Consumer and Retail Trends in China

Relationship

Multiple studies emphasized that maintaining good relationships with stakeholders are essential for retailors. However, the perceptions of stakeholders are different in varied regions, according to few comparative studies. In China context, researchers suggest that companies should focus on relationship with supplier, government and customer, and that relationship with government is vital for multinational businesses, where in western context, the relationship with government is important, but it is not emphasized as that much in China. In addition, researchers suggest that management in western context should also take consideration of the relationship with employees which ar barely mentioned in China context. In western context, scholars used the term ‘relationship network’ to describe relationship with stakeholders, specifically referring to relationship with government, partners, and potential partners. In China context, instead of calling it ‘relationship network’, some western scholars use the term ‘guanxi network’ to distinguish uniqueness of Chinese network from that of western cultures. The term ‘guanxi’ has a derogatory sense which implies corruption from both cooperating companies and government perspectives.

Firstly, the Chinese government should be viewed as two separate parts: one central government as the executive manager and many local governments as the executioners. A plan enacted by the central government might not be fully executed by the local government. The ungrounded plan is caused by intentional non-execution of local governments or involuntary execution because of centralized bureaucracy. Hence, it is possible that MSCs experience obstacle or devalued benefits as they expected from the announced plan of central government.

Secondly, local supplier has two types: state-owned enterprises (SOEs) and none-SOEs. SOEs have severe bureaucratic relating issues. None-SOEs also values guanxi networks to some extent. Retaining good relationship with these suppliers has direct impacts on the operation strategies of low cost, quality and flexibility. Stable relationships with suppliers can help supermarket chains pursue quality and flexibility purposes. A contrary example is that Walmart was being mighty towards its suppliers and forced its suppliers cutting costs. This damaged its relationships with suppliers. Consequently, many high-quality suppliers turn to other domestic companies. Managing robust, dense ‘guanxi network’ will benefit MSCs to access new business opportunities, experience less obstacle from the government, and access critical resources.

As to relationship with customers, researchers agree that good relationship with customers have certain positive affect on performance. Some scholars argue that research on relationship with customers lack robust measurement to precisely indicate how good relationship contribute to good brand and performance outcome. Others argue that the branding in Chinese retailing industry are not as effective as it in other regions, instead, they suggest that Chinese customers are loyal to ‘low price and value’ instead of ‘well-known brand’.

Strategy & Management

Appropriate strategy and management quality play critical role for the success of MSC performance. The most frequent discussed aspects are market differentiation, innovation, localization, strategic alliance and flexible strategies. Studies have examined the correlation among environment, performance and strategies using quantitative, qualitative, or mixed approaches. Most studies were conducted in a form of interviews or surveys and few studies maps archived objectives of companies (ex: financial status) to its strategies. Remaining articles discuss literature or case studies on general topics such as technology and innovation and outlined existing challenges for MSCs operation in China.

In short, case studies manifest that flexible strategies accordingly to the institutional environment are critical. One stable strategy is not an appropriate approach as the institutional environment continuously changes. In regard to specific strategies and tactics, marketing differentiation was outlined in many country-specific studies. The competition in multiple traditional industries is becoming fierce and tense. Therefore, a distinguishable market positioning or product differentiation can mitigate competition pressure by avoiding direct competition. It is especially effective corresponding to industry which has high price sensitivity and low distinctiveness of products. In addition, localization and strategic alliance are critical pattern for MSCs to blend into the local institution. Numbers of MNCs cases illustrated that many multinational businesses failed in China because they failed to acclimate to the local environment.

Finally, the significance of supply chain management is well-recognized in retailing industry. It is the system that a company used to deliver demanding goods to right customers in at appropriate time. A supermarket brand with well-organized logistics and supply chain strategy has a qualified advantage over other market players, whereas optimizing supply chain serves as a competitive tool. It gives retailer a huge cost advantage, especially, compares to smaller retailers. Unquestionably, effective supply chain strategy is critical for any MSCs and domestic companies.

Challenges and Opportunities

This part syntheses findings from prior analytical work, approaching research questions on a solution-driven basis.

The changes of business environment can be viewed as opportunities and threats. Undoubtedly, the rising awareness of consumerism of later generation and transformation from a manufacturing-driven to consumption-drive encompass new marketing opportunities. Services-based industries are expected to grow in the near future. Firstly, previous studies on western countries indicated that mergers and strategic alliance are common in supermarket industries and government usually proceeds strict process for avoiding monopoly competition. On the other hand, many venture capital companies with or without retail roots invested in supermarket industry in China, resulting in that domestic companies merge with greater scale and resource and savagely expand its business nationally. The competition is worth considering.

Secondly, the government involvement can be positive and negative. The government encourages foreign investment and development of retail sector, and the protectionism is weakened in modern periods. However, the bureaucracy and corporation are still unresolved issues for both domestic and foreign companies. Moreover, the large domestic companies generally have strong relationship with the government, which will engender detriment for MSCs in competition.

