Strategy and Opportunism in European Retail Internationalization

Introduction

Retailing across national boundaries is a long-established activity in Europe. The retailers at themedieval fairs and markets travelled Europe. TheItalian merchants of the seventeenth century andthe owners of the nineteenth-century departmentstores in Paris, London, Berlin, St Petersburg and other major cities sourced their products bysending buyers around the world. Retailers alsohave a long history of establishing branch outletsin other countries. Fletcher (1998; Godley andFletcher, 2000) identified 23 retail firms from out-side the UK that opened stores in UK between1850 and 1900. In some cases they developed sub-stantial chains; the largest had 400 shops by 1900.

International sourcing and international operationsare not new features of retailing.

Similarly, attempts to control these inter-national retailers are not new. The decision of thecompetition authorities of the European Commis-sion in 1999 to place conditions on the acquisitionof Meinl in Austria by Rewe of Germany (Euro-pean Commission, 1999) and policy debates inPoland through 1999 and 2000 over limiting foreigndirect investment in retailing are modern ex-amples of a long tradition of attempts to controlthe activity of ‘foreign’ retailers within Europe.On 15 April in the fourth year of the reign of KingJames the First of England there was proclaimed, ‘An act against forreyners retayling merchandizes,keeping shoppes and using handycraft trades with-in London’. Protecting the home market fromforeign retailers is a long-established governmentpolicy. From the best and worst of intentions of public-policy agents and governments, inter-national retailers have always come under veryclose scrutiny.

British Journal of Management, Vol. 12, 253–266 (2001)

© 2001 British Academy of Management

Strategy and Opportunism in EuropeanRetail Internationalization1

John DawsonUniversity of Edinburgh Management School, University of Edinburgh, Edinburgh EH8 9JY, UK

email: [email protected]

Europe in recent years has witnessed an increase in the amount of cross-border oper-ations by retailers. The retail sector has undergone substantial structural change charac-terized by the emergence of a group of rapidly-growing large retailers, a redefinition of the balance of internalized and externalized functions and a need to respond to thecultural variety present in Europe that becomes evident as retailers move out of theirdomestic markets. The over-arching requirement for these large retailers is to grow andgain scale economies. Internationalization of operations has become a requirement forthese large firms. It is argued that the established academic conceptualizations of inter-nationalization are unsatisfactory in not addressing this overriding requirement forgrowth. There is great variety in the international activity in retailing, with the absenceof pattern being one of the few generalities. It is proposed that consideration of oppor-tunism may be a better way to gain understanding of retailer activity than trying to fitactivity into deterministic strategic models. The experiences of five West Europeanretailers entering and building retail networks in Poland is provided as evidence for thisview. Suggestions are made for future work exploring this issue of opportunism as aprocess in international retailing.

1 Substantial work on this paper was undertaken whenthe author was Visiting Professor at European Univer-sity Institute under the EUSSIRF programme and aVisiting Professor at ESADE Barcelona. Their supportis gratefully acknowledged.

Despite the long history, it is in relatively recenttimes that the European retail sector has seensubstantial expansion of international operations.The evolution of retailing in post-war Europe canbe seen as passing through a number of phaseswith internationalization a feature of the mostrecent phase.

The emphasis for two decades after 1945 wason reconstruction of the store network, recon-stitution of the retail sector and the massificationof consumption. City centres were rebuilt andnew stores constructed. Housing estates and new towns provided locations for stores using thethen-new concept of supermarketing. Massificationof consumption, first of food and later in the non-food area, was associated with the enlargement of the networks of chain stores. Most, but not all,of the associated development of retail operationswas constrained in national boundaries. An ex-ception was the considerable expansion of C&Aduring this period. There were also significantinnovations brought into Europe from NorthAmerica. The development by GEM of USA oftwo large self-service general merchandise storesin UK was the precursor of the development ofsuperstores in the UK, taken forward initially byASDA. European managers who participated in the NCR seminars in the 1950s and 1960sbrought back ideas that resulted in GIB creatingthe first European hypermarket in Belgium,closely followed by Carrefour’s development in France. Whilst operations generally remaineddomestic, there was, at this stage, a steady expan-sion of foreign-sourced products and managerialideas.

The meaningful moves towards a commonmarket across Europe represent a second phase,and mark a period from the early 1970s to themid-1980s in which several retailers explored,some robustly and others more tentatively, inter-national expansion of operations. Many of themoves by British retailers resulted in failure, forexample Dixons’ move to The Netherlands, Tesco’smove to Ireland, and Mothercare’s expansioninto France and Germany. The activities of otherswere more successful. For example the expansionof IKEA, Aldi, Hennes and Mauritz and theBenettonizing of many European cities took placeat this time. This second phase is marked byconsiderable volatility in consumer economicconditions across Europe and so relatively highrisks for the internationalizing firms.

From the mid-1980s we see a third phase ofdevelopment of the European retail market. Thisis characterized by a stronger steady growth inconsumer affluence but with little real growth inretail-sales volume at the European level. Furtherfeatures are the widespread adoption of commer-cial innovations in information and communicationtechnology, the opening of Central Europe andthe eventual implementation of the Single Euro-pean Market. This is also the phase when we seea mushrooming of international activity byretailers – in their operations, in their sourcing, intheir financial structuring and in the flows ofmanagerial ideas (Burt, 1991; Pellegrini, 1992).

