Internationalisation of the Retail Environment

Introduction

The globalization of the retail sector saw many companies expand their operations to markets that they previously never operated before. Indeed, with the reduction of distance and time through technological advancements, retail companies had an opportunity to boost their global retail operations by venturing into markets that were inaccessible (Motohashi, 2015). Their main goals were to expand their global operations and diversify their portfolios because most of their domestic markets were saturated. However, their potential to exploit these opportunities was doubtful because some firms made profits, while others did not (Vulkan and Larsson, 2018).

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The strategies chosen by retailers in these foreign markets varied because some of them replicated what their competitors did, while others developed unique product offerings to create a competitive edge. In this study, it is conferred that leading retail brands embraced a homogenous trading strategy, but the diversity of consumer behavior in foreign markets shaped their success. However, before providing evidence to support this claim, it was first important to understand the driving forces behind internationalization.

Driving Forces Behind Internationalisation

Traditionally, international trade was marred by a quest by countries to restrict trade within their borders through the imposition of quotas and taxes. Over the years, this changed and there was a reduction in cross-trade barriers, as a key driver behind internationalization. Therefore, companies found it easier to trade in overseas markets because several countries opened their markets for trade. At the same time, immense opportunities that existed in the international market provided an impetus for organizations to globalize their operations (Reich, 2016). The same was true in the retail market sector because many companies ventured into the international market to make a profit from foreign trade.

Researchers used several theories to explain internationalization. According to Mannherz (2018), the three main classical theories of globalization were the economic, behavioral, and relationship theories. The economic approach viewed globalization as a quest by companies to expand their operations in the international market (Mutuku, 2018). Comparatively, the behavioral approach to globalization suggested that the quest by companies to venture into global markets was primarily driven by complex social relationships of the players involved (Graf, 2016).

For example, this theory postulated that globalization was driven by people’s quest to acquire new knowledge about international market operations (Graf, 2016; Mutuku, 2018). In this context, people’s psychic and geographical distance influenced how companies operated in the global market, while cultural factors moderated decisions made in the process.

Nature of the International Retail Environment

The global retail market was traditionally been dominated by a few key players, who operated in a near oligopolistic manner. For example, Wal-Mart enjoyed widespread success in America and dominated the international retail market in ways that its competitors were unable to do (Bloom and Hinrichs, 2017). In the UK, Tesco was among the leading retailers, while in France, Carrefour was the main player. Figure 1 below provided a comprehensive assessment of the leading retailers in the world, based on their retail revenues.

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Top 10 Global Retailers by Revenue
Figure 1. Top 10 Global Retailers by Revenue (Source: B&T, 2017).

The above-mentioned companies enjoyed long periods of success and were the main players in the global retail market. Their international trading plans were similar because their core strategies hinged on a multi-brand retail framework. Fabozzi (2016) also said they embraced a multiproduct plan, which allowed them to enjoy widespread appeal both locally and internationally. Therefore, their operational strategies were largely similar. However, a group of firms in the international market operated in specific subcategories of the retail market, such as fashion, toys, and furniture. Some of them included IKEA and “Toys R Us” (Jary and Wileman, 2016).

Impact of Changing Consumer Behaviour in the Global Retail Market

Consumer behavior was largely entrenched in the frame of mind that consumers operated from when buying goods or services. Trends in the global retail market influenced such behavior. For example, many consumers showed an increased preference for open spaces (when shopping) and a liking for organic or wholesome foods (Haedicke, 2014; Kapoor and Munjal, 2017; Paddock, 2016). In some countries, there was also a growing trend among customers to shop in organized spaces as opposed to “chaotic” markets (Sarkar et al., 2016). Particularly, this trend was witnessed in emerging markets such as India (Prashar et al., 2017).

Differences in consumer behavior in emerging markets scattered the operations of some giant retailers who used homogenous trading strategies (Janakiraman et al., 2018). Indeed, as Rashmi and Dangi (2016) observed, consumer behavior in the global retail market was fragmented because deeply-held beliefs, values, and norms influenced how consumers responded to marketing strategies.

The impact of different consumer behaviors in retail operations was mostly explained in marketing journals, such as those authored by Kähr et al. (2016) and Gürhan-Canli et al. (2018). The journals reported that many retailers were grappling with this problem in their international operations (Kähr et al., 2016; Gürhan-Canli et al., 2018).

Differences in consumer behavior were partly explained by the motivation-need theory, which presupposed that consumers were often motivated by different needs when making purchase decisions. The theory outlined five needs, which influenced consumer buying behaviors: physiological, safety, love, self-esteem, and self-actualization (Joshua, 2017). It also generated the impetus for marketers to not only create awareness about their brands but also position their products to fulfill specific customer needs (Joshua, 2017).

