Reaction: “Winds of Change for foreign retailers”
Cai Xin’s headline “Winds of Change” implies unpredictablity, yet what foreign retailers are facing is less so. Is it perhaps another victory for “National Champions”? Foreign retailers’ business is slowing, with some leaving china. Why? What caught my attention are the unclear assertions.
The articles, in case you didn’t seem them (click the image or follow the link below)
Or here for English: http://english.caixin.com/2012-10-16/100447865_1.html
What caught my attention were unclear assertions like this…
“Industry analysts say many of the world’s biggest foreign retailers, after years of rapid expansion, now face a variety of hurdles in China. Key challenges are affecting procurement and supplier quality control mechanisms, sales strategies, internal management and online business. The immigrants are also seeing strong competition from Chinese rivals.
Moreover, Wal-Mart and Carrefour officials said a weak macroeconomic outlook for China has forced them to slow their respective development programs.”
So…what procurement and quality-control, etc. issues are they facing? Is it regulation? Is it that suppliers won’t deliver? Perhaps because Chinese chains have less requirements and are therefore easier?
Additionally, the statements made by the foreign retailers appear to be mere cover. For example, what weak macroeconomic look? While things are slowing here, and there is a lot of debt to reckon with, the Chinese still seem to be shopping. So, what exactly about the outlook are they seeing?
And if the outlook is so poor, how come “Domestic retailers, on the other hand, have been growing. China Resources Vanguard, for example, announced in January plans to open 800 stores in 2012, including up to 90 major outlets.”
This is also great reading when paired with: “No Ancient Wisdom, No Followers” by James McGregor because things like this…
“A number of Chinese media outlets reported in August, based on rumors circulating in the financial community, that Carrefour would also get out by selling its China operations. Potential buyers include China Resources, which owns Vanguard, and state-owned food conglomerate China National Cereals, Oils and Foodstuffs Corporation (COFCO)”
…come into clearer focus.
Of course, COFCO is an SOE and therefore is likely enjoying lots of preferential treatment as a “National Champion.” Which circles back up to the questions above.
In short: can one trace the expansionary period with the original opening during the Deng, Jiang period and the retraction to the SOE friendly Hu period…? (I think its probably a good correlation.)
As for the B&O and Home Depot pull out. What can you say except: “Well, duh.” Their retail and business model is predicated on a particular kind of home repair or improvement that seems pretty peculiar to the US. The Chinese family/guanxi network of contractors and suppliers was bound to leave those guys in the dust.
