Abstract
China is one of Tesco’s key markets in Asia. Tesco operates more than 100 outlets in China, employing 26,000 staff.This paper proposes a research into the Challenges faced by Tesco hypermarkets in China. The study seeks to explore factors that have led to Tesco’s difficulties in the world’s second largest economy, and recommend solutions. The paper provides literature review drawing on academic research from journal papers, textbooks and relevant theory. The research adopts the interview qualitative research method basing on the literature review. The proposed sampling method is theoretical sampling technique of Yeung (1997b).
Introduction
Tesco – the largest retailer in UK and the third largest in the world – entered the Chinese market in 2004 following successful ventures in other Asian markets such as Thailand, South Korea and Japan. The Chinese retail sector promised significant opportunities for companies with internationalization ventures having experienced an average annual growth of about 15 percent over the past 20 years (Chakravarty& Chua 2012, p.12). Therefore, Tesco entered the Chinese market with much optimism – the company expected to quadruple their annual sales in the Chinese market between 2010 and 2015. Also, Tesco aimed to double the number of its hypermarkets in China to more than 200 in addition to setting up some 50 “Lifespace” shopping malls by early 2016, and develop a further 30 shopping malls. Tesco’soriginal strategy was to focus on three regional areas (Shanghai, Beijing and Guangzhou) with high average income and customer exposure to international influences. However, the Chinese market was different from the traditional markets of Tesco due to the unique consumer tastes and preferences (Thain& Bradley 2012, p.56).
Furthermore, the Tesco hypermarkets in China have been reported to face management issues due to levels of cultural complexity in the country and difficulties of obtaining planning permission and licenses from the local Chinese authorities (Dawson &Mukoyama 2006, p.65). In addition to stiff competition from other established global retailers like Wal-Mart, Carrefour and other store groups pursuing rapid expansion, the Tesco’s hypermarkets in China are thought to have been impacted negatively by theslowing economic growth of China (Thain& Bradley 2012, p.199).This translates that Tesco hypermarkets have had to grapple with a number of challenges in the Chinese markets, impacting negatively on their overall performance.
The proposed research seeks to understand the extent of the problems faced by Tesco’s hypermarkets in the Chinese markets is due to store management issues, entry and expansion strategies adopted, and localization strategies implemented. In this regard, particular focus would on Tesco’s qualitative performance in terms of their ‘localization’ or ‘adaptation’ strategy in China (Thain& Bradley 2012, p.85). Thus, theproposed research would seek the insight of managers and experts on the miscalculations that Tesco has made in the Chinese markets and the challenges it faces due to internal and external market forces. Finally, the proposed study would seek to learn how Tesco hypermarkets have reacted to the challenges in the Chinese market and the expectations of the future.
Literature Review
Many global retail firms have sought to take advantage of international markets due to growing globalization, increased cooperation, and free trade agreements. However, according to Peng (2006), these companies have come to learn the hard way that while entry into an emerging market brings lots of opportunities, sustainability in these markets is a challenging endeavor (Chakravarty& Chua 2012, p.147). Dawson et al. (2006) identifies overcoming the liability of foreignness as the main challenges of companies in international markets. Wang and Zang (2005)observe that most international retail companies focus on the process of gaining retail knowledge through reasoning, perception, intuition or affording some though on the retail process in the international markets.
However, as Clark and Wójcik (200)7 expressed, there has been little research into the process of learning in international retailing. Alexander and Quinn (2002) regret that, even at present, while our understanding of the international retailing process is relatively at an advanced level, there still exists a significant knowledge gap relating to our knowhow of the international retail learning process. Studies by Humphrey (2007) conclude that there is insufficient detailed practical, experimental, pragmatic and observational research. As such companies seeking to venture into new international markets face the challenge of lack of theoretical, abstract or lack of intangible research that greatly affects the process of international retailing (Fernandez & Underwood 2006, p.266).
Dawson et al. (2006) reckon that many global companies undertaking the process of international retail often gain experience from their own mistakes and achievements after venturing into foreign markets as well as from experiences of companies involved in international retailing (Liu 2012, p.97). Coe and Lee (2006) report that Tesco studied the Chinese retail market for about four years prior to its entry in 2004, which implies that the company had began learning even before venturing into China. Tesco’s learning process of the Chinese retail markets persisted through its experiences in the market (Thain& Bradley 2012, p.87). According to Palmer (2005, 2006) international retailers could learn from a complex and highly controversial process of reversing the international retailing activities so as to fix their mistakes.
