International retailers strategy for entry into China:

A case study on Carrefours entry strategy

Myriam Da Costa
Immat. number: 080016589
Msc International Business
Final Project
August 3rd, 2009

Executive summary
Using a theoretical framework based on the resource-based theory of the firm, this paper
investigates the effect of joint-ventures on first-mover advantages in emerging markets. We
hypothesize that in an emerging market, ceteris paribus, joint-ventures enable early entrants to
enhance the advantages they acquire, develop new competencies and capabilities and that
moreover, they provide the synergy necessary to turn first-mover advantages into sustainable
competitive advantages. To test our hypotheses, we study the entry strategy of the French
retailer Carrefour in China, using mainly secondary data collection methods. This paper
shows evidence that joint-ventures, in combination with first-mover advantages, have a great
potential in developing and creating a bundle of resources in particular knowledge-based
resources- generating sustainable competitive advantages.

Table of contents
Executive summary .................................................................................................................... 1
Introduction ................................................................................................................................ 3
1. Literature survey .................................................................................................................... 3
1.2 Timing of entry into a new market ................................................................................... 3
1.2 Mode of entry ................................................................................................................... 6
2. Theoretical framework and hypotheses.................................................................................. 7
3. Methodology and Empirical analysis ..................................................................................... 9
3.1 Methodology ..................................................................................................................... 9
3.2 Empirical analysis: ......................................................................................................... 10
4. Policy implications ............................................................................................................... 14
5. Conclusion ............................................................................................................................ 15
Appendices ............................................................................................................................... 16
References ................................................................................................................................ 19

Introduction
The last twenty years have witnessed intensification in retail foreign investments, especially
in the food and general merchandise retail sector. A small group of European and American
retailers have expanded their operations in the emerging market of Latin America, CentralEastern Europe and East Asia through sustained mergers and acquisitions activities (Coe,
2004). The study of international retailers entry strategy into East Asia is particularly
interesting as retail culture in East Asia is not only very different from the Western culture but
varies as well from one East Asian country to another.
Entry mode and timing have mainly been studied in European and North American
context. Few studies give empirical evidence that entry timing and mode of entry are
somehow interrelated but they do not explain to what extent the mode of entry chosen by a
firm may affect the competitive advantage arisen from pioneering in an emerging market.
This paper examines the relationship between mode of entry (joint-ventures in
particular) and first-mover advantages with regard to foreign direct investment in China.
Through Carrefour case study and drawing on the resource-based theory of the firm, we
hypothesize that in emerging markets, ceteris paribus, joint-ventures enable early entrants to
enhance the advantages they acquire, develop new competencies and capabilities and that
moreover, they provide the synergy necessary to turn first-mover advantages into sustainable
competitive advantages.
The paper will firstly review the literature of entry timing and mode of entry.
Secondly it will discuss the theoretical framework guiding our study and introduce our
working hypotheses. Thirdly, it will outline the results of our empirical studies and finally it
will draw on our discussion to provide policy implications before concluding.

1. Literature survey
1.2 Timing of entry into a new market
The question of the timing of entry into a new market has been extensively studied in the
economic literature. Timing of entry into a market can be critical to a firms success and
survival (Lieberman & Montgomery, 1988; , 1998). It is widely believed that early entrants
into newly developing markets secure a competitive advantage over later movers (Lambkin,