The diversity of consumer behavior observed in the global retail sector was partly traced to the varied needs outlined by the motivation-need theory. Indeed, it was difficult to discern a situation where consumer behavior was predicated on one category of need. Therefore, a homogenized global trading strategy could not address varied needs. This reason explained why some retail companies failed to succeed in foreign markets. Indeed, people’s buying behaviors represented the level of need they were fulfilling. Globalization failed to create this uniformity in need.

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Several trends defined consumer behavior in the global retail environment. Two types of trends had this effect. The first one was based on traditional drivers of consumer behavior, such as price, taste, and convenience (Lund and Marinova, 2014). The second set of drivers that influenced consumer behavior was based on four key tenets of consumer psychology: wellbeing, safety, social impact, and experience (Balabanis and Diamantopoulos, 2016).

The need for transparency was an overriding theme that underscored the evolution of consumer behavior in the global retail segment because many people around the world yearned for greater accountability from multinational organizations that operated in their countries. The diagram below explained the interplay of these key drivers affecting consumer behavior.

Drivers of International Trade
Figure 2. Drivers of International Trade (Source: Class Materials).

According to figure 2 above, traditional factors that influenced consumer behavior remained intact for a long time, while evolving drivers increased substantially over the years.

Predicted Future Changes in Consumer Behaviour

Although different global retailers pursued multiple strategies in overseas markets, homogenization was a trend that characterized their plans. Homogenization of strategies referred to similarities in business plans. According to Baker and Hart (2016), this kind of strategy may have hurt brand performance because it made customers wonder why they had to go to a specific store, while they could get the product they want in an outlet close to them.

The above-mentioned challenge explained why some of the world’s most recognizable brands in the retail sector ventured into foreign markets with relative success. For example, a study by Albala (2015) found that Wal-Mart, Tesco, and Carrefour had mixed successes in their globalization plans because of their failure to be sensitive to local cultures, their weakness to adapt to a culture of internationalization, and their inability to attain competitive advantages over rivals in local markets. For example, Wal-Mart failed to succeed in Germany and South Korea because of the above-mentioned reasons (Hunt et al., 2018).

In both countries, the American-based retailer exited less than ten years after setting up a business (Hunt et al., 2018). The same reasons were also cited for the closure of more than 50 stores in its global network of outlets (Boone and Kurtz, 2015).

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Although Wal-Mart’s international operations accounted for most of the company’s revenues, its global performance did not match its US success (Boone and Kurtz, 2015). The failure of this retail giant to replicate its domestic performance in some international markets was partly caused by its inability to understand consumer behavior. In most cases where the company registered limited success, it was unable to understand that customers were not only attracted to economic benefits when making their purchase decisions but social gains as well.

Therefore, adaptation to local market dynamics and consumer behavior was the key to success in the retail market sector, as demonstrated by the company’s success in Brazil, Mexico, United Kingdom (UK), and China where it employed this model (Madzharov et al., 2015; Muñoz et al., 2018).

However, some retailers learned from Wal-Mart’s failures and adopted unique strategies that addressed market needs. For example, Bonanno and Busch (2015) said that Tesco managed to gain a significant market share in the US by adopting a different operational strategy from Wal-Mart. Tesco’s strategy differed from Wal-Mart because it created smaller retail stores, which were received well by the customers, as opposed to Wal-Mart’s strategy of grand store operations, which reported unchanged sales numbers (Bonanno and Busch, 2015). This example showed that the homogeneity of strategies in the retail sector failed to support international market success.

Looking into the future, the expansion of e-commerce cannot be ignored (Hracs and Jansson, 2017). This trend explained the success of some online retail giants, such as Amazon and eBay. The e-commerce space showed potential for growth in this regard as shown in the graph below.

Retail e-Commerce Sales Worldwide
Figure 3. Retail e-Commerce Sales Worldwide (Source: Statista, 2018).

According to figure 3 above, the total sales reported in 2017 were $2.3 trillion and in 2021, this figure was expected to increase by more than 100% to $4.8 trillion (Statista, 2018, p. 1). These statistics showed that the future of retail business could have been in the online retail sector (Hracs and Jansson, 2017).

Conclusion

The findings of this paper suggested that the failure of some global retail giants, such as Wal-Mart, in specific foreign markets, could have stemmed from their failure to understand local consumer dynamics. Therefore, while giant retailers strived to achieve global success by implementing proven strategies (homogenization), their understanding of consumer behaviors defined their success. Stated differently, those that had a better grasp of local consumer behavior had a better chance of succeeding compared to their peers who did not understand the needs and behaviors of consumers in host markets.

This finding means that although globalization made it easier for companies to internationalize, consumer behavior did not change as much. Consequently, there was a need to adapt business strategies to new markets, based on varied consumer behaviors. Again, the growing relevance of e-commerce in the global retail sector could not be ignored because there was a growing appetite for such services. As a result, companies that had aspirations to succeed in the global market had to develop a sustainable competitive advantage that transcended their brick-and-mortar, business models.

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