10.3 From scepticism to accelerated innovation: strategies of the international retail networks


This part of the chapter aims to demonstrate how foreign retailers have changed their approach over time in dealing with the Polish market. Initially, international retail chain operated on the false premise that if Poland s economic development lagged thirty years behind Western Europe, then Polish consumers sophistication must also be thirty years behind the times. This was, most certainly , not the case. Strong competition forced international retail chains to develop far more innovative initiatives for the Polish market than they had expected in the initial stages of internationalization in the newly emerging markets (see Table 10.1).

Table 10.1: Largest European networks in Poland, 2000

Network

Firm

Net turnover (million C=*)

Number of shops

Productivity (C=/m 2 )

Profit before tax (per cent of turnover)

Makro

Metro

1632

19

2.6

Real

Metro

744

24

4182

“6.9

G ant

Casino

586

12

4448

“2.0

Hit

Dohle

439

13

5124

0.1

Carrefour

Carrefour

369

8

4638

“2.6

Auchan

Auchan

311

8

4936

“1.1

Tesco

Tesco

281

10

3659

“9.9

Leclerc

E.Leclerc

273

8

6301

“1.2

Hypernova

Ahold

122

9

3436

“7.1

Jumbo

Jeronimo

       
 

Martins

107

5

“2.6

Note : *Estimated data

Source : Commerzbank Securities and Handel (9/2001, p. 8).

10.3.1 Delayed entry on the Polish market

The strategy of large foreign retailers toward the Polish market soon after 1990 may be described as sceptical and anticipatory. They underestimated the market potential and believed that the process of transformation from a centrally controlled to a free market economy would be only temporary, and therefore reversible.

Large European retail chains on average need three “five years to make the decision on entering a new market, thereby inhibiting their ability to respond quickly to the new opportunities in Central Europe after 1989. This market had not been included in their earlier plans of expansion, that targeted mainly South America and Asia. The retail chains which noticed the potential of the Polish market first were the retailers with strong international orientation (such as Makro Cash and Carry, a Dutch network), and the chains for which Poland could become the starting point of their future internationalization (Dohle Handel, a German network, and Billa, an Austrian chain of supermarkets). Therefore, they belonged to diametrically opposite categories, with highly different experience in internationalization.

10.3.2 Exporting an outdated retail concept

The widespread assumption about Poland s backwardness in the development of retail infrastructure led some of the international retail chains to favour a strategy of exporting to Poland a format of stores that was developed in the European Union in the 1960s and 1970s and characterized by extensive floor spaces. The simple mechanistic transferral of this strategy was based on the expectation that the gap of thirty years in the development of the Polish retail infrastructure automatically justified exporting a rather primitive and outdated version of retail premises. This type of thinking was, however, a misconception of the actual situation on the Polish market and its future development.

The introduction of a retail outlet with extensive floor space, in the version already in the final phase of its life-cycle among EU states, created a cognitive dissonance among urbane Polish consumers. Those shoppers were very familiar with more modern types of retail outlets in EU states and unimpressed with the ˜downscale retail format established in Poland. In contrast to certain imported products that found favour among Polish consumers, only the most modern format (i.e. with the potential to remain competitive in the market for at least the next 10 “15 years) would become a suitable subject of transfer.

The concept of large-surface retail in the outdated version proved to be short-sighted. The French retailer Leclerc, for instance, used this approach when it opened the first hypermarket in the centre of Warsaw. The very simple and economical outlay of the hypermarket failed to please Polish consumers, who expected that a foreign retailer would provide them with a new format, a symbol of the larger economic transition going on throughout the country and synonymous with the promise of a better future. This mistaken promotion of the ˜poor formula of hypermarket seems to have resulted from an inappropriate assessment of market expectations carried out by advisors coming from the circles of emigrants who had left Poland in the early 1980s and remembered the country where people had significant problems with meeting elementary needs and for whom low prices of goods were a key variable when making their buying choices.

It was not accidental that this type of mistake was made by those foreign retailers that in their strategy placed special emphasis on the policy of low prices and a shop format where any investments to improve the quality of the retail space were limited. The concept of the anachronistic hypermarket was confronted by the innovative one, which targeted the quality of customer service and provided the basis for future competition. These critical remarks apply only to the first stage of the inflow of foreign retail chains to the Polish market. The formula of exporting the outdated format of hypermarket to Poland had to be replaced quickly with a more innovative formula.

10.3.3 The forerunners: early foreign entrants to the Polish market

A second group of foreign retailers adopted a different approach to the Polish market: they were open to innovation and to the characteristics of the local environment. They emphasized their role as a leader of change and their commitment to new strategies, and thereby quickly secured a leading position on the market. Their managers were able to anticipate market changes and adjust to them accordingly . These retailers showed more flexibility in adjusting the standard formula of hypermarkets to the needs of the local market.

This group included both retailers with a strong international orientation, which typically used global strategies, such as the Dutch Makro Cash and Carry or the Swedish Ikea and retailers which perceived the Polish market as the starting point for internationalization, such as Dohle Holding, a German chain.

The case of Dohle Holding is an interesting example of a strategy adjusted to the conditions of a foreign cultural environment. The source of success of this company was based on its early entry into the Polish market and its strategy of purchasing top locations in major cities for planned expansion of its HIT hypermarkets. Paradoxically, its lack of earlier experience in internationalization resulted in a wider openness in exploring the Polish market. Dohle management put special emphasis on the co-operation with local suppliers and a strong representation of Polish products in its product line.