1988). Lieberman and Montgomery (1988) defined first-mover advantages as the capacity of
the pioneering firms to gain positive economic profits i.e. profits in excess of the cost of
capital gain. Pioneering advantages can arise from the pre-emption of resources or from the
firms capabilities. Lieberman and Montgomery (1988) identified several types of resources
early entrants may pre-empt: geographic space, technology space or customer perceptual
space. First-mover advantages may as well arise from buyer switching costs. In addition, a
firms capabilities referred to as learning or experience advantages can give early entrants a
head start over later movers (Lieberman & Montgomery, 1988).
Empirical studies on first-mover advantages have provided mixed results. Early entry
does not always seem to guarantee success. While some studies have shown that early
entrants enjoy long lived market share advantages and outperform later entrants in term of
asset turnover (Lambkin, 1988; Luo, 1999; Mascarenhas, 1992; Urban, Carter, Gaskin, &
Mucha, 1986), others showed that late-movers may have advantages and first-movers
disadvantages (Shankar, Carpenter, & Krishnamurthi, 1998). Lieberman and Montgomery
(1988) posit that late-movers can outperform early entrants if they can acquire the same
technology at a lower cost, produce cheaper or better products, be quicker in capturing
consumers tastes shifts and make more intensive investments. Thus, Lieberman and
Montgomery (1988) concluded that profits gained by first-movers cannot be attributed to
pioneering per se but rather to proficiency and luck. First-mover advantages may depend on
other factors such as industry growth, competition, firm size, entry mode, resource
commitment and marketing intensity (Cui & Lui, 2005; Isobe, Makino, & Montgomery,
2000).
Past studies have mostly examined the determinants of first-mover advantages in a
domestic context. Some have analysed this issue in an international context but have mainly
focused on either multinational corporation investing in USA or on American multinationals
entering foreign markets (Isobe, Makino, & Montgomery, 2000). Though some studies have
revealed that order of entry in a foreign country has a significant effect on the performance of
firms overseas subsidiaries (Luo, 1998; Mascarenhas, 1997; Pan & Chi, 1999), studies about
order of entry in foreign markets are rather limited (Cui & Lui, 2005). The few empirical
studies are contradictory. Some have shown evidence that early mover in China reached
higher performance in local competitive position, sales growth and profitability, leading us to
think that there can be first-mover advantages in emerging markets (Isobe, Makino, &
Montgomery, 2000; Luo, 1998; Luo & Peng, 1998; Pan, Li, & Tse, 1999). It has been posited

that competitive advantage could arise from being the first to enter the market or from being
the first to see opportunities in developing markets (Li, Lam, Karakowsky, & Qian, 2003).
Luo (1997, 1998) found that differential benefits between early and late investment strategies
appear greater in emerging economies such as China where political and economic transitions
result in industry and market transformations and preemptive opportunities for the early
entrants. However, some researchers contradict these results, showing that in an international
market context, early entrants are more inclined to fail compared to early followers as the
latter take advantage of the experience gained by the former (Isobe, Makino, & Montgomery,
2000). Two other reasons have been suggested to explain this failure. Firstly, early entrants
may not be fully aware of market uncertainties. Secondly, investments may be higher than the
returns as early entrants bear the costs of doing a business in a new market: searching costs,
switching costs and start-up costs (Luo, 1997).
A few researchers attempted to conceptualise the mechanisms by which first mover
advantages can be enhanced. However studies on whether pioneering is sufficient to maintain
a sustainable competitive advantage1 as the market evolves and the mechanisms behind it
remain inconclusive or contradictory (Li, Lam, Karakowsky, & Qian, 2003). Past literature
failed to understand why and how early entrants have succeeded in sustaining a
competitive advantage when others have failed to do so (Frawley & Fahy, 2006). Agarwal
and Gorts (2001) empirical study shows evidence that while first-movers market shares may
decline because of the speed of competitive entry, they still enjoy large market share long
after their position in the market has been diminished. Several factors have been found to
contribute to retention of market shares: buyer switching costs, learning by doing, network
externalities, scale economies, setup and sunk costs (Agarwal & Gort, 2001). Surprisingly,
few studies have established to what extent the mode of entry chosen by a firm influence the
gains from early entry.

The definition of sustainable competitive advantage in this paper does not depend on the period of calendar

time during which a firm enjoy a competitive advantage. A competitive advantage is sustained if it remains after
efforts to duplicate that advantage have ceased (Lippman & Rumelt, 1982).

