Transnational corporations make a great contribution to globalization issues and development of the global industry structure. TNCs change the world brining information technologies and methods of buying to development countries. They support information and goods exchange and promote new life styles nad new values. TNCs are associated with concentration, use their greater power to lower wages, have better technology, and manipulate transfer prices to avoid taxes. Their production has a higher-than-average imported content; in addition, its utilization of factors of production does not respond well to the host country’s profile because the technology is imported (Waldman 2000), The industry selected for analysis is relating. The aim of the report is to analyze the role of TNCs in retail industry and single out the ways in which TNCs have contributed to the globalization of retail industry.
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Retain industry Overview
Trade in retailing services and techniques is becoming internationalized almost the same way as trade in manufactured products first experienced internationalization in the early decades of this century. Retailing ideas have flown from one country to another using different channels — geographical diversification of retail chains, foreign acquisitions, joint ventures, management contracts, licensing, and franchising (Timmons and Hite 2007). The new wave of competition will focus on information. The United States has embarked on a new wave of communications technology, interactive multimedia. Europe is far behind in this technology. Only a few companies such as Philips Electronics of the Netherlands and British Telecommunications are investing large amounts of money in this technology which can link televisions, computers and telephones. European research mainly is conducted in state-subsidized programs, focusing on long-term applications rather than immediate consumer products (Bennett, 1999). The same situation occurred with the introduction of personal computers. The result is that European producers are the technological laggards, left with finding low cost alternatives to the market leaders (Cantwell and Molero, 2003).
Changes in the Industry and TNCs
TNCs bring novelty and allow national retail companies to enter large markets such as Russia and China, Japan and Middle East countries. The complexion of international retailing has changed dramatically in the past few years, evidenced by a phenomenal exchange of retailing ideas and adoption of new retailing formats. Retail institutions incorporating new concepts tend to appear in a country in response to competitive pressures (Casson, 2000). They also emerge to take advantage of a new or hitherto unnoticed market opportunity. Theories like the Wheel of Retailing, the Retail Accordion, and the retail life cycle were formulated to explain the growth and development of new retail institutions. “The TNCs are, in fact, responsible for all FDI and the related profits originating from them. They are also responsible for a large share of portfolio investment and for most of world trade. The TNCs contribute also to movements of highly skilled labour, some of which take place within the company itself:” (Ietto-Gillies 2002, p. 11).
A large number of firms today are involved in international retail operations all over the world, in the United States, Europe, Japan, Australia, and South Africa. Some are directly involved through joint ventures, acquisitions, and horizontal expansion in other countries. Others are not as directly involved because of the lack of resources or lack of a global orientation. They export their merchandise by selling to cross-border customers or enter into franchise agreements with overseas parties contracting out their retailing “formula” for a fee (Casson, 1983). There are still others who refrain from any such involvement with actual retail operations. They prefer to act as a hands-off investor in an ongoing overseas enterprise. Retailing has long been regarded as an essential service function in a community around a given location. Unlike farm produce or manufactured goods, it was rarely perceived as an exportable item. However, when a retain operation is franchised by an overseas retailer or when a retailer enters into a management contract with a foreign retailer, it does amount to an export of retailing services (Fatemi, 1989).
Retail Industry and Globalization
A successful retailer in its home country may have unique concepts of business and product innovation and a distinctive merchandise-mix. It may also have a cost advantage emanating from vertically integrated facilities of food processing and packaging (Bhagwati, 2004). These “ownership-specific” advantages may motivate the retailer to diversify geographically and exploit new market opportunity. It may not want to license or franchise the know-how or innovative concepts due to risks inherent in these alternatives of imitation and dissipation of business secret. “Globalization and international integration are usually considered to be part of the same process and this is how they will be seen: the globalization process leads to a high degree of interconnectedness of economies and societies. Integration has both de facto and de jure connotations.” (Ietto-Gillies 2002, p. 4). The retailer may prefer to internalize by acquiring existing operations or establishing new stores of its own in a foreign country where it may find some “location-specific advantages,” those of cultural proximity, added growth prospects, and better preparedness for unforeseeable environmental developments. Being present in a host country enables a retailer to maximize profits, realizing the full value of innovation and reducing the chances of exploitation by an overseas partner who could be a licensee, franchisee, or overseas party to a management contract. In many Western nations the retailing industry has been experiencing a significant level of internationalization (Hood and Young, 2000).
The prospects of Europe and the economic liberalization of many East European countries have encouraged many U.S. and West European retailers to position themselves at critical locations within Europe. The term “internationalization” has been used here to imply cross-border expansion of retail operations through the establishment of new outlets or the acquisition of preexisting foreign retail businesses. It also includes agreements of collaboration between international retailers leading to the transfer of retailing know-how or the pooling of resources for common buying. Cases of minority ownership of retail business in which foreign investors may have little managerial involvement have also been considered as an aspect of internationalization and are therefore covered in this discussion (Kacker 1985).
Globalization of the Retail Industry
At the end of 1990s, the globalization of retail industry was achieved ith the help of foreign direct investments and TNCs entering the foreign countries. Although the international involvement of European retailers started many years ago in Latin America, Africa, and the Far East, where Britain, France, Germany, and Holland had set up their colonial empires, the trend became particularly pronounced in the decades of the 1960s and 1970s, when a number of European firms started making investments in the retailing industry in other countries within Europe and North America. During this decade, it may be noted, sources of direct investment became more diversified and less dominated by U.S. corporations, leading to a two-way flow between developed nations. International retailers implementing this approach believe in using a standard package of market offering in all overseas markets. They would sell precisely the same merchandise-mix, recreate as far as possible the same store ambience, and communicate with their customers using similar media vehicles regardless of country location (Maddison, 2001). When a business concept is spelled out in such specific terms, crosscultural disparities get pushed in the background. The international retailer strives for homogeneity in global markets irrespective of geographical location. This requires a vertically integrated system of operation with sufficient control on manufacturing, design, promotion, and physical distribution. It also becomes important to establish warehousing facilities at critical locations in the global market (Greenaway, 1988).
