Going Global in the Asia-Pacific Region - Is Asia an exception to the rule?
by Adam Horler, Commercial Director, Consumer Products Division, L'Oréal Asia
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In the recent press release accompanying their full year financial results Tesco Chairman, Terry Leahy, announced further expansion in Asia – Japan and China, to add to their presence in Thailand, Korea and Taiwan at the end of this year.

Boots have recently entered the Japanese market, with a significant presence already in Thailand (40 stores) and an entry into Taiwan imminent. Korea and Malaysia have also been mooted.  Carrefour is now present in every major Asian country, having announced their plans for Japan last year (now there in a big way with over 100 full-time employees on the ground in Tokyo, with opening plans not until Q4 this year).

When one considers the issue of retail expansion in Asia, it is wise to pay heed to the latter-day colonialist experiences.

To directly quote Rudyard Kipling:"Asia is not going to be civilised after the methods of the West, For there is too much Asia and She is too old."

This is a warning to both retailers and manufacturers alike to not make the same mistake as those before, and to really understand the Asian business model.

Recent experience in the face of the Asian financial crisis and the ensuing acceleration of retailer entry into the region (facilitated by falling property prices and easy pickings in terms of merger and takeover activity), indicate that Asia will not succumb to the US/European retailer expansion as easily as some may have thought.

Consider the current king of M&A activity in the US, Royal Ahold, and their experiences in Asia.  Expanding from a solid base in Thailand, where they have been present for nearly five years, Ahold expanded aggressively in the region with acquisitions in Malaysia and Singapore, and Joint Ventures in Indonesia and China (Shanghai).  In the space of two years from 1998 to Dec 1999 they increased the number of outlets from 40 to nearly 150 stores, with much publicised ambitions to continue in the same vein over the next few years.

In Dec 1999 Ahold announced that they were selling the China, Indonesia and Singapore operations to concentrate on Malaysia and Thailand.  The reason?  Ahold could not envisage a situation where these ventures would turn a profit in the medium-term.

How could it be that such an experienced global player as Royal Ahold could come so publicly unstuck?  Obviously there are multiple facets to the situation, with no single reason dominating, but major factors in the China and Indonesia cases were that of local retail competition and government regulations.

Prior to the entry of Ahold into Shanghai the local supermarkets were weak and still very much the 2nd choice for the Chinese consumer, who preferred to do her shopping at the wet market every day for the evening meal.

Confident they could change the consumers habits, Ahold entered the market with a local partner to quickly establish 45 Tops supermarkets in prime locations.  The focus was to revolutionise the "fresh" offering in the supermarket environment by simplifying the supply chain, ensuring fresher produce instore than at the wet market.  The process took the best part of 18 months, and Ahold succeeded.

What they probably had not counted on was that the local competition, in the form of 2 supermarket groups (Lian Hua and Hua Lian), watched Tops’ operations and copied it to ensure that their fresh offering was almost as good.

Furthermore they expanded their stores’ base to a situation where between them they controlled nearly 450 stores to Tops’ 45.  All this has been with the help of the local Chinese government freeing up sites for the local players to open new stores on.

This story is an example of how local governments can frustrate the ambitions of retailers in their pursuit of a global model.  This is also the reality of doing business in Asia today.

It is not only Ahold who have had a rough ride in Asia over the last few years, even the mighty behemoth Wal-Mart is finding the going tough.  A failed entry into Indonesia (due to local JV partner issues), slower than expected growth in China and a complicated market entry in Korea is the litany that is Wal-Mart’s Asian expansion programme to date.

So who is winning the retail war?

In the hypermarket channel it is Carrefour.  In the drugstore channel it is Watson’s (part of the Hong Kong conglomerate Hutchison Whampoa).  In the convenience store channel it is Ito-Yokado’s 7-Eleven franchise.

Carrefour Asia: With 10 years experience in the Asian market, Carrefour is by far the elder statesman of the global retailers in Asia.  It is also unique in its geographical spread, present in all major Asian countries except Philippines and Indo-China (due to retail law only).  The Carrefour methodology of operating each individual hypermarket as a profit centre has enabled this wide geographical spread, whilst having as little as 3 or 4 stores in some countries.

Carrefour is having particular success in the huge Chinese market (contrary to Wal-Mart’s teething troubles), with 21 hypermarkets at the end of 1999, and plans for another 10 in 2000.

Perhaps the key to Carrefour’s success has been the adaptation of the fresh area to mimic that of the local countries in terms of display and selection.  This is recognised by the local consumer plus the added benefit of being more hygienic.

Watson’s Personal Care Stores: Probably the most successful Regional player based out of Hong Kong, Watsons drugstore format is successful despite defying every Western retail instinct today.

Walk into a Watsons store on a busy street in Hong Kong or Taiwan, and you feel that the toys that are on top of every gondola or cosmetics unit are just waiting to ambush you – it is chaos.  Just look at the categories they stock: cosmetics, styling, dental, vitamins, sweets, shaving, greeting cards, toys (#1 toy retailer in Asia), CDs, skincare, underwear and so it goes on!  Brand proliferation is the name of the game with a surprise around every corner, from new lipsticks to mini CD players – all this in an average store size of 400 square feet!

The reason they have succeeded is their instinctive understanding of the Asian consumer, who loves a bargain and to discover new things – good value and novelty is the name of the game.

Can Boots compete with this with their clean, somewhat sterile store environment?  Many Asian pundits believe not.  Certainly they are not having an easy ride in Japan, where the concept of new and different and crowded shopping experiences is taken to a new level.  High rents, fierce competition and depressed retail sales are just some factors which suggest that the Boots fight to gain a foothold in the huge Japanese market will be a long and hard one.

However, maybe the fact that they are different will pay off¼ ¼ difference is noticed and appreciated in Asia.

Ito-Yokado 7-Eleven: The bright star in Japanese retailing over the last 5 years, the convenience store format was invented in Japan, where space is at a premium, both in terms of retail space available but also in storage space in the consumers’ homes.  This means that they need a ready supply of the basics to satisfy their everyday needs.

There is not a street corner in Japan where you are more than 400 metres away from a CVS.

Already the CVS format has taken off in Taiwan and Hong Kong, with 7-Eleven leading the way.  Next on the radar is the vast market of China with its tradition of fresh to market, fresh to the table. It is a format with a big future in this crowded continent.

Summary

This is not an epitaph to retail internationalisation in Asia, far from it.  It is certain that the markets here will modernise, skipping development phases as they learn from the mistakes and successes of the West (exactly as it was with the automobile and electronics industries).  The future is rosy indeed for those retailers who can bring modern methods with an Eastern feel to it.

Tesco will do well to heed Carrefour’s successes (Wal-Mart have to adapt or suffer a painful journey).  Boots will do well to heed Watsons understanding of the Asian shopping psyche.

But whatever happens over the next few years, one thing is certain as with everything in this melting pot of civilisation – it will be quick, energetic, exciting and, above all, ASIAN.

by Adam Horler, Commercial Director, Consumer Products Division, L’Oréal Asia.

Date article published: 01/02/2000

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