Retailing giants like Wal-Mart, Tesco and Kingfisher are putting China at the centre of their expansion plans. However, the French giant Carrefour has gained the upper hand in China's market in terms of number of stores. Sapna Arora and Stephen Samuels look at how it is embracing the Chinese dragon.

China is today one of the world's largest markets. First quarter trade volume increased more than 23 per cent from a year ago to US$495 billion, with first quarter exports rising 33 per cent to US$155.9 billion and imports growing 12.2 per cent to US$139.3 billion.

Also, China's foreign exchange reserves, the world's biggest after Japan's, reached a record high, climbing 50 per cent at the end of March from the same period last year to US$659.1 billion.

A developing China offers opportunities for the whole world.

Overseas retailers, for example, are allowed to wholly own stores in China for the first time, as the country honours commitments made when it joined the World Trade Organisation three years ago.

Local companies won't suffer from sudden death as competition increases. Foreign and local companies have different competitive advantages and can carve out their own niches.

The inflow of overseas capital will also benefit domestic retailers by bringing modern marketing patterns and advanced management to China.

Retail maturity
China's retail market has begun to reach a much more advanced stage of maturity in recent years in the main urban regions.

The fact that this has been attained so rapidly since the retail industry was opened up in the mid-1980s is testament to the swift development of the national economy and the strong demand amongst consumers for better products sold in more consumer-friendly ways.

The Commerce Ministry has forecast sales will rise this year to more than 5 trillion Yuan.

Retailing giants like Wal-Mart, Carrefour, Tesco and Kingfisher are putting China at the centre of their expansion plans.

Three major international retailers have signed deals to open outlets in Zhengzhou, capital of Henan province. Wal-Mart of the US plans to spend US$65 million on a 'super center,' while Carrefour SA of France and Thailand's Chia Tai will invest US$20 million and US$15 million respectively in new stores.

Other major retailers are expected to follow the push into Henan, which has the largest population (103 million) of any province in the country and which borders the coastal provinces of Anhui, Hebei and Shandong.

French retail giant Carrefour, although second to US firm Wal-Mart in global sales, has gained the upper hand in China's retail market in terms of number of stores.

Carrefour China history
1989 - Established its first store in Asia (Taiwan).
1993 - Carrefour China was set up
1995 - Started operations in China and established first hypermarket in Beijing
1996 - Established supermarket in Shanghai
2000 - Established 27 stores and created the Carrefour China institute in Shanghai
2002-2003 - Established 49 hypermarkets in China. Expansion is halted due to SETC regulations
2003 - Established first DIA stores in Shanghai (July) and Beijing (October)
2004 - Established first Champion hypermarket in Beijing. Beijing now has 7
2004 - Established first foreign store in Urumqi, Xinjiang province
2005 - Has already implemented all three Carrefour Group commercial formats in China: hypermarket Carrefour, supermarket Champion, hard discount store DIA

World-renowned retail giant, Carrefour is investing more in China, with the optimistic view of a better investment environment and the hope of garnering a bigger slice of the huge pie.

Carrefour's expansion plans
Eight of the top 30 retailers in China are foreign-owned, with Carrefour ranking fifth overall.

Though Carrefour Group's Asia operations account only for 11 per cent of its business (over 50 per cent of its business is in Europe), and revenues from China were just 3 per cent of total 2004 Carrefour group profits, China's retail market is one of its top priorities.

Carrefour last year said it would invest €600 million in China to add another 40 stores within 5 years.

It plans to open a third of its new hypermarkets in central and western China, including the cities of Urumqi, Chengdu, Chongqing, Kunming, Xi'an, and Guiyang.

The retailer also intends to open 10 to 12 new outlets in Beijing by 2008.

Since 1995, Carrefour has opened 59 Carrefour supermarkets, 8 champion hypermarkets, and over 150 DIA hard discount stores throughout China.

Shopping for pleasure
As shopping becomes a major pastime in rapidly urbanising China, local retailers are merging and foreign retailers are building more stores and also buying local retailers with extensive branch networks.

All the major retail players are coming into the market with high valuations.

China does not have an easy market. There are a variety of cultures and traditions that set challenges for the retailers to adapt to consumer behaviour. They also have to deal with the strong differences between cities and provinces, and with different institutional levels in the country.

Carrefour's strategy to deal with the variety of cultures and traditions is to create and expand retail stores best suited to the local market, setting up a range of hypermarket, supermarket and hard discount stores.

Before opening a store, in-depth research of store location is conducted, followed by research of the local culture and traditions, and local consumer purchasing habits. The total investment for launching a new store is US$650-140 million, depending on the city and location.

Carrefour China's approach is to pull in Chinese consumers with low prices and large supermarkets.

In order to set up its stores in China, Carrefour has revised its concept to adapt to the local environment. This includes changes in management structure, products carried and even store design. And it has had to study consumer purchasing habits in great detail.

The "Low price and high quality" theme has worked really well for the French giant in China. The secret of Carrefour China's success has been to find the best location and then localise its operations.

Malls and more malls
Everyone is looking to do business in China now. In keeping with the country's WTO commitments, the Ministry of Commerce in December 2004 removed impediments on store location (anywhere), corporate structure (no more joint ventures required) and capital requirements for foreign retail operations (down from RMB10 million to RMB 300,000).

The reforms were especially welcomed by the big offshore retailers anxious to run their own retail shows as wholly foreign owned enterprises - not least because they can shed the dead weight of joint venture partners, raise efficiencies and often cut costs.
China has plenty of flawed and few good malls. Not long ago, shopping in China consisted mostly of lining up to implore surly clerks to accept cash in exchange for ugly merchandise that did not fit. But now the Chinese have started to embrace America's modern 'shop till you drop' ethos and are in the midst of a buy-at-the-mall frenzy.
Already, four shopping malls in China are larger than the Mall of America. Two are bigger than the West Edmonton Mall in Alberta, which just surrendered its status as the world's largest shopping mall to an enormous complex in Beijing. And by 2010, China is expected to be home to at least seven of the world's 10 largest shopping malls.

For the moment, the world's biggest mall is the 6 million square foot Golden Resources Mall, which opened last October in north west Beijing. It has already sparked envy and competitive ambition among the world's big mall builders, who outwardly scoff at the Chinese ascent to 'malldom,' even as they plot their own path to build on such scale in China.

However, a giant new shopping theme park in China is poised to proclaim itself the world's largest shopping mall. The South China Mall - a mix of Disneyland and Las Vegas - will be nearly three times the size of the massive 'Mall of America' in Minnesota, USA.

With Chinese consumers swarming to malls, these monster locations have multiple levels, terminals for bus and train visits and, on a good day, one mall can even pack in 600,000 shoppers.

It seems that the Chinese are now cashing in on the fruits of their labour, buying the Coca Colas, Revlon lipsticks, Kodak cameras and the like that foreign companies have long dreamed they could sell to the Chinese market.

The shopping-mall building spree, like much economic activity in China these days, is so aggressive that some economists and officials have started to worry that it may be another sign of an overheated economy, and that the country's building frenzy may be lurching toward a fall.

Carrefour's success can be attributed to the fact that it has already established a stable consumer group in China comprising mainly medium and low-income urban residents.

Sapna Arora and Stephen Samuels work in the UK office of global apparel supply chain company and have several years of experience in sourcing fabrics and garments from all over the world.