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Not all international retailers have the recourses to implement the standard formula approach. There are many who decide to move overseas with a set of distinct market offerings in different parts of the world compromising with local needs. At stake for these retailers is not so much the building of an undisputed global image as an opportunity to penetrate new markets and enhance overall financial performance. With this objective in view, a retailer may decide to go for a strategy of adaptation.. Some retailers had no doubt failed to implement this strategy effectively. They suffered when they tried to apply retailing concepts they had used in home markets without ensuring their compatibility with the host country environment. This approach may be adopted when a foreign enterprise seems to be managerially sound but is desperately in need of hard cash to implement its short-term and long-term plans. The silent investor is satisfied with the location of the foreign retailer and with the economic and political environment in the country where it is located (Pitelis, and Sugden 1991). Many firms engaged in food retailing in the Sun Belt states of the United States met these criteria and became the targets of acquisition by European investors during the late 1970s and early 1980s. International involvement may also take the form of limited participation, minority shareholding, joint ventures, management contracts, and other types of networking. Such collaborations may seek to take advantage of foreign retailing know-how in diverse areas: buying, merchandising, catalog production, store display, selection of personnel, quality testing, and the like. A retailer may thus be able to internationalize its operations without having to acquire ownership in foreign countries (Tavares and Teixeira, 2006).
Printemp’s joint venture with Daiei allowed the Japanese retailer to use Printemp’s trademarks, merchandise supply, decoration, and training know-how. Similarly, Habitat Mothercare entered into an agreement with Seibu Department Stores in 1982. Under the agreement, Seibu could open Habitat shops in Japan. Promodès, a leading French retail group, has established ties with local investors in Italy and Portugal to develop hypermarkets (Waldman 2000). Marks & Spencer (United Kingdom) entered into a joint venture with Cortefiel of Spain to acquire and develop the Celso Garcia department store in Madrid. International involvements such as these have indeed been very helpful in improving the quality of retailing in Europe and other regions. As seen above, all types of involvement resulted in the flow of retailing know-how and benefited the host country in several ways (Waldman, 2000).
The Single Europe, with the elimination of hundreds of cross-border regulations and restrictions, has turned out to be a highly fertile region for business expansion by European retailers. TNCs promotes cross border shopping. The incidence of cross-border shopping has increased, although this phenomenon has existed in Europe for a long time because of cross-border price variations. According to a recent study by Nielsen, forty-five Eurobrands were found to be widely on sale in identical format in at least four of the largest countries in Europe. The Eurobrands are particularly common in personal care products, snacks, and alcoholic drinks, and to a lesser extent in packaged food items (Teichova et al 1989). Multinationals such as Colgate, Gillette, Unilever, L’Oreal, Kelloggs’s, and Heinz have made important headway in standardizing their products and package sizes across borders. Manufacturer brands such as Sara Lee, Pampers, and Head & Shoulders and retailers’ private brands such as Gap and Toys R Us have also acquired a Eurobrand status. Campbell Biscuits, the cookie subsidiary of Campbell Soup Company, has standardized packaging graphics for more than fifty products and used a standardized advertising campaign throughout Europe (Waldman 2000). According to a recent survey, 81% of respondents said that they were moving toward brand standardization, with only 18% indicating that they were localizing brands It should now be feasible for U. S. retailers operating in Europe to carve their niches in different West European countries and reach their customers with a standard or minimally adapted marketing-mix. Retailers’ private brands already strong in some countries in the United Kingdom and France will gain new grounds within a Single Europe and offer opportunity to those retailers who have not yet fully capitalized on the power of their own brand names. The liberation and democratization of the political system in many East European countries have proved to be a boon to dynamic retail companies from France, Germany, Belgium, Sweden, and Italy. Most East European countries have yet to create adequate infrastructure support for modern retailing to take root in the new environment. There is little doubt that Western retailers will have unlimited opportunities to expand in this region through joint ventures, licensing, and limited-term management contracts. Eastern Europe, in spite of its initial problems, will offer a great growth opportunity to West European retailers for many years to come (King, 1990).
Manufacturers are expected to follow with their own, more differentiated product lines, but these manufacturers suffer by distance from the ultimate consumer. A similar change is occurring in Europe. Retail companies are claiming channel captain status, and are embarking on their own private sourcing campaign. The European retailing industry as a whole has several characteristics that make it different from U.S. retailing. The most notable is the degree of government intervention in retail operations. Mom and Pop stores are suffering throughout Europe. Consumers in Europe pay for their merchandise with cash, credit cards, or debit cards, and rarely use personal checks (Cantwell and Molero, 2003).
TNCs in retail industry support integration processes and globalization of the retail business. They bring new technologies and labor to foreign countries and promote new life styles. These changes in lifestyle have resulted in more consumers facing constraints of time and energy. It is most likely that retailing in the European countries will become more responsive to these changes in consumer needs. This would include increasing shopping hours and providing more convenient locations for large-scale retailers. Many European companies have moved to the United States because their expansion in the home market has been blocked. Most European countries restrict the hours of operation for retailers.
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