China's retail revolution benefits all
Updated: 2012-02-17 11:03
By Robert A. Rogowsky (China Daily European Weekly)
China has a long history of revolutions. The economic transformation over the past 30 years is certainly revolutionary. China is in the middle of a consumer revolution based on expanding affluent groups. A corollary to this is a revolution in retailing.
China's retail consumption is growing consistently. More and more, consumers are "trading up" and targeting favored brands, including internationally recognized brands. More sophisticated consumers want higher quality, more safety and more healthy goods.
For the past two decades a global retailing revolution has transformed the retail and distribution sector in many developing countries. This revolution follows the earlier transformations seen in the United States in large part defined by and driven by the so-called "Walmart effect" - the economic impact of large, modern retail and distribution corporations.
The growth of a technically sophisticated, highly competitive retail and distribution sector in the US over the past 50 years was the largest single contributor to the strong productivity growth there. The combination of economies of scale, modern information and telecommunications technology, and rigorously applied modern business practices, all in pursuit of greater efficiency and consumer satisfaction, has made modern retailing a powerful engine for competitiveness and economic growth in the US as well as in many other countries.
Modern, sophisticated retail has for the past 15 years been growing in China as well. China has the world's fastest-growing retail market; it has been growing by 18 percent a year. The retail and distribution system has to grow and improve to satisfy booming demand. Walmart, as just one example, has more than 350 stores in 130 Chinese cities, selling about $7.5 billion (5.7 billion euros).
Walmart is one of many large modern retailers in China; others come from France, the Netherlands and Japan, among others. As well, many modern Chinese operations are excelling in China.
The implications of this retail revolution are profound. Efficient retailing might be considered one of the most significant contributors to economic growth. Modern retailing in Mexico has not only dramatically increased the variety and quality of goods available, but has also contributed significantly to the manufacturing sector there. Mexican producers can now sell into the global retailing distribution system as easily as they sell into a local market, even more easily.
The same is true for Chinese producers, especially food growers and food processors. The advantages come from larger markets permitting economies of scale, more rapid diffusion of technologies, and help from global retailers in meeting the health and safety standards required in international markets. Carrefour turned a local market for Indonesian black melons into a worldwide market. The more capable local producers became very profitable suppliers to the world.
Large retailers have a compelling incentive to provide safe products. One bad incident in one product in one store can injure the reputation of the entire operation and all the products that it sells. As a result, the incentive to ensure safety of all products in all stores is paramount. And large retailers have the financial strength to do it. Certainly it is a great benefit to consumers, and retailers and their suppliers must become more responsive to this requirement.
In addition, as the Chinese government tries to regulate both for health and safety, modern retailing operations provide a more efficient vehicle for enforcing safety standards.
It is easy to find incidents of people being injured by products or by unhealthy foods in any country. The Chinese press frequently reports such incidents, often occurring in restaurants, shops, hotels, banquet halls, wet markets and even schools. Typically, news reports track these problems to manufacturers and suppliers. The public policy question is how to minimize such incidents.
A safe marketplace requires a combination of good laws, good enforcement and business structures with an incentive to provide healthy and safe products. Economic theory and empirical evidence tell us that large modern retailing operations are more able and more likely to provide safe and healthy products. The cost to them of losing their reputation is greater than any short-term benefit gained by allowing bad products to be sold in their stores.
The added value for consumers is that these large stores typically provide better prices, more variety, better opportunities for local manufacturing and agriculture, a more sophisticated employment system, as well as business structures more amenable to effective enforcement of government regulations.
The author is professor of trade and development at the Monterey Institute for International Studies and adjunct professor, Georgetown University. The views do not necessarily reflect those of China Daily.