Internationalization of Retail

Markets across the world are globalizing. The global marketplace for most goods is a daily reality. Retailers for long have looked outside the geographical boundaries of their own countries for enhancing business. Sears Roebuck and Woolworth’s are perhaps oldest examples of retailers who went beyond national boundaries and expanded operations to international market.

Since World War II Europe, Japan and the United States had been the engines of the world economy. The move towards internationalization is largely driven by the change occurring in various parts of the world, both in terms of markets emerging as the drivers of economic growth and the decline in domestic markets due to economic conditions and a change in the age profile of the consumers as is the case in many parts of Europe and Japan. The consumer base in many emerging economies, especially in China and India, already number in hundreds of millions, while at the same time, it is young and is growing three times as rapidly as in the developed world. It is estimated that over the next 10 to 15 years, most of the total world growth in consumption of consumer goods is likely to be concentrated in the largest of the developing economies. In this scenario, these emerging markets will grow to be comparable in aggregate size to the Group of Seven leading industrial nations (the United States, Japan, Britain, France, Germany, Canada and Italy).

Concept of Internationalization:

If one thinks of the past, the internationalization of business has occurred over specific stages. The era after World War II saw the emergence of manufacturing dominance, after which the need was felt to tap new markets where products could be sold. The era post 1960 was the era where the consumer played a pivotal role and the economies of the West dominated the world stage.

Sourcing products from various markets is fast emerging as a source of competitive advantage. For many retailers, it has become a vital aspect of maintaining price competitiveness. The abolition of quotas on imported apparel and textile products in December 2005 under the WTO agreement has a vast impact and has led to the emergence of China as a key sourcing location. Due to its low labor costs, it is almost unlimited supply of cheap labor, its strong infrastructure for producing and distributing goods, and its talented management pool. China is the most important sourcing location for most companies in the apparel industry.

European retailers have long since been at the forefront of international expansion. In the realm of fashion, there have been some been some notable successes in taking concepts to new markets. These include Sweden’s H&M, Spain’s Zara and the US retailer, gap. The scope for apparel specialty chains to expand globally is vast for several reasons. First, their footprint is relatively small, so finding appropriate space is less challenging than is the case for food retailers. Second, these retailers are generally vertically integrated and, therefore, can leverage the existing supply chain in new markets. Third, the most successful apparel retailers usually have universal appeal. For example, H&M offers a strong value proposition which appeals to a specific segment of consumer in all markets.

Internationalization of retailing thus, can be viewed from different perspective. The first perspective focuses on sourcing of products from an international market. This of course, requires that a retailer has achieved reasonable strength in the domestic market. In an attempt to establish competitive advantage, a retailer my seek to source products from a foreign market. Global sourcing is merging as an imperative for value driven retailers facing fierce price competition in their home markets. The search for low priced merchandise has taken retailers to the far reaches of the globe. Many are establishing purchasing offices in China. Wal-Mart, for example has its global purchasing center in Shenzhen in Southern China. Similarly many retailers have also established their sourcing offices in India. This is considered by many theorists as the first step towards internationalization.

Various academics have attempted to define the concept of internationalization of retail. Hollander defined multinational retailers as those firms that are in some way, responsive to the headquarters located outside the country, or colony in which retail sales are made.–