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Global Strategic Management Mini Cases Series Globalization of Mass Retail The mass retailing industry accelerated its globalization pace in the

Please help with the following questions:
1.Analyze how competitive advantages can be built internationally with a particular focus on Asia. ( for max retail business)
2.What are the challenges that mass retailers confront when they internationalize?
3.What are the key characteristics that are important for the success of mass retail in a particular country?
4.Discuss the applicability of the hypermarket business model in Asia.
Global Strategic Management Mini Cases Series Philippe Lasserre- Globalisation of Mass Retail-2007 1 Globalization of Mass Retail The mass retailing industry accelerated its globalization pace in the 1990s although the international expansion of some pioneers had started in Southern Europe during the 70’s, Latin America in the 80’s, Central Europe and Asia, perceived as a large, growing and largely underdeveloped market, became increasingly a focus of competition among both international firms Industry Evolution Mass retailing comes in many different formats, ranging from convenience stores and department stores to supermarkets and hypermarkets. Their differences depend on the goods and services offered to the client, as well as on size and location, and the percentage of food stuff and non-food stuff. (Exhibits 1a and 1b) In the late 19 th century and early 20 th century, mass retailing originated in Europe and the US, with the rise of department stores such as Bon Marché and Marshall Fields. Self-service supermarkets started in 1937 in the USA, and soon afterwards, in Europe. Mass retailers offered a wider selection at lower prices than traditional neighborhood stores as well as offering other advantages such as one-stop shopping. In the US, general merchandise chains like Wal-Mart, Home Depot, K-Mart, and Target, dealing in non-food and non-fresh food items, had coexisted with the classic supermarkets. In the 1970s, they increasingly challenged the dominance of traditional department stores, primarily by offering lower prices. Hypermarkets, combining both food and general merchandise, were pioneered in France in the early 1960s. Carrefour invented the concept of stocking everything from food to clothing, domestic appliances and hardware under one roof, when the Defforey and Fournier families opened their first hypermarket in 1959 in a suburb of Paris. It proved so successful that, according to Wal-Mart founder, Sam Walton’s autobiography, it was the inspiration for Wal- Mart’s supercenters. In the United States and Europe, the 1960s were a time of phenomenal growth, which continued over the next 2 decades. It was a time of fundamental changes in society that facilitated the growth of mass retailing: increase in middle-class and suburban population rise in disposable income per household car ownership refrigerators and freezers working women
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Global Strategic Management Mini Cases Series Philippe Lasserre- Globalisation of Mass Retail-2007 2 It is usually considered that hypermarkets can develop, when the GNP per household is around US$4,000. In the 1970s, as domestic markets started to mature, some mass retailers such as Ahold or Carrefour expanded internationally, first within adjoining trade areas. In the late 1980s, they moved further afield; big names such as Wal-Mart, Tesco and Metro joined the party to become multinational players, facing the challenge to create value from internationally dispersed retail operations. Business Model The basic concept behind mass retailing is straightforward: buy in large volume and sell at low prices, obtaining return from relatively low net margins (+/–2%) through high inventory turns (10-13 times). The cost advantage is then transformed into lower consumer prices, driving still greater volumes and creating a virtuous cycle of self-reinforcing benefits (Exhibit 2a). For everyday purchases, the lower prices for goods of high quality (often branded) drew shoppers away from the department stores and, to a lesser extent, retail specialty stores. Lower costs were achieved in a number of areas – lower cost locations and lower service for example. However, the key to the business model of the hypermarket is purchasing and logistics. Purchased goods represented approximately 77% of sales (Exhibit 2a). The largest hypermarket chains represented a significant customer volume for most suppliers, while no single suppliers represented a significant proportion of their sales; they thus tended to have significant bargaining power over their suppliers. In addition to negotiating lower prices, they also typically gained more favorable terms. Many retailers had negative working capital balances as a result. Leading chains concentrated volumes in fewer, carefully chosen suppliers. This permitted them to create economies of scale in their supply chain, and to choose the best suppliers based upon operational efficiency, location, and factor costs the among criteria. As volumes grew over time, leading competitors also invested in complex, costly and skill intensive information technologies. These included satellite communications, automated stock keeping systems and other advanced techniques for settling accounts and for tracking, ordering, and restocking inventory. Such investments lowered costs and increased turnover but raised the scale of operations. Upon entering a new area, mass retailers had to reach critical mass and set up a minimum number of stores in order to achieve scale in their supply chain. By 1995, and despite the steady growth of average store sales, a Wal-Mart warehouse could support, in the USA, 150 stores within a 200-mile range, a fivefold increase compared with 1970 (see Exhibit 3 for a pictorial representation of a typical value chain). Mass retailers target a broad, relatively undifferentiated customer base, with the suburban middle-class making up the biggest group. Wal-Mart considers that a store needs at least a 150,000 customer base to be economically viable. 1 Customers in the USA and Western 1 Source : The figures on Wal-Wart come from “Wal Mart in 2003” Harvard Business School case n° 9-704-430 and “Wal-Mart neighborhood Market”, Harvard Business School case n° 9-503-034. The figures on Carrefour come from “Carrefour in Asia (A): Taiwan a Bridgehead into Asia, INSEAD case n° 02-95-44-09.
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