The remainder of this paper concentrates onactivity in this third, current phase of develop-ment, and is only concerned with the aspect of theinternational operation of shops. The argumentput forward is that this third phase, from the mid-to-late-1980s to the present, has been a period of considerable structural change in Europeanretailing. The increase in international activity isone aspect of this structural adjustment. Thestructural change has as its main characteristic the pursuit of organizational scale economies byretailers in response to the generally low growthin real retail-sales volumes. The turbulent natureof changes in the operational environment, interms of politics, society and to a lesser extenteconomy, has generated in retailers a very oppor-tunistic reaction to the need to grow. The result is that the international activity, as shown bymode of entry, choice of country and speed ofdevelopment, results as much from opportunismas from planned and executed strategies. Fur-thermore, the deterministic theories of inter-nationalization within managerial economics andinternational business are not good at explainingretail internationalization as it is now occurring.

The paper comprises five parts. First, there isbrief consideration of the nature of the recentstructural changes and their links to the changesin the operational environment. Second, there isconsideration of some of the previously-postulatedreasons and strategies underpinning internationalexpansion. Third, the nature of retailer activity inbuilding up international networks of stores isconsidered. The fourth part of the paper exploressome examples of international developmentfrom Poland and the balance amongst serendipity,opportunism and planned strategy in the growthof retail companies. Poland is selected as illustrative

254 J. Dawson

of the argument because of the large amount ofmarket entry by foreign retailers usually con-sidered as operating strategically, and the varietyof strategic entry and growth mechanisms poten-tially available in a newly-opened market. Ifstrategic activity in international retailing occursit should be evident in Poland post-1989. Finallythere are some suggestions for future work.

Recent structural changes in Europeanretailing

The increase in international activity of Europeanretailers and the expansion in Europe of non-European retailers is one of several structuralchanges that have taken place since the late 1980s. In this period the large firms have grown at a substantially faster rate than the sector as a whole. Table 1 shows the 13 European retailerswith sales of over $20 billion in 1998. Across theworld there were a further 13, 11 of which arebased in the USA and two in Japan (Dawson,2000). As at 2000, 1998 is the latest year for whichsound comparative figures can be calculated.2

These large retailers operate in several nationalmarkets within and outwith Europe, havinggained their size and coverage through a varietyof expansionist processes.

At the other end of the size spectrum there is a substantial reduction in the number of smallfirms. With over 3 m retail enterprises in WesternEurope and a further 1.5 m in Central Europe,however, there is still no shortage of small retailfirms (EUROSTAT, 1998a, 1998b). The diversitywithin Europe is considerable. Within WesternEurope the range in network density is from 17.4 firms per 1000 population in Greece to 3.4 inUK, whilst in Central Europe the range is from26.0 in Hungary to 1.7 in Latvia. There is nosimple explanation for this diversity. It resultsfrom differences in history, politics and culture ona regional as well as a national basis.

The growth in sales by very large firms and thedecline of small firms are suggestive of consider-ably increased concentration in the Europeanmarket, but it must be remembered that some

Strategy and Opportunism in European Retail Internationalization 255

2 The reasons for this lag in obtaining sound com-parative data are the different year-ends of firms andthe variety of organizational forms, including privatecompanies, public companies and retailer cooperatives.Changes since 1998 serve to add emphasis to the

continued growth of these very large firms. The mergerof Carrefour and Promodès announced in 1999 will notshow in the consolidated financial figures until the endof the financial year 2000 but will have taken world-wide sales above those of Metro. Market capitalizationof Carrefour has doubled between calendar year-end1998 and 2000. The substantial acquisitions of Aholdhave increased its sales to over $50 billion during thecalendar year 2000.

Table 1. Change in sales, market value and operations of large European-based retail firms

Sales (US$m) Year-end market value Number of shops Number of (US$m) countries

1990 1998 % change 1991 1998 % change 1990 1998 1998

Metro 18 810 54 700 191 26 633 2085 20ITM Entreprises* 16 030 40 860 155 N/A N/A N/A 2320 3148 6Ahold 9305 38 930 318 21 153 789 3927 17Carrefour 13 675 37 797 171 4074 29 150 616 369 1661 20Rewe* 16 810 33 823 101 N/A N/A N/A 7800 11 509 9Tengelmann* 18 600 32 090 73 N/A N/A N/A 5022 7853 11Edeka 13 920 31 020 123 N/A N/A N/A 11 598 11 746 2Aldi* 14 750 30 440 106 N/A N/A N/A 2600 4020 9Tesco 9720 28 380 192 8597 19 103 122 384 821 8Sainsbury* 12 005 26 850 124 9183 14 790 61 439 823 2Auchan 11 925 26 325 121 N/A N/A N/A 269 1527 11Centres Leclerc 14 940 25 790 73 N/A N/A N/A 576 823 4Promodès 10 560 22 890 117 1105 13 770 1146 2738 4711 12

Currency conversions of sales are at financial year end. Conversion of market value is at calendar year end. * Tax included.N/A not applicable.Sources: Annual reports of companies specialist trade press stockbroker reports.

growth in the large firms is accounted for byactivity outside Europe. None the less, a processof market concentration is accompanying thechange in the population of firms. M+M Eurodata(1999) calculate for Western Europe that the topten retailers in 1997 accounted for 36.2% of food and grocery sales. This had increased from 27.8%in 1992 when the single market came into effect.Dobson Consulting (1999) suggest somewhatlower figures of 24.5% in 1993 and 27.4% in 1996,but these still show a very substantial increaseover the middle years of the decade. A number ofacquisitions and mergers, completed since 1997,of which the merger of Carrefour and Promodèsis the largest but the quantity undertaken by Aholdmay be more significant, result in this figureincreasing steadily. The resulting issues of verticaland horizontal restraints in the European marketis giving rise to considerable debate in policyagencies (Dobson and Waterson, 1999).

