Table of Contents

1. INTRODUCTION.............................................................................................................. 4
1.1 Introduction to the topic: .............................................................................................. 4
1.2 Research Background: ................................................................................................. 5
1.3 Research objectives and focus: .................................................................................... 5
1.4 Limitation of Research: ................................................................................................ 6
1.5 Significance of this study: ............................................................................................ 7
1.6 Structure of Dissertation: ............................................................................................. 7
2. Literature Review ............................................................................................................... 9
2.1 Chapter Introduction: ................................................................................................... 9
2.2 Unique Market Conditions in Emerging Economies: .................................................. 9
2.2.1 Emerging Markets: Definition ............................................................................ 11
2.2.2 Classification of Emerging Market Conditions: ................................................. 11
2.2.3 Economic Conditions: ......................................................................................... 12
2.2.3 Technological Conditions: .................................................................................. 14
2.2.4 Legal and Political Conditions: ........................................................................... 15
2.2.5 Socio Cultural Conditions: .................................................................................. 16
2.2.6 Competitive and Marketing Conditions: ............................................................. 17
2.3 RETAIL INTERNATIONALISATION .................................................................... 18
2.3.1 Origins of retail internationalisation literature: ................................................... 18
2.3.2 Development of Retail Internationalisation: ....................................................... 20
2.3.3 Drivers for Retail Internationalisation: ............................................................... 21
2.3.4 Conceptual Development: ................................................................................... 25
2.4 ENTRY STRATEGIES: ............................................................................................ 26
2.4.1 Entry mode: A Strategic Decision ...................................................................... 27
2.4.2 Cost and Control: ................................................................................................ 28
2.4.3 Cultural Differences: ........................................................................................... 29
2.4.4 Regulations: ........................................................................................................ 29
2.4.5 Knowledge and Foreign Experience: .................................................................. 30
2.4.6 Entry modes in emerging economies .................................................................. 31

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 2.5 International Joint ventures: ....................................................................................... 32
2.5.1 Incentives to international retail joint venture formation:................................... 33
2.6 International Franchising: .......................................................................................... 34
2.7 Chapter Summary: ..................................................................................................... 36
3. RESEARCH METHODOLOGY ..................................................................................... 37
3.1 Introduction: ............................................................................................................... 37
3.2 Inductive approach to Research Methodology:.......................................................... 38
3.3 Research Strategy:...................................................................................................... 39
3.3.1Use of Case Study: ............................................................................................... 39
3.3.2 Case Design: ....................................................................................................... 41
3.3.3 Why Multiple Case Design: ................................................................................ 42
3.3.4 Sampling Size: .................................................................................................... 43
3.3.5 Why these Case Studies: ..................................................................................... 45
3.3.6 Sampling Technique: .......................................................................................... 46
3.4 Data Collection: ......................................................................................................... 46
3.4.1 Secondary Data: .................................................................................................. 46
3.4.2 Data Analysis: ..................................................................................................... 49
3.5 Limitations: ................................................................................................................ 49
3.6 Chapter Summary: ..................................................................................................... 50
4.0 Findings and Analysis .................................................................................................... 51
4.1 Introduction: ............................................................................................................... 51
4.2 Unique Market Conditions: ........................................................................................ 51
4.3 Opportunities for International Retailers: .................................................................. 53
4.3.1 Economic Growth: .............................................................................................. 53
4.3.2 Demographics: .................................................................................................... 54
4.3.3 Urbanisation ........................................................................................................ 56
4.3.4 Credit Availability: ............................................................................................. 56
4.4 Challenges for International Retailers:................................................................... 57
4.4.1 Real Estate costs: ................................................................................................ 57
4.4.2 Distribution Costs: .............................................................................................. 58
4.4.3 Regulatory Aspects: ............................................................................................ 59

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 4.4.4 Skilled Retail Personnel: ..................................................................................... 60
4.4.5 Consumer Behaviour:.......................................................................................... 60
4.6 MARKS AND SPENCER ......................................................................................... 62
4.6.1 Research Question 2: .......................................................................................... 63
4.6.2 Research Question 3............................................................................................ 64
4.7 METRO AG ............................................................................................................... 66
4.7.1 Research Question 2............................................................................................ 67
4.7 .2 Research Question 3: ......................................................................................... 68
4.8 WAL-MART .............................................................................................................. 70
4.8.1 Research Question 2............................................................................................ 71
4.8.3 Research Question 3: Entry Strategies: ............................................................... 72
4.9 Cross Case Comparison: ............................................................................................ 73
5. Discussion and Conclusion .............................................................................................. 76
5.1 Research Question 1: Unique market conditions ....................................................... 76
5.2 Research Question 2: Motivation for Retail Internationalisation .............................. 76
5.3 Research Question 3: Entry Strategies ....................................................................... 77
5.4 Conclusion: ................................................................................................................ 78
References ............................................................................................................................ 79

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 1. INTRODUCTION

1.1 Introduction to the topic:

Globalisation has removed the barriers for organisations to go international and

internationalisation in retail sector is just following the bandwagon of globalisation. The
western retail giants are finding it more and more imperative about going to emerging
economies like India because of economic-geographic perspective considering various
fluctuating factors like the importance of political and economic contexts, legal bindings
etc. These factors have made the approach of these retail giants very dynamic in terms of
corporate strategies which the retailers are employing while entering into international
markets.

The factors which are motivating the global retailers to go international are different in
different contexts but the most repeating ones seems to be the increase in domestic
competition, advantages of global sourcing, serving to huge population base, international
presence helps them in diversifying their market risks etc. The ideology behind the
successful retail internationalisation process can be explained by quoting Alexander (1997)
“The transfer of retail management technology or the establishment of international trading
relationships, which bring to a retail organisation a level of international integration which
establishes a retail organisation in international environment.”

Literature gap is clearly evident from the fact been no clear cut evidences for particular
market selection by retail firms. The factors like geographic complexity, different social
conditions in various different parts need to be thoroughly researched to find out a suitable
array of motives for the successful expansion of retail corporations in transition economies
which seems to be missing in current research especially in Indian context. The reasons for
this are varied but the major one will be the nascent stage of Indian retail scene which is
developing since the last decade or so.

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In the past the retail giants during their expansion in South East Asia made use of various
push and pull strategies (Wrigley, 2000). The retail giants like Wal-Mart, Carrefour etc.
tried to enter different East Asian markets through licensing and concessions, partnership
agreements mergers and acquisitions, franchising, cash and carry etc. The entry into Indian
market is majorly determined by the regulatory structures but there is no empirical
evidences regarding the different strategies the international players are applying.

1.2 Research Background:

The global retail industry has been experiencing remarkable transformation especially
during the last two decades. The major reasons can be subjected to saturation of the
developed markets and the nascent phase of international retailing in the emerging markets.
The Indian market is proving to be a golden egg among the bunch because of its
tremendous market potential. According to AT Kearney‟s annual Global Retail
Development Index (GRDI) report India is considered to be the most attractive retail
destination pepping over China. The industry is considered to grow more than 10% till
2010 and it is expected that the organised retail would have almost 15-20% of the market
share by 2010(Fitch, 2006).

This dissertation looks at three perspectives which can prove to be useful for the other
retailers who are pondering upon the idea of investing in India. The dissertation will focus
upon market conditions in India and special emphasis will be laid upon the motivation for
retail internationalisation in India and the entry modes which will be applied by the
retailers.

1.3 Research objectives and focus:

The major incentive behind conducting this research was to find out the factors that are
making the Indian retail scene such a hot cake. The onus behind this research is to explore
the dynamic happenings in the Indian retail market which is making the world spin on its

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head. The research objective will be achieved by thorough exploration of following
research questions:

1. What are the unique market conditions in India which makes the proposition of entering
India a lucrative one?

2. In-depth look at various factors for retail internationalisation process and the motivations
for western retail giants for market selection while entering into emerging economy like
India?

3. From the perspective of the retail giants what are the various entry strategies in transition
market like India?

This research will be focussed on three cases Marks & Spencer (M&S) from UK, Metro
AG from Germany and Wal-Mart form US. These three are worlds top most retailers with
each having unique culture due different country backgrounds. The research will try to
provide an in depth look at the market condition in India which seems to be common for all
the three cases just the difference will be in the target segments. The other part of the
research would try to explore the internationalisation motives for these three giants in their
own terms and the different strategies they are adopting to enter in to India.

1.4 Limitation of Research:

The time constraint was the major factor that limited the scope of research to only three
cases whereas there are other examples which could have been incorporated leading to
some different insights. Access to primary data was not possible due to time and financial
constraints as well as the non access to these multinationals. Hence secondary data
available from various sources has been used to obtain relevant findings.

The other major limitation has been scarce availability of data due to the recent happening
in the topic. The case of Wal-Mart is still to be in operation India. So the success or failure

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of their venture remains a mystery. Also the limitation of secondary data such as biasness,
reliability has to be taken in to account, but utmost attention has been laid upon use of
reliable sources.

1.5 Significance of this study:

This research is designed to provide dual benefit, i.e. for academic as well as industry use.
This will form a basic check list which the other international retailers need to keep in mind
to have successful venture in India based on their skills and capabilities. This will also try
to provide some loop holes in the regulatory structure which they can utilise and use for
their entry strategy. From academic perspective this will try to fill the broad gap which is
seen in the literatures which are not concentrating on world‟s second largest country.

1.6 Structure of Dissertation:

Chapter 1: Introduction

This chapter will try to provide insight about the research topic and the background
information which will be the base for further research. It will clearly define the objectives
along with limitations and significance.

Chapter 2: Literature Review

This chapter focuses on the theories put forward by celebrated authors regarding the unique
market conditions which seem to be present in last four decades. Also in depth look at the
literature regarding internationalisation process and the entry strategies is carried to form a
strong base regarding for comparison with the practical findings.

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Chapter 3: Research Methodology

This chapter explains the reasons behind use of specific methodology and the factors
explaining the use of secondary data and the case study method are explained in detail.

Chapter 4: Findings and Analysis

This chapter focuses on the happenings in the Indian markets and this leads to the
observations about the three cases which have been previously stated. Also this leads to the
analysis of data trying to answer the three research question on the basis of the findings.

Chapter 5: Discussion and Conclusion

This last chapter through discussion tries to form a link between the literature review and
analysis. This will give a clear picture regarding the correlation between literature and
practical retail world from Indian context. This will followed by concluding the outcome of
research. Further investigation related to this specific topic is important.

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 2. Literature Review

2.1 Chapter Introduction:

The purpose of this chapter is to review the literature perspectives on the unique market
conditions of emerging markets, the motivation behind the retail internationalisation
process and the entry strategies adopted to enter foreign markets. These are the basic
questions which this study tries to answer looking in depth and doing insightful research
regarding all the nuances related with this research.

This chapter is divided in three sections and each section try to broadly define the unique
market conditions of emerging markets, the motivation behind the retail internationalisation
process and the entry strategies adopted to enter foreign markets and then deep study
related to its all factors.

2.2 Unique Market Conditions in Emerging Economies:

International literature on retail dates back the era of 1990‟s that saw a radical change in the
direction of the international growth by retailers based in the US and the European
continent. The attitude oriented towards the more sophisticated and the developed markets
of US and the Europe is shifting towards more challenging and different markets which the
authors label as emerging markets. Literature quotes that there are number of reasons for
such a shift. Authors quote that the reasons were mostly associated with retail
internationalisation process followed by the international retailers. Fundamentally
geopolitical, economic and competitive factors led to the change in winds of the
international retailers.

The late 1980‟s and the early 1990‟s saw the dynamic happenings in the geopolitical
scenarios mostly in the Eastern European countries. This led to increase in the activity of
the international retailers in this particular part of the globe. Literature about emerging
markets and the retailer‟s interest was composed on the backdrop of this transition

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approach of the retailers (Burt and Sparkes, 1, 1988; Worthington, 1989) and to foray these
markets as great commercial enterprises to be cashed upon (Huddleston, 1993; Welsh et al.,
1989; Griffin et al., 2000).

The transition period in the Eastern Europe also saw the opening up of the market for the
international players outside Europe. This change was marked after decades and the same
time there was dramatic vibes of economic prosperity surrounding the East Asian “Tiger”
economies which were becoming investment hotbeds apart from few of the westernised
colonies like the Hong Kong and Singapore (Feeney et al., 1996; Lamey, 1997; Sternquist
and Qiao, 1995; Trappey and Kuan, 1996; Vongpatanasin and Soonsatham, 1996; Yuan,
1996). The economic rise of these countries and also the financial and economic crisis of
the developed economies gave rise to the sense of reality among the international retailers
resulting in transition moves into these regions (Alexander and Myers, 1999). These initial
forays gave a scope of opportunities to the retailers who are still continuing to explore the
wide potential of these economies termed as the emerging markets that present a different
set of unique opportunities and challenges to be figured upon for the success to become
detrimental factor.

This led to considerable amount of attention to be given to the direction of the retailer‟s
expansion in the emerging economies. Previously the authors and the literature in unison
spoke about a widely accepted phenomenon that retailers initially look to span out their
wings in geographically proximate areas before jumping into more distant and distinct seas
during their retail expansion process (Burt, 1993; Treadgold, 1988, 1991) and this led to
retailers clear focus on expansion from one developed market to other (Robinson and
Clarke-Hill, 1990) but the changing times saw change in outlook of authors from developed
countries to less developed countries (Fulop, 1991).

Thus researches on the motivations for the retailers for their international activity have been
primarily identified as push and pull factors (Alexander, 1990a, b; CIG, 1991; Kacker,
1985; McGoldrick, 1995; McGoldrick and Fryer, 1993; Treadgold, 1988, 1991). Authors
comment that the push factors from the emerging economies encourage the expansion of

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retailers towards the particular markets and the pull factors draw the retailer‟s attention
towards the particular markets. And these depend upon the various unique propositions that
the emerging economies spell on the retailers ranging form the political systems to the
various niche factors like social and cultural factors.