1.2 Mode of entry

When penetrating a new market, a firm has to choose the mode of entry that will better serve
its strategy. Johnson and Tellis (2008) identify five main categories (listed in order of
increasing control): export, license, franchise, alliance, joint-venture and wholly owned
subsidiaries [Appendix 1 for definitions]. To Anderson and Gatignon (1987) what mainly
differentiates the different modes of entry is the degree of control it gives to a firm over its
marketing resources. A firm will choose one or a combination of these entry modes (Johnson
& Tellis, 2008). Different entry modes imply different level of resource commitments (Calvet,
1981; Hill, Hwang, & Kim, 1990; Vernon, 1966) and control over the foreign operation
(Calvet, 1981; Hill, Hwang, & Kim, 1990).
The resource based theory and the transactional theory predict two different outcomes
as control increases (Johnson & Tellis, 2008). The resource based theory suggests that the
firms chance of success increases with the degree of control as the firm can unfold key
resources essential to success (Johnson & Tellis, 2008). These resources can be intangible2 or
tangible3. By controlling such assets a firm increases its chances of success. In the context of
emerging market such as China, it facilitates internal operational control, indispensable to a
firm success in emerging market. This is contradicted by the transactional theory which holds
the higher the degree of control desired by the firm, the higher the resource commitment and
the higher the cost (Johnson & Tellis, 2008; Luo, 2001). Pan and Chi (1999) concluded in
their study that high level of resource commitment required by joint-ventures and wholly
owned subsidiaries make them costly mode of entry.
Entry timing and mode of entry have been studied at great length, they have often been
treated separately and a few studies have tried to link timing and mode of entry (Johnson and
Tellis, 2008; Claude-Gaudillat, 2006, Papyrina, 2007, Cui and Lui, 2004). Though these
studies contribute to the overall discussion on timing and mode of entry, they have one
important limitation: these researches give empirical evidence that entry timing and mode of
entry are somehow interrelated but they do not explain to what extent the mode of entry

E.g.: marketing knowledge.

E.g.: patents.

chosen by a firm may affect the competitive advantage arisen from pioneering in an emerging
market.

2. Theoretical framework and hypotheses

This paper employs a theoretical framework based on the resource-based view theory of the
firm. The resource-based view contends that the control and effective deployment of
resources are the main source of a firm competitive advantage (Wernerfelt, 1984). When
entering a market, first-movers may acquire five main advantages:
1. Experience curve benefits as they accumulate experience. In the standard learning
curve model, unit production costs decrease as output increases (Lieberman &
Montgomery, 1988).
2. Scale benefits accrued to early-entrants as they produce the volume necessary for mass
production before late movers (Chandler, 1977).
3. Pre-emption of scarce resources: first-movers take control of assets that already exist
rather than those created by firms through development of new technology (Lieberman
& Montgomery, 1988).
4. Reputation: first-movers may establish a reputation for quality, transferable to
additional products through umbrella strategy and other strategies (Lieberman &
Montgomery, 1988; Wernerfelt, 1988).
5. Buyer switching costs: when competitors products become available to buyers,
switching costs can stem from the investments buyers have to make in adapting to the
new sellers product4. They will find it costly to switch to new products. Thus, firstmovers enjoy the protection of a resource position barrier (Wernerfelt, 1984, 1985).
These advantages seem even more pronounced in emerging markets such as China where
industry and market transformations bring about greater preemptive opportunities but as well
higher operational risks for early entrants (Cui & Lui, 2005; Luo, 1998).

Buyers switching costs include for instance the time spent in qualifying a new supplier.

