International Journal of Retail & Distribution Management

Effects of business environment on international retail operations: case study evidence

from China
Wantao Yu Ramakrishnan Ramanathan
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operations: case study evidence from China", International Journal of Retail & Distribution Management,
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IJRDM
40,3
218
Received 6 October 2010
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Revised 25 August 2011
Accepted 8 October 2011
International Journal of Retail
& Distribution Management
Vol. 40 No. 3, 2012
pp. 218-234
q Emerald Group Publishing Limited
0959-0552
DOI 10.1108/09590551211207175
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0959-0552.htm
Effects of business environment
on international retail operations:
case study evidence from China
Wantao Yu
School of Applied Management & Law, Buckinghamshire New University,
High Wycombe, UK, and
Ramakrishnan Ramanathan
Department of Business Systems, University of Bedfordshire Business School,
Luton, UK
Abstract
Purpose – The purpose of this paper is to investigate the impacts of the business environment on
operations strategy encompassed by competitive priorities in China’s retail sector.
Design/methodology/approach – This is a case study of a multinational retailer to understand
how the company develops appropriate operations strategies to survive in the competitive and
dynamic Chinese business environment.
Findings – The study identifies that companies intending to expand their businesses in emerging
markets face many challenges in the new business environment, and that various dimensions of the
business environment (e.g. business cost, competitive hostility, and environmental dynamism) affect
the development of retail operations strategy. The strategy of flexibility is particularly important for
international companies to survive in an increasingly dynamic and competitive environment. Foreign
retailers need to be flexible and agile, adapting to the Chinese market environment in many ways in
order to succeed.
Originality/value – This study seems to be the first in investigating the effects of the business
environment on international operations strategy in the service (retail) sector, especially in the Chinese
context.
Keywords Business environment, Operations strategy, Retail operations, Field study, China, Retailing,
Strategic planning, Emerging markets
Paper type Case study
1. Introduction
An increase in the internationalisation of retail companies and markets appears to be
one of the most significant trends in today’s business environment (Vida and Fairhurst,
1998). Large retail operations are increasingly international in their operations and
orientation (Myers and Alexander, 2007). The changing nature of the international
business environment calls attention to the impediments to internationalisation (Evans
et al., 2008). The retailer aiming to expand its business in a global market faces with the
complexity and uncertainty inherent in the dynamic nature of the market, for example,
new business environments, unfamiliar consumer preferences, location choices for
performing business activities, and effective co-ordination of global operations
(Dawson, 2003; Burt et al., 2003; Vida and Fairhurst, 1998). In today’s environment the
risks associated with strategic errors are significant (Dawson, 2003), and companies
 are forced to constantly adapt to fast-changing circumstances. It is argued that an Effects of
operations strategy is a vital ingredient for the success of many retailers (Lowson, business
2005; Yu, 2011). Companies seeking to achieve success in global markets must
formulate appropriate operations strategies that are suited to the external environment
environments, and employ resources in ways that support these strategies (Prasad
et al., 2001; Yu, 2011). Therefore, the present study examines the impacts of business
environment on operations strategy in the international retail sector. 219
A few previous studies in manufacturing environments have found evidence of a
relationship between environmental factors and operations strategy (e.g. Ward et al.,
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1995; Amoako-Gyampah and Boye, 2001; Anand and Ward, 2004). However, all of
these studies involved collecting samples drawn from multiple manufacturing
industries and deriving conclusions purely based on a purely statistical analysis of
pre-formatted questionnaires. Also, there is no previous study that focuses on the link
in the context of retail operations. Over years there have been some calls for more case
and field research in operations strategy (e.g. Voss et al., 2002; Stuart et al., 2002),
especially in the service sector.
Although the approaches to a company’s internationalisation have received
considerable recognition in the academic community, few empirical studies have
examined how the retail internationalisation process evolves, particularly regarding
how to formulate retail operations strategy in emerging economies (Vida and
Fairhurst, 1998). Some scholars (e.g. Prasad et al., 2001) have called for more research
that examines international operations strategy development in a developing country
context. China provides a particularly interesting setting for this study because of its
rapid economic growth. As one of the main service industries in China, the retail sector
has been experiencing unprecedented development during the transformation process
from a centrally-planned to a market economy (Yu, 2011). However, a review of the
literature reveals that relatively little is known about the operations strategies adopted
by multinational retailers in China. Thus, the purpose of this study is to investigate the
effects of business environment on international operations strategy, using a case
study of a multinational retailer in China.
The remainder of this paper is organised as follows. First, a theoretical framework
is proposed building on previous studies. Second, the design of this study and the
methodological procedures are described. Third, the findings of the study are
presented and discussed, and a set of managerial implications are drawn. Finally, we
conclude with a summary of findings and conclusions, as well as discuss the main
limitations of this study and opportunities for future research.