2.2.1 Emerging Markets: Definition

The concept of emerging economies is floating around the literatures since last two decades
yet there is no definition that has been crafted out to be labelled as universally accepted. So
the academicians and the practitioners have tried to define the concept of emerging market
on underlying two qualities: One being obvious that they are different from the developed
countries and much similar to the lesser developed countries on the factors characterised as
the agrarian economy, dual nature in economic conditions, rapid extension in populations,
poor or non-existent infrastructures, lack of funds and capital in the market, illiteracy, low
productivity of labour, less availability of public facilities etc (Samli and Kaynak, 1984).
The author suggests that the second quality that perhaps gives a meaningful extension to the
name „emerging‟ is the positive momentum that strides these countries forward, for
example growing demands in countries such as China, Brazil, and Vietnam were growth of
almost all commodities is on rampage (Chicago Tribune, 1995b, 1995c, 1995d, 1995e). The
other widely accepted definition gives these emerging markets a three angled view stating
them as high growth, high potential and high risk markets. The author suggests that under
this definition the following list of the countries fall: Malaysia, Thailand, India, Indonesia,
China, Mexico, Brazil, Chile, Hungary, Poland, Turkey, the Czech Republic, and South
Africa.

2.2.2 Classification of Emerging Market Conditions:

The definition has very aptly suggested that the emerging market conditions differ
significantly form the developed market conditions and further the same evidences are
given by authors like (Dholakia, 1984; Frazier et al., 1989). The scholars have given a
hands down confirmation that these different conditions do have a significant impact on the

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strategies ranging from the mode of entry to the direction of expansion and also on the
overall performance of the internationalisation venture (Padolecchia, 1979; Terpstra and
Sarathy, 1994; Wadinambiaratchi,1965). The different types of conditions are grouped in
by the authors under five distinct categories which are economic, technological, socio-
cultural, legal-political and competitive marketing factors (Kaynak, 1982; Samiee, 1985;
Terpstra, 1978). The literature hints that the choice or ability of the retailers to respond to
opportunities and challenges in emerging market can be detrimental factor for international
growth and success of retail conglomerates (Alexander and Myers, 2000; Arnold and
Quelch, 1998; Dawson, 2001). The work further discusses the potential these conditions
possess and opposes from the developed world.

2.2.3 Economic Conditions:

The Economist, 1992 quotes “That the emerging markets are the fastest growing economy
in the world”. The world statistics book suggests that China‟s GNP has been increasing at
an average of 9% to 13% annually (US Department of Commerce, 1996). The prediction of
it being eight times the economy as it was in 1978 has been achieved in 2002. Performance
of Chinese economy has been outperforming the performance of Japan, Taiwan and South
Korea during this era of late 1990‟s which is quoted as the period which has seen the fastest
economic growth than in any other quarter (The Economist, 1992). The authors through
their work has proved over that similar wave or pattern was visible across most of the
emerging markets which is stimulated by the efforts of government by the use of
liberalization policies, directed market reforms and the most significant factor for this turn
around is the ease in the foreign investment policy of the various governments and also the
increasing privatization of the state owned subsidiaries (Hale, 1994). So the first positive
condition which emerging market possess is “Rapid economic growth translates into
increased sales, resulting in scale economies (an economic advantage)” (Nakata and
Sivakumar, 1997).

The other condition which seems predominant in the emerging market is the saturation of
wealth among the urban consumers resulting in poorer rural population (Kaynak, 1982) in

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comparison to distribution of wealth in developed economies (Adelman and Morris, 1973)
which projects the emerging country economies as “Dual Economies” (Hill and Still,
1984b). This condition leads to a factor that only urban masses who have the financial
feasibility can afford these foreign goods and services giving them a first hand experience
of the foreign retail concept. This leads to provide a condition which is extremely focused
making the marketing communication more effective and efficient. Hill, also comments
that the products which are present in developed countries needs little or no introduction to
the affluent urbanites in the emerging economy. The other unique condition which
emerging market represents is “The presence of the dual economy provides an affluent,
concentrated, and accessible buying segment, thereby increasing economic advantages.
The segment requires minimal product and communications adaptations (lower costs),
further enhancing economic advantage”(Nakata and Sivakumar, 1997).

The same situation of dual economy if put forward in long run it takes a protruding
negative effect. But the bright light in this entire array of opportunities is the growing and
getting affluent middle class. This middle class is holding all the potential of the emerging
market is being quoted by recent works. There is significant increase in the numbers in this
affluent middle class which figures suggest 82 million in China, 31 million in India, 17
million in Brazil, 15 million in Indonesia to cite few examples (Fortune, 1994). The reason
for this growing population in middle class is the accelerated economic growth which is
almost 6.3% in emerging economies as compared to 3% in developed world (US
Department of Commerce, 1996). This leads to the most promising condition of the
emerging economy, “The growing middle class expands sales of goods and services,
leading to scale economies (an economic advantage)” (Nakata and Sivakumar, 1997).

The age old saying is so true that every coin has two sides. High economic growth which is
represented by emerging economies is typically followed by high inflationary pressures. To
cite few examples inflation rates went soaring in Mexico 40%, China 24% in 1994-95
(United Nations Conference on Trade and Development, 1995) as compared to single digit
inflation associated with developed countries. Authors has pointed out the fact that inflation

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is not a common phenomenon across countries and are not uniformly distributed but in
emerging economies it tends to be the persistent problem (Bahmani- Oskooee and Malixi,
1992; Greene and Villaneuva, 1990). These high inflationary pressures leads to high
production costs like increase in labour costs, marketing costs , procurement costs etc. The
solution of passing them to buyers can work in short term but over longer period of time
substantial measures have to taken. So the negative condition which is enveloped by
exciting economic condition is “High inflation rates increase operating costs and lower
buyer demand, resulting in reduced sales and scale economies, thereby mitigating
economic advantages” (Nakata and Sivakumar, 1997).

2.2.3 Technological Conditions:

The most salient feature which emerging economy presents in the technological aspect of
doing business is poor, insufficient or quickly disintegrating and deteriorating
infrastructures over the economic area. The condition of the infrastructure present in these
emerging economies has been well documented by (Chicago Tribune, 1995a; Connolly,
1984; Frazier et al., 1989; Kaynak, 1982). The basics seems to be missing from the
emerging economy in terms of infrastructure which are of utmost importance to the
commercial activity like electricity, water supplies, roadways from broadways to local
streets, communication in form of telephones and internet. Also the emerging economy
faces problem with the banking services which often becomes short in supply or the
reliability factor is missing. The migration of locals from rural to urban areas is aggravating
the cause as the massive population shifts is not helping the governments across to cope
with the increasing demand of infrastructure in urban areas (Mahar, 1994).
The retail firms when entering into emerging economy have to take care of the fact that the
infrastructure inadequacies would hamper their rapid penetration and also create bottleneck
situation for the distribution and the production channels (Kotler, 1984). This will result in
high operational costs to the foreign retailers. This negative condition sounds like warning
bell to the foreign retail giants while steeping into emerging market “Poor infrastructure:
lowers economic advantages by increasing operating costs, and lowers pre-emptive
advantages by minimizing opportunities for entrance” (Nakata and Sivakumar, 1997).

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The other major concern for the international retailers in emerging markets is the
distribution system of the emerging economies which consist of end number of middlemen
and mom and pop stores (Kirana stores in India) (Kaynak, 1982; Malhotra, 1986; Samiee,
1993). This high degree of fragmentation in the distribution system results in varying cost
inefficiencies this drawback is due to the slow movement of goods form the manufacturers
to the wholesalers and finally to the retailers. This result in non alignment of vertical
integration which results in failure of achieving economies of scope and also consequently
the end user gets charged with high prices (Terpstra and Sarathy, 1994). This technological
glitch is dominant in emerging countries and poses a great channel for retailers to get their
back end operation inline “Indirect, fragmented channels: reduce economic advantages by
increasing distribution costs” (Nakata and Sivakumar, 1997).

2.2.4 Legal and Political Conditions:

The political instability is the one of the most important factor which the retailer needs to
undermine before making their move into cross border territory. The other legal factors that
seem to have their impact on the entry decision of the retailers are the factors like limited
patent and other trademark protection, slow and inefficiency in the judiciaries, the major
problem restrictions on the foreign investments, trade barriers, other major trade
agreements, privatization etc. This condition in the emerging economy presents a very
dynamic scenario in the form of changing government policies or change in governments
resulting in vice versa situations. To cite an example of this wobbly situation is the Chinese
government cancelling the lease on property hold by McDonald‟s after huge investment by
the American giant. Thus the air of uncertainty proves to be very difficult proposition
which the retailers need to undermine because it is straightway related to economic and
operating decisions. This forms the background of next condition of emerging economy
“Political instability: reduces economic advantages by increasing operating costs; and
diminishes pre-emptive advantages by precluding market entry” (Nakata and Sivakumar,
1997).

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The other major binding for the mode and the scale of entry of the international retailers is
the restrictions employed by the emerging economies on the foreign investments. The
ideology behind this which is propagated by the emerging countries is the exercise of them
to prevent naïve home industries. This condition diminishes the economic advantage which
the market shows by hampering the entry of foreign players who cannot bring their entire
range of capabilities and strategies to enhance their economic advantages. This leads to the
following unique condition in emerging economy “Foreign investment restrictions: reduce
economic advantages by limiting investment opportunities; and preclude pre-emptive
advantages in some cases by foreclosing market entry” (Nakata and Sivakumar, 1997).

2.2.5 Socio Cultural Conditions:

The cultural fragmentation in the markets leads to moderate economic advantages, due to
heterogeneity. Many different groups of people, characterized by preferences in product
which are distinct leads to market which are confusing leading companies to adopt
adaptation in their product or services. According to the research done by Hill and Still
(1984,a) multinational companies often tend to make more than four changes to their
existing products to make it adaptable in the emerging markets as compared to their
domestic market. These changes are on few occasions‟ mandatory form law perspective but
also accommodations are made to fit in the cultural preferences. This strategy leads to use
of resources in excess quantity which prevents economies of scale to be achieved as
compared to uniform approach. Also this strategy leads to excess advertisement creating a
dent in the margins which international retailers are keen to explore.

The other factor having a binding on the socio cultural conditions is of more personal
nature i.e. it can be described as friendship or kinship of commercial events. Kaynak (1982)
suggests that with period of time close relation develops between consumers and retailers
due to market functions as well as social centre of trade. This trait is non relevant in the
developed markets due to non alignment of relations between the retailer and the customer.
This leads to very unique condition in emerging markets, “Cultural fragmentation lowers
information asymmetries and scale economies by creating more individual and unique

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market segments which cannot be appealed to by a uniform or standard message also it
leads to development of impersonal relations” (Nakata and Sivakumar, 1997).

2.2.6 Competitive and Marketing Conditions:

Literatures over the period of time has proved that the most important feature of emerging
market is that it‟s „sellers market‟ i.e. the market where the demand always overshoots
supply (Kale, 1984; 1986; Malhotra, 1986). This market condition is caused because the
emerging markets are often plagued by import restrictions because of inability of economy
to cope with rising forex demand due to huge import bills and the other factor to this is the
negative outlook of government by introducing quota on production and range of goods
(Regandhi, 1968). Also the conditions such as the state monopolies or the oligopolies
which has been created in the market due to the presence of protectionist laws supporting
these industries or the most important weapon these institutions have is the power of
subsidies straightway affecting the face on competition. This always leads to the condition
where the products are charged higher with inferior quality final good (Kaynak, 1982).
Prioritizing industrial goods production over commercial consumer goods leads to shortage
of goods resulting in consumer to compromise in the little choice (Gillespie and Alden,
1989). This situation provides the international retailers an opportunity to tap in during the
era of economies opening up and privatization being the motto resulting in the next unique
condition as compared to developed market “Pent-up demand resulting from sellers‟
market conditions enhances economic advantages by providing willing and interested
buyers” (Nakata and Sivakumar,1997).

Market in the emerging economies according to the authors is nascent stage of development
resulting in lesser degree of sophistication as compared to the industrialized world. The
local firms always tend to give importance to the production side of business the outlook
towards marketing and advertisement seems too forgone. This condition is mainly due to
the „sellers‟ market‟ condition prevailing in these economies. This leads to absence of
product differentiation due to whatever is produce obtains a ready market. The fact in the

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developed countries is exactly opposite because of the high degree of competition the
producers have always to emphasize on demand creation, giving service to the buyers and
also emphasize on the marketing side of business to a very great extent (Kaynak, 1982).
The view at the local grocery store in emerging market possess a look which shows only a
handful of goods on the display whereas just to compare them to their American
counterparts there are more than 100,000 things in typical American super market. The use
of high end marketing gimmicks like coupons, discounts, high presence in advertisements
is more in developed countries to attract new customers and to maintain their original
customer base. The sharing of knowledge and experience across borders is making the
customers in developing countries more aware and this can be an effective market
condition for retailers to use their marketing ingenuity to make a strong headway in the
emerging markets consumer mind space as compared to local competitors. “Limited
marketing sophistication enhances the behavioral dimension of pioneering advantage by
creating opportunities for use of advanced marketing methods” (Nakata and Sivakumar,
1997).

2.3 RETAIL INTERNATIONALISATION

2.3.1 Origins of retail internationalisation literature:

The period between 1970‟s and 80‟s would be considered as the most dynamic and
important phase in the world of corporate houses which saw the seeds of a revolution called
„Globalisation of Business‟ sown, and with this there rose another important theme which
brought the world products together by emergence of „International Retailing‟ (Akehurst
and Alexander, 1995 pp. 16). Certain forces in the domestic scene had an influencing effect
on the retail conglomerates to enter foreign and cross border territories as a viable strategy
for growth. Factors like maturity of domestic market, enhanced communication and
technology, low barriers to foreign trade and the changing face retailing through mergers
and acquisitions along with financing opportunities (Kaynak, 1993; Spain, 1993;
Treadgold, 1990; Walters, 1994).

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The fact that firms are seeking new opportunities to develop their business strategy in
international arena led to research in the field of Retail Internationalisation (Alexander.
1988). This fact led to downpour of literature in this field by late 1980‟s (Alexander, 1988;
Arbrose, 1985; Bunce, 1989; Burt, 1984, 1986, 1989; Conners et al., 1985; Davies and
Treadgold, 1988; de Somyagi, 1986; Gibson, 1989, Ho and Sin, 1987; Kacker, 1988, 1985,
1986a, 1986b; Kaynak, 1988, 1985; Knee and Walters, 1985, Leunis and Francois, 1988;
Lord et al., 1988; Martenson, 1988, 1987; Mitton, 1987; OXIRM, 1989a, 1989b; Pellegrini,
1992; Sanghavi and Treadgold, 1989, Salmon and Tordjman, 1989; Tordjman, 1988, 1986;
Treadgold, 1989, 1988; Treadgold and Davies, 1988). This development led to an exciting
development of aspect of retail activity and international operations.

