Revisiting the Globalization of Trade in Retail Services

Transcription

1 Global Forum on Trade Revisiting the Globalization of Trade in Retail Services Prof Neil Wrigley FBA University of Southampton Prof Michelle Lowe University of Southampton 1 Aims of 2010 report were to: Explain how & why retail sector internationalised over the past two decades and characteristics of process Highlight current and potential future trends in the internationalisation of the sector Consider how trade, investment & regulatory policy have shaped the international activities of retailers Assess importance of e-commerce in international retailing and any potential restrictions on its development Assess policy measures which might be included in the retail part of a services trade restrictiveness index (STRI) 2 1

2 During 1980s &1990s, retail transformed by 3 interrelated forces 1. Remorseless processes of concentration ultimately produced some of the largest firms in national economies firms which progressively increased their bargaining power relative to suppliers 2. Emergence of retailers as lead firms in buyer-driven supply chains which progressively shifted from supply push to demand pull in character 3. Processes of lean retailing - integrated logistics and supply chain management methods which underpinned just-in-time demand-pull supply systems allowing substantial reductions in retailer inventory holdings and amount of capital tied up in those holdings 3 Late 1990s rapid acceleration of retail FDI, largely by European and US retailers and primarily into the emerging markets of Asia, Central/Eastern Europe and Latin America Emergence of retailing as one of the driving forces of economic globalization By retailers derived over $25 billion p.a. from their international operations operating on average store networks in 18 countries 4 2

3 Acceleration in retail FDI late 1990s driven by: longer-term growth opportunities perceived to be offered by emerging economies with previously largely traditional retail systems consolidating, and often increasingly tightly regulated, home markets of these firms capacity of largest of these firms to leverage their core-market scale and free cash flow for expansionary investment full or partial liberalisation of trade and market access in many of emerging economies 5 What did retailers learn to do well and what did they do poorly during this period? Well Learned to be local respond to local tastes & customs use dominantly local managerial talent achieve territorial embeddedness Understood need to invest consistently and on large scale Maintained the confidence of capital markets Poorly Underestimated the local competition Allowed int l investment to drain capital expenditure in core domestic markets Lost managerial control of large dispersed organisations 6 3

4 Well Developed a hybrid organisational culture Used their scale for good in the host economy Exploited their superior sourcing, distribution & logistic systems Knew when to get out Poorly Failed to understand commitment of time & resources & organisational transformations which follow from internationalisation Failed to explain their benefits to host economy and potential stimulation of exports into home markets of retail TNC Failed to demonstrate potential of these systems to drive up local standards 7 However by mid 2000s new processes taking hold Began with drive for market scale & sustainable advantage produced period of competitive shake-out growing number of cases of strategic divestment and market exit by retail TNCs use of asset swaps to secure market scale e.g. swap of Tesco and Carrefour retail outlets in Taiwan, Czech Republic and Slovakia in

5 Retail industry entered period of profound & disruptive change Global economy radically transformed by shockwave of global financial crisis E.g. in UK consumer confidence collapsed 2007/8 and did not recover to same point until Exposed profound effects of progressive rise of internet retail UK online sales more than tripled from 2007 (3.0%) to 2014 (11.0%), with spikes ever increasing with each subsequent Christmas period 10 5

6 Online retail had begun to produce significant substitution and modification effects in consumer behaviour Substitution effects sectorally specific impacted some types of retail much more strongly than others Modification effects also very important Frequency & duration of trips impacted by online pre-searching 11 Demographics of online shopping continued to change, with significant effects on modification M-commerce increasingly important, not only as a sales channel, but as a vehicle for consumers accessing additional information which influences their buying decisions during shopping 12 6

7 More generally, retail industry globally in period of profound structural change. Incumbent market leaders (with significant legacy costs) being challenged with increasing effectiveness by firms whose market presence was being established with a much lower cost base as a result of internet and mobile technologies However propensity of retailers to internationalise still remains strong 13 International retail expansion in digital era Evidence from research conducted by Conlumino Interviews with 60 leading UK multi-channel retailers Sample representative of all sectors in retail retailers included accounted for 71% of UK retail sales 14 7

8 Key findings 74% of sample already trading internationally Only 10% had no overseas expansion plans 79% believed online retail far more important to international growth than having stores on the ground Online based international expansion seen as much lower risk and more manageable than physical store expansion 15 Moreover importance of expansion by internet retail is set to increase in significance over next 5 years 16 8

9 Internet viewed as way to try out international markets at low cost and low risk avoiding host economy regulations on establishment of foreign retail businesses Most respondents expressed preference to operate overseas internet businesses themselves Contrasts with store network based expansion where local partner often key to success 17 Top 3 risks perceived in international expansion are losing managerial control, brand getting lost in translation, and regulatory concerns 18 9

10 Conclusions Despite OECD efforts,retailers host economy regulation & re-regulation concerns remain significant. Conlumino survey reassuring of value of OECD attempts to develop services trade restrictiveness index (STRI) Economic crisis and structural shifts in retail industry changed dynamic of retail globalization - restrictions on development of internet-based international retailing become more significant issue. But what forms will re-regulatory pressures and trade restrictiveness take in era of internet based retail globalization 19 10