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Costco Market Expansion and Global Strategy

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Table of contents

  1. Introduction
  2. CEI Framework
  3. Methodology
  4. Quick Win Markets
  5. Chile
    Hong Kong
    New Zealand
  6. Long Term Markets
  7. China
    Nordic Countries
  8. Recommendations


In this report we have developed a concise market expansion strategy for COSTCO Corporation taking into consideration its existing markets outlined in the case. Firstly, we developed a framework in order to narrow down to the countries with the highest suitability for their international expansion. Subsequently, after selecting the potential candidates we further analyzed their market attractiveness using Porter´s five forces, cultural & operational entry barriers, key challenges and financials. Then we compared the countries to select the ones that we propose to be their highest priority. Finally, we recommend the market entry strategies for the selected countries.

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CEI Framework

COSTCO Expansion Indicator is a framework that includes both the grocery retail specific factors as well as COSTCO specific factors to rank the countries on the suitability for international expansion. The input for our framework is the top 50 countries based on grocery retail market size in the world. Then we score each country from 0 to 100 based on market size, country risk, market saturation, comprehensive retail growth rate and doing business index. We gave the following weightage to each one of them respectively: 25%, 30%, 15%, 10% and 20%. For the COSTCO specific factors for global expansion, we considered the house size, cultural distance, geographical distance, operational feasibility, industry attractiveness and risk normalization. These factors were inspired from the CAGE as well as ADDING frameworks for internationalization strategies. The weights given to each one of the factors were 10%, 20%, 5%, 20%, 25% and 20% respectively. We gave relative scores for each factor and then ranked the countries based on the total weighted average score. Finally, we plotted the results of industry specific weighted scores vs the COSTCO specific weighted scores.


The results from the framework we followed not just provide us the best markets to enter into but also validate the current markets COSTCO exists in. We observe the Nordic countries falling in a similar zone of highly attractive by Industry and COSTCO’s standpoint, while the developing countries in Africa fall in the other extreme part of the chart. It is also key to note that the result does not just bias the developed markets but also shows the potential of emerging markets like Hong Kong, China and India. In order to further segment we split the chart by picking the zone of High Industry and High COSTCO attractiveness. The countries included in the zone are New Zealand, Chile, Denmark, Sweden, Iceland, Finland, France, Hong Kong, India, China and Norway. However, these countries cannot be looked at in the same way. Markets like India and China are substantially different from New Zealand and France. This is why we believe COSTCO should follow a dual strategy – Quick Win markets and Long-Term markets. We categorize Quick Wins as countries where COSTCO does not need to reinvent the wheel and can apply several concepts from an existing market. For example, New Zealand and Australia share very similar values and culture. Their PPP, consumer preference and foreign brand adoption is similar. Given COSTCO’s tremendous success in Australia, the company can use existing learnings and build the new market based on that. While it will take 3-4 years to gain ground, the effort and challenges will be far lesser than that in other countries. Based on this, we categorize New Zealand, Chile, Hong Kong and France as Quick Win markets. India, China and Nordic are categorized as Long-Term markets given the large ambiguity surrounding consumer preferences, political and economic stability.

Quick Win Markets


Chile is the biggest market in Latin America for US based consumer-oriented products. It enjoys the consolidated position as the most developed and advanced economy in the Latin America. Due to a strong and consistent growth post 2008 crisis, there has been a tremendous increase in the purchasing power of Chileans. Despite the sluggish economic growth from 2013-16 due to low copper price, resulting in lower domestic consumption, there has been an increased expenditure in retailing channels and a high confidence among foreign investors. The GDP per capita of Chile was $15,346, which is much higher than the Latin American average. The total market size of the grocery retail market was $16. 4 billion in 2017, it is expected to increase at an average growth rate of 3% for the next five years. Since 2013, Chilean grocery retail industry has witnessed a huge expansion of stores especially hypermarkets. The main retailing chains also have presence in grocery retail stores like Falabella and Cencosud. Walmart Chile is the biggest grocery retail player in terms of revenue, with a market share of 42% and multi format stores catering to different types of consumer. Cencosud also has two different types of supermarkets, one targeted to price-sensitive customer and the other to quality conscious customer.

The consumption preferences of Chileans are shifting from locally produced goods to imported and premium goods, especially from the United States. According to a report by Nielson, 8 out of 10 Chileans are willing to pay for premium and sophisticated imported products with high standards of quality.