A second notable feature of structural change,relevant to the argument in this paper, is thechange in the balance between externalizationand internalization of a variety of functions under-taken by retailers. For example, logistics is in-creasingly externalized whilst product developmentis internalized. But, these are not the onlyfunctions on which the make-or-buy decision isbeing re-evaluated. In logistics, the operation byspecialist firms of regional distribution centres oneither an exclusive use or shared-use basis haschanged the ownership pattern of assets in thesupply chain. The introduction of vendor-managedinventory procedures is having a comparableeffect on inventory ownership in the supply chain.

The internalization of product development is associated with the increase in retail-brandproduct throughout retailing. The increase inretail-brand market shares is generally associatedwith the food and grocery sector but is not ex-clusive to it. Across Europe, A. C. Nielsen (1998)figures show an increase, through the 1990s, inpenetration by retail brands in all the 40 groceryproduct categories they monitor. Retail brandsare also of growing importance in the non-foodsector. Several major retailers already are 100%retail-brand stockists, for example Marks &Spencer, Body Shop, Benetton and IKEA. Majorretailers in many sectors, C&A in clothing,Practiker in DIY, Boots in household hardgoodsand para-pharmaceuticals, and El Corte Inglés in department stores have large ranges of retail

brand items accounting for substantial marketshares. Decathlon, the largest sports goodsretailer in Europe (Sales euro 1.8 billion in 1998)3

and part of the Auchan group, has approximately50% of sales through retail-brand items. Thedevelopment of ranges of retail-brand productsusually involves the retailer in the product-development process, including design and qualitymanagement in production, so internalizing somefunctions previously undertaken outside thefirm. Again, however, the changes in the form of relationships between retailer and supplier meanthat although the control on product design, speci-fication and quality monitoring often remainsinternal to the retailer, the investment in produc-tion is externalized. The increasing size of largefirms through internationalization provides scaleeconomies in this retail-brand developmentprocess.

A third feature relating the operational environ-ment to current structural change is the con-tinuing variety in consumer demand, competitiveprocesses, organizational conduct and firm per-formance apparent in Europe. This diversity per-sists despite trends to convergence in economicand monetary policies. Geographical, historical,political and contemporary cultural issues under-pin the variety in consumer demand and behav-iour. Convergence of consumption patterns andof retail processes is in counterpoint to equally-strong divergent processes in consumption.Whilst there are some aspects of convergence inconsumption, for example in areas of fashion and youth culture particularly, there is increasingdiversity in the consumption of food and house-hold goods (Wierenga, Pruyn and Waarts, 1996).In foods, vegetarian items, organic products, ethnicfoods, food boutiques and so on create greatervariety in consumption and provision, and occur

256 J. Dawson

3 Sales are denominated in several currencies. Con-versions to either euros or US$ are made when usefulconversions can be made. In other cases the changes in exchange rates, notably devaluation of Pzl, over the period of study would give a false impression ofamounts if conversions were made. The Pzl rate againstthe US$ is shown below:

Pzl to the US$1989 1990 1991 1992 1993 1994 19950.145 0.950 1.058 1.363 1.815 2.273 2.424

Rates on 30 September 1999 were: 1 euro = $US 1.05 =DM 1.96 = Plz 4.35 = Es 200.5.

to different degrees in the various parts of Europe(Coopers & Lybrand, 1996; Deloitte & Touche,1998). The relative roles of price, quality and con-venience show marked differences across Europewith price, for example, being a more dominantcompetitive tool in Spain than in other westernEuropean countries. Historical considerationscontinue to be seen in the relative positions ofdifferent forms of trading so that stall markets arestill widespread and important in Spain and Italy,have become minor aspects of provision in north-ern Europe and have expanded considerably in Central Europe. The differences in companyfinancial structure also are still apparent with, for example, private companies more common inGermany, with loan capital being raised throughbanks. This contrasts with the UK where publiclistings are more usual. The opening of CentralEurope after 1989 has added yet more variety tothe already diverse retail patterns. This diversityprovides the opportunity for highly conflictingtrends to be apparent simultaneously in differentparts of Europe. Such turbulence encouragesmanagerial opportunism.

These, and other aspects of structural changehave been considered in more detail elsewhere(Costa et al., 1997; Dawson, 1995, 1999; Dawsonand Burt, 1998). Three are highlighted herebecause they are of particular relevance to theinternational activity of retailers. The intensityand the complexity of structural changes in retail-ing are creating a particularly turbulent operatingenvironment for retailers, which is exacerbatingthe more general turbulence in the businessenvironment created by technological change andthe globalization of finance. The issue to empha-size in this brief consideration of structural changeis that the sector in Europe is undergoing rapidchange, with powerful processes present that are creating new competitive conditions forretailers.