Gamble (2006a) observes that hypermarkets have been increasing in growing in popularity in the last decade to become “a place of everyone’s convenience.” Whilst the internationalization of retail industry is by no means a new phenomenon, its growth in China is recent (Wrigley 2000b; Coe 2004; Coe and Hess 2005;Wrigley, Coe, and Currah 2005; Coe and Wrigley2007). As noted by Coe and Hess (2005), the uniqueness of China’s retail industry has its roots in the reign of the country’s communist leader MAO Zedong, who decided to make every region in China to be self-sufficient with the ability to survive even if neighboring cities came under invasion. The principle resulted a China country close up to international trade, developing a retail industry that is unique and different not only as compared to that of foreign countries, but also in terms of regions of the country (Liu 2012, p.105). The planned Chinese economy had characteristic government monopolized sectors, the retailing sector included.
Han (2003) notes that the Chinese government, under the rule of Den Xiao Ping,began unifying the different regions of the county and transformed the economy to an open market economy, advancing and growing the Chinese retail industry. There was substantial relaxing offormer Marxist policies in economic decision making, with efforts undertaken towards realizing “capitalism with Chinese characteristics” (Chakravarty & Chua 2012, p.89)This resulted in progressive liberalization of many Chinese industries, leading to rapid economic growth and substantial store growth of the leading 100 chain retailers in the recent past. According to Mergermarket (2006), China has steadily emerged as one of the most lucrative market destinations for multinational companies since its economic reforms that started back in 1979. The market represents huge opportunities as a result of improving living standards that have inspired consumers in China to upgrade their consumption patterns.Studies by Hooper (2005); Gamble (2006a); and Croll (2007) have attributed the growth of retailing in China to the emergence of a modern Chinese consumer culture, where people are increasingly being identified as individuals with the freedom to decide on their consumption. These changes have inspired retailers to upgrade both their product and service offering to the consumer in China (Thompson & Martin 2010, p.77).
However, as expressed by Tsui and Wang (2004), the recent liberalization policies in China have not completely done away with the Chinese bureaucracy, particularly in the form of fiscal decentralization which has heightened the powers of the local government. For instance, the Shanghai government strategically merged four collapsing SOEs to creating a new group (the Brilliance Group) with large economies of scale and ability to directly compete with new foreign entrants or existing multinationals seeking to expand into the retail market in China(Paliwoda& Chen 2013, p.34).
Coe and Wrigley (2007) further observe that foreign retail stores in China, unlike their indigenous rivals, face such competency disadvantages as lack of intuitive knowledge of Chinese consumers, weak relationships with Chinese central and local governments, and the need for longstanding partnerships with the local supplies. Clark and Wójcik 2007 identify that successful navigation of the complexities of the unique Chinese business system depends on the ability of a foreign company to adopt appropriate organizational and operational strategies by taking note of the high territorial embeddedness in China’s local economy cultures of consumption, planning, logistical and supply chain activities (Paliwoda& Chen 2013, p.64).Henderson et al. (2002) state that corruption, locally known as “Guanxi”, is the main challenge inhibiting the operations of foreign hypermarkets in China because success depends on interpersonal relations based on both friendship and long-term favor exchanges (Thompson & Martin 2010, p.85).
Research Questions
The proposed study will have threespecific research questions as follows:
i) What are Tesco’s experiences in retailing in the Chinese market?
ii) What are the challenges that Tesco hypermarkets have faced in the Chinese retail sector?
iii) How have Tesco hypermarkets dealt with the challenges they faced in China?
Research Methodology
The proposed study shall use the interview research methodology that shall integrate “close dialogue” technique as espoused by Clark (1998) together with Van den Ven’s (2007) “engaged scholarship” research technique. The study shall therefore undertake in-depth interviews with Tesco managers and industry key informants to answer the research questions. The close dialogue technique is deemed most suitable for the proposed study because of its potential to provide greater insight into the challenges facing hypermarkets in the Chinese market while avoiding the risks of what Clark (1998, 80) describes as “seduction and cooption.” Similarly, “engaged scholarship” is chosen for the project because it encourages close dialogue with the respondents through leveraging of diverse stakeholder’s knowledge (managers and consultants). This is largely a participative approach with great potential to generate more penetrating and insightful knowledge.
The researcher is aware of the fact that in-depth interviewing is not only inherently multifaceted but also a complex endevour as espoused by Banner (2000). In this regard, the researcher would seek to foster an atmosphere encompassing careful listening, observation and accurate interpretation of the what the respondents are saying at different levels so as to achieve the objectives of the study.
First, interviews shall be conducted with managers of Tesco hypermarkets in China and management consultants so as to gain background information on the typical challenges facing foreign retail companies in the Chinese retail market. The interviews shall also seek to identify the degree to which territorial embeddedness is a challenge to the operations of foreign retail stores such Tesco’s hypermarkets. The interviewer will abstain from using leading questions or jargons which could compromise the integrity of the response from the subjects. Finally, the qualitative interviews shall seek to understand the specific course of actions that Tesco hypermarkets have taken in response to the challenges in the Chinese retail market. These interviews will be audio taped and later transcribed verbatim in order to ensure accuracy, and stored in a secure place. In addition, the interviews will conducted in a neutral, confidential and non-judgmental environment where subjects can express themselves freely at a normal pace.
Sampling
The proposed research shall make use of Yeung’s (1997b) theoretical sampling technique. As stated above, the interviews will be senior managers in charge of Tesco hypermarkets’ operations in China i.e. managers in charge of store-development strategy, merchandising, logistics, or marketing. The researcher believes that focusing on these key operational areas would greatly reveal both challenges and responses of Tesco’s Chinese hypermarkets. The interviews with Tesco’s senior management would be supplemented by additional interviews with management consultants. All interviews will extremely triangulated through use of secondary data from both Chinese and Western sources pertaining to the nature of the retail market in China along with substantial in-store ethnographic analyses to establish the responses to the challenges.
Data analysis
For the purpose of achieving in-depth analysis of the challenges facing Tesco hypermarkets in China, the proposed research shall employ the Colaizzi (1978) framework of analysis. This would be in line with the requirements of Husserlian descriptive phenomenology. These are chosen from the understanding that the type of phenomenology used (in this case hermeneutics or Husserlian) guides the researcher on the most suitable framework of data analysis to be utilized. Further, Clark (1998) hypothesize that data analysis in any qualitative research often begin with establishing the recurrent themes by use of a framework. A significant aspect of Colaizzi’s technique relates to the validation of the study which needs to be suggested and verified by the respondents.
The verbatim transcription of the audio-taped interviews would follow Colaizzi’s guidelines, where each individual transcription or protocol will be read repeatedly so as to establish a sense of the whole content. There will be duplication of the tapes in case of loss, which will be stored in line with the Data Protection Act (2003). In accordance with the process of bracketing for phenomenological research, the research will suspend all personal assumptions and biases in order to ensure objectivity.
Methodological Rigor
Findings of the proposed study would have to be authentic and accurate depiction of the feedback of respondents as relates to the challenges faced by Tesco’s hypermarkets in China. According to Yeung 1997b, rigor relates to the strength of a research team to ascertain the adherence to all procedures, removal of all confounding factors and that the conclusions can be interpreted by the reader as dependable or trustworthy. To ensure rigor, the proposed research will employ Lincoln and Guba’s (1985) framework for establishing methodological rigor in a qualitative research. As such, focus will be on credibility, dependability, authenticity, conformability and transferability of the findings.
Pilot Study
The proposed study will not use a pilot study. This is because pilot studies are best for quantitative studies but not such for a qualitative study as each narrative is often unique and similar responses cannot be obtained each time. The researcher will only test the research instruments i.e. the audio taping equipment at the would-be interview room.
Ethical Considerations
Research is a scientific human endeavor organized on the basis of a varied protocols, guidelines, methods and legislation. Research ethics need to be taken into consideration so as to protect against in any form of harm and ensure respect of human rights of those involved in the research (Banner 2010, p.87). For the proposed research, ethical approval shall be sought from the Tesco stores in China, and the Chinese authorities.
Informed consent will be sought from all participants, where information sheets carrying clear and concise information pertaining to the intended research will be given to potential participants (Piercy 2012, p.95). The participants will be informed of their right to voluntarily abstain from the study at any time i.e. right to autonomy and self-determination. In line with the Data Protection Act (2003), forms will be kept in a press to which only the researcher will have access. The proposed research will comply with the ethical principle demanding for non-maleficience i.e. no harm may come to participants (Woods 2012, p.35). This will be largely achieved through maintaining absolute confidentiality by safeguarding both the respondents’ identities and their responses (using pseudonyms in data analysis and discussion). The respondents would also be made to understand that interview transcripts will be kept anonymous and be supplied with copies if requested. Finally, all individuals will be treated fairly and equally without any judgment or prejudice whatsoever.
Project Timeline
The data collection period for the proposed research is approximated to take 6 months, starting February 2013 to August 2013.
The estimated budget for the proposed research is as follows:
[$15.00 per hour x 6 working hours x 3 researchers] x 120 days = $32400
Travelling expenses for 3 researchers @ $15.00 a day for 8 weeks (40-day) interviews period = $1800
Purchasing research instruments (Audiotapes and Audio-machine) = $500
Transcription costs for pens and papers = $200
Meals + Other costs = $30000
Unforeseen costs = $1500
Therefore, the estimated Total research cost = $66400
Gantt Chart: Timeline for Proposed Research
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