First-movers may acquire superior resources and capabilities but early entry itself is
not enough to sustain pioneering advantages. As Lieberman and Montgomery suggested,
though entry effects exist, they are better specified as interactions than as direct effects
(Lieberman & Montgomery, 1998, p. 1116). Various mechanisms may enhance the magnitude
and the sustainability of first-mover advantages. This paper argues that joint-venture may be
one of them.
In recent years, multinational corporations have increasingly used international jointventures to expand their operation overseas. A joint-venture happens when two or more firms
decide to pool a portion of their resources within a common legal firm specific market
opportunity. They then share profit, risks (losses and liabilities), control and/or management
(Lin & Fang, 2004). In emerging countries such as China, many joint-ventures result from
government pressure on multinational companies to use the form of equity joint-ventures
rather than wholly owned subsidiaries. They may require a foreign firm to form an alliance
with a local, business or governmental organization to enter their market. During the first ten
years of the Open Door Policy in China, the majority of foreign direct investments were
done under equity joint ventures (A. Yan & Luo, 2001).
Past literature acknowledged that though joint-ventures bring about managerial
complexities, they supply as well effective means of procuring required sources. In a market
where institutional uncertainty is high, joint-ventures can be utilized to rectify resource
deficiency. As firm pool their assets, they create a cluster of resources that would not be
available to either partner (Papyrina, 2007). By combining knowledge of the host country
organization with the technical skills of the entering firm, joint-ventures can as well reduce
transaction and operation costs (Lin & Fang, 2004).
Furthermore, through joint-ventures foreign firms can access the network of local
relationships and gain knowledge about the host country business environment (Beamish &
Banks, 1987). In the resource-based framework, joint-ventures may be a significant source of
competitive advantage (Harrigan, 1988; Papyrina, 2007). This lead to our first hypothesis:
Hypothesis 1: In an emerging market, ceteris paribus, the advantages acquired by a firstmover when it enters a market can be enhanced through joint-ventures.
Assuming joint-venture will increase the magnitude of the advantages earn by early
entrant, will it turned them into sustainable competitive advantages that will enable a firm to

maintain its strong position? The resource-based view theory argues that for advantages to be
sustainable, the firms key resources must be valuable, rare, inimitable and non-substitutable
(Barney, 1991). The sustainability of the competitive advantage however depends upon the
possibility of competitive duplication and only if it continues to exist after efforts to duplicate
that advantage have ceased (Frawley & Fahy, 2006, p. 287). Lieberman and Montgomery
suggest that the sustainability of a first-mover advantage depends upon the initial resources
captured by the pioneer, plus the resources and capabilities subsequently developed, relative
to the quality of resources and capabilities held by later entrants (Lieberman & Montgomery,
1998, p. 1113). Therefore sustainability lies in the firms capacity to exploit existing resources
and develop new capabilities. Joint-ventures may add unique, valuable, rare and inimitable
resources to the entrant firm existing resources and create the necessary synergy to cultivate
these resources and achieve a sustainable competitive advantage. This will be our second
hypothesis:
Hypothesis 2: In an emerging market, ceteris paribus, joint-ventures create the necessary
synergy to turn first-mover advantages into sustainable competitive advantages.

3. Methodology and Empirical analysis

3.1 Methodology
To test the above hypothesis, we study the entry strategy of Carrefour in China. As China was
partially opening its retail sector, Carrefour [Appendix 2], a France-based firm, was the first
foreign retailer to enter China in 1995 and emerged as the undisputed leader. Though
Carrefours case is unique in its own right, it may allow us to gain a better understanding of
the complex issues surrounding the relationship between first-mover advantages and jointventure effects in the context of emerging markets.
We mainly used secondary data collection methods to gather qualitative and
quantitative data as primary data were not easily obtainable. To alleviate observation bias, we
used diverse sources of information, from Carrefours report to newspaper and professional
newsletters.