This development of literature by such highly appreciated authors was reflected through the
intense activity of retail conglomerates with their cross border activities in 1990‟s
(Alexander, 1997). For example the retail focus of European investors shifted their interest
to the American borders and this became an important theme for international retailing
articles (Ball, 1980; Siegle and Handy, 1981; Kacker, 1985; Wrigley, 1989, 1996, 1997;
Hallsworth, 1990; Hamill and Crossbie, 1990; Exstein and Weitzman, 1991; Clarke et al.,
1997; Sternquist, 1997; Alexander, 1999). The literature during this era revealed two
distinct but dominant perspectives. The first perspective was inline the nature of
international retail firm and their business strategy (Hollander, 1970; Treadgold, 1998,
1998; Salmon and Tordjman, 1989). The second perspective was throwing light towards
explaining why retail firms internationalise (Kacker, 1985; Treadgold, 1988, 1991;
Alexander, 1990a, 1990b, 1994, 1995; Williams, 1992a, 1992b, 1994; Burt, 1991, 1993);
direction of foreign retail investment and sequence of market entry (Treadgold & Davies,
1988; Laulajainen et al, 1991; Burt, 1991, 1993; Davis & Sanghavi, 1995; Myers &
Alexander, 1997, 1996) and entry mode selection (Treadgold & Davies, 1988; Treadgold,
1990).

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2.3.2 Development of Retail Internationalisation:

The period of 1980‟s and 1990‟s saw the retail giants and the authors work on the basic two
perspectives of business strategy of conglomerates and the second perspective of entry
strategy. Slowly but surely by late 1990‟s and 2000‟s the authors started to pay heed to
other operational aspects besides the basic two motives (Burt, 1991, 1993; Myers, 1996;
Myers and Alexander, 1996; Vida and Fairhurst, 1998). The authors started to think
broadly about other aspects which are significantly important during retail
internationalisation process like branding (Kent, 2003; Larke, 2003); luxury branding
(Birtwistle and Freathy, 1998; Moore et al, 2000; Jackson, 2004; Moore et al, 2000)
international positioning and imaging (McGoldrick, 1998; Moore et al, 2000; Burt and
Carralero-Encinas, 2000; Birtwistle, 2004; Mandhachitara and Lockshin, 2004); corporate
branding (Burt and Sparks, 2002; Burghaussen, 2002); retail store design (Doyle, 2004);
consumer buying behaviour (Bannister and Nejad, 2004); corporate governance (Wrigley,
1998a, 1998b); corporate culture (Shackelton, 1996, 1998); logistics (Fernie and Staines,
2001; Sparks and Wagner, 2003; Fernie, 2004; Hines, 2004); retailer-supplier relations
(Bengtsson et al, 2000; Colins and Burt, 2000; Han et al, 2002) and international sourcing
and buying (Lowson, 2001 Moore, 2004).

These factors have led to authors looking at different characteristics of aspects such as the
post entry strategies. Special focus is given by authors in studying the parent-subsidy
relationship and special attention have been given to one of the format which is being
applied with greater degree of success i.e. international retail franchise context (Sparks,
1995; Quinn, 1999; Quinn and Doherty, 2000; Moore et al, 2004). There has been lot of
attention paid to post-entry success which is correlated various broader economic
perspectives (Quinn and Doherty, 2000; Moore et al, 2004). The researcher are also keenly
studying the causes of subsidy failures and the other aspects related to the success and
failures of international ventures failure (Burt et al, 2002, 2004; Alexander et al, 2005;
Jackson and Sparks, 2005). So the research during the late 1990‟s and 2000‟s have given
an in-depth insight about various factors both socio-economic and operation based strategy
related to international expansion. There is also a good literature base for various factors

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that can determine the post entry success of any retailer but still is largely biased towards
international franchising model (Quinn, 1999).

2.3.3 Drivers for Retail Internationalisation:

The literature from authors started from the nuances of producing quality work in retail
internationalisation to the various important perspectives of retail expansion, leading from
this the authors also discuss about various post entry strategy and various socio economic
and cultural factors that can effect the retail bandwagon across borders. This led authors to
think about various key drivers which play major driving force in the decision making of
the retail giants. The authors have divided these motivations or factors into various
categories like push and pull factors (Alexander, 1997), proactive and reactive motivations
(Wrigley et al., 2005) and internal and external drivers (Hutchison et al., 2007; Vida and
Fairhurst, 1998). Push/ negative factors authors‟ quotes are generally related to the negative
points of the domestic market of retailers, whereas pull/ proactive factors are directly
correlated to the opportunities of the foreign markets or to the attractiveness of the retail
offering on the table.

Thus the retail internationalisation major motivational factors includes both the visceral as
well as the external factors such as; resources, management interest and expertise,
organizational culture, and retail-specific comparative advantage and environmental
factors, including size of the foreign market, economic, social, cultural and political
conditions in both the domestic and foreign markets, saturation of the domestic market and
competitor activities (Alexander, 1997; Alexander and Myers, 2000; Hollander, 1970;
Moore et al., 2000; Quinn, 1999; Salmon and Tordjman, 1989; Treadgold, 1988; 1990;
Vida and Fairhurst, 1998; William S, 1992a).

The reactive approach of the retailers has been the basic theme of the pass research in the
area of retail internationalization. Alexander (1995, p. 77) have made points that “the push
factors of the home market were invested with considerable significance and emphasized in

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the literature”. The assumptions of the Uppsala model of internationalization were based on
the prediction that the firms begin with domestic approach in mind and then gradually over
period of time with the conditions of market saturation and interest from the foreign lands
begins to grow (Johanson and Vahlne, 1977; Nordstrom and Vahlne, 1994). We can draw
an inference from this literature that retailers only show their expansion attitudes only when
they have exhausted their all modes of domestic growth leaving them no further
opportunity to play a telling role in the domestic business scenario. But to the matter fact
some UK based retailers have shown an all together different approach towards this theory
proposed by Uppsala model. Examples like Debenhams and Tesco, simultaneously pursues
both national and international interests about their growth strategy.

The Uppsala model of internationalization also proposes a concept that the firms adopt the
incremental approach where they enter markets showing similar cultural trends and also
similar consumer behavior, physical attitude e.g. UK firms approach markets which are
similar like European market or Canada which are similar to UK to certain extent before
extending their limbs to distant markets. Uppsala model suggest this phenomenon as the
psychological proximity of foreign markets to the domestic market. However this
assumption that the psychological proximity of foreign markets to the domestic market
dictates expansion decisions has, been challenged by the work of Evans et al. (2000) and
Evans and Mavondo (2002).

Acknowledgement about the fact that the domestic market conditions play a pivotal role in
retail internalization of the retail conglomerates but during the same phase of time authors
have pitched their voices in predominance of internal and external factors which are highly
proactive in nature. Alexander (1990) and Williams (1992a) have come up with list of
various factors as niche opportunities, growth prospects, market size and the uniqueness of
the retail offer (product).

Quinn (1999) surveyed 41 retail firms found that the size of the overseas market, level of
economic prosperity and niche opportunities were the most cited factors driving retail
internationalization. Vida et al. (2000) also identify proactive factors in their study of 80

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US retail chains. The theorists put forward that the differential advantage that the firms
create on four basic offerings i.e. product, lifestyle, image and niche set retailers apart from
their competitors giving them distinct outlook setting them apart from the shadow of their
competitors. The review of literature draws the basic anomaly that these four elements
those appear to exist are totally unique and inherently common to the specialty retailers
upon which these retailers have successfully expanded in international market.

LIFESTYLE
L

I
PRODUCT P IMAGE

NICHE

The PLIN Model (SOURCE: Akehurst and Alexander, 1995; p 19)

Product: Alexander (1995) examined the European Community (EC 1992) to see the after
effects of expansion of retailers. The main conclusion derived upon was that the expansion
opportunities across the border heavily depended upon the primary factor of product lines
and product distinctiveness. To confirm his school of thought Williams (1996) claimed that
the great importance is attached to the products of international retailers. „Ultimately our
success depends upon products‟ (Williams, 1991:5). Other study shown the relevance of
uniqueness the product should have to be successful in international market (Treadgold,
1991:17) and further support was given to this research enhancing success of retailers on
product distinction (Crawford, Garland, Ganesh, 1988).

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Lifestyle: Lifestyle has been defines very lucidly as, patterns in which people live and
spend their money (Kelly, 1955). When we talk about lifestyle we talk about derivatives of
personal value systems and consumer decisions. Retailers through this can seek to create a
differentiated in the consumer mind space through their merchandise that is in coherence to
the lifestyle of the consumers. Dawson (1985) concedes that lifestyle has become a very
constitutive force in retailing. Antonini (1991:5) recognizes success of retailers like IKEA,
Benetton and Toys „R‟ Us, across borders connecting to the lifestyle of consumers.

Image: To discover the new forms of competition in market, retailers evaluate consumer
perceptions and their differentiation (Bates, 1989). The idea about store image in consumer
mind is also been examined by Ring, King, Tigert (1980) to understand consumer
perception about store image. This study about consumer perceptions and retail position
was conducted by Ring et al., (1980) by having retailer‟s point of view and not consumers.
This led to a conclusion that image homogeneity is not restricted and there is change in
consumers mind with passage of time (Ring et al., 1980).

Niche: Niche is defined as „understanding the consumer market and segmenting it to reach
a specific narrow consumer group‟, (Salmon, 1989). Mason, Mayer and Ezell (1991:668),
further elaborated the concept by describing it as, „ strategy whereby retailers carves out an
narrow potential in the market place that offers an high potential, and then specializes in
meeting the needs of the consumers in that segment.‟ Blackwell and Talaryzk (1983)
studied retailing attributes and concluded that a well programmed store could produce a
natural appeal for a specific target market. This appeal can be achieved by the store by
proper product selection, atmosphere, personnel, price- range and other consumer
psychographic and demographic profiles. Blackwell and Talaryzk (1989) produces lots of
examples from American retailers like McDonalds, Pizza Hut, Wal-Mart, K-Mart etc who
have created a niche by keeping the subsequent points in practice.

This PLIN Model posits itself as a four way path that can drive the retailer expansion in
global scenario by prudent application of this model. The simple matter of fact being that

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the elements product, lifestyle, image and niche are evident and established as collective
and differential advantage within domestic and international competition.

It is evident that a growing body of research has identified a wide range of factors as
drivers of retail internationalization. However, in the light of recent changes in the
international environment, including geo-political rebalancing in the form of the European
Union‟s expansion to include 25 member states, China‟s membership of the WTO, a
turbulent economic climate following the South East Asian financial crisis, an increase in
global terrorism, and significant advances in communication technology; it is important to
consider whether the drivers of retail internationalization have changed. The factors that
motivated a retailer‟s initial expansion decision in the 1980s and 1990s may be different to
the factors that motivate a firm to continue expansion through the 21st century.

2.3.4 Conceptual Development:

Since the early 1990s, various scholars have attempted to conceptualise the
internationalisation process (Treadgold, 1990c; Dawson, 1993; Sparks, 1995; Vida &
Fairhurst, 1998; Alexander & Myers, 2000; Dawson, 2003). Treadgold (1990c) stages
approach to retail internationalisation suggests that international expansion proceeds in
typically three stages: reluctance, caution and ambition (as depicted in Figure 2.1). Stage 1
is of reluctance to initiate international activity to tap opportunities outside domestic
market. Stage 2 is f caution by spreading to locations of geographic proximity and cultural
similarity.

Treadgold (1990) proposed that retailer‟s international development moves through three
stages as follows:

Reluctance
Caution
Ambition

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“The first stage begins with admission of lack of opportunity within the home market and
as a result foreign market entry is reluctant requirement for corporate growth. At the second
stage, the cautious retailer enters culturally and geographically close to foreign markets. For
example, U.K retailers have moved towards culturally close markets such as the U.S,
Ireland and Canada and geographically close markets such as Northern Europe, slowly
dispersing activity to more culturally and geographically distant markets over time (Burt,
1995). Experiential learning encourages the retailer to become more ambitious in his
ventures of international expansions and their market choice is based upon the nature and
extent of opportunities within the foreign markets rather than for reasons of cultural and
geographical safety”.

2.4 ENTRY STRATEGIES:

The retail internationalization process leads to the firms thinking about the choice of the
Entry Mode which is regarded as the “frontier issue” in any international business and also
considered as one of the most important strategic decision for multinational corporations
(MNCs) in the pursuit of their international expansion (Agarwal and Ramaswami, 1992;
Anderson and Gatignon, 1986; Herrmann and Datta, 2006; Werner, 2002). The major
factors which firms ponder they head upon is not just being the choice of entry mode but
also careful and in depth study is done regarding how to make entry into potential target
market making this as very important part of international business and strategic
management literature (Werner, 2002; Herrmann and Datta, 2006). The investigation done
by the authors tries to show the perspective that internationalization process and foreign
entry mode decision from various angles like, interpreting process of foreign entry
theoretically, examining various dimensions correlated to mode choice, and comparing and
contrasting different types of entry modes. The literature still provides an inconclusive
picture as the authors are not paying heed to the dynamic perspective and also overlooking
the point of view towards the emerging economies the darlings of the 21st century making
their investigations into foreign entry mode choice incomprehensive.

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Era of 1990‟s has seen tremendous global expansion in retail industry making it a
phenomenon (Alexander, 1997; Brown and Burt, 1992; Dawson, 1994; Dawson and
Mukoyama, 2003; Goldman, 2001; Moore and Fernie, 2004). The review done about
various large-scale global organisations compiled in the Fortune 500 or the Templeton
Global Performance Index (Gestrin, 2000) revealed tremendous growth of top retailers. Yet
besides these there lies an underlying fact that expansion by international retailers have
faced lot of failures in international markets concluding to divestments either active or
passive Treadgold, 1990; Burt, 1991; Knee, 1993; Gestrin, 2000; Burt et al., 2002, 2003,
2005; Moore and Fernie, 2004; Palmer, 2004; Burt and Sparks, 2004; Alexander et al.,
2005; Palmer and Quinn, 2007). Swoboda et al. (2005, p. 62) conclude that:
“As data on international sales show, international success is not easy to achieve [. . .]
International retail activities are not as successful as the companies‟ advertising would
lead us to believe.”

