West Moves in, China Wins

Western big-box stores view Chinese markets as a way to expand their global reach.
West Moves in, China Wins

But their presence also improves business for Chinese exporters, say Keith Head of the Sauder School of Business at the University of British Columbia in Canada; Ran Jing of the University of International Business and Economics in Beijing, China; and Deborah L. Swenson of the department of economics at the University of California, Davis, in the U.S.

Head, Jing, and Swenson looked at data from 1997-2005 pertaining to exports from 35 Chinese cities to 50 countries. They also collected annual financial reports from major retailers Walmart, Carrefour, Tesco, and Metro, which all entered the Chinese market in 1995. The researchers noted the location and opening date of these retailers’ Chinese stores.

Chinese city increased by an average 2.55 percent when its number of foreign retail stores increased by 10 percent over the previous three years.

Because the Chinese government required foreign retailers to carry Chinese goods in their Chinese stores, those retailers pushed manufacturers to improve productivity, efficiency, and product quality. The retailers also test marketed Chinese products, which gave local manufacturers information on how to make those products more appealing to global markets.

“Exposure to multinationals provides local Chinese manufacturers with significant insight into what it takes to become suppliers in the global retail environment,” says Head. “Ultimately, it’s like a boot camp that pumps out more effective exporting machines.” He and his co-authors note that policymakers in emerging markets should take note of the Chinese experience as they work to boost the global competitiveness of their own local manufacturers.

The paper “From Beijing to Bentonville: Do multinational retailers link markets?” appears in the September 2014 issue of the Journal of Development Economics.