is about the nature of competition between the traditional and modern retailers. Is the competition price based or service based? Do traditional retailers revamp their businesses to make themselves more competitive? Do modern retailers adapt to the local requirements and scale down their operations to make themselves more akin to traditional retailers? Or is there a dual model of retailing that develops in emerging markets with two distinctive groups of retailers, each operating on the basis of their respective strengths? These are some of the overarching issues that will be explored in the book, with the aim of gaining an overview of the inter...