2.4.1 Entry mode: A Strategic Decision

Doherty (1999), comments that the market choice being such a high strategic decision, the
literature developed in this sector still presents an underdeveloped facet. Research suggests
that the entry of a retailer in any international market are most primarily based upon the
factors such as the level of control of the organization over its operation in the international
market and the next factor being the resource commitment of the retailer (McGoldrick &
Davies, 1988; Treadgold, 1988). Treadgold (1988) has developed a notion that three main
strategies are involved in this strategic decision. Firstly, the strategy which provides
immense degree of control but this strategy is normally associated with organic growth in
international market. Second strategy to enter international market is circled around
medium cost and leading to lesser or medium degree of organisational control which is
correlated with joint ventures to enter foreign territory. Third strategy revolves around the
low cost strategy to have your organisation presence felt in international markets which
simply imply that the organisation have least degree of control, entry modes like
franchising, in-store concessions fall under this strategic motive. These three strategies
provide an indirect correlation between level of control and the degree of resource

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committed to the foreign venture. Thus authors conclude that firms favouring complete
control tend to go for organic growth (Dawson, 1993), while the firms committing lesser
resources and in terms having less control over the foreign entity move in the direction of
joint venture or franchising (Treadgold and Davies, 1988). The authors suggest that the
organisations that internationalise have to consider various factors which are very important
for their internal as well as external sanity in international market. These factors when
configured out leads organisation to make better decisions proving the fact that entering
into foreign market is the most important strategic decision.

2.4.2 Cost and Control:

The authors through their literatures related to entry strategy have always made it a crystal
clear fact that higher organisation control gives rise to high risk environment. The reason
being that high control strategy are often high resources commitment strategy and also
higher degree of exposure the organisation has to face in implementing this strategy in
foreign market (Treadgold and Davies, 1988) and the vice-versa story being lower degree
of risks is correlated with joint ventures (Treadgold, 1990). Some author show a slightly
different perspective that joint ventures always depend upon the proportion of equity
committed to the venture thus resulting in lower investment, risk, return and control
(Laulajainen, 1993; Au-Yeung, 2002). The literature has always proposed the fact that the
control of operations is directly dependent upon the flowing of ownership (Laulajainen,
1993). Simply put together this implies perfectly that the higher the degree of ownership of
firm in the venture greater is the control over the operations. The literature also provides a
different angle to the lower degree of control modes like joint ventures and franchising are
used in the markets which are alien to the internationalising retailer which differs in socio-
cultural aspect i.e. the difference between the conditions prevailing in home market and the
host market being huge (Treadgold, 1988; Burt, 1993. This is mentioned by the researchers
as environmental uncertainty that the host country presents. Research to a great extent have
still not been carried out to explore the degree of uncertainty which leads to the fluctuation
of strategic decision making to enter in to foreign market giving to perspective
organizational and environmental to this factor.

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Authors suggest that difference between two perceptions culture and business operation
differences leads to environmental uncertainty. This is considered to be a common sense
approach that management before committing itself to uncertain climate will undertake an
extensive research regarding organizational and environmental factors (White, 1995, p. 52),
White (1995) goes further onto comment that “the root of the problem appears to lie in the
retailer‟s lack of preparation and understanding of individual markets.” The evidence
from the mainstream retailers show that retail brands like the Body Shop, Benetton, HMV
and Foot Locker devote time and resources to planning and research into factors such as
consumer preferences, competition, possible location and operational differences (White,
1995). Conversely the poor international performance of international brands such as of
Laura Ashley and Marks & Spencer in the USA and Daimaru in Australia are due to lack of
research in these particular areas mentioned above as well as the poor understanding of the
market (Clarke and Rimmer, 1997; White, 1995). This implies that psychic distance plays a
cardinal role in organizational performance of international retail operations in foreign
markets and this leads to make note of psychic distance when the firms are in the stage of
strategic decision making process.

2.4.3 Cultural Differences:

Cultural difference is generally likely to be primary sources of investment uncertainties.

For example, Tihanyi et al. (2005) argue that cultural distance has a mixed effect on entry
mode choice. They further point out that increased operational difficulties resulting from
cultural distance are in general derived from a lack of understanding of the norms, values,
and institutions that afford social exchange across different markets.

2.4.4 Regulations:

Country-specific regulatory uncertainties mainly coming from policy environments in the

host country are another constraint. Such uncertainties include political hazards,
government interference, the absence of legitimacy, and so on. Delios and Henisz (2003a,

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b) argued that an internationalization process model that only emphasizes cultural
difference as one of the host market uncertainties is incomplete, so they incorporated
political hazards into this process model. Further, they also pointed out that under the
condition that policy uncertainty is high, this minimization of uncertainty from the policy
environment can outweigh the costs of unfamiliarity with the local market, culture, and
political system (Delios and Henisz, 2003a). Emerging economies tends to possess
uncertainties like imperfect property rights protection, imperfect industry structure,
relationships with suppliers and clients, and variance in consumer preferences.

Emerging economy contexts are characterized by ambiguous property rights, government

interference, high entry barriers and policy uncertainty, MNCs‟ traditional “liabilities of
foreignness” are magnified in such environments (Luo, 2002; Peng, 2001).

2.4.5 Knowledge and Foreign Experience:

In international expansion, MNCs usually need to deal with two kinds of important
knowledge:

(1) Knowledge about the host market; and

(2) The organizational capability of the firm.

Organizational theory suggests that a firm is a bundle of capabilities and knowledge where
individual skills, organization and technology are inextricably woven together (Kogut and
Zander, 1992, 1993, 1996; Madhok, 1997). Many scholars advance the knowledge-based
theory of the firm and suggest that firms compete with one another based on their ability to
learn and to apply knowledge (Chang and Rosenzweig, 2001; Eisenhardt and Martin, 2000;
Grant, 1996; Prahalad and Hamel, 1990; Teece et al., 1997). For example, Prahalad and
Hamel (1990) argue that core competence is the collective learning in the organization,
especially how to diversify production skills and integrate multiple streams of technologies.
Similarly, Kogut and Zander (1992) propose that core capability refers to the ability to
synthesize and apply current and acquired knowledge. Others maintain that organizational

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capability is defined as the social knowledge of coordination and learning (Grant, 1996;
Kogut and Zander, 1993, 1996). From the knowledge-based approach, MNCs are viewed as
social communities that specialize in the creation and internal transfer of knowledge (Gupta
and Govindarajan, 2000; Kogut and Zander, 1993; Peng, 2001).

2.4.6 Entry modes in emerging economies

The globalization and integration of world economies is an irreversible tendency that brings
two significant changes to international business. On the one hand, MNCs that pay much
attention to developed market economies may gain fewer benefits from the markets.
However, they can foresee more opportunities in emerging economies because these
economies not only supply cheap labor and more abundant raw materials but also provide
enormous and prosperous product markets. On the other hand, although emerging
economies were often characterized by dynamism, complexity and hostility. In the past
(Luo and Peng, 1999; Luo and Park, 2001), the situation is changing rapidly. By
continuously participating in international business, emerging economies greatly improve
their market environments, in which political, social, and economic uncertainties are
gradually being diminished.

Consequently, entering emerging economy markets now has significant implications for
MNCs seeking global strategies. MNCs may enter emerging economy markets in many
diversified ways, including export, licensing, and direct investment. In practice, foreign
investment representing deeper resource commitment and more complex governance
structure is investigated more extensively. The literature suggests that following entry
modes structures are researched extensively:

(1) Joint venture;

(2) Green Field investment and
(3) Franchising

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Generally speaking, a joint venture is the most convenient way to acquire the resources of a
local partner as well as minimizing environmental risk, whereas it also runs the risk of
opportunistic behavior on the part of the partner. Green-field investment provides the
greatest control over the local facilities, but sometimes may not obtain policy privileges
from host governments. Franchising offers the fastest means of building a presence in a
foreign market, but it is fraught with control over the operations and display of brands
image in foreign market. Green-field investment or acquisition represent full ownership
showing higher degree of resources commitment, while a joint venture and franchising
model suggests only partial ownership. Additionally, green-field investment needs to form
a new venture, which is not necessary in acquisition, while a joint venture means both a
new operation and using a partner‟s existing assets.

2.5 International Joint ventures:

Review through the paths of international retail literature projects the lack of exploration
regarding the international joint ventures which is utterly important to be described (Palmer
and Owens, 2006). This lack of literature can be consolidated as a result of the intentions
shown by the retailers while using this strategy. Retailers try to report international retail
joint ventures in the profit and loss account as “proportionally consolidated activities” or
„unconsolidated subsidiaries. Terms for international joint ventures tend to be floated by
retailers as cross-shareholdings links (Lowe, 1992) cooperative arrangements (Kacker,
1985), interfirm linkages (Doel, 1999), collaboration (McGoldrick and Holden, 1992),
cooperative linkages (Davies, 1994), equity joint ventures (Davies, 1994), franchise joint
ventures (Quinn, 1999), contractual joint ventures (Treadgold and Davies, 1988),
conglomerate-like joint ventures (Palmer, 2002), business partners and joint ventures
(Wrigley and Currah, 2003). This has lead to adding more ambiguity to the
conceptualisation of international joint venture. Also there seems to be a conflict among the
authors regarding the symmetry in meanings of international joint ventures and mergers
(Coe and Lee, 2006) and strategic alliances (Sternquist, 1998).

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So there is clears cut lack of base on theoretical aspect regarding the international joint
venture activity (Palmer and Owens, 2006).

The definition of International joint venture has been given in broad sense by McGoldrick
and Ho (1992), as one in which „an entrant participates jointly in the entry process with
another firm …with the outcome resulting in a new business entity‟. Thus the definition
lays emphasis on the new „body‟ i.e. shaping not much emphasis is laid on factors such as,”
different degrees of joint venture ownership structures, the number and character of the
partners involved, and how these moderate and shape its development”. Nonetheless this
activity is largely treated as new entity jointly stated by the agreed partners (for example,
Wal-Mart‟s Greenfield joint venture retail development in Argentina) rather than the taking
over of the partial equity of existing firms from them (i.e. Ahold‟s, acquisition of equity in
ICA). But the new authors are coming up with different methods of starting joint venture
like example of Hong-Kong retailer Wing-On and Japanese retailer Sejiu was formed when
Wing-On sold 40% of its wholly owned subsidiary Wing-On department stores to Seiju for
a cash price of HK$356 million (Wong, 1998). Similarly, Coe and Lee (2006) observed
how the retailer Tesco established a joint venture with Samsung through the acquisition of a
majority holding in Samsung‟s distribution unit in South Korea.

2.5.1 Incentives to international retail joint venture formation:

This section addresses the possible range of incentives for establishing international joint
ventures in retailing. Table below provides a summary of these incentives as observed in
the literature. The review suggests that the motivations behind the formation could be
manifold.

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Table: Incentives for establishing international joint ventures in retail markets: a
review of the literature

Incentive Authors (as identified in the literature)

Overcoming regulatory Davies (1993), Sternquist (1998), Guy

barriers (2001)
Local knowledge and Pellegrini (1991), Evans et al (2000), Au-
adaptation Yeung, 2000
Speed to market Robinson and Clarke-Hill (1995a), Lamey
(1997), Wong (1998)
Format diversification Burt (1989), Alexander (1997)
Access to investment Warnaby (1991), Sternquist (1997)
finance
Access to local Wrigley and Curragh (2003, Wrigley et al
resources/capabilities (2005)
Reduce risk Robinson and Clarke-Hill (1995a), Wong
(1998)

These are the most important incentives or the condition which promotes and provokes the
international retailers to adopt for entering into new market through international joint
ventures

2.6 International Franchising:

The frantic use of international franchising as expansion strategy due to its rapid extension
has resulted in increased interest form authors in recent years Burt, 1991; Brown and Burt,
1992; Dawson, 1994; Alexander, 1997). Quinn (1998, a) has proved through his research
that among the all entry modes franchising is proving to be a very popular mode. There was
a myth in the past that franchising is just correlated with the service industry. However, for
niche retailers such as Body Shop, Benetton, Mothercare and others, franchising is the
cornerstone of their international expansion activity. However the rise in increase in the
practical use of franchising as a strategy the academic side is still very nascent. As late as

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two decades ago authors have started conceptualizing regarding international franchising
through their work (Whitehead, 1991; Sparks, 1995) but as such, no conceptual
development of international retail franchising exists in the literature.

Paths to international Franchising:

The following diagram shows that retailers can adopt two paths for using franchising route
to internationalise. The two paths are based on the experience quotient of the retailers
regarding their franchising. The first is concerned with the retailer who has franchising
experience the first route shows logical development of franchising model in the
international market because of the previous experience of its operation in the local markets
or other international markets (Hopkins, 1996). The examples of organization like

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Benetton, Body Shop, McDonald‟s etc. prove the rich dividends by using this strategy to
internationalise. This leads to rapid development and expansion in international markets.
The second path in the diagram shows the retailers who have used organic growth model in
their previous ventures, and thus having to follow a longer duration to get adapted to
franchising model. This two way method can be used for international expansion through
franchising strategy of entering foreign market.

2.7 Chapter Summary:

This chapter widely reviewed the research done by previous researchers on market
conditions in emerging economies, the retail internationalisation process and on the
different entry strategies. This chapter tries to correlate the relation between all these three
different aspects as important link for the international retailers to make strategic decisions.

Subsequent research efforts have examined various different objectives in each sector to
critically evaluate the depth of research available in the following subject. The applicability
of the research findings of West to India is an unanswered question. The research gap to
evaluate these conditions with Indian perspective is tried to be filled by using three case
studies, each having different motives and strategies to internationalise.

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 3. RESEARCH METHODOLOGY

3.1 Introduction:

The basic objective behind this piece of work „dissertation‟ is about investigation of the
impact of retail giants like Wal-Mart, Metro AG and Marks & Spencer in to an emerging
market India. The major objective of this dissertation will be achieved by exploring the
following research questions in depth:

1. What are the unique market conditions in India which makes the proposition of
entering India a lucrative one?

2. In-depth look at various factors for retail internationalisation process and the
motivations for western retail giants for market selection while entering into emerging
economy like India?

3. From the perspective of the retail giants what are the various entry strategies in
transition market like India?

This chapter of research methodology puts forward along with explanation the various
research methods that are employed by me in the study of this dissertation subject. The
major starting point behind any study lies in the approach taken to view the research
problem. For this dissertation the clarity of the questions was vivid and so the approach
used is Inductive Approach which implies “the researcher collects data and develops a
theory as a result of the data analysis” (Saunders et al. 2000, p 87). The research objectives
are achieved by gathering and analysing secondary data to achieve the above mentioned
three research questions. For this reason the research strategy to be used is Case Study and
use of multiple case studies is done to achieve the objectives. The three case studies
considered to be useful for this research are related to the related giants Wal-Mart (USA),
Marks & Spencer (UK) and Metro AG (Germany).

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The type of research used in this dissertation is exploratory research because exploratory
research leads to give valuable information regarding “what is happening; to seek new
insights; to ask questions and to assess the phenomena in a new light” (Robson 1993, p 42)
cited in (Saunders et al. 2000, p 97). The flexibility and the adaptability of exploratory
research would further enable and enhance the understanding of the topic under scrutiny
done on the approach of inductive study.

3.2 Inductive approach to Research Methodology:

„Journey of thousand miles begins with single step‟ (Lao Tzu), and this correct single step
helps to conquer the destination. For any research method to start the approach towards it is
critical as it mostly defines the success or failure of research objectives. The research
approach which is been put into practise for this dissertation is Inductive approach.
Inductive approach refers to the process where “the researcher collects data and develops a
theory as a result of the data analysis” (Saunders et al. 2000, p 87). The basic ideology
behind the inductive approach is Interpretivism which helps to interpret the data to reach
the common purpose. Interpretivism is mainly concerned with exploring motives, actions
and intentions of an individual person or body or in groups to make utmost sense about the
things which are meaningful for research (Saunders et al. 2000, p 89). For this dissertation
on retail giants, this philosophy is applied to show an interpretation Wal-Mart, M&S and
Metro AG strategies in Indian market. The following diagram shows the path of inductive
research in the vein it is carried out.

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(Adapted from William M.K. Trochim, Research Methods Knowledge Base,
http://www.socialresearchmethods.net/kb/dedind.php accessed on 3/08/08)

This research looks at the retail internationalisation approach adopted by western retail
giants and their major factors which they consider in selecting the potential market. Also
the research speaks about various entry strategies they adopt according to their global
strategy and the way through which they try to expand their business in the emerging
economy i.e. in this case India. The data used for the fulfilment of research is totally
secondary data. The use of secondary data is done because of the companies in
consideration are huge multinationals like Wal-Mart, M&S and Metro AG and gathering
primary data using tools like interviews, focus group and questionnaires was next to
difficult thing in this short time frame and also limited accessibility. So the use of
qualitative data is done for addressing the research questions. The flexibility and the
adaptability in the approach of data collection are possible only due to use of inductive
approach whereas the deductive approach imparts high degree of rigidity (Saunders et al.
2000, p 89).

3.3 Research Strategy:

3.3.1Use of Case Study:

The exploratory type of research normally makes use of case study. The reason for this
being that the case study strategy proves tremendously useful in answering questions like

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„how‟ and „why‟ so this negates the requirement of control over other external events or
factors (Dilanthi et al. 2002). Case study research strong point being that it excels in
converting complex issue into simple bits making it easy to understand and this in turn
helps in extending the experience or adding strength to the previous research conducted on
the same lines. This makes use of case studies in research one of the most challenging
endeavours (Yin, 1993). Famous researcher Robert Yin defined case study research
strategy as, “an empirical inquiry that investigates a contemporary phenomenon within its
real-life context; when the boundaries between phenomenon and context are not clearly
evident; and in which multiple sources of evidence are used” (Yin, 1984, p. 23). The main
purpose of case studies for which they are designed is to bring out the minute details from
the various foci of participants with the use of multiple sources of data (Tellis, 1997).

Case study approach is used because case studies have their own characteristics for
example selection and use of single case study for research or use of small number
correlated cases or situations are two ways of doing case study. This leads to adaptation of
different methodologies to collect data to suffice the research demand and this can be done
by using variety of different research tools. The collection process can be carried out by
using tools or techniques like e.g. observations, interview, documentary analysis etc.
(Philip, 2003). The concept put forward by Kumar (1999) totally validates the research
approach used. Kumar (1999) puts forward that there are specific types of case studies e.g.
“exploratory, explanatory, descriptive etc.” and he also comments that the basic objective
of these case studies is to give conformity to any particular phenomenon or oppose the
concept or theory or he also suggest that in extreme cases and circumstances these cases
become a source of revelatory cases which may lead researcher to a phenomenon which
was inaccessible (Kumar, 1999).

Recently the huge amount of database being made publicly available through internet,
books etc. the use of case study as a research strategy has been on rampage. Especially this
phenomenon has been seen more recently as in the last decade or so. In order to identify the
factors motivating the retail internationalisation process of the western retailers like Wal-
Mart, M&S and Metro AG for research perspective and the entry modes they adopt to enter

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India their case study strategy has been used. But Duncan (1987) has short listed some
major advantages and disadvantages to this approach of case study.

3.3.2 Case Design:

For the purpose designing case studies Robert Yin (1994) identified five components that
are important for case studies:

 A study's questions
 Its propositions, if any
 Its unit(s) of analysis
 The logic linking the data to the propositions
 The criteria for interpreting the findings (Yin, 1994, p. 20).

This research is more based on the exploratory study and this helps in answering the most
likely questions „how‟ and „why‟. The exploratory research mainly pinpoints at formulating
the problems about research very precisely, helps in giving clear view about the concepts of
particular industry in this case the global retail industry and giving explanations about
particular actions (Quick MBA). The exploratory research method can be conducted to gain
a holistic idea about the retail sector in India by using the literatures related to topic,
various government documents and case studies of various international retailers to be
precise three retailers. The flexibility of the exploratory research compliments its nature by
the inductive approach used (Quick MBA).

Thus the research is an exploratory study and it is not about different set of propositions
which are ambiguous but are answering the clear distinct research questions which are
mentioned above (Yin, 1984). The research questions which this exploratory research
answers talks about the retail internationalisation of Wal-Mart, M&S and Metro AG and
their adaptation of different entry modes in India. Therefore the next chapters would try to
make logical linking of the data from the available sources to finally arrive at the defined
research objectives.

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3.3.3 Why Multiple Case Design:

The above parts states that how case study is going to be the most efficient way to conduct
the research on the retail internationalisation process and the entry strategies for
international retailers in emerging economy of India. The approach of case study is two
fold and it can be synthesized in two ways, either single case study approach or to have a
multiple case study approach to achieve the research objectives. Yin (1994) distinguishes
the use of both semi-approaches by stating that the single case study approach requires
working with great caution the reason being there are greater chances of misinterpretation
of data if the investigation conducted is not full proof. The reason for this being very simple
that this both the parties involved i.e. the reader and the researcher have to totally be
dependent on the individual case and this sometimes cannot achieve maximum degree of
accuracy because the access of investigator to data is limited. Also other factor that can go
against the single case study approach is that the investigator can interpret anything to be
true as there is no comparison possible during the single case study method.

In comparison the multiple case study approach tries to follow a particular path which has
repetition and replication of logic. In multiple case study approach there are individual case
studies which are in themselves „complete‟ study, which are complied by gathering facts
and figures from different individual sources and then the case studies are concluded on the
basis of those discussions drawn from the facts and figures (Yin, 1994). Thus this case
study approach makes the use of findings of one case to give confirmation and that to with
solidity about the findings of the other correlated case. This approach is more like a
parasitic approach because findings are interdependent. The turn of the last two decades
have more frequently made use of the multiple case study designs for the study of
genuinely complex problems and there also been use of wide variety of multiple methods
(Herriot and Firestone, 1983; Louis, 1982; Schofield, 1990; Cited in Miles and Huberman,
1994). Yin further in his interview commented the strengths of multiple case approach as it
lends solidity to single case results (Interview with Yin, 1997).

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The case study approach works on simple mathematics concept that single case study is
worse of than two case studies and use of two case studies is slightly worse of than three
case studies analysis and the process goes on. Yin states that one of the better ways to use
multiple case study design is to collect data from the sources that often work under the
impressions of different hypotheses but reaching out the same desires outcome (Interview
with Yin, 1997). For example this piece of research utilises the backdrop of three cases i.e.
Wal-Mart, M&S and Metro AG all three from different cultural backgrounds and all three
having vivid approaches for the motivations regarding the process of retail
internationalisation. Also the distinct characteristic of these three cases is the use of
different entry modes i.e. Wal-Mart using joint venture, M&S using franchising and the
final one Metro AG using cash and carry to enter the same emerging economy India. All
the findings from these three case studies converge to reach the common goal of research
objectives and also show the operational benefits of different approaches. The data
collected on these different and distinct cases would give readers a better understanding
regarding the best choice or choices possible in the Indian retail scenario.

3.3.4 Sampling Size:

(Saunders et al. 2000, p 150) states that whatever research question(s) and objectives the
researcher sets to attain his goals he will need to collect data to answer the queries he
wishes to answer. The collection of data and the analysis of it from every possible case are
termed as „census‟ (Saunders et al. 2000, p 150). However (Saunders et al. 2000, p 150)
comments that with extensive availability of data in this technological advanced world it is
impossible for researcher to collect and analyse the data. There are also other factors which
restrict the venture of collecting all possible amounts of data like the access to the data,
time and financial constraints for the researcher. So for this reason there is a very important
decision that has to be made by the researcher regarding the sample size he wants to select
form the wide population available. This implies to selection of cases relevant to your
research from the population which belongs to the same industry or subject matter
(Saunders et al. 2000, p 150). The following diagram proves the point graphically.

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 POPULATION

SAMPLE SIZE

CASES

(Adapted from Saunders et al. 2000, p 151)

Thus this diagram shows the practicality behind selecting a sample, from entire population
and that sample should be of manageable size. So for this research purpose where the case
study strategy is utilised the sample size is of three cases i.e. Wal-Mart, M&S and Metro
AG. Their might be questions regarding the small sample size considering the magnitude of
retail industry worldwide and the current boom that is happening in India. The reason for
this being that these three cases most appropriately represents the research objectives. Also
the operation of international retailers in India is in very nascent stage owing to this the
information that is to be cultivated is on lower side. Even the case of Wal-Mart in India is
as recent as 2007 and still the firms operation are not under action. Also the lack of time on
my side made me concentrate on these three cases.

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3.3.5 Why these Case Studies:

Case study selection is one of the most important decisions because this leads to the all
important findings and analysis and if this decision is wrong it can lead to non achievement
of research objectives. Stake (1995) points out that the right case study selection can offer
enhanced opportunity to learning and that to in limited time and with accuracy. The
following factors are detrimental in making my decision for selection of cases of Wal-Mart,
M&S and Metro.

The significant reason behind selecting these three cases is, because these three cases deal
with the three multi national organisations each from different cultural background
representing the cultures of the US, the UK and the Germany and each representing as one
of the top ten retailers worldwide. These cases thus will try to provide the different
perspectives of organisation which they consider motivating for their internationalisation
process. The other factor for the selection of these cases is the different entry modes
adopted by them, i.e. Wal-Mart adopting joint venture, M&S adopting franchising route
and the Metro AG adopting the cash and carry model to enter the Indian market.

The other reason for selecting this case study is the reliability factor. These three cases are
used to enhance the benefit of triangulation which the cross case study uses. This will lead
to see the findings from one case are in some way coherent to the findings from other cases,
this will lend the research a certain degree of reliability and validity. Author Robert Yin
(1994) was of the opinion that researcher has to produce highest quality of analysis. This
led him to provide certain guidelines for the researchers to pay heed to:

 Show that the analysis relied on all the relevant evidence

 Include all major rival interpretations in the analysis
 Address the most significant aspect of the case study
 Use the researcher's prior, expert knowledge to further the analysis (Yin, 1994)

This point lays emphasis on the fact showing the importance of right case studies to be
selected from the population to achieve research objectives.

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3.3.6 Sampling Technique:
Moser and Kalton (1986) and Henry (1990) have provided insights about the importance of
suitable sampling techniques to be utilised to decide upon the cases in sample size. The
population under consideration in this research work are the international retailers in the
Indian market. The sampling technique used to shortlist these three cases for the research
purpose is systematic sampling. The sample represents organisations which will be helpful
for answering the research objectives and questions. The findings from these organisations
will provide me the entire horizon of findings which I wish to include in my work, thus
giving me confidence about the appropriate range of data to be complied for findings.

3.4 Data Collection:

3.4.1 Secondary Data:

The use of data for this research purpose is going to be secondary data to carry out the
analysis for the dissertation. The major reason for this being the wide aspects of retail
industry any other method for data collection was out of reach within this limited time
frame and this will lead me to follow only case study strategy for research.

Saunders defined secondary data as: Secondary data is data that has already been collected
by someone else for a different purpose to yours (Saunders et.al, 2003). Secondary data
means the data collected from the organization, from particular company, from government
publications etc. Stake (1995), Yin (1994) and Philip (2003) identified the following
sources of evidence in the case study method.

 Documents
 Archival records
 Interviews
 Direct observation
 Participant-observation

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 Physical artefacts

As only secondary data will be used it is collected from documentary materials, reports and
multiple sources. The advantage of using secondary data from reliable sources is that the
analysis would be conducted on effective and reliable piece of information. This would lead
to gaining more explicit and clear understanding about the organizations under research.
Case study research has constantly been under criticism about improper handling in
inexperienced hands (Tellis, 1994). This notion I would like to change by use of data from
proper sources.

Documents which will be used would be ranging from newspaper articles to the
organizations documents. These will also include various government statistics, survey data
from reliable sources etc. The important aspect that all the data collected is relevant to case
study has been taken care of in this research (Yin, 1994). During this research for
secondary data collection use of journals has been done extensively mostly for literature
review. The access to these journals has been obtained form Metalib Catalogue in the
Bradford University site. These articles are mostly useful because they provide range of
exhaustive data related to the subject with proper facts and figures. Internet sources have
been also used extensively which includes company websites, search engines, databases,
official reports, online books etc. The following table shows the sources of secondary data
used for every research question:

Sources of Data Collection

Research Question No. Data Sources Data Collected from

1. Unique market Press Releases Newspapers
conditions in India? Government 1. Government
Statistics websites/ reports
Market Research Companies 2. Internet
Reports

2. Motivations for Retail 1. Company reports 1. Official company

Internationalization 2. Books websites
process? 2. Library

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 3. Search Engines
3. Entry modes in India? 1. Organization Reports 1. Newspapers/
2. Press Releases Library
3. Free lance reports 2. Company websites
3. Internet search
engines

These are the sources which have been made use of during the data collection process and
as (Tellis, 1997) comments that there are no advantages or disadvantages of one source
over other. The only factor that can be is that they might work in tandem. Thus I have tried
to use mostly documentation and archival records in my data collection to make it more
reliable. The following table shows the strengths and weaknesses of the evidence used in
this piece of work as cited in (Tellis, 1997)

Types of Evidence

Source of Evidence Strengths Weaknesses

Documentation  Stable - repeated review  Retrievability -
 Unobtrusive - exist prior difficult
to case study  Biased selectivity
 Exact - names etc.  Reporting bias -
 Broad coverage - reflects author bias
extended time span  Access - may be
blocked

Archival Records  Same as above  Same as above

 Precise and quantitative  Privacy might inhibit
access

(Yin, 1994, p. 80)

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3.4.2 Data Analysis:

This section is the most important and for this purpose an analytic strategy will be put into
practise for this case study. This will help to interpret the available data appropriately and
thus concluding to proper results and findings. Thus I would be blindly following the data
analysis definition provided by Yin (1994), “Data Analysis consists of examining,
categorizing, tabulating, or otherwise recombining the evidence to address the initial
proposition of study.” Thus this approach will help me to critically reflect upon my
research questions as well as the literature review which forms the backbone of this
research.

The goal here is to analyse all the data related to the cases of Wal-Mart, M&S and Metro
AG and their approach toward the emerging Indian market. This analysis will try to reflect
the motivations behind these world beaters to internationalise in emerging economy like
India and the different entry strategies these players adopt to make headway in a market
which has potential population of 1.1 billion. Through this analysis attempt would be made
to give an explanatory framework about the cases. Hence the data analysis through the
method of cross case analysis would try to answer the most significant aspect of this
research i.e. to demonstrate a very high quality analysis (Yin, 2003).

3.5 Limitations:

The most important limitation for the research purpose was the limited availability of time
and other resources especially monetary resources. The time factor have limited the
research to be conducted upon just three organisations i.e. Wal-Mart, M&S and Metro AG,
while looking at the current Indian scenario there are lot of other retailers to ponder upon.
These three cases are in themselves different in perspectives so would try to limit the
dispersion of information. Moreover most authors quote the biasness in selection of cases
because of their preference. Also the data collected is mostly from the reliable sources but
few discrepancies can be seen over the dissertation because different cultures view the
same data differently depending upon country preference etc. Also some differences can be

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seen in the findings as the different organisations culture promotes their organisation
perspective in different way. Another major limitation was non possibility of using primary
data but that has been tried to cover up using reliable data about the case studies.

3.6 Chapter Summary:

The chapter first explains the research approach. Then it moves to explain the use of
exploratory research. The point behind use of multiple case studies for the research
objective to be fulfilled. The importance behind use of Wal-Mart, Metro AG and M&S as
cases is explained and also the sampling technique used to pin point these cases. Finally
how the data collection is carried out and the data analysis interpreted is explained.

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 4.0 Findings and Analysis
4.1 Introduction:

This chapter gives an overview of Indian economy with the opportunities and challenges
those are featured as key while entering into Indian market. The focus of this is to give a
insight of the Indian market and to prove its potential to the world. This leads us to the
three cases which has been selected that of M&S, Metro AG and Wal-Mart. These cases
have been investigated and analysed on the basis of the two research questions regarding
motivations to internationalise and entry strategies.

4.2 Unique Market Conditions:

Dr. Manmohan Singh (Prime Minister of India, 2005-09) quoting Victor Hugo, “No power
on earth can stop idea whose time has come”, shows the dream potential which lies in the
Indian retail industry esp. in organised retail in days to come.

India‟s GDP which is to touch $740 billion by the end of 2006 (E&Y Report, 2006) making
India the 4th largest economy in the world in terms of GDP (in PPP), and to achieve the
position of 3rd largest economy by 2010.

This shows the nation on the move beginning to unleash with more than 1.07 billion
population (E&Y Report, 2006). But have a peek in the retail sector of the country and this
shows even a more sparkling opportunity for organised retailers, with only 3% of total
Indian retail business is classified into organised retail. The following chart shows the
penetration of organised retail across the countries in the world.

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 (Source: Ernst & Young Report, 2006)

In India retail is the fastest growing sector and in terms of emerging markets India lies
ahead of Russia and Brazil in terms of potential „Priority 1‟ market for international retail
players (A T Kearney Report, 2006). If the story of organised retail in India has to be
unfold then it would present a picture something similar to this:

(Source: Ernst & Young Report, 2006)

The analysts believe that organised retail is in very nascent stage of Indian retail business
by comprising only $7 billion from the $230 billion industry with 3% share, but is expected
to rise more than 400% in next 5 years to reach $30 billion by 2010. (E&Y Report, 2006).
This is proving to be one hell of opportunity for international retailers to have their teeth

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upon. But as the history suggests that going international for retailers have been a scary
experience for most of the retail giants, India don‟t seem to be a different proposition. The
set of unique market conditions which Indian market will display is listed below showing a
stern test for foreign retailers to succeed in „The Dream Market.‟

4.3 Opportunities for International Retailers:

India after the fall of 20th century has became one of the most promising emerging
countries with an unprecedented consumption boom of almost 1.1 billion people. Last 5
years has seen Indian economy growing at almost 8% - 9% on a yearly basis giving strong
impetus to the people to indulge into more consumption. Looking at India seems to show a
jigsaw picture whose pieces are falling at the right place with factors like economic boom,
favourable demographics, urbanization, credit facilities, foreign exposure, government
support etc. are falling together at right time from the perspectives of international retail
brands. (KSA Technopack – Consumption Outlook 2005). Following is detailed outlook
towards the various positive factors enabling retail boom in India:

4.3.1 Economic Growth: The dotcom boom after the year 2000 has seen Indian economy
scale new heights with the emergence of very strong service sector especially in the IT and
ITES, banking and other sectors. This has led to a very strong economic growth with GDP
rising 8%-9%. The resultant of this factor has been a strong rise in the population belonging
to the middle class and affluent middle class. (E&Y Report, 2006). The booming Indian
middle class is suppose to comprise of 22% of total Indian population which is expected to
scale up to 32% by 2010 (E&Y Report, 2006). The quality of Indian workforce along with
huge global growth in IT sector, tremendous rise in the India‟s Equity market has lead to
good pay packages, rise of 15-20% in salary on yearly basis resulting in higher disposable
income in the hands of the masses. Ernst &Young analysts predict on an average there will
be rise of 8.5% annually in the disposable income of the strong Indian middle class until
2015. This economic boom is making Indian consumer behaviour very dynamic and rising
affluence in pockets is giving boost to their aspirations and desires.

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4.3.2 Demographics: The biggest asset which India flaunts today is the young working
class of India. India has almost 50% of its population which is less than the age of 25. This
means a country representing almost 0.5 billion people who are in the category of youth
and have tremendous potential to grow with the booming economy. A report suggests that
the population in this age bracket is going to increase in further years (Mckinsey Global
Institute, 2007). Mckinsey‟s research suggests that if India grows by expected 6-9% for
next 25 years i.e. up to 2025 this will lead to 3 times growth in disposable income in the
hands of Indian consumer from 113,744 INR (2005) to 318,896 INR (2025). This all is
justified due to a substantial growth in productivity of Indian business houses, globalizing
Indian economy and the favourable demographics (Mckinsey Global Institute, 2007).
Another demographic factor which is working excellently in this modern India is the
participation of Indian women in the economic progression. This makes even stronger case
for a thriving middle class with income flowing from both the end of funnel. The following
chart shows various factors fuelling the Indian boom story and the chart following shows
the growth of India‟s income classes:

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 (Source: Ernst &
Young Report, 2006)

The world is becoming a behemoth of activities due to ever presence of global media
resulting in fashion being transferred from every nook and corner of the globe. This lead to
new aspirations and desires to which youth are most attracted. Thus India‟s leading strong
youth bandwagon with higher disposable income is looking forward towards newer and
better options, creating an opportunity to be grabbed for retailers across the globe (KPMG
Report, 2006). Following chart shows the rise in trend of these commodities from retail
outlets across India:

(Source: KPMG Retail Survey, 2006)

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4.3.3 Urbanisation: The age old saying says India resides in its villages. The economic
boom is going to give a contradictory view to this old saying. As per the Ernst and Young
report in 2005, 28% population resides in urban India which the analysts predict will rise
up to 40% by 2020 (E&Y Report, 2006). India‟s consumption pattern is shifting towards
the urban area with more disposable income in the hands of the urban few.

Income growth in the urban area will rise from 166,922 INR in 2005 to almost 513,042
INR by 2025 (Mckinsey Global Institute, 2007). Mckinsey‟s studies further show the wide
gap opening between Indian rural and urban class with urban Indians showing growth of
more than 3.6% over this period of time.

This urbanisation is leading to development of Tier 2 cities like Ahmedabad, Coimbatore,

Pune, Hyderabad etc. apart from the top tier cities like Mumbai and Delhi. The following
chart reveals the attractiveness of metro and Tier 2 cities:

(Source: KPMG Retail Survey, 2006)

4.3.4 Credit Availability: The growing banking industry has made it sure that the Indian
consumers have easy availability of credit due to strong economic factors and the rising
wages in the hands of consumers. The fact of the matter being that from the period of 2003-
2006 the banks have provided more than $38.7 billion loans to the consumers for their
personal needs. The easily availability of money to fulfilling their desires is fuelling the

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market with more aspirations from the middle class population creating a very good
breeding place for new international retailers to breed upon.

4.4 Challenges for International Retailers:

Opportunities do not surface out alone but they are always followed by difficulties and
challenges which the opportunist have to fulfil to reap reward from the opportunity. If India
is considered to be the next hot destination for international retailers, then India also pose
lots of difficulties for the retailers.

Even retail giants like Wal-Mart and Carrefour would agree to the fact that going to
international markets and surviving are the most difficult things they have faced in their
global expansion. Wal-Mart experiences of failures in markets like Germany and South
Korea speaks the failure of their internationalisation (The Hindu Businessline, 2006).
Following are the unique challenges which international retailers have to cope to survive in
Indian market.

4.4.1 Real Estate costs: The modern India is not an inexpensive destination to live in. The
rise of economy has also given astronomical rise to the real estate market which is booming
like it has never done before. This is giving a serious headache to retailers, because retail is
the business where location plays an important role because it is the footfalls that matters in
business (KPMG Retail Survey, 2006).

Competitions from local Indian players like Reliance and Aditya Birla Group who are
expanding aggressively are creating even more a bottleneck situation for international
players who are still coping with regulatory conditions (Padmanabhan P, 2007). The
INSEAD professor goes onto suggest that these local firms are milking the First Mover
Advantage (FMA) situation and acquiring prime real estate locations more than their own
needs propelling the real estate prices to enormous levels (Padmanabhan P, 2007).

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The other implication for retailers like Wal-Mart and Carrefour would be to have different
format from the ones they follow in western world. The format which they normally adopts
is to built huge hyper-markets on the outskirts of city is not going to work in Indian
context, and this would result in to incur huge costs for having their retail space and this
would lead to have longer duration to achieve their break-even point (BEP) (KMPG Retail
Survey, 2006).

4.4.2 Distribution Costs: The other important factor that would haunt any international
retailer is the lack of presence of infrastructure in the country and the sheer geographic area
of the country. India‟s geographic area is highly fragmented with presence of 29 states and
7 union territories. The other factor being bulk of population resides in the rural areas
leaving a hugely untapped market virtually inaccessible because of lack of infrastructure.

The major hindrance for rapid expansion of foreign retailers would be the lack of
distribution networks, poor infrastructure and this leading to non existence of efficient
logistics systems (E&Y Report, 2006)

Infrastructure is the weakest link in this entire chain which is plaguing the growth of the
retail sector which if not addressed urgently would lead to creating major problem to the
retail giants. This fact can be made clear that due to extensive urbanisation the highway
capacity of India which should be around 39000 Passenger car units (PCU) is just under
15000 Passenger car units (PCU).

Transport is the biggest area of concern in modern India with crippling railway network,
and limited highway network the Indian speed of transportation is remotely slow as
compared to the global standards along with the standards of the ports (E&Y Report, 2006).
Analysts estimate that if the government focuses on developing the transportation networks
there can be 10-12% reduction in total logistics costs (KPMG Retail Survey). The other
factor which government needs to address is the generation of 10000 MW megawatts
additional electricity to fulfil the energy requirements of the country.

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The lack of distribution network, channel and the lack of private specialise distribution and
logistics companies is being a thorn in flesh which is not letting retailers to exploit the true
potential of great Indian retail dream(Mckinsey Global Institute, 2007). The need of the
hour is to have private specialised distribution and logistics companies offering the retailers
all specialised services, refrigerated transport and warehouse facilities throughout the
extend of the country with timely distribution of supplies to the retail outlets which become
the spinal cord of the back-end operation of the retailers (India Knowledge @ Wharton,
2006).

4.4.3 Regulatory Aspects: India boasts to be the largest democracy in the world, but this
factor is not helping government to make decisions. Their has been a lot of debate about
governments FDI policies and the slow liberalisation of government policy restricting the
surge of global retailers in India (Confederation of Indian Industries, CII 2006). The latest
development has been to allow 51% FDI for single brand retailers and still huge clout of
doubt plunges over the entry of multi brand retailers. This speculation has been brought to
an end by government finally clearing its stance towards multi-brand retailers by giving
them role of faceless partner with 49% FDI allowance (Confederation of Indian Industries,
CII 2006). The government tries to portray to the local merchants that want to protect them
by direct foreign competition.

Other small regulatory aspects like amendment to the Weighs and Measures Acts and to
other acts like Agriculture Produce Market Committee Acts are not showing true picture
and making dubious conditions for retailers thus holding the rapid extension in the Indian
market (KPMG Retail Survey, 2006).

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(Policy on Foreign Direct Investment, 31/03/08, Government of India)

4.4.4 Skilled Retail Personnel: Analysts has warned the retail conglomerates about dearth
in supply of talent in the retail sector (E&Y Report, 2006). The industry is going through a
grim period where there is shortage of middle-management individuals in key areas like
technology, supply chain, business development, marketing, product development and
research. The First Mover Advantage of the local players is aggressively hunting down the
small available pool of talent thus creating a huge void which would be very difficult to feel
when the international players enter the arena.

4.4.5 Consumer Behaviour: India is land which has more than 6000 different ethnic castes
and sub-castes, giving all together new dimension to the consumer attitude and perception
across the communities (Central Chronicle “The Booming Indian Retail Market”, 2008).
The main threat which the Indian consumer poses is vast difference in their attitudes, tastes
and preferences across states. So the western retail giants who have the tendency to have
one single strategy to cater the market would prove useless in Indian context
(Padmanabhan, 2007).

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The other strategy of western retailers like Wal-Mart and Carrefour to have hypermarkets
on the outskirts of city limit would not be a success because Indian consumers instead of
having cars don‟t tend to travel that great distance because it is a nightmarish experience in
traffic and dwindling infrastructure (Padmanabhan, 2007).

The other factor which can prove a success from international retailers other ventures is the
experiment with localisation of products and not using standardisation model. The
experiences of Wal-Mart in Brazil and Carrefour in Malaysia and Thailand to use 90% of
local products is going to be one crucial element in the success of foreign retailers in India
due to the varied consumer behaviour shown by the large Indian population (Padmanabhan,
2007).

This section in nut shell provides the various unique challenges which the Indian market
will pose in front of the foreign retailers. Analysts since long have been pondering about
the fact of the difference of Indian market as compared to other developed market also
because of low penetration of organise retail, is going to be a litmus test for the retail giants
like Wal-Mart, Tesco and Carrefour. The following chart shows the unique challenges
posed by Indian market in snapshot:

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4.6 MARKS AND SPENCER

The story of Marks and Spencer (M&S) which is today Britain‟s second largest retailer is
story about two people who beat the world defying all odds. It was Michael Marks a
Russian born Polish refugee opened a stall at Leeds Kirkgate Market in 1884 and this began
the journey. After a decade of operations Marks formed a partnership with Tom Spencer a
cashier from the wholesale company IJ Dewhirst, and came into existence Marks and
Spencer fondly known as M&S in 1894. The operations of M&S where concentrated
towards the midlands in UK with Leeds being the hub of their activities and it were M&S
who was changing the atmosphere of Leeds market. But with the death of both promoters
by 1907 it was time for M&S to make a move on and not just move on but a march towards
becoming „Giant‟ (www.marksandspencer.com, accessed on 5/08/08).

The change in leadership brought about new policies like buying directly from the
manufacturers which gave them an onus in the long run. 1926 saw M&S go public with
their most important trademark been registered as St Michael. The operations stated to
spread its wings across UK with London becoming centre of activity. Not only M&S was
spreading geographically but also there was diversification coming in the product offerings
like, canned foods, ready made food, café bars and fabrics. This diversification was not
only horizontal but also vertical (www.marksandspencer.com, accessed on 5/08/08).

The era of globalisation began around 1975 and so did M&S era they began venturing into
continental Europe with their first flagship stores opening in Boulevard Haussman, Paris
and Brussels, Belgium in 1975. 1979 saw M&S on the shores of Ireland in Dublin. This led
to the beginning of the legacy of M&S in the international arena. This process of going in
international market was aptly backed up by innovations and use of modern technologies
back home. M&S was one of the few retailers in UK to start their web site in 1999 and also
they customised their supply chain to fight with other retail giants. M&S boasts of more
than 90% of its sourcing from outside Europe and this they try to maintain by using good
supplier relations always in the wake of global sourcing principles and use of fair trade

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practises and at the same time maintaining the high quality standards which synonyms with
M&S (www.marksandspencer.com, accessed on 5/08/08).

Case Findings:

4.6.1 Research Question 2: Motivation for retail Internationalisation?

The real motivation behind the M&S bandwagon to transmit its brand name to India in
2001 was the effect of two conditions which often don‟t tend to happen in tandem, the
factors called the push and the pull factor. M&S the giant in British Department stores had
really been facing an uphill task in the maturing European markets and also facing stiff
resistance in the most developed North American market.

“The move comes as Marks & Spencer is moving to close stores it owns in other countries.
M&S announced in March it was culling its European operations and selling its US
businesses” (M&S spokesman Louis Hill said in London).

This resulted in the change in outlook of the top management in the M&S ranks to try and
venture out in the emerging market like India which would provide support to the sluggish
growth which M&S is experiencing in the more developed market due to intense
competition, slowing of economy and also due to sagging consumer base. 1990-2000 has
been one of the worst decades for the retail industry and the same can is true for the M&S
in fact it is true to a greater extent. M&S has seen flat revenues and struggling accounts,
faulty succession planning by top officials, and the most important of them all wrong
decisions for investing in businesses. This can be partially due to ever changing top
management in the last part of the decade. This led to a very stern and bold decision by the
M&S to try and fish in emerging markets and try to rejuvenate from plight by expanding
their overseas operations.

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The other major reason for M&S to enter India in the last part of the year 2001 was to hit
the nail at the right moment. With the dot com boom to its true potential in India reaching
at this particular time, a growing middle class, the economy having astronomic growth rate
in double figures, the consumer base becoming trendy and fashion aware and conscious etc.
According to M&S research the customers in India are believers in quality, they value
innovation, and they have deep feeling towards giving their thumbs up to the brand they
trust and they aspire to get great success. All these factors can be summed up through the
statement made by the CEO of M&S, Sir Stuart Rose (2001):

“Indian customers understand quality, value, innovation, trust and service — a package
that M&S can and would provide.”

This motivation of Sir Stuart Rose and the M&S group to deliver India the promise they
have quoted is further justified by the strong statement from their CEO that declare their
clear intentions,

“We‟re not here to run a Mickey Mouse business! We‟re looking at substantial revenues
from India — in hundreds of millions of pounds rather than tens of millions of pounds,” Sir
Stuart (2001).

4.6.2 Research Question 3: Entry Strategies

The factors like socio-economic boom, maturing Indian customer, traditional ties between
India and the UK, the young generation due to exposure becoming aware about the brands
etc. were falling in place for the M&S. the most important thorn in the flesh how to tap this
opportunity in the wake of strong government protection of the underdeveloped and
unstructured Indian retail market. These regulatory conditions were most difficult to break
and thus M&S decided to enter India on their old formula of Franchising which they have
successfully implied in different countries in South East Asia in the last decade to varying
degree of success.

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M&S believes that, “By partnering with a local franchise partner, they have a strong
understanding of the local market, are able to protect our brand and introduce the right
products in the right environment” (M&S spokesman Louis Hill said in London). With this
entry strategy M&S ventured in India October, 2001. Hill added, "We have gone into
partnership with Planet Sports India Pvt, and the first stores will open in October 2001.
One will be in Delhi and one in Bombay."

M&S is using their franchising model to make a serious headway into huge Indian market
because according to their global business strategy it is the fastest way to purge in a market
and considering the alien Indian market condition M&S is playing safe bet by using the
knowledge and experience of the Indian domestic partner in the initial stage. Also the
regulatory condition only allow the international retailers in 2001 to have only 49% stake in
joint venture so M&S is using the franchising route through which they can license their
brand name to Indian partner and thus make their brand awareness in the new market. Thus
M&S is trying to react towards the pull factor of retail internationalisation of seeing golden
opportunity in the attractive Indian market and using one of the fastest modes of entry
franchising to create their presence and also brand image.

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4.7 METRO AG

The birth of Metro AG or Makro AG as it is more popular with this brand name in the
Europe was in the year 1964 in Germany, with its operation getting up and running in the
city of Mulheim in the Ruhr area. This was the beginning of the retail giant with one of the
old concept of cash and carry trade or the wholesale trade but the difference was in the
sheer magnitude it began its operation. This laid the foundation stone of what is today‟s top
ten retailers globally Metro AG. A new dimension to wholesale retailing was developed
when the first store of 14000 square metres was opened, leaving the other cash and carry
retailers dumb struck.

With this beginning and success flowing in the Metro started its domestic expansion and by
1967 it had three stores. Today the dream of the founders of Metro AG is fulfilled when
Metro AG proudly boasts their presence in all German cities and towns.

Metro AG quickly realised the fact that to survive in this tough retail business hogging to
international markets is of utmost priority. So by defying all odds and the authors and the
researchers they began their internationalisation in just the fourth year of operation in 1968.
A partnership agreement with Dutch company named Steenkolen Handelsvereenining leads
to establishment of „Makro Zelfbedieningsgroothandel‟. The first metro outside German
border was running into operation in Belgium in 1970 when Metro Cash and Carry outlets
expanded its domestic operations to 13 stores.

Thus the bandwagon of Metro AG started to flow across the close proximity of
international market in the Western Europe like UK, France, Austria and Denmark in 1971.
The first two decades of Metro AG Cash and Carry business saw it expand to almost
majority of Europe, with Metro proudly marking its centenary store opening in 1984. The
success in the close international market with almost similar socio-cultural atmosphere led
them explore opportunities in other continents with Metro AG entering in the North African
market through Morocco in 1991.

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By 1996 it knocked the door of the most promising emerging market China and entered
into a joint venture with Jinjiang Group. This joint venture granted Metro AG a license to
operate in entire mainland China. The company followed its wave of expansion in the
Asian continent, and the year 2003 saw their footsteps in the Indian market. The entry of
Metro AG Cash and Carry business was launched by its stores opening in Bangalore and
Mumbai in 2003. Today Metro AG has its four stores in operation in India catering to the
small and medium enterprises of India their main target customers.

4.7.1 Research Question 2: Motivation for retail Internationalisation?

Metro AG as a retailer tries to prove itself as a different kind of player which against all
odds started their internationalisation process rather quickly then anyone expects. The
business strategy statement of Metro AG sums up their intentions regarding the
aggressiveness in their internationalisation approach,

“Internationalisation is a core element of the METRO Cash & Carry strategy. It has played
a decisive role in the company‟s rise to become the worldwide market leader in self-service
wholesale” (www.metro-cc.com).

The major motivational factors behind the internationalisation process adopted by Metro
AG are imbibed in their “culture, management‟s area of interest and their expertise”
(www.metro-cc.com). This objective of setting up their presence in the international
markets is a niche part of their business strategy which they use while they internationalise.
Researching the target market on factors such purchasing, sales and marketing, laws,
human resources and logistics is the core of their model to select the target market. All the
decisions to foray in to the target market are taken after the results based on their study.

The entry of Metro in India was based on the conclusions that the format of Metro is going
to be more beneficial to the Indian SME‟s and the mom and pop stores who thrive for their
purchasing from the wholesalers. The cash and carry business model of Metro AG is
proving to be boon for the local small to medium enterprises like hoteliers, mom and pop

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stores etc. along with bringing the back end of the supply chain i.e. the local producers
great business opportunities. This ideology of Metro AG to combine both the ends of
supply chain have worked wonder around the globe and is proving to be a great success
story in India as well. The internationalisation process of Metro AG can be termed as
proactive motivation to enter other markets and to mould the business plan according to the
local needs and serve the purpose of the domestic consumers. In this approach their strategy
to procure 90% of merchandise from local players is proving decisive. The statement from
the managing director handling operations in India proves the point,

“Our success in Bangalore has proved that the Cash and Carry business model is well
accepted by our customer base and is especially beneficial for the smaller players in the
market. We are now keen to expand quickly across the country and the launch of the
Hyderabad centre marks our commitment towards growing our market presence in India”
Mr. Harsh Bahadur (2006).

4.7 .2 Research Question 3: Entry Strategies

The entry strategy put in to practise by Metro AG to enter India in 2003 has been termed by
some analysts as a back door entry mode. The Cash and Carry format of the retail business
is allowed 100% FDI according to the government body. The entry made by Metro AG was
not hyped one as in recent times there is much hype going about the entry of Wal-Mart and
other big giants in India. The format of Cash and Carry has been proven success for Metro
AG all over the globe and the same results are been seen in the Indian context.

The basics of the Metro‟s AG business concept i.e. “broad range of products at
competitive prices, specific store architecture to meet professional standards and adapting
to local needs” (www.metro-cc.com) has made their business proposition in India a success
story. The reason for Metro AG to use cash and carry model as their entry strategy has two
folds to it, the first being their success of using this format across Europe, South East Asia
and North Africa. The other factor which proved to be a benefit for them been the
regulatory conditions in India being favourable, making their entry into transition phased

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India much before the other giants of the industry making their entry giving Metro AG tag
of prime mover in the land of opportunities.

“We are convinced that our unique business-to-business concept will be very successful in
Mumbai and well accepted by our professional customers“, says Martin Dlouhy (2005)
managing Director of Metro Cash and Carry India. The business model put in to practise by
Metro AG is basically business to business relation model, wherein all the professional
customers of Metro AG are duly registered and service card is provided to them. All
products under one roof is the basic of Metro AG‟s model and they are proving to be
successful for small and medium enterprises as for them they don‟t have to have the
warehouse as Metro is doing the same for them, thus they do not have to lock their capital
in inventory. The company‟s unique business-to-business concept also caters to the
professional work schedule with extended shopping hours of up to 16 hours a day. “By this
means we clearly help our professional customers to increase their competitiveness and
thereby strengthen their own business, especially Kirana stores can benefit from our
presence”, says Dlouhy.

The prime mover advantage to Metro AG in India due to the regulatory conditions along
with their approach towards business which caters to the needs of the local with using local
professionals in their stores is proving to be beneficial to the cause of Metro AG in India.