3.2 Empirical analysis:

Hypothesis 1: In an emerging market, ceteris paribus, the advantages acquired by a firstmover when it enters a market can be enhanced through joint-ventures.
Firms entering emerging markets have been reluctant to reveal specific information on
performance and researches have only recently focus on the factors that drive firms success
or failure in such market. As a result, it is unclear how entry mode and timing affect a firms
performance in a market such as China. There is no reason to discard the principles of firstmover advantages (Pan & Chi, 1999), however, according to Lieberman and Montgomery
(1998) the magnitude of first-mover advantages varies greatly among geographic markets. In
China, the heterogeneity of the market and the industrial structure between the firms
economy and China (Dunning, 1981) and the Open Door Policy would result in more preemptive opportunities for multinational enterprises (Luo, 1995). Thus, early movers get
access to first-choice resources and locations and benefit as well from the regulations set by
the Chinese government [Appendix 3].
As an early entrant, Carrefour benefited from the China liberalization policy and
acquired first-mover advantages. We identified two main classes of advantages:
1) Market advantages
- Pre-emption of geographical location: being the first one to enter, Carrefour had the
possibility to set up stores in major cities such as Shanghai and Shenzhen, two leading
economic centres in 1996 (Chan, Li, & Tao, 2007) and Beijing and Guangzhou later (Child,
2006). Those locations gave Carrefour access to the well-developed region inhabited by
middle class population whose retail spending is higher and whose disposable income is
rapidly increasing.
- Buyer switching cost creation: When Carrefours store opened in Beijing in 1995, it was the
first time Chinese consumers could select good on shelves by themselves and buy fresh, highquality goods in a clean and comfortable environment (Jie, 2008). Urban consumers gradually
shifted their preferences from state-owned stores to foreign retail stores like Carrefour. With
the entrance of international retailer such as Carrefour, Chinese consumers got sensitised to
new ways of consumption. Carrefour therefore may have benefited from buyers switching
costs. Moreover, past researches showed that as buyers face imperfect information regarding

10

the quality of products, they may rationally stay loyal to the first brand they encounter that
satisfies them (Schmalensee, 1982). That may as well have benefited to Carrefour.
- Lack of strong foreign competition as Carrefour was the first one to enter the Chinas retail
market in 1995.
2) Resource access advantages
- Information access: Before setting up a news store in a new location, Carrefour would send
the regional manager and a local staff familiar with the area to study the population growth
rate, degree of urbanization, the local lifestyle, consumption patterns, traditional customs,
proportion of middle-class population and women (Chan, Li, & Tao, 2007). Thus Carrefour
developed a know-how that became a competitive weapon against its competitors. Its
knowledge of the local environment enabled it to respond quickly to local competitors.
- Human resources: As the first entrant, Carrefour was able to recruit local staff familiar with
the area and thus those local employees skills enhanced Carrefours know-how.
Carrefours early entry did not only bring advantages. As the first one to enter Chinas
retail market, Carrefour had to face high research and development costs, fragmented
customer bases, haphazard distributions (Economist, 2008) and other market uncertainties as
in the early phase of opening up to FDI, regulatory environment can be extremely uncertain
and even hostile (Luo, 1998). However, nine years after Carrefour entered Chinas retail
market, it was ranked third in terms of annual revenues among all retailers (Chan, Li, & Tao,
2007), becoming the only foreign-owned company in the top ten retailers in China [Appendix
4]. In July 2006, Don Lee commented on Carrefours success in China: By joining with
Chinese partners, adapting to local culture, and employing a supply chain that includes 18wheel trucks and three-wheel bicycles, Carrefour has become the biggest foreign retailer
operating in China. (Lee, 2006). How did joint-ventures enable Carrefour to capitalise on the
first-mover advantages it acquired?
To expand internationally, Carrefour has often formed alliances with local partners5.
In 1995, Carrefour followed the same strategy in China and established a joint-venture
company Jia Chuang Business Management Company (CBMC) (in which it held the majority

5

Its first international venture was set up in 1969 in Belgium with Delhaize Frres-Le-Lion (Comit des travaux
historiques et scientifiques, 1993).