2. Theories and conceptual framework

2.1 Business environment
The traditional contingency theory suggests that business environment influences
organisational strategy (Dess and Beard, 1984; Miller and Friesen, 1983). A review of
the literature reveals that the dimensions of dynamism and hostility have commonly
been used to characterize business environment. Miller and Friesen (1978) stated that
increases in environmental dynamism and hostility are related to specific changes in
the amount of analysis which characterizes strategy-making activity. Hostile
environments intensify challenges to the company, and often complicate these
challenges. Environmental hostility is characterized by intense price competition,
 IJRDM rising business costs, low profit margins, severe regulatory restrictions, shortages of
40,3 labour and/or raw materials, and unfavourable demographic trends, which offer few
opportunities to exploit (Miller and Friesen, 1983). Therefore, greater analytical effort
must be devoted to understanding and mastering threats (Khandwalla, 1972).
On the other hand, environmental dynamism refers to the extent of the
unpredictability of change within the company’s environment (Dess and Beard,
220 1984). This change can arise from many sources, including the rate of change and
innovation in the company’s principal industries, the introduction of new products and
services, and the uncertainty or unpredictability of competitors’ actions and customers’
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preferences (Lawrence and Lorsch, 1967; Miller and Friesen, 1983). Companies
operating in a dynamic environment have to contend with rapid changes in technology,
customer needs and preferences, as well as competitive action (Miller and Friesen,
1983).
For multinational companies, the superior environment scanning capabilities is
becoming critical for their success in global markets (Preble et al., 1988). International
retailers scan the environment in order to understand external forces of change so that
they can improve their abilities to adapt to the outside environment (Yu, 2011).
Research evidence shows that environmental scanning is linked to strategic
decision-making and improved organisational international performance (Smith et al.,
1991). As stated earlier, China’s retail market has experienced exponential growth in
the last 20 years (Uncles, 2010). However, the high levels of economic development
have generated business environmental pressures such as increasingly keen
competition, increasing consumer awareness, changing consumer tastes and
patterns; rapidly evolving retail technology, and high operating costs in the retail
sector (Lo et al., 2001; CCFA, 2009; Mofcom, 2011; Uncles, 2010; Yu, 2011). Therefore,
one of the aims of this study is to examine the current business environment of China’s
retail market.

2.2 International retail operations

Companies are increasingly entering global markets, since the globalisation confers
access to foreign markets, high growth rates, cheap labour, and other advantages
(Dawson, 1994; Williams, 1992). Although international expansion offers many
benefits to the companies operating, there is also the increasing level of uncertainty
and complexity in the multiple and geographically dispersed operating environments
(Myers and Alexander, 2007; Dawson, 1994; Burt et al., 2003). Multinational companies
face cultural barriers and complex environment when expanding internationally, for
instance they face multiple political, economic, legal, social and cultural changes at
varying rates in each country they do business in (Evans and Bridson, 2005). Such
environmental factors have a stronger impact on internationalisation than do others
(Evans et al., 2008).
In an era of globalisation, success or failure of a business will depend on whether it
can compete effectively in global markets (Palmer and Quinn, 2005; Palmer and Quinn,
2007; Palmer, 2006). Dawson (1994) stated that the strategy of internationalisation is
commonplace in retailing. The companies must “think global” but “act local” (Quelch
and Hoff, 1986). Given the company’s resources and capabilities in relation to the
dynamic business environment, a company must decide to what extent its strategy,
particularly marketing and operations strategies, will be standardised or adapted
 (Evans et al., 2008). Retail companies will perform better when they adopt marketing Effects of
and retailing strategies that accommodate the differences in markets and respond to business
changes in the business environment (Calantone et al., 2006). To be a successful
international retailer, the ability to apply and adjust the retail marketing mix elements environment
according to specific target-market conditions and a wider global strategy is very
important (Wigley and Chiang, 2009). Global strategy plays a vital role in determining
organisational performance in the global market. In the case of an increasing number 221
of successful multinational companies today, international operations strategies
constitute the leading strategies that shape their competitive vitality and determine
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their prosperity (Prasad et al., 2001).

