Page 24 - DMGT552_VISUAL_MERCHANDISING

Unit 1: Introduction to Retail

on, it is Chinese local retailers — and not their foreign competitors — who dominate the Notes
retail market, with initial fears of a foreign invasion ultimately appearing unfounded as
local companies learned quickly to out-compete their foreign rivals.
The country’s biggest retail firms today are all Chinese companies — the Shanghai Bailian
group, Suning, Gome and Dashang — all have bigger sales than Walmart in China,
according to several research studies.
Walmart, which came to China in 1996 and has since opened more than 350 stores, has seen
its market share fall from 8 per cent to 5.5 per cent in the past three years, according to the
China Market Research Group.
Shi Yongheng, a professor from the School of Economics and Management at Tsinghua
University who has studied China’s retail sector, told The Hindu in an interview that the
success of China’s local retailers was enabled by the government controlling the speed of
the ‘gradual’ opening up process, which gave local retailers enough time to adapt.
Foreign companies were allowed to hold 51 per cent majority ownership (which India has
now decided to grant them) only 12 years after the sector was opened, first allowing 26 per
cent foreign equity. Initially, China also only allowed foreign retailers to open in select
metropolises, such as Beijing, Shanghai and Shenzhen, and, moreover, only in certain
districts in those cities. In Beijing and Shanghai, foreign retailers like Walmart were only
allowed to operate in districts where there were no local competitors. Through these
‘invisible barriers’, China succeeded in giving local retailers protection, while, at the
same time, they learnt from the ‘more efficient’ business models of foreign companies,
said Professor Shi.
“In terms of logistics, procurement and management, we have clearly seen the benefits,”
he said. “Prices have fallen, and efficiency has increased. Initially, we had fears of the
coming of foreign companies, but now we are no longer concerned as local companies
have been able to learn from them, and compete with them.”
The lessons for India from China’s FDI experience are, however, both limited and mixed,
considering the differences in how retail operates in both countries.
For one, it is unclear if India can pose the barriers that challenged foreign retailers in
China, starting right from land — foreign retailers here have complained of not being
given land by local governments, who control all land transactions, in prime locations.
The unorganised retail sector is also far larger in India, with organised retail accounting
for less than 5 per cent, compared with 20 per cent in China. In China, unorganised retail,
represented by street vendors and neighbourhood ‘community retailers’, has continued
to thrive, offering cheaper prices than supermarkets and retail chains.
For farmers like Zhang Wei (named changed) from Hebei, who grows vegetables on a
10 mu (0.67 hectare) plot of land, the coming of retail has increased — not reduced — his
client base, he said. Mr. Zhang has direct sales in a Beijing neighbourhood every evening,
while also supplying a supermarket chain, which, he says, pays less for his produce. “My
vegetables are cheaper than in the supermarket, so I will always have my customers,” he
said.
Consolidation of the retail sector in China, as a result of the government-supported rise of
local retail giants like Bailian, has put many small farmers, who, unlike Mr. Zhang, could
not cope with lower prices, out of work.
It has, however, also improved productivity by increasing the size of landholdings. In
Mr. Zhang’s village, for instance, each household had between 1 and 2 mu, but as more
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