11

of shares) with the Chinese consultancy firm Zhong Chuang Business Company (ZCBC). Its
local partner ZCBC set up a local subsidiary Chuang Yi Jia (CYJ), a commercial company.
As a local company, CYJ was able to do business in the retail sector without any restrictions.
CYJ later granted CBMC full control of its operations. The hypermarket was named CYJ but
the signboard displayed Carrefours name. As a major shareholder of CBMC, Carrefour thus
set a foot in Chinas retail market with little restriction (Chan, Li, & Tao, 2007).
Foreign retailers were required to form joint-ventures under Chinese law. However,
the resource-base theory can explain why Carrefour was particularly keen to follow this
strategy. Accumulating local knowledge and adapting quickly is crucial to early entrants if
they want to successfully overcome operational risks and capitalize on their first-mover
advantages (Luo, 1998). According to the resource-based theory, firms are endowed with
specific resources they want to develop or complete to be competitive in specific market (Hitt,
1999). This leads firms to seek strategic alliances to gain local market knowledge and
leverage their competencies through alliances with partners with complementary capabilities
and unique competencies (Hitt, Dacin, Levitas, Arregle, & Borza, 2000). Throughout its
expansion in China, Carrefour established joint-ventures and sought local partnerships
[Appendix 5] to make up for its lack of knowledge of the Chinese market. Thus, it was
important for Carrefour to form partnerships in the regions it wanted to set up its stores to
develop its pre-existing knowledge and acquire know-how. Its partnership with Lianhua, one
of the two major local retailers, contributed to Carrefours leadership position (Gehlen, Jones,
& Lasserre, 2005).
Carrefour not only used joint-ventures to enhance its resources endowments and
increase its organization learning but as well to gain control over geographic areas. In 1992,
China decided to open six major cities6 to foreign retailers, along with five Special Economic
Zones7. However, restrictions were applied: only one or two foreign-invested retail firms were
allowed in those cities. Foreign-invested enterprises could not set up stores in other cities
(Chan, Li, & Tao, 2007). Carrefour planed its expansion in a systematic way by establishing
joint-ventures and partnerships in the East China region and in the Northwestern region.
Carrefour carefully selected the store locations and local partners. It set up its stores in urban
centers, residential areas inhabited by the newly emerged middle-class. Thus it could cater the

6

Major cities opened to foreign retailers: Beijing, Shanghai, Tiajin, Guangzhou, Dalian and Qingdao;

SEZ: Shantou, Shenzhen, Zhuhai, Xiamen and Hainan.

12

needs of this class seen as having the most purchasing power (Chan, Li, & Tao, 2007).
Carrefour would choose as well strong local partners that would help him overcome obstacles
but it would keep the majority stake and assign a non-operational role to its local partners. In
2000, it had become the number one foreign retailer with 27 stores, outperforming Wal-Mart
which entered the market in 1996 (Fernandez & Shengjun, 2007). Thus, joint-ventures
enabled Carrefour to expand its presence over China and erode its competitors strategic
positions.
Hypothesis 1 states that the advantages acquired by a first-mover when it enters a
market can be enhanced through joint-ventures. Our analysis provided support for this
hypothesis. Through joint-ventures, Carrefour has been able to enhance its resource
endowments and organizational learning but as well to expand its presence over China and
deter competitors from entering certain areas (pre-emption of geographical space).
Hypothesis 2: In an emerging market, ceteris paribus, joint-ventures create the necessary
synergy to turn first-mover advantages into sustainable competitive advantages.
Carrefour saw joint-ventures as a way of merging the companys systems and formats
with the local knowledge of merchandise preferences, vendor relationships and human
resources possessed by their local partners (Holtreman, 2000). Scholars have noted that
knowledge-based resources such as marketing, managerial and technological capabilities
could be important source of sustainable competitive advantages (Teece, 1998) and are more
important than other assets (Levin, Klevorick, Nelson, & Winter, 1987). Nevertheless, early
entrants like Carrefour have no guaranty that these advantages will be enough to secure a
sustainable competitive advantage. The resource-based theory holds that sustained
competitive advantage arises from a continual competency accumulation which both
generates and replenishes causal ambiguity and the barriers to imitation that permits
sustainability of advantage over rivals" (Reed & DeFillippi, 1990, p. 101). Therefore, to
acquire sustainable competitive advantages, early entrants must: 1) accumulate the right
resources, 2) develop inimitable capabilities and competencies over time. According to
resource-based theorists, joint-ventures enable firms to accumulate efficient resources8 and
thus capture economic rents (Rumelt, 1984). A firm alone do not possess all the necessary