Lastly, one intriguing findings is that the use of newly emerged and popularized technologies such as big-data, data mining, and E-wallet, have been studied in both China and Western cultures in recent years. Researchers suggest that using these technologies promptly and effectively could help the supermarkets to obtain few years of lead in competition. Many creative retail formats which cooperate with these technologies emerged. For instance, Amazon created cashier less stores and Alibaba create a food retail format which integrate online-ecommerce and offline stores. Many other innovative formats are merging in China and no research at current studies has examined these practices. These new formats are still at the examination stages in the market. The future of retailing formats is not predictable. At this point, the academic research regards to innovation of retail format is one step behind the practices.

In order to compete with domestic companies, proactively adapt within the changing environment, MSCs have to response accordingly to the environment, its positioning and situations. The researchers suggested three critical success factors specifically for MSCs in China are robust ‘guanxi’ network, flexible-dynamic strategies, and high quality of general management. The government in a stable communism context which dominated by one party have strong involvement in market activities. The execution of policies and regulations might not be effective, but, in most of time, they are extremely efficient. Therefore, fast reaction towards changes in politics and regulations is a fundamental ability for MSCs. Also, governmental system complying within corruption should not be omitted. It can disrupt fair market competition and it is especially apparent phenomena in lower tier cities. To mitigate risks caused by corruption and bureaucracy, MSCs could build ties with the governments or ally with local partners who have strong “guanxi” network in China.

There are a broad range of strategies which have been well developed and practiced, aiming to achieve different business purposes in a particular situation. It is convinced that flexible strategies are suggested for MSCs. Mono-fixed-strategy will not be effective to a country in a developing period, within multiple cultural groups, broad territory, and enormous territory. China markets are highly fragmented and should not be treated as a whole. For instance, the first-tier cities (ex: Beijing Shanghai etc.) should be treated as well-developed areas. Its economic scale and consumer buying power is strong as that in developed western regions. Second tier cities (Hangzhou, Nanjing) could be viewed as emerging-developed cities and third-tier to fifth-tier cities can be viewed as developing areas. In addition, the inner land is less developed in general. People live in different regions of China have different shopping behavior. Therefore, strategic management should have two fundamental characteristics: flexibility and variety. The flexibility refers to selective and flexible strategy making for adapting the changes and local environment. The variety characteristics refers to that successful retailing management are pragmatic-oriented in strategic choices and they react to institutional environment with mixed of strategies, for instance, a mix of adaption and standardization for marketing strategy (Cao et al., 2013). Furthermore, numbers of cases studies which investigated failure cases of MNCs and MSCs in China indicated that failed to adopt or execution localization is one of the key factors that failed the business in China. These companies focused on polishing their global image, but failed to interact within the locals, their target markets.

The quality of general management refers to other management aspects instead of strategy management. The general management factors are non-arguable elements that can affect supermarket performance outcome and the practitioners and scholars have common agreement on these elements. The most important element is supply china management which served to not only generate cost reduction or create operation efficiency but also create additional value for its stakeholders without extra input. Other elements such as inventory management, software management also have certain level of influences to the performance outcome.

Implication & Contribution

Before delivering implication of the study, limitations of this study should be aware of. Firstly, the report solely relies on secondary materials and many selected materials exist sampling issues. Secondly, to observe development or changes of environment over a period of time, all relating studies used cross-sectional approach. In those cases, a longitudinal study is a better approach for the purpose of observing development or changes of a phenomenon over a period of time.

The present study contributed to both theoretical implication and practical implications. With a theoretical perspective, this study outlined institutional environment under China context and realized that the research findings relating institutional environment from academic is consistent with the observations from the government as well as the media. In addition, the studies systematically review success factors of the retail industry and instilled CFS which are appropriate to China context. In addition, there are relatively few studies devoted to possible application of emerging technology such as big data and data mining in China context. In China, emerging format which complying with newly emerged technologies have not been realized by western scholars, but Chinese business practitioners have been already practicing these new technologies and formats in reality.

With a practical perspective, the findings of this study offer grounded implications for MSCs. Firstly, the study outlined the significance of relationship with government as well as some challenges relating to government system. Secondly, it clarified few differences in perception between Chinese society and western societies. Management under western context are suggested to take consideration of employee-relationship, however, it is not emphasized in supermarket industry under China context. In addition, branding is less effective in China and Chinese customers are very sensitive to price instead of brands. It has been proved from interviews from management side as well as customer’s sides. International business has a natural advantage in which Chinese customers generally have better brand perception of foreign brands. Although branding is not decisive factor, MSCs could benefit from it if two brands offer similar prices of consumption goods.

Conclusion

The future trajectory of supermarket sector in China can be viewed within following aspects: development of retail format and overall growth. The key concern for management in regard to the growth of the industry is whether the short-run market trend of this industry would see a steady growth. The view towards short-run growth, academic studies, media views and governments report all point to one direction. The overall retail sector will see a steady growth in coming few years as a result of government effort on consumption-driven economy as well as increasing awareness of high-quality of living in Chinese society. Existing retail format has been well-established, but emerged retail formats demands exploration. Future research can focus on views towards emerging retail format which combined online and offline future and equipped with advanced technologies and a format with a focus on convenient purpose or with enjoyable, high-standard shopping purpose.