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4.8 WAL-MART

The journey of the company which is today world‟s largest retailer, 2nd largest company in
the world in terms of revenues behind Exxon Mobil Corp. and the 3rd largest employer is
also magnanimous in it itself. Sam Walton was the brain behind the giant Wal-Mart and it
rolled out its operation in 1962 in Arkansas. Sam Walton founder of Wal-Mart was a
shrewd businessman and the distinct feature that kept Wal-Mart ahead of the competition
was the innovative ideas which they would put into practise to be ahead of the lot. The
strategy used by Sam Walton of giving consumer merchandise at low prices was easy to
understand but it was difficult to replicate. Other differentiating factor of Wal-Mart was to
focus on cities and small towns which market leaders like Sears, K-Mart and Woolco etc.
neglected. Within first five year of operations Wal-Mart had it presence through 12 stores
in Arkansas.

By 1968 Wal-Mart stated spreading its limbs in other states to get economies of scale
leading to operations in adjoining states like Missouri and Oklahoma. The growth of Wal-
Mart was just catching its pace and its listing on the NYSE in 1972 just fuelled in the
growth and by 1975 Wal-Mart had 125 stores and with sales of more than $ 340 million.
This phase in the history of Wal-Mart was the most defining phase and Wal-Mart
operations to expand nationally they adopted acquisition strategy. The first acquisition by
Wal-Mart was of „16 Mohr Value Stores’ in Illinois and Michigan. This led to rapid
growth of Wal-Mart, not only in terms of presence over US but also there was
unprecedented consumer demand and brand loyalty because of Wal-Mart‟s strategy of low
prices, customer orientation and the logistics and the information technology support that is
keeping the above factors moving.

In the late 1990‟s Wal-Mart stated to diversify in to different format and the first one they
diversified was into hyper market with a joint venture agreement with Cullum companies (a
Dallas based supermarket chain). This concept of hyper market was then incorporated into
Wal-Mart by them buying the entire stake. This led to Wal-Mart sprawling into

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international expansion. Their first international store rolled into operation in Mexico City
in 1992. This first step towards international market was followed by rapid progression into
different territories. The first expansion was to the South American continent in Argentina,
Brazil, and El Salvador etc. which was subsequently followed in Canada, and in Europe in
Germany and the United Kingdom. This led to their expansion in the Asian tiger economies
which formed the darlings of the investors with investments in China and South Korea. The
regulatory conditions imposed in India left eluded Wal-Mart from their entry in India, but
with government taking a positive stance toward international retailers in 2006 saw the
Wal-Mart bandwagon rolling into India to take advantage of the economic boom in India.

4.8.1 Research Question 2: Motivation for retail Internationalisation?

The retail internationalisation of Wal-Mart has been a delayed venture according to the
standard and the aggressiveness of the American giant to expand in world‟s second largest
market. The regulatory conditions are the most deterrent factor to this. The closer look at
the Wal-Mart‟s motives to enter the Indian market can be based majorly on the factors
noted below.

The first and foremost fact that Wal-Mart is spreading its operation to India being that,
Wal-Mart needs to continue its historical growth which the world has seen cannot be
completed without entry into two markets China and India. The commitment of Wal-Mart‟s
top management thus wanted to expand its wings to the Indian market thus seems an
obvious decision and with statement from Wal-Mart President and CEO of international
markets Mr. John B Menjer, clearly mentioning his intentions on tackling the Indian market
and through this he seems to be hitting the head of the nail:
“India is a price sensitive market and therefore we will be devising our strategy for her
very carefully." This internationalization comes in the wake of sluggish business growth in
US and also failures of international ventures for example in South Korea.

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The other important factor which seems to be favorable for the giant is that the Indian retail
sector is still in its nascent stage and Wal-Mart has always had the strategy to tap
opportunity in underdeveloped and unstructured retail scenarios. The example of Brazil
fortifies this point. The other major reason to internationalize is to improve its sourcing
form one of the world‟s cheap and quality manufacturing country. Historically India has
been a strong sourcing base for Wal-Mart and with their entry in the market things would
even become rosier on the side of sourcing (In 2006, Wal-Mart sourced goods worth $600
million from India) (www.msnbc.msn.com). Also Wal-Mart can break the myth that it tries
to endanger the local industries, by substantially increasing their productivity through their
huge demand. This can help Wal-Mart get political support in India which they seems to be
lacking from some corners.

The other motive for the retail giant to enter is the strong presence of Indian community in
the US which belongs to the IT sector. This sector is the most booming in India and is
having a strong effect on the consumer outlook in India. This is spreading the positive word
of mouth effect about the Wal-Mart in India regarding its cheap prices for its merchandise
with higher quality. This is helping the cause for Wal-Mart and is creating a consumer base
in India making their internationalization a smooth transition.

4.8.3 Research Question 3: Entry Strategies:

The entry of Wal-Mart has been speculated over the years after the turn of century but the
regulatory conditions, government policies and the change in power of politics delayed
their inevitable entry till 2007. The proposed entry of Wal-Mart in India would be through
joint venture route with their partner being India‟s leading telecommunication company
Bharti Enterprises Ltd. The statements from CEO‟s of both the company show their
admiration for each other and their perspectives about taking benefits from each others
experience for making this venture a success story.

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“It‟s a perfect match; Bharti excels in meeting customer needs in India, while Wal-Mart
excels in logistics, sourcing and supply chain management” (Elizabeth Kleck, Wal-Mart
spokesperson, 2007).

“Bharti, with its deep knowledge about vast growing India‟s consumer market and Wal-
Mart, with its extensive global retail experience, share the same commitment to building
relationships with producers in order to provide great quality at reasonable prices to
consumers everyday” (Sunil Bharti Mittal, CEO Bharti Enterprises Ltd. 2007).

Through this joint venture which going to be a franchise joint venture type, Bharti
Enterprises will have 51% stake while Wal-Mart will configure remaining 49% according
the regulatory condition allowing only 49% FDI for multi brand retailers. The reason for
the world‟s largest retailer to enter this joint venture where they are faceless entity proves
the significance of the Indian market. In this venture according to the deal which will be
starting its operation by 2009 Wal-Mart will be providing back end services like logistics
and supply chain management whereas Bharti Enterprises will be in charge of front end
operations. Under this deal Bharti-Wal-Mart Cash and Carry will act as sourcing and
distribution centre whereas Bharti will roll out its retail format in the verve of
supermarkets, hypermarkets and other stores.

The reason for this type of entry strategy can be because of the two factors one being
political turbulence and other being adaptation to local markets. This type of strategy can
be due to the knowledge and experience of Wal-Mart in Asian markets during the 20th
century. The experience in Indonesia where Wal-Mart faltered due to political instability in
1990 and the recent one in South Korea failing to meet market needs due to non
understanding of consumer behaviour because of lack of local partner feature at top of the
list for Wal-Mart entering into faceless joint venture in India.

4.9 Cross Case Comparison:

Motivation for Retail Internationalisation:

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Three organizations each with diverse geographic and cultural background id portraying
different internationalisation motives with the target for internationalisation being India.
The motives for retail internationalisation which M&S exhibits tends to show both the push
and pull factors been applied with the nature of sluggish European market and the previous
strategies of M&S management leading to poor condition of M&S. also the pull factor is
playing havoc in the mind of M&S which they are seeing in terms of booming Indian
market. The cultural ties which Britain shares with India and also the demographic changes
in Indian consumer base led M&S to enter India.

Metro AG has been revolutionary in its own terms when it has come to internationalise.
This has been the culture of Metro AG which has been prevalent since its inception to adopt
aggressive internationalisation route. The major motivation for Metro AG to enter the
Indian market is to form support of the Indian small and medium enterprises which are
growing at rapid pace with the rapid growth of Indian economy. The other major step for
Metro AG to enter India is the first mover advantage because other retailers are still
pondering upon the ways and means to enter Indian market. Also the management‟s
expertise for successful internalization through cash and carry model would prove to be
effective.

Wal-Mart has been facing turbulent times in the home market with saturation of the US
economy and failure of international ventures. Making it imperative for the giant to enter
the world‟s second largest economy to maintain its historic growth rates and to maintain its
economies of scale worldwide. Also Wal-Mart seeks cultural symmetry to the Indian IT
people which are forming the back bone of Indian middle class. Also the other major factor
that Wal-Mart is banking upon is the successful implementation of its strategy of high
volumes in sales through low pricing. The other major motive is the alignment of sourcing
hub with its operations.

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Entry Strategies:

The adoption of entry strategies by all the three retailers clearly answers the basic two
questions about their retail internationalisation motivations and the other about strategic
growth through their knowledge and experience gathered over period of time. This along
with the other aspects like regulatory conditions led to adaptation of different entry modes
by M&S, Metro AG and Wal-Mart.

M&S used its trusted weapon for internationalizing in the highly potential Indian market of
International franchising. This strategy was put into practice to have rapid extension in
Indian market along with the regulatory conditions fulfillment. The Pull factor for
motivation led to the use of this strategy which they can easily operate and reap rich
benefits.

Metro AG entered the Indian market through Cash and Carry model which according to
authors is a back door entry root but this strategy has been extremely successful for Metro
globally. This gave Metro AG prime mover advantage and also the strategy efficiently
satisfied the target customer because of its unique model.

Wal-Mart strategy to enter India as world‟s largest retailer is under scrutiny because the
giant is becoming a faceless partner with entering into joint venture partnership with Bharti
Enterprises Ltd. this shows the high implication Indian retail industry have in global
context. The adaptation of this strategy is basically due to 2 reasons to overcome political
instability and to have local expertise at bay; these factors have failed Wal-Mart‟s previous
extensions in South East Asia.

The operational side and the financial aspect of these businesses still cannot be scrutinized
due to its nascent stage of existence. Wal-Mart still has to start its operation, so these
factors cannot be compared to find out the success rate of these strategies.

Whether these findings correlates to the literature will be discussed in next chapter.

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 5. Discussion and Conclusion

5.1 Research Question 1: Unique market conditions

The emerging markets have emerged as the new darlings of the investors and especially
during last few decades. According to widely accepted definition of emerging markets a
three angled view has been formed stating them as high growth, high potential and high risk
markets. If to compare the statistics which India presents it is a role model for emerging
economy. The growth rate in India is having double figures, potential market of 1.1 billion
and the risk is undermined. The literature suggests that the emerging market possess
following conditions which the market differs from the developed markets like, economic
condition, technological condition, legal and political condition, socio cultural conditions
and finally competitive conditions.

The economic condition tends to give a strong lift to any investors because of the rapid
growth the Indian economy is showing in past decade. The Indian economy is growing at
an unprecedented growth of almost 9% per annum. The literature suggests the emerging
economy to have low technological advancements and this is clearly reflected through lack
of infrastructure in India. Regulatory conditions have made life hell for the retailers to enter
and this signifies the literature regarding protection of local business through wrong short
term decisions. The differences in socio cultural condition seem to be the major challenge
for international retailers as the land of India is considered to be land of heterogeneity.

5.2 Research Question 2: Motivation for Retail Internationalisation

The authors have divided these motivations or factors into various categories like push and
pull factors, proactive and reactive motivation and internal and external drivers. Push/
negative factors authors‟ quotes are generally related to the negative points of the domestic
market of retailers, whereas pull/ proactive factors are directly correlated to the
opportunities of the foreign markets or to the attractiveness of the retail offering on the
table. Thus the retail internationalisation major motivational factors includes both the

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visceral as well as the external factors such as; resources, management interest and
expertise, organizational culture, and retail-specific comparative advantage and
environmental factors, including size of the foreign market, economic, social, cultural and
political conditions in both the domestic and foreign markets, saturation of the domestic
market and competitor activities.

The findings seems to give a positive indication to the literature and thus confirming the
practical applicability of the retail internationalisation process to the retail
internationalisation of M&S, Metro AG and Wal-Mart in India. The retail Internatilisation
of all these three retail giants have shown a conceptual development by expanding to
culturally and geographically similar markets for example Wal-Mart going to Mexico and
then expanding globally. Also the push and pull factors seems to be major reasons for the
retailers to internationalise, because of sluggish western markets, huge potential in markets
like India, maturing and fashion trends being transmitted across borders due to
technological development. These factors are attracting the retail bandwagon towards India
which is proved by the cases. Also other major motivation like aligning sourcing hub with
operations to achieve economies of scale and also to cater to large consumer base seems to
be the mission of all the retailers which the three cases signify by their operation rolling in
India.

5.3 Research Question 3: Entry Strategies

The retail internationalization process leads to the firms thinking about the choice of the
Entry Mode which is regarded as the “frontier issue” in any international business and also
considered as one of the most important strategic decision for multinational corporations
(MNCs) in the pursuit of their international expansion. Research suggests that the entry of a
retailer in any international market are most primarily based upon the factors such as the
level of control of the organization over its operation in the international market and the
next factor being the resource commitment of the retailer .

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When committing their presence in India the three firms have made it sure that they try to
make their strategic decision as perfect as possible considering the importance of Indian
market for sustainable growth. The case studies try to reflect three different strategies i.e.
franchising, joint venture and the cash and carry to enter India. The significance of these
entry strategies is majorly related to the regulatory conditions which are covering India.
Also the other factor being the organizations own expertise to mould into these strategies
and to take maximum benefit from the experience. The M&S and Metro Ag confirms their
stance towards expansion but the strategy of Wal-Mart to become a faceless partner and in
consequence having less control seems to be dubious decision. Only time will tell the
success these ventures have in India because of its early stages of operation.

5.4 Conclusion:

The objective of this case study is to investigate the unique opportunities and challenges of
Indian market and the motivations and entry strategies used by western retailer to get a foot
hold in Indian retail market. The findings show interesting result from the initial research
work. The operational success of these firms seems to be a distant result due to its nascent
stage of operations. The market of India as promised is a rosy one with ample opportunities
for each investor to grab a share. Also there are key challenges like regulatory conditions
and the real-estate costs etc. which can prove detrimental in the post entry strategy. The
motivations seems t be far and wide but still the basics remain common to all is to take
share of 1.1 billion population which figures world second largest middle class. The entry
strategies seem to be used to fulfill the regulatory aspects because this is only the thorn in
flesh of retailers to enter India. So the picture seems to be bright if the retailer tends to
ponder on their own strength and the market opportunities to make Destination: Retail India
a success story.

Page 78 of 99
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