Did you know that the retailing industry accounted for approximately 15% of India’s GDP or US$ 450 billion in 2007? [1] These are rather impressive numbers. No wonder the likes of Wal-Mart, Tesco and Carrefour are aggressively trying to enter this market.

[1] “The Bird of Gold – The Rise of India’s Consumer Market” McKinsey and Company. May 2007.

by Sameer Mathur and Cara Martow

With developed markets like the United States having stagnated, emerging markets like China are the next bastion for growth. When successful global retailers enter these budding markets, they do not simply replicate their existing North American market strategies. For example, Wal-Mart and Best Buy have used strategies such as acquisition, adaption to local taste, and sales force management in order to gain market share in China.

Acquisition involves purchasing an existing company in order to profit from their current customer base. Adaptation involves altering their business style or merchandise to match the diverse demographics and consumer preferences found in each particular country.  Lastly, by choosing a particular sales force they can successfully link the upper management and the customers themselves.

1) Wal-Mart

Wal-Mart has taken many steps to adapt and succeed in the Chinese market. Wal-Mart entered China in 1996, and now operates over 333 retail units. While in absolute terms Wal-Mart has a smaller market share in this emerging market, it is showing more potential for growth and expansion. In 2010 Wal-Mart US’s share in grocery retailing grew by 2% in comparison to China’s 9%.

Some of Wal-Mart’s strategies include:

Acquisition: In it’s quest to gain market share, Wal-Mart purchased the Chinese supermarket “Trust-Mart” in the 2011 fiscal year.  Trust-Mart is specifically catered to better serve smaller Chinese towns. It is essentially a “discount compact hypermarket” that uses a small store format as opposed to Wal-Mart’s traditional large retail units.

Adaptation: Wal-Mart changed their merchandise to appeal to Chinese tastes, including items such as chicken feet and pork ribs to their menu. In addition, due to the poor transportation system and certain government regulations, Wal-Mart decided to source locally. Wal-Mart also has been focusing on China’s smaller cities such as Maoming and Loudi because bigger cities such as Shangai, Beijing and Shenzhen have more competition and higher real estate prices. The “small” cities are not in fact so small when considering China’s huge population of 1,331,460,000.

Sales Force Management: Wal-Mart made a point to have 99.9% of China’s associates and all store managers Chinese Nationals.

2) Best Buy

Best Buy has been operating in China since 2006, and now has about 160 stores. In the US, with each new store, Best-Buy is experiencing diminishing marginal returns as they now have over 1,100 stores spread across the country. Best Buy Asia President Kal Patel hopes to have Best Buy China division’s contribution to be 50% of their operating profit in the next 10 years.

As mentioned above, Best Buy recognized the need to adapt to this new emerging market and did so in the following way:

Acquisition: Best Buy paid $180 million for “Five Star Appliance Co.”, an established Chinese electronic retailer. In 2011, Best Buy decided to close it’s remaining stores that operate under the “Best Buy” brand, and expand its operations under “Five Star”. Best Buy’s “Five Star Appliance” competes directly with the Chinese brands Gome Electrical Appliances Holding Ltd  and Suning Appliance Co.

Adaptation: Best Buy noticed the Chinese focus on finding “the lowest price possible” as opposed to having knowledgeable unbiased experts ‘telling’ consumers what to buy. As such, Best Buy adjusted their business style to cater to the extremely price conscious Chinese consumer. Just like Wal-Mart, Best Buy also is moving away from the wealthy first-tier cities. They are expanding into inland China to capture the lucrative markets opportunities in these more remote areas.

Sales Force Management: Best Buy China allows all manufacturers to have a concession in the store to manage themselves. Although some of the employees may be biased, this will help ensure that the prices are low. Best Buy decided to keep a proportion of their employees on non-commissioned salaries, and this differentiate’s Best Buy from the competing Chinese brands.

It is clear that retailers need to increasingly rely on foreign, emerging markets, in its quest for sustained growth and shareholder value. To do this, they must come up with new strategies in order to succeed. Wal-Mart and Best Buy are two current examples of large global retailers adjusting their business style in order to gain market share in foreign economies.

According to an article in the Economist, nearly 2 billion middle-class Asians live on $2 – $20 per day at 2005 $ purchasing power parity.