Reasons for, and strategies in, European internationalization

There is an extensive literature, reviewed byDawson (1994) with recent additions in Alexander(1997) and Alexander and Myers (2000), on thehypothesized reasons for the recent wave of inter-nationalization in Europe. Lamey (1997) provides

illustrative examples. From this literature themajor reasons cited are:

• limited expansion opportunities in the homemarket due to perceived market ‘saturation’of floor space. This is cited as a major reasonfor moves of large retailers away from theDutch (Ahold), Belgium (Louis Delhaize andDelhaize ‘Le Lion’) and Portuguese (JeronimoMartins) markets;

• public policy restraints in the domestic market.The moves to Spain by French retailers afterthe imposition of the Loi Royer in France arewidely cited as examples, but the evidence isonly circumstantial with no thorough study toback up this widely held view;

• an unexploited growth opportunity in thetarget country resulting from;• under-provision of facilities (West Euro-

pean retailers moves into Central Europeand China),

• under-provision of a particular format(Decathlon, IKEA, Sephora),

• ownership of a strong brand that is trans-portable to other markets (Body Shop,Zara),

• moves of the established customer base tothe target country (Japanese DepartmentStores presence in major European cities);

• removal of barriers to entry into potentialtarget markets (SEM implementation after1992, privatization in Central Europe after1989).

A variety of other minor reasons are alsosuggested, but in reality the overriding reason isthe need for retail firms to grow in a market withlittle inherent growth. Geroski (1999) hasreviewed the work on the general reasons whyfirms feel a need to grow.

‘The most elementary “fact” about corporategrowth thrown up by econometric work on bothlarge and small firms is that firm size follows arandom walk . . . increases in firm size are drivenby unexpected shocks . . . unexpected shocks have permanent effects on the size of the firm.’(Geroski, 1999, p. 4)

Retailers are no different from other firms in thisrespect. Sales growth is a measure of success andit is much easier to grow sales by increasing thestore network than by getting more sales out of


existing stores. Therefore, any reasonable oppor-tunity that appears as a way to expand the storebase must be evaluated. Internationalization ofoperations is simply a mechanism to grow using theexisting investment in managerial expertise. Theextent of growth is then related to managerial con-straints, as Penrose (1959) argued some time ago.

Reasons suggested for internationalization,other than the search for growth, are difficult tovindicate from the evidence of what has happened.The ‘push factor’ of saturated markets would bemore credible if retailers then ceased investing intheir home market, or indeed were seen to moveto markets which could be seen as ‘un-saturated’.This is seldom the case. Investment and expansionin the home markets continues. International-ization is an ‘and’ to domestic growth, not an ‘or’.The concept of market saturation is in any case adifficult one to define.

Public-policy controls have seldom worked.The Loi Royer and subsequent controls did notcause a cessation in hypermarket development inFrance. Land-use planning controls in UK havenot halted the opening of large food and non-foodsuperstores. The reputedly strict controls on new hypermarket developments in Italy have not stopped the opening of 200 in ten years. Suchcontrols may change the form of retail develop-ment, and have some influence on the speed ofdevelopment, but they seldom provide an over-riding constraint to it.

Internationalization therefore is a response to the essential requirement of firms to grow. The reason for the current spate of internationalactivity may simply be that restructuring of thesector has been long overdue. The emergence of large dominant firms requires a rapid growthprocess. This process is facilitated by the openingof stores internationally.

The question of what the target markets forinternationalization are then becomes answeredby where opportunities exist. The emergence ofgrowth opportunities results from a variety ofcircumstances largely outside the control of theretailer. This is the Geroski random-walk argu-ment. The fall of Communist regimes in CentralEurope is perhaps the largest growth opportunitythat has become available to European retailers.The result has been considerable Foreign DirectInvestment in Central Europe by West Europeanretailers using a variety of entry and growthmechanisms.

The existing conceptual approaches to retailinternationalization only partially address this allconsuming search for growth. The three mainapproaches have been:

1 application of the theory of comparative ad-vantage. The view here is that some countrieshave particular attributes which make theirretail industries very efficient, and they thenexport this efficiency (Porter, 1990; Sapir,1991). What is not clear is whether goods andservices are interchangeable in this theory, noris it really clear what is ‘exported’, particularlyin the retail context (Deardorf, 1985; Gray,1989);

2 Dunning’s (1989) eclectic paradigm. The ap-plication of this paradigm to retailing suggeststhat there are three factors which influencethe ability of a firm to internationalize(Pellegrini, 1994);• advantages specific to the firm which en-

able them to compete with success againstfirms in the target country (sometimestermed ownership advantages),

• advantages associated with the conditionsprevailing in the target country (some-times termed locational advantages),

• advantages associated with abilities tomanage assets within the firm rather thanlicense their use (sometimes termed in-ternalization advantages);

3 strategic management considerations of trans-action costs and agency theory. This has gen-erally been applied to issues of mode of entryand has been reviewed by Doherty (1999).