A very positive attitude to Polish managers, whose energy and effectiveness differed from popular German stereotypes, also accounted for the success of the firm s strategy. The example of Dohle Holding, which in 2002 managed in Poland a network of 13 hypermarkets with a total turnover of C=439 million ( Handel , 2001: 20), accounting for nearly 19 per cent of the total turnover of this firm, confirms the thesis that medium- sized retail groups with no experience in internationalization may be highly successful in a turbulent environment such as CEE markets during the transition process because they show more flexibility in response to the specific conditions of these local markets.

In the case of the German Real (Metro) hypermarkets, one should highlight its vision of the fast development of the chain, which was founded on the model developed on the German market in the 1980s and based on observations of transformations occurring in the trade sector in East Germany.

The dynamics of the development of the network shows that an early market entry provides a clear competitive advantage. This holds also for the Dutch chain Makro Cash and Carry (now the Metro Group). It seems that this type of strategy may be adopted mainly by a network with a clear international orientation, and a strong organizational and capital background supportive of international development. Making good use of the opportunities created by the market and a limited number of threats generated by the competitive environment were characteristic of the strategy adopted at this stage of the development in the Polish retail industry.

10.3.4 The second wave of foreign investment (1997 “2000)

A third group of international retail chains that had failed to recognize the strategic importance of the Polish market in the early stages and subsequently had delayed their entry, tried to catch up with their competitors after 1997. The pace of growth by these relative latecomers resulted from a range of strategic challenges in chain management during such an intensive expansion. Even the firms with very strong international orientation suffered from their inability to manage the process of radical changes required over time. Managers of foreign retail chains also showed a weakness in operating in conditions of uncertainty and competitive pressure. In extreme cases, this weakness gave rise to an inability of some international managers in managing business under the conditions of a strong competitive pressure, a broad range of changes and decisions which had to be made quickly and in an unknown environment. A difficulty in obtaining qualified managers and a frequent rotation of high- and medium-level managerial staff were a result of these challenges. Managers were lured away by competitors; this considerably destabilized managing the retail chain and building a cohesive strategy. The most severe problems occurred at the stage of staff recruitment, staff training and transmission of management standards in the new environment. This revealed the huge difficulties that foreign managers had with operating under the new conditions and in making effective communication with their Polish employees . These problems concerned mainly the style of communication and management methods .

A strong increase in competition in the Polish retail sector was a direct consequence of the mass influx of foreign entrants in a very short period of time. It also created increased pressure among the retail chains to innovate and experiment in order to increase their market share, thereby refining their store formulae. The case of Poland shows that the management of change applied on the emerging markets leads to implementing and testing a range of innovations relating to store formula and forms of customer service.

The vigorous development of the large retailers also demonstrates their ability to use the opportunities provided by the Polish legislation, and their parallel fears that these regulations might be amended in such a way as to make them more restrictive to the large retail chains. Difficulties in managing the development of the chains in conditions of strong competition result mainly from the increased pace of the development, the time pressure regarding the decision-making process, a lack of experienced international managers able to act in uncertainty, a lack of continuity in the process of development, contradictory decisions on changes in the adopted model of development issued by the headquarters of the international retail chains, difficulties in external and internal communication and a lack of ˜best practice in the new environment.

10.3.5 Competing for the future

The development of international retailers on the Polish market will significantly depend on their skill in competing for the future. The ˜store of the future in Poland will need to combine classic elements with new services and an attractive shopping atmosphere for customers. The concept of multifunctional shopping centres already implemented in Western European countries will need to be adjusted to the local conditions in CEE countries .

Foreign investors that create an image for new-generation shopping centres and add to the process of revitalizing of city centres and provide them with a range of complementary functions are likely to gain competitive advantage. The effective competition of the future will strongly depend on convenient locations and attractive buildings for new premises, and on establishing links with businesses that build and administer these premises. The competitive advantage will be obtained by those networks that are more skilful in managing networks of multiple partners performing complementary functions and creating new added values. Harmonious co-operation with local authorities and the government will have particular importance.

Competing for the future also assumes a certain openness of the network managers to change and to adjusting the standard shopping formula to the conditions of the regulatory environment. Polish legislation is rather liberal in this respect. In practice, this means that some retailers are able to open their stores for 24 hour a day, seven days a week (Tesco). Continuous extension of product lines on offer, new premises located in city centres and the establishment of larger sites (such as new-generation two-storey hypermarkets) require change management skills and an ability to take advantage of opportunities provided by the liberal retail legislation.

10.3.6 Partnerships between international and Polish retail companies

In the process of their strategy development, large international retail chains will need to put more emphasis on partnership with local businesses. Experiences gained on the highly competitive Polish market may in turn also have positive effects on the development of the retail business on Western markets. The challenges of the emerging markets are an excellent lesson for Western managers, who have become accustomed to schematic work processes and routine behaviour in a stable environment where one may quite easily predict competitors behaviour. The interaction with Polish entrepreneurs will often call for their active participation and a reassessment of the network s business models. This development has been observable mainly in franchise agreements (used by such retail chains as: Intermarch , Spar and Leader-Price), and in close co- operative relationships with local suppliers of products sold under private labels.

Table 10.2: Presence of biggest European retailers, by country

Position

Country

Number of retailers

1

Poland

16

2

Spain

12

3

Czech Republic

11

4

France

9

5

Belgium

8

6

Italy

8

7

Austria

7

8

Hungary

7

9

The Netherlands

7

10

UK

5

11

Portugal

5

12

Greece

4

13

Germany

4

Source: ˜Zestawienie Top 50 (2002), in Handel , 1/2002, p.16.




Change Management in Transition Economies. Integrating Corporate Strategy, Structure and Culture
Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture
ISBN: 1403901635
EAN: 2147483647
Year: 2003
Pages: 121

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