THOUGHT LEADERSHIP

 

Sharing the Pie? Maybe not in China

Mar 20, 2012

A lot of foreign giant transnational retailers want to create a China story. To go localize, to expand quickly and to gain high margin are their goals in China. In order to do so, some retailers expanded in China with decentralized ownership, for example franchise model or brand reducing their ownership. Are these the best models to enter and expand China for these giant transnational retailers? Has the decentralized model hurt their brand equity?  

In the previous week, two foreign giant retailers Carrefour and McDonald’s were both reported with food quality problems - selling expired food, mislabeling and poor food handlings. Carrefour had to temporarily close down the shop in Henan province. This was not the first time these transnational retailers got reported with problems, especially on food quality or mislabeling.

Let us dig deeper into the two retailers’ ownership models. Carrefour has a foreign management but decentralized authorities; McDonald’s is increasing its franchise shops in China and Sanlitun Village is one of their mega franchise store. What does this tell you? In China, there seems to have a limit that foreign giant retailers can go with decentralized ownership before issues get out of hand.

Successful brands like KFC, Starbucks entered China and stayed pretty centralized with their ownership. One can argue KFC and Starbucks cannot claim to take full ownership but Yum! Brands keeps KFC China franchise stores under 5% of their total number of KFC stores in China. Starbucks has full ownership over half of their retail stores in China.

There is no one right formula to expand in China but seems like to ensure quality assurance across the supply chain and not hurting brand equity, taking full or near to full ownership is the right way to go.

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