8

Efficient resources are resources with potential to create sustainable competitive advantages (Dierickx &
Cool, 1989)

13

resources, capabilities and competencies to develop sustainable competitive advantages

(Culpan, 2002). Therefore, following the resource-based theory, by pooling their resources
together through joint-ventures, firms can deploy unique and inimitable resources. When
Carrefour partnered with the Chinese retailer Lin Hua, it combined its supply chain
management and hypermarket management expertise with Lin Hua local market expertise to
develop consumer values and competitive advantages. Thus, Jean-Luc Chreau revealed that
Carrefour success in China was mainly attributable to the firm ability to respond to local
market demand, ability contingent upon their knowledge of Chinese consumers (Child, 2006)
and the expertise of their local partners (Fischer & Elci, 2008).
Through joint-ventures, Carrefour exploited its local partners and leveraged its
existing competencies and resources. Moreover joint-ventures provided Carrefour with a high
degree of control over its operations. High foreign ownership and control facilitated
replication of organizational leaning and consequently made it easier for its local partners to
use Carrefour knowledge resources and benefit from them (Zhan, Chen, Erramilli, & Nguyen,
2009). The synergy resulting from the interaction between Carrefour and its local partners
created sustained competitive advantage, which supports our second hypothesis.

4. Policy implications
Some interesting policy implications emerged through this discussion. Firstly, though
considerable studies conclude that international joint-ventures in China are doomed to fail
(Economist, 2008; Fischer & Elci, 2008), our study contradict this outcome. Though jointventures have been imposed by the Chinese government in the context of the Open Door
Policy, our study showed that they positively influence the advantages acquired by firstmovers.
Secondly, given that timing and mode entry are endogenous to the firm, firms success
or failure must be related to the fundamental nature of the firms resources and capabilities.
The resource-based theory therefore offered the perfect framework to analyse to what extent
joint-ventures affect first-mover advantages. It explained not only how joint-ventures
enhanced a first-mover existing capabilities and the resources it acquired when entering an
emerging market, but as well how join-ventures provide the synergy to develop new
sustainable advantages.

14

5. Conclusion
The purpose of this paper was to address the lack of theoretical and empirical studies on the
relationship between mode of entry in particular international joint-ventures- and entry
timing. Lieberman and Montgomery (1988, 1998) have stressed the endogenous nature of
first-mover advantages and the importance of theoretical modelling of factors that may
influence entry order. The present paper tested the timing of entry and mode of entry
relationship in the context of emerging market. In particular it tested how in an emerging
market, the resources and competencies acquired by a first-mover when it enters a market can
be enhanced through joint-ventures and how those joint-ventures create the necessary synergy
to turn first-mover advantages into sustainable competitive advantages.
This paper showed evidence that joint-ventures, in combination with first-mover
advantages, have a great potential in developing and creating a bundle of resources in
particular knowledge-based resources- generating sustainable competitive advantages.
While our study gives a better understanding of the interactive impact of joint ventures
on first-mover advantage, it has limitations as well. Our study is not cross-sectional. The food
retail sector cannot be considered as representative of the whole retail sector and our finding
may not be generalised. Furthermore, the effect that local partner selection may have on the
synergistic effect of joint-ventures has not been considered and shall be the subject of further
studies.

15

Appendices
Appendix 1: Johnson and Tellis five main classes of market entry:
Export a firms sales of goods/services produced in the home market and sold in the host
nation through an entity in the host nation.
License and Franchise A formal permission or right offered to a firm or agent located in a
host nation to use a home firms proprietary technology or other knowledge resources in
return for payment.
Alliance Agreement and collaboration between a firm in the home market with a firm
located in a host nation to share activities in the host nation.
Joint Venture Shared ownership of an entity located in a host nation by two partners-one
located in the home nation and the other located in the host nation.
Wholly Owned Subsidiary Complete ownership of an entity located in a host nation by a
firm located in the home nation to manufacture or perform value addition or sell
goods/services in the host nation.
Source: (Johnson & Tellis, 2008)
Appendix 2: Carrefour overview
Corporate name and address

Carrefour S.A.