Many of the studies of reasons for internation-alization, where to target and why particularentry modes are used become embroiled in thevariety of activity evidenced by retailers. Thus,whilst one retailer uses one mode of entry for a country, another retailer uses a very differentmode of entry to the same country. Whilst oneretailer enters one country another seeminglysimilar retailer chooses another country. A retailermay use different entry modes, in some cases, in the same country. Add to this variety the con-siderations of store format with the same formatsbeing internationalized in different ways, the lackof pattern in retailer actions is the only point ofgeneralization. In addition there seem no obviouspatterns of success and failure linked to the

258 J. Dawson

theoretical approaches. Whilst the theoreticalbase is at times very elegant, it so far does notprovide explanations of the variety of approachesto internationalization being used by retailers.The quantitative empirical studies have a similardifficulty in explaining the variety of activity. TheUN study (Transnational Service Corporations,1993), for example, found little consistency ofpattern, even on a limited sample of 29 retailers,other than a positive association between amountof retail FDI, and a crude four-point measure ofopenness of the host country for FDI generally.The amount of openness of an economy may wellbe associated with the potential for opportunisticactivity. Attempts to generalize seem doomed tofailure. A possible inference from all this is thatthere is no pattern and it is opportunism that is important in the internationalization process ofretailers.

Retailer approaches to buildinginternational networks of stores

Table 2 summarizes the main mechanisms availableto retailers to develop an international presence.In any one market retailers can use these ap-proaches in combination in respect of growth inthe market. Sometimes the same retailer usesdifferent entry mechanisms for different storeformats and more often a retailer will use differ-ent entry mechanisms to enter different countries.The distinction between entry to and growth in amarket is useful because decisions on initial entryare usually made with less information thandecisions on subsequent growth.

In considering the opportunistic aspect of themodes of entry and growth, the relevance ofpersonal networks of contacts becomes apparent.Burt’s (1992) work on structural holes is relevantto this issue. A structural hole is a gap betweenindividuals, networks and so on, each with com-plementary resources or information. A hole maybe present inside an organization or betweenorganizations. The hole may be filled by a facilitatoror entrepreneur to the benefit of all concerned.Competitive advantage is gained through accessto structural holes and the identification of afacilitator who may, but need not, be a person ex-ternal to the organization. In the current context,a simple example is of an international retailerwishing to hire professional staff, and the presence

of managers considering a job move. An inter-mediary with a different set of network con-nections from either the firm or the manager, fillsthe gap (Rudolph and Hillman, 1997). The basicconcept of the intermediary is simple but power-ful and becomes highly applicable in situationswhere there is substantial information asymmetrybetween the groups with complementary resources– a frequent situation in retail internationalization.It also clearly relates to the internalization andexternalization of functions by retailers. The con-cept is also highly relevant where there is turbu-lence in the operational environment. An aspectof turbulence is the presence of rapid and unex-pected change in which prior learning and pre-cedent are of limited managerial value (Ansoff,1991). These conditions are present in the struc-tural change underway in European retailing.

Within Table 2 the role of personal relation-ships is suggested as important in an opportunisticsense, in that they constitute a way of identifyingand filling structural holes. In the context offoreign retailers entering or developing within amarket these networks of relationships betweenindividuals become important in solving operationalproblems which result from operating outside theestablished milieu of the firm. The building ofsuch networks contains a strong random element.

A second aspect of opportunistic behaviour in international retailing relates to the need formanagement to respond to unexpected change inthe operational environment. Economic, political,legislative and legal changes frequently alter theoperating environment for retailers. This is alsothe case for retailers in their home market. In the home market compared with the foreign one, however, there is a higher level of familiaritywith the operating environment, particularly the institutional constraints, and a lower level ofinformation asymmetry amongst competitors, soreducing the scope for opportunistic reaction thatwould give competitive advantage. Under therelatively unfamiliar circumstances of operating ina foreign market the scope for and extent of oppor-tunistic reaction to environmental change is high.

A third feature of international retailing is the opportunistic reaction to competitor activity.Operations in any one market outside the dom-estic one are almost always of lesser concern tooverall company strategy than operations in theforeign market. International operations are seldomcore business. Consequently, decisions are made


260J. D

awson

Table 2. Options for retailer internationalization

Process Purpose Benefits Problems Opportunistic considerations

FDI by store Market entry Low risk Difficulties of getting commitment from Spotting suitable sitesdevelopment Easy exit senior management Need for personal networks

Available to firm of any size Store development process with limited Market intelligence opportunities knowledge of institutional constraints

Growth in the Stores are able to be adapted to the Slow growth As for market entrymarket market as knowledge increases New locations needed constantly Finding appropriate development partner

Getting to grips with the development processAcquisition Market entry Market presence can be achieved quickly Difficult to find acquisition target Personal networks in search for target

Obtain local management Difficult to evaluate target Quality of local managementImmediate cash-flow Some divestments may be needed Winning the auction or bid process

Securing appropriate support networks –supply of goods and servicesNumber of targets depends on variability inlocal economic conditions

Growth in the Rapid achievement of organizational scale Difficult to find target: As above, for entrymarket Extend consumer awareness quickly chain acquisition will contain non- Changes in Head Office may allow FDI

Performance improvement through performing stores chains to become availabletechnology transfer from acquirer individual store acquisition is slow Attraction of new good managersMay obtain specialist skills or knowledge Local competition policy

Joint ventures Market entry Share risk Partnership dissent Finding right partnerPartner may have local knowledge Difficult to get Head Office commitment Changes in partner activities outwith JV

Growth in the Share risk As for entry JVs not suited to opportunistic behaviourmarket Access to larger pool of investment funds JVs are inherently unstable Partner may change views due to events

Joint decisions between Head Offices external to the JVoutside the country of operation Changes in executive managementMarket responsiveness slow may be imposed

Store swaps Market entry As for acquisition Portfolio of stores obtained may contain Swap likely to be part of larger deal problem stores between firms involved

Growth in the As for acquisition As for entry As for entrymarket May result in illegal collusion

Franchise-type Market entry As for joint ventures Legal/institutional conditions may require Facilitation of initial offeragreements Low cost a local partner Changes in legal/administrative framework

change market potentialGrowth in the Rapid growth possible at low cost Contract enforcement is difficult Personal networks to find franchiseesmarket Franchisees with local market knowledge Non-performing franchises

Marginal markets can be addressed at low riskStrategic Market entry Low risk Little influence over direction of firm Personal networks to identify investmentinvestment Easy exit Changes in value of investment opportunitieswithout Gain market intelligenceoperational Growth in the Position for later expansion through full As for entry As for entrycontrol* market acquisition

Operational decisions left to those withmarket knowledge

Note: * An equity capital stake of 10% (20% in UK and Germany) or more of ordinary shares or voting power is usually considered the threshold for control of value-addedactivity in an enterprise outside national borders (IMF, 1993; OECD, 1992; UNCTD, 1996). An unresolved question is whether this percentage is appropriate in the case ofretailing with its disaggregated operational structure.

about core businesses which then have an effecton foreign operations and may provide entry or growth opportunities for other internationalretailers. For example, in response to the arrival inGermany of Wal-Mart, the decision by Metro todispose of its chains of food discount small storesin Europe enabled Jeronimo Martins of Portugalto acquire, opportunistically, stores of Metro’s Tipchain in Poland. Furthermore the discussions in2000 between Jeronimo Martins and Ahold overtheir respective activity in Spain and Portugal andpotential creation of a combined company hadimplications for other markets where both werepresent, for example in Poland.

Serendipity, opportunism and plannedstrategy in the growth of retailcompanies

To illustrate these ideas, the moves of five West European retailers into Poland subsequentto 1989 are considered.4 Each comes from adifferent national market. Other aspects of this‘Polish invasion’ have been considered elsewhere(Dawson and Henley, 1999a, 1999b, 1999c;Domanski, 1996; Gaszynska, 1998; Michalak, 1999;Pütz, 1998) but the focus here is on the develop-ment paths of the retailers.

The Polish market

Although not without problems, the trans-formation of the Polish economy after 1989, andparticularly after 1994, is considered to have beenone of the successes of Central Europe (Chojnicki,Cryz and Parysek, 1999). GDP growth in excessof 5% pa since 1994 is a consistent feature. Thechanges in retailing in Poland have been substan-tial since 1989, first with small-scale privatization(Earle et al., 1994) and later with FDI investment.By 1998, privatization of retail, both small and large-scale, was virtually complete. The rapidincrease in small firms and in shop numbersimmediately after privatization peaked in 1995.

Shop and kiosk numbers started to decrease inline with most other European countries. Medium-sized Polish firms emerged slowly through amerger and acquisition process. Once successfullycreated they become targets for foreign-retaileracquisitions.

Wholesalers are sponsoring voluntary chainsand buying groups. Retailers based outside Polandhave seen the market opportunities and are ad-apting West European store formats very rapidlyto the Polish market. This entry to Poland of non-Polish retailers has been substantial since 1994,with additional new entrants and additional invest-ment by the foreign firms each year. Data fromthe Polish Agency for Foreign Investment showthat the FDI of retailers by mid-1999 representedover 10% of all FDI investment by value. Retailerinvestments totalled over US$2 billion. At the endof 1998, of the largest ten retailers, nine were foreign-owned, as were a further six of those ranked 10–20in sales volume (Handel, 1999). The only Polishretailer in the top ten was a wholesaler-sponsoredvoluntary group. The experiences of West Euro-pean retailers entering Poland has differed con-siderably from company to company. Althoughall are entering the same market culturally, theirapproaches and development have been different.The common feature of their experience appearsto be the importance of opportunism and seredipity.

IKEA

IKEA sourced furniture from Poland before 1989,and had supported Polish manufacturers withknow-how and investment. In this period theyhad obtained information on consumer marketsand developed personal networks. Their entry asa retailer was rapid after 1989 through a city-centrestore in Warsaw in a new property developmentlinked to a Scandinavian consortium of investors,and also through a suburban store in existingproperty (later closed when a new store wasdeveloped). Their knowledge of the institutionalsystems, and responsiveness to local opportunityenabled purchase of a development site, at Jankiin suburban Warsaw, considerably bigger thanwas needed for their own store. This provided the opportunity for a move into shopping-centredevelopment with initial tenants biased towardsforeign, particularly Scandinavian, retailers, seek-ing entry to Poland. The privatization process inmanufacturing put their technical and design


4 Interview work with Polish companies was under-taken jointly with Professor John Henley as part of alarger programme and his contribution is gratefullyacknowledged. The overall research programme onPoland was funded under the ACE-PHARE Pro-gramme of EU and their support is acknowledged.

investment in their Polish suppliers in jeopardywhen German firms began to be interested in buy-ing Polish furniture producers. In consequence,IKEA bought their key suppliers to secure sup-plies. The investment was US$140 million. Thesesuppliers were providing products for IKEA world-wide, and the source of supply was important tothe whole company. By 1994, IKEA Polska, inaddition to being a retailer, and in distinction to IKEA elsewhere, was a property developer,shopping-centre owner and a furniture manu-facturer, not through strategic design, but becauseof opportunistic reaction. IKEA has grown in the market by direct investment in new stores. Thedevelopment has been slow, with six stores inoperation by mid-1999 and a further six wereplanned to open before the end of 2000 but thisplan was not achieved. A distribution centre forCentral and Eastern Europe, representing an investment of $50 million, has been built atPiotrkow Trybunalski. Whilst strategy develop-ment is evident, it has been strongly tempered by opportunism. The slow development has notposed a problem, because of a lack of direct com-petition in the furniture market and the difficultyof obtaining large development sites by firmswithout appropriate network connections.