In spite of all the factors that make Chile a very attractive market, there are many challenges that COSTCO might face in case it decides to enter the retail market. Firstly, it is a very saturated market dominated by four major retail players. Although there is no availability of warehouse clubs, there are many warehouse type hypermarkets in major locations across Santiago and other metropolitan cities of Chile. According to a study by CERET, 81% of Chileans select a supermarket based on the location. This means that COSTCO could setup the first store in a prime location but that would also mean a high land cost. As a short term 3 year goal, COSTCO could setup 2 stores in prime locations of Santiago de Chile and reach a market share of approximately 1. 9% of the grocery retail market. The target customer of COSTCO would be upper middle class consumers who are not price-sensitive and look for an experience based shopping of premium products.


With a gross domestic product (GDP) of approximately $2. 58 trillion in 2017, France is the world’s sixth largest industrialized economy and the European Union’s third largest economy after Germany and the United Kingdom. Its grocery market in 2018 year stood at $275 billion, making it extremely lucrative for new entrants. It is also a country with high number of large urban areas and a population of high-income individuals. Hypermarkets, supermarkets and convenience stores represented 75 percent of the country’s retail food market, suggesting a high demand for a store like COSTCO. Further, due to its closeness in geography to United Kingdom and Spain, COSTCO’s existing markets provide it an edge over others. France, however, also has multiple challenges. One of them being the strong presence of Carrefour and Auchan in Hypermarket space. The two players hold a huge share in France and dominate the industry. The e-commerce market is also growing substantially, which is not the key USP of COSTCO. There are also heavy regulations placed on products and pricing making it difficult for foreign companies to enjoy the flexibility of choosing their own assortment. However, these challenges could be tackled if the right partner is chosen to enter the market. Expanding in 3 cities in the first 3 years can help reach the goal of 0. 26% market share. This would translate into $765 million in annual revenue and a net income of $8. 94 million.

Hong Kong

Hong Kong is a major trading and financial center in the world. It’s a country that has a mix of both Chinese and Western cultures, and more importantly shares cultures and values with Taiwan, where COSTCO is hugely successful. The people of Hong Kong are known to admire and consume products from the western world, especially the US. The country has also been attracting huge investments in its markets.

According to Hong Kong Government statistics, “there are 1,328 subsidiaries of U. S. parent companies in Hong Kong, making the United States the largest source of subsidiaries in Hong Kong”. In terms of Ease of Doing Business, Hong Kong has been ranked 4th in the world making it an attractive destination for investors. The retail market is also sizeable, with the sales averaging $62. 2Bn, 8% increase compared to previous year. The tax rates are also attractive, 16. 5% being the maximum corporate value. All these factors clubbed with the cultural and geographical similarities with Taiwan make Hong Kong a viable option.

However, the challenges are important to note as well. Most of Hong Kong’s population does not own a vehicle and prefer shopping on a day to day basis than in bulk. But given that COSTCO has managed to work with these challenges in Taiwan, we believe the same could be done in Hong Kong. Starting with opening a store in Kowloon, Coscto should setup an online presence and partner with third part delivery companies to do deliveries. Given this scenario, we expect to reach 0. 8% market share in 3 years reaching revenue of 500 million and net income of 4. 4 million.

New Zealand

New Zealand has the great advantage of being extremely homogeneous to the Australian market, where COSTCO has proven to be a great success, which could allow COSTCO to apply a “Six Sigma-like” approach (measure and analyze) its Australian entry & operations and improve and control the entry to New Zealand.

Additionally, New Zealand macroeconomic environment is quite promising considering an 18. 5 billion grocery market, constant annual GDP growth of 3%, CAGR of 5%, strong preference for US quality products, low tariffs to imported goods, flexible regulation and low corruption, which granted New Zealand with the first place in the Doing Business index.

The main challenges are the high presence of offshore online merchants, high real estate costs and its concentrated market, which could be mitigated by: 1) having online presence during construction and shipping from Australia; 2) entering with leasing model to reduce CAPEX; and, 3) differentiating COSTCO wholesale from the traditional supermarket model carried by its competitors.

Furthermore, the average median disposable income of Auckland, Wellington, Christchurch and Hamilton, make its potential target markets to host a warehouse, through a fully owned subsidiary as it was done in Australia, and a partnership with a local courier for national shipping.

Considering the aforementioned 4 locations, COSTCO could reach revenues of 523 MUSD and net income of 8.34.