Ranking (2008)

No. 1 in Europe and No.2 Worldwide

Net income from recurring operations, Group

share (2008 results)

Consolidated net sales (2008 results)

Regional operations

1,256m (-32.8%)

86,967m (up 5.9%, +6.4% at constant exchange

rates)
Europe, Latin American and Asia (present in 31
countries)
Europe: 13,189 stores
Latin Americ:a 1,106 stores

Number of stores
Asia: 574 stores
Franchisee-partner countries: 261 stores

Source: www.carrefour.com

16

Appendix 3: Foreign investment in Chinas retail industry

Before 2004

After 2004

Retail limited to certain cities

like Beijing, Shanghai, etc.

Restriction on retail lifted from

December 2004

Only Joint Venture

Wholly foreign owned

enterprises (WFOE) allowed
from December 2004

Prerequisites for
Retail JV

Annual sales volume of at least

US$ 2 billion, assets at least
US$ 200 million

Good reputation No breach of

national laws

Pre requisites for

Wholesale JV

Annual sales volume of at least

US$ 2.5 billion, assets at least
US$ 300 million

Good
reputation
No breach of national laws

Minimum registered
Capital for retail JV/WFOE
Minimum
registered
Capital for wholesale

RMB 50 million
(US$ 6.4 million)
RMB 80 million
(US$ 9.7 million)

RMB 300,000
(US$ 36,245)
RMB 500,000
(US$ 60,408)

Approval authority

Ministry of Foreign Trade and

Economic Cooperation
(MOFTEC)

Provincial commerce
authorities, MOFCOM

Geographic Restraints

Form of Vehicle

Based on: Source: Retail Outlook for China, KPMG from

www.kpmg.com.cn/en/virtual_library/Consumer_markets/Retail_outlook_for_China.pdf
Appendix 4: Top 10 supermarket operators in China by revenue, 2003-2004
(US$ millions)
Supermarket

2003

Supermarket

2004

Lianhua Supermarket

2969.36

Lianhua Supermarket*

3743.98

Hualian Supermarket

2228.22

Hualian Supermarket**

2471.27

Beijing Hualian

1680.46

Carrefour (China)

2006.80

Carrefour (China)

1660.32

Beijing Hualian

1977.02

Shanghai Nonggongshang

1529.84

China Resources Suguo

1715.06

17

China Resources Vanguard

1275.67

Shanghai Nonggongshang

1693.19

Suguo

1183.74

Wumart

1640.55

Wumart

1050.91

TrustMart

1482.76

Wal-Mart(China)

723.22

China Resources Vanguard

1360.93

Metro

694.55

Xinyijia

1050.29

Note: The revenue figures include sales generated at the group level, including directly
operated outlets and franchised outlets. All revenue data include VAT.
*Lianhua Supermarket and Hualian Supermarket are now under the Shanghai Brilliance
Group. Lianhuas
revenue in 2004, including sales from direct operations and franchised outlets, was reported to
be US$3.74
billion.
**Hualians data is an estimate.
Source: China Chain & Franchise Association; Ministry of Commerce; China Business
Herald 21 January 2005; Smith Barneys estimates.
Appendix 5: Carrefours partners in China, 1998-2002
Year

City

Partners

1998

Wuhan

Hanshang Group

2000

Shanghai

Lin Hua

2002

Kunmig

Kunmig Department Store Co.

2002

Xian

Jin Hua Group

2002

Guangzhou

Guangzhou Department Store Co.

2002

Liaoning

Liaoning Chen Da

2002

Harbin

Harbin Dong Li

2002

Tianjin

Tianjin Quan Ye

Source: Jean Kinsey, Min Xue, Supermarket Development in China, Globalization, China
and the Industry Studies Program, Solan Workshop, MPI Worcester Polytechnic Institute,
June 16-17, 2005.

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