Academic journal article The Geographical Review

Foreign Hypermarket Retailers in China: Spatial Penetration, Local Embeddedness, and Structural Paradox

Academic journal article The Geographical Review

Foreign Hypermarket Retailers in China: Spatial Penetration, Local Embeddedness, and Structural Paradox

Article excerpt

Since the deepening of globalization in the 1980s, the world economy has been increasingly shifting towards the service economy. Many developing countries have gradually removed restrictions on service industries (for example, retail, finance and insurance, logistics, and transportation) to attract foreign direct investment (FDI). Transnational corporations (TNCs) in the service sector have expanded globally. While China is known as the world factory, FDI in China has also undergone significant structural transformation. Service FDI in China increased from 24 percent of the total realized FDI in 2001 to more than 50 percent in 2011. Retailing has been at the frontier of international expansion of service TNCs.

The internationalization of retailing is one of the most salient characteristics of the global service economy today. Since the mid-1990s, a group of retail TNCs mainly from Western Europe (for example, Carrefour, Tesco and Metro) and North America (such as Wal-Mart) has expanded globally and risen rapidly in the world economy. During the past two decades, these retail TNCs have intensified their strategic expansion in emerging markets across East Asia, Eastern Europe, and Latin America for prospective growth and profits. The global expansion of retail TNCs has become an increasingly important topic in economic geography (Wrigley 2000; Coe 2004; Coe and Wrigley 2007).

Since the economic reform began in the late 1970s, rapid economic growth in China has brought wealth to its people and transformed the nation into one of the world's largest consumer markets. With retail sales growing at double-digit rates per year, China has become an attractive target market for many international retailers. However, foreign retailers were not allowed to engage in retail trade in China until 1992. Since then most international retailers have established their presence in China. These foreign retailers introduced a variety of modern retail formats, transferred advanced retail know-how and technology, and played an important role in the retail transformation in China.

Although retail TNCs can greatly transform the host economies, the spatial and temporal processes underlying the retail transformation in China have been little studied. Among all the new retail formats in China, the hypermarket is the most popular, thanks to its wide assortment of goods and competitive pricing. Hypermarket retailing in China, especially in large cities, is dominated by foreign retailers (Moreau 2008). The largest international retailers in China--namely Wal-Mart, Carrefour and RT-Mart--are all hypermarket operators. Focusing on the hypermarket retailing sector, this paper aims to analyze the spatial penetration patterns of major foreign hypermarket retailers in China, the impacts of home and host economies on their local embeddedness, and how these retail TNCs resolve the structural paradox between enforcing standardization and conducting localization in the Chinese retail market.

RETAIL TNCS: Internationalization, Localization, and Structural Paradox

In response to the rapid rise of retail TNCs, various aspects of their activities have been studied, including stages and entry strategy in retail internationalization (McGoldrick 1995; Coe 2004; Dawnson and Mukoyama 2006), impact of host economies on local embeddedness (Hess 2004; Wrigley, Coe, and Currah 2005; Coe and Lee 2006; Coe and Wrigley 2007), the structural paradox between enforcing standardization and conducting localization (Aoyama 2007; Chuang and others 2011), and the spatial dynamics of market penetration in emerging economies (Wang 2009; He, Li, and Yin 2011).

The process of retail internationalization can be hypothesized as composing of a sequence of five key stages: pre-entry, entry, post-entry, assimilation, and exit (Dawson and Mukoyama 2006). To understand the complex activities associated with the post-entry stage John Dawnson (2003) proposes a four-phase model of stabilization, consolidation, domination, and control. …

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