Long Term Markets


China is the second largest retail market in the world and would soon surpass US as the biggest market. The grocery retail market is expected to reach $1,637 billion11 by 2022, that will be more than combined India, Japan and Indonesia. The market is expected to witness a CAGR of 5.8% in the next five years. Around 35.3% of the total retail happens on online channels, making China the biggest market in the world for online retail. The online retail is expected to increase at double digit nominal rate. Retailers with nationwide network like Sun Art, Yonghui, Walmart, CRV and Carrefour are reaping the benefits of this expansion by undertaking partnerships with e-commerce giants. Tencent and Baidu have already bought stakes in Carrefour China in order to foray in to the retail market. Walmart China has made a partnership with, the second biggest online retailer after Alibaba. Walmart Sam´s club has a similar business model to COSTCO and it has recently been modifying its strategies due to a shifting trend away from physical stores.

Due to a rapid growth of Chinese economy, an ever-increasing middle class has disposable income at hand to spend on premium and imported products. In spite of the huge potential that the Chinese market offers, there are tons of challenges that need to be considered for a market entry strategy. Firstly, the Chinese consumers prefer low price, low volume and high frequency purchases. Due to nationalist protection regulations, the international retailers have to adopt localization that can affect their product quality and business model. Considering the failure of many American retailers in the Chinese market, and high amount of uncertainty due to regulations and political risks, we consider that Chinese entry would be a high risk but high reward strategy. COSTCO could enter in to partnership with Alibaba in order to foster the online to offline platform and become a supplier of high quality imported products for wealthy Chinese customers as well as B2B convenience stores. The offline presence would further strengthen the already existing online store of COSTCO.


With a grocery market of over $600Bn, estimated to grow to $1trillion in 2020, India is one of the most attractive markets in the world right now. The rural FMCG market in India is estimated to grow at a CAGR of 14. 6 per cent and will reach $220 billion by 2025. Foreign Direct Investment (FDI) equity inflows totaling US$ 1.59 billion. The consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 201713. It accounts for over 10 per cent of the country’s Gross Domestic Product (GDP). Moreover, Indian retail trading has received Foreign Direct Investment (FDI) inflows totaling US$ 1.6 billion between April 2000–December 2018, according to the Department for Promotion of Industry and Internal Trade (DPIIT). Walmart Investments Cooperative U. A has invested Rs 2.75 billion (US$ 37.68 million) in WalMart India Pvt Ltd. Despite this glorious opportunity, several Western brands have failed to crack the Indian market. Companies like Carrefour and Auchan tried and abandoned the market. One of the key reasons for the struggle has been to not be able to cater to the local needs of the population. Also, 80% of the market share is held by mom and pop stores. Another challenge is the culture and geographical distance to COSTCO’s existing markets. However, with the right GTM strategy these challenges can be overcome.

Nordic Countries

With over USD 75 billion of grocery market and nearly 5 million people, the cities of Stockholm, Copenhagen, Helsinki, Oslo and Reykjavík, constitute an attractive market, especially due to its homogeneity.

If COSTCO were to succeed in this market will have a first mover advantage as an international grocery retailer, although it would face a value-focused customer where there is no place for mistakes.

Due to its cultural distance with the US and market complexity, it is suggested to enter though a JV agreement with companies like Ica or Axfood and open the warehouse in Stockholm, which is the largest market and its central location could help boost online sales to its neighbor’ countries without setting a physical store.

In case that the store in Stockholm turns out to be a success, it would make sense to expand in the region with a warehouse in the other 4 cities (Copenhagen, Helsinki, Oslo and Reykjavík) and in parallel enter to additional Baltic countries such as Russia and Estonia through online channels.


Having analyzed the top 11 countries according to the COSTCO Expansion Indicator, it is possible to conclude that New Zealand and India should be COSTCO’s next destinations.

New Zealand has the most similarities to a COSTCO success story and due to its cultural and physical proximity to Australia, could turn into a “Quick Win”, increasing the company’s profitability and reducing the strong dependence in the US market.

On the other hand, the huge Indian market promise extensive years and the presence of international companies, such as Ikea, has been more than welcomed by the people of India.

However, its big cultural distance leads to suggest the need of a local partner that could facilitate the incorporation of new stores as well as to provide the know-how of the Indian market. Such is the case of More supermarket, which is owned by Aditya Birla parent group, the third-largest Indian private sector conglomerate.

Bangalore, India’s IT hub highly populated by young and upper middle-class households, could be the host of COSTCO’s first brick and mortar store, while simultaneously launching its online store and partnering with a strategic local courier company.

If Bangalore store succeeds, it is highly recommended to expand to Hyderabad, India’s Tier 1 city, which was also chosen by IKEA as their entry point.

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The opening of these first two stores would thus provide plenty data to identify the other Tier 1&2 cities to expand into.

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