Metro AG

Metro began trading in Poland through Tipdiscount stores in late 1995, having established its office the previous year. Previous experiencein Poland had been in sourcing products for theirlarge German retail operation, but extensiveexperience of privatized economies had beenobtained in the eastern regions of Germany afterunification. The need for opportunistic behaviourin these new markets was thus well known. Entrywas through new store development first with thesmaller Tip discount stores, and subsequentlythrough major property schemes that allowedseveral of their formats to operate from a singleshopping centre. The formats developed in thisway were Real hypermarkets, Adler clothing stores,Practiker DIY units and Media-Market electricalstores. There was initially also a strategy todevelop a sports goods chain, Roller furniture storesand Reno footwear stores, but these plans wereshelved in response to market conditions. Becauseof the large size of planned shop units, site acqui-sition has been slow. The pace of development

quickened after 1997 when an agreement wassigned with Bank Handlowy to allow the bank totake a 25% stake in Real and Tip with the aim offloating them on the Warsaw stock exchange with-in three to five years. This agreement was instru-mental in extending the network of contacts forMetro. In addition to the main retail formats,Metro Cash and Carry warehouses were developed.This latter development moved forward substan-tially when, in 1997, Metro AG acquired Makrothroughout Europe. The presence in Poland wasstrengthened by this corporate move outsidePoland. A further chain Vobis computer storeswas developed by Metro using a franchise arrange-ment, in an opportunistic way and unaligned withearlier strategy. Corporate restructuring thenresulted in the disposal of Vobis stores throughoutEurope, including Poland. Since entering in 1995,Metro has become Poland’s largest retailer. Atyear end 1998 there were 32 stores. By mid-1999there were 44 units, with six openings in the re-mainder of 1999, giving at year end, 18 Makro Cashand Carry, 18 Real hypermarkets, 10 Praktiker DIYstores and 6 Media Market electrical stores. Theother formats that were opened at various timeshave been sold or converted to other formats. Asof late 1999, the total investment in land andbuildings was DM1.26 billion, making the companyone of the largest foreign investors in Poland.With the exception of the purchase of Makro,almost all this investment is in newly-built units.

Tesco

Tesco entered Poland in 1995 through thepurchase, for Pzl 48.5 million, of Savia. Savia wasa company in southern Poland operating 36 smallgrocery stores that had been converted from a furnishing chain. The chain was owned by asuccessful entrepreneurial manager who becamea key executive in Tesco’s Polish operation. He waswilling to remain with Tesco. There was littleinitial retail development, but there was extensivecollection of information and establishment ofnetworks of contacts. Plans for development of Tesco changed substantially as information on the operational environment and the activities ofcompetitors was collected and assimilated. Thesize of the store concept to be built increased but the difficulty of finding sites increased withthe size of store. This has been resolved by thefortuitous development path of IKEA such that

262 J. Dawson

Tesco, in several locations, has become part ofIKEA developments. Although entry was throughacquisition, this was less for acquisition of theretail operation than for acquisition of manage-ment and a base from which an understanding of the operational environment could be gained.The initial 36 shops had been reduced to 25 by1998, and capital work costing Pzl 10 million hadbeen undertaken to improve their performanceand generate a cash flow for the company. Tescoare developing by new build of a single format –hypermarkets. The first store opened in 1998 inWroclaw, three years after entry, a second in 1999in Czestochowa, other openings there have beenin Gliwice and Lodz, and five were planned toopen during 2000.

Jeronimo Martins

A Portuguese company with previous experiencein retailing in the transitional economy of Brazil,Jeronimo Martins entered Poland with threeformats. A joint venture with the UK company,Booker, was established in 1995 to operate cashand carry warehouses (which were available toindividual consumers on a warehouse club-typeoperation) and discount stores. An existing chainof warehouses was purchased and this was grownincrementally as opportunities arose. As develop-ment continued, some new build was undertakento replace substandard units and to expand geo-graphical coverage. Trading problems in the UKresulted in Booker selling its share of the businessto Jeronimo Martins in 1998. By year end 1998,there were 77 Eurocash wholly-owned units withsales of Pzl 1.04 billion. The second format is adiscount food store, Biedronka, which was in-itially developed as part of the joint venture, but also included a Polish partner. The growthmechanism was the purchase of individual unitsand small chains available as privatized assets ofstate companies and cooperative organizations.The identification of units becoming availablerequired a well-articulated network of contactsinto various public agencies. The Polish partnerfilled the ‘structural holes’. Property acquisitionwas opportunistic. The Polish partner left in 1998,by which time the managers in Poland hadestablished their own network of contacts. In late1998, Jeronimo Martins bought most of the Tipchain of 57 stores, and several under construction,from Metro, in an opportunistic acquisition

resulting from Metro consolidating activity intocore businesses that have a larger volume cashflow and higher margin. This acquisition built theBiedronka chain to 430 stores at year end 1998,and this rose to 540 by mid-1999 and 600 by yearend 1999. This process of expansion by single-store and small-chain purchase is opportunistic inthe extreme. Although growth has been by single-store and small-chain purchases growth has beenrapid – a pattern somewhat at odds with estab-lished concepts of internationalization strategy.The ‘strategy’ has been one of exploiting oppor-tunities. The Biedronka format is the largestpurely retail chain in Poland, both in terms ofstore number and sales volume. A third format isa hypermarket format, Jumbo, which has beendeveloped as new store construction. Develop-ment has been slow because of the difficulties of site acquisition and changes in concept as morewas learnt about the operating environment.Although the first store was large by Polish stand-ards, it was considered not big enough to competewith the very large units being developed by Casino,Metro and Carrefour. Only two were open at yearend 1998. Overall the company is now second toMetro (with its Makro cash and carry chain) inthe Polish retail market with a 28% increase insales in 1999, entirely due to new store opening.Events after 1999 have been overshadowed bydiscussions with Ahold on merger of non-domestic operations, and by logistical difficulties,but these do not detract from the importance ofopportunism in building the chain.

Ahold

Ahold have substantial experience in operating in Central Europe post-1989, being one of theearly entrants to the Czech Republic and Slovakiabecoming their largest retailer. Entry into Polandwas by a joint venture with Allkauf, a family-ownedfirm from Germany, for the development ofhypermarkets, supermarkets and discount stores.Development, particularly of the high-cost hyper-markets, needed quick decisions on land deals,but the joint-venture structure meant that majordecisions were made by two companies in differ-ent countries and with very different cultures. Thechoice of venture partner by Ahold slowed de-velopment. The purchase of Allkauf in Germanyby Metro AG in 1998 cause further hiatus, butproved opportune when it was agreed that Metro


would sell the Polish Allkauf operation to Ahold.By late 1998 Ahold, rather fortuitously, was thesole owner of the operation that by then had onlydeveloped two hypermarkets by new build, sevensupermarkets, 49 discount stores mainly obtainedas single store units from Polish operators whohad obtained the stores under privatization pro-cedures, and five cash and carry depots. In totalthe floorspace was 55,000m2. This move to fullownership has enabled more rapid developmentwith acquisition of some Tip stores, from Metro,and small Polish-owned chains, two of which werepurchased in May 1999, bringing the total numberof units operated across the four formats to over 100.

Conclusions

As seen from the accounts of activity, the currentacademic models of international retail activityare unsatisfactory in explaining what has hap-pened in Poland and in the companies enteringthe Polish market. Part of their unsatisfactorynature is that they attribute to firms processes of planned strategic decision-taking and plannedimplementation of strategy. The examples fromPoland show this to be far from reality. Themodels also are concerned almost entirely withwhat firms do, rather than when they do it. Giventhat the growth and performance of internationalretailers (possibly also of all retailers) has anuneven and erratic pattern, there is a need to con-sider more of the ‘when’ issues. When things aredone can be argued to be simply a response to the operational environment, but retailers alsoinfluence and create aspects of the operationalenvironment. This is particularly the case withinternational retailers. When things are done istherefore not the result of environmental deter-minism but of environmental opportunism. Theimportance of the ‘when’ factor is evident in allthe Polish examples.

The argument in this paper is that develop-ments in international retailing in Europe containa strong opportunistic streak to them. Whilstthere is an apparent strategic decision on whetheror not to operate shops internationally this, sincethe mid-1990s, is essentially a non-decision forany large retailer in Europe. Within the restructur-ing process of the sector in Europe, and in orderto continue to grow at a rate acceptable to owners,

the operation of stores outside the domesticmarket is a now a necessity. Strategic choice hasbeen removed in this respect. Growth belowoverall market rates results in acquisition by acompetitor or company failure. Given the need tointernationalize, then, the country to be entered,the mode of entry and mechanism for growth areall more responses to opportunities, generatedfrom various sources, than to implementation of aplanned strategy. With this strong opportunisticcomponent it is interesting to reflect on whetherthe international operations have a higher inno-vative content than the domestic operations ofthese large firms.

Examples to support this view of opportunismhave been drawn from Poland, where there hasbeen substantial investment from retailers generallythought to operate within well-defined strategies.The experiences of firms suggest that opportunismplays a larger role than is often thought. Thatopportunism is important in the examples may be due to the transitional nature of the Polisheconomy in the 1990s. As more is learnt aboutretail internationalization through in-depth inter-views and company case studies, however, it maybecome more apparent that opportunism alsocharacterizes foreign retailers’ activities moregenerally. It is possible that the structure of retailfirms with a high degree of spatial disaggregationin their networks of operation may encourage this opportunistic approach to development. Thisopportunistic factor may also be more importantin the early years of operation in a foreign country,with formal strategy becoming more important as the retailer becomes more established. The argument and examples in this paper have beendrawn from a European managerial perspective.It is possible to ask whether the position is similarin American and Japanese retailing with their differently culturally-influenced managerial para-digms. The nature of this opportunism in retailinternationalization generates several topics wheremore research could usefully be undertaken.

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Strategy and Opportunism in European Retail Internationalization