2.3 Previous studies on business environment and operation strategy

Environmental uncertainty and its dimensions of dynamism and hostility have
received extensive coverage in the operations strategy literature (Yu, 2011). The
alignment between environment and operations strategy is critical for companies to
achieve success (Skinner, 1969; Hayes and Wheelwright, 1984). Operations strategy
literature suggests that it is similarly critical that the operations strategies of
companies are suited to the external environments in which they operate (e.g. Skinner,
1969; Leong et al., 1990). The necessity of fit of the operations strategy with external
environmental factors is supported by a few empirical studies (e.g. Ward et al., 1995;
Amoako-Gyampah and Boye, 2001; Badri et al., 2000; Pagell and Krause, 2004). These
studies showed that various dimensions of the environment cause manufacturing
companies to react differently. The main findings of these studies are summarized in
Table I.
As shown in Table I, all of these studies used questionnaire surveys to test the
relationships between business environment and operations strategy in manufacturing
environments. Empirical studies using case study and field research to explore these
links are quite rare, especially in the retail sector and more so in the Chinese context.

2.4 Conceptual framework

Building on the previous work, we develop a conceptual framework links business
environment and retail operations strategy (see Figure 1). Business environment is
characterized by three main factors that are outside the short-run control of company
management, namely business cost, competitive hostility, and environmental
dynamism (Lawrence and Lorsch, 1967; Miller and Friesen, 1983). Many researchers
stated that operations strategy focuses on developing specific capabilities called
“competitive priorities” (e.g. Hayes and Wheelwright, 1984; Roth and van der Velde,
1991). Despite the differences in terminology, there is broad agreement that operations
strategy can be expressed in terms of at least four basic competitive priorities:
(1) low cost;
(2) quality;
(3) delivery performance; and
(4) flexibility (Hayes and Wheelwright, 1984; Ward et al., 1998).

Thus, we will define retail operations strategy to include the four familiar competitive
priorities.
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40,3

222

Table I.
IJRDM

environment and
operations strategy
studies on business
Summary of previous
Study Environmental Operations Additional
variables strategy choices factors Country of focus Main findings

Ward et al. (1995) Business cost Flexibility Performance Singapore The authors identified strong relationships
Labour availability Low cost measures between environmental factors such as labor
Competitive hostility Quality Industry availability, competitive hostility, and market
Environmental Delivery variable dynamism and the operations strategy choices
dynamism performance encompassed by competitive priorities
Badri et al. (2000) Business cost Flexibility Performance United Arab The authors identified strong relationships
Labour availability Low cost measures Emirates between environmental factors such as labour
Competitive hostility Quality availability, competitive hostility, government
Government laws Delivery laws and regulations, political concerns and
and regulations performance market dynamism and the operations strategy
Political environment choices encompassed by competitive priorities
Environmental
dynamism
Amoako-Gyampah Business cost Flexibility Firm size Ghana Among firms in Ghana, the two strongest factors
and Boye (2001) Labour availability Low cost Degree of foreign that influence the degree of emphasis placed on
Competitive hostility Quality ownership operations strategy choices are perceived
Environmental Delivery business costs and competitive hostility.
dynamism performance Environmental dynamism did not have any
significant effects on any of the operations
strategy choices
Anand and Ward Unpredictability of Mobility of Performance USA The unpredictability or the volatility aspects of
(2004) environmental flexibility measures environment dynamism plays a crucial role in
dynamism Range of determining the types of flexibility strategies
Volatility of flexibility
environment
dynamism
Pagell and Krause Environmental Flexibility Performance USA The authors found no support for the proposition
(2004) munificence that firms that respond to increased uncertainty
Environmental with increased flexibility will experience
instability increased performance
Environmental
complexity
 Effects of
business
environment

223
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Figure 1.
Conceptual framework of
business environment and
retail operations strategy

Research method
3.1 Field research
This study employed an interpretative qualitative methodology to examine the
relationships between business environment and operations strategy. Case study and
field research can be extremely useful in answering questions about “how” or “why”
phenomena (Yin, 2003) or relationships between variables are observed in operations
management (Voss et al., 2002). This methodology is typically aimed at generating
deeper insights about international retail operations issues and problems through
direct observation and on-the-spot data collection (Voss et al., 2002; Stuart et al., 2002).
For that reason, we chose to carry out in-depth single case study to investigate how
retail managers in China develop operations strategies to survive in a competitive and
dynamic environment.
The case study design adopted in this study is a holistic single case design.
Typically, single case designs are appropriate when the case has something special to
reveal that might act as a point of departure for challenging received highlighted that
where contextual issues are likely to be important (as in the current study),
concentrating on a single case generates “deeper” and “richer” insights than a “cases”
based study that typically focuses on comparisons between cases rather than the
in-depth understanding of a particular setting (Yin, 2003). The single case approach
has been an increasingly popular methodology within the production and operations
management literature and the retail internationalisation literature (e.g. Fernie and
Arnold, 2002; Palmer, 2005; Halepete et al., 2008). Yin (2003) also emphasized that the
number and type of case study depend on the purpose of the inquiry. Our case study is
intended to understand how a multinational retailer, new to the Chinese context,
develops effective operations strategy. As a consequence we decided that an
instrumental single case would be more suited to the purpose of this exploration. This
study used convergent in-depth interviewing that allows the researcher to develop,
clarify, and refine the core issues of the interview protocol. It consists of a number of
interviews in which the procedure is both structured and unstructured.
A leading international retailer in China was selected as a case study. For
confidentiality reasons, the name of the case company has been disguised as
 IJRDM “A-Retailer”. A-Retailer entered China in 2004, when it set up a joint-venture with a
40,3 Chinese business partner. A-Retailer subsequently acquired a 50 per cent stake from its
joint venture partner. In 2006, it raised its stake to 90 per cent, giving the group control
of the entity and making the Chinese partner as its subsidiary.

3.2 Data collection

224 Our interviews were guided by the conceptual framework presented in Figure 1. The
purpose of the in-depth interviews is to investigate the interviewees’ opinions on how
to develop competitive operations strategy to survive in today’s complex and dynamic
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market. We undertook face-to-face interviews and interviews via telephone and

Internet during April-November 2008.
To minimize perceptual biases linked to managers’ specific organizational roles, we
attempted to include informants with diverse functional and managerial backgrounds
from different levels. As part of this field research, a total of eleven interviews were
carried out with four senior managers in the case company, who were in charge of the
retail operations function. Field research that investigates the views and opinions of
companies directly and indirectly involved in the decision-making process is becoming
increasing prevalent within the literature (Palmer and Quinn, 2003). Therefore, three
more interviews were also conducted with a cashier, a stockperson, and a salesman. In
addition, shop visits were arranged immediately after interviews so that we could have
a better understanding of case company operations.
The length of the interviews typically varied from half-an-hour to two-hours. All of
the interviews were tape recorded. For confidentiality reasons, the identities of
respondents are not disclosed in this paper. Questions arising from the interview notes
were answered by interviewees through follow-up e-mails and phone calls (Yin, 2003).
Interviewees were invited to comment on the transcripts and to clarify points which
had remained potentially unclear. Some statistics reported in this study have also been
modified due to confidentiality reasons. In addition, multiple and independent sources
of evidence, including market research reports, government statistics, company
profiles, financial statements and other media were used to corroborate the interview
data and develop convergent lines of inquiry (Yin, 2003; Voss et al., 2002). The use of
multiple respondents and multiple types of data mitigates the biases of a single
respondent and increases the odds of capturing the organization’s view of a construct
(Yin, 2003).

4. Findings
We report the findings from our in-depth interviews in this section. This case study
will largely be formatted in the same way as the dimensions outlined in our conceptual
framework (see Figure 1). The main body of findings directly examines the current
business environment of China’s retