According to the China Chain Store & Franchise Association (CCFA), there
were 18 foreign companies among the country's top 100 retailers in 2005,
compared with just 12 the previous year.
They also raked in exceptional profits. According to the China Retail
Research Centre of Beijing-based Tsinghua University, the average gross profit
margin of foreign retailer stands at 28 per cent, compared with 10 per cent for
their local competitors.
Moreover, foreign retailers established 1,027 enterprises in China last year,
equivalent to the total number in the previous 12 years.
Yet, more are arriving with the lifting of rules restricting foreign chains
to a handful of big cities. Metro will open six to 10 stores annually before
2008; and Wal-Mart plans to build 14 more stores in the second half of this
year.
While consumers happily pay for croissants at Carrefour, order furniture at
IKEA, and purchase boxes of Pepsi at Metro, the multinationals' success has led
to concerns about the threat to the growth of local players.
"One reason behind the rush to expand is to snap up prime commercial
locations, which are a limited resource in any city," said Pei Liang, general
sectary of CCFA.
And in this frenzy, local retailers are at a disadvantage compared with their
foreign competitors, which have much deeper pockets. Industry insiders say it
usually costs more than 100 million yuan (US$12.5 million) to set up a
hypermarket with a business area of 20,000 square metres a significant sum for
local retailers.
To add insult to injury, foreign retailers often enjoy more favourable
treatment with some local government eager to woo foreign investment at any
cost.
"Fortune 500 companies like Wal-Mart can bargain for land from the local
governments at much cheaper prices, sometimes at a discount of 15 million yuan
(US$1.88 million) for 10,000 square metres," an unnamed senior manager from a
foreign retailer is quoted as saying. "And some local governments even earmark
land for top multinational retailers."
In the face of the invasion from foreign players, major domestic retailers
are pulling out the stops to catch up both in size and capacity. Meanwhile,
local governments are also trying to regroup State-owned retailers to form
domestic giants.
In late 2004, the Ministry of Commerce said it would lend support to 20 of
the country's retail businesses as they faced up to prepare for increased
foreign competition.
Shanghai Brilliance (Group) Co, set up in April 2003, was China's first
retail conglomerate created by government-led consolidation. Four big
State-owned retail enterprises Shanghai Yibai (Group) Co, Hualian (Group) Co,
Shanghai Friendship (Group) Co and Shanghai Materials (Group) Co were
incorporated into the retail giant, which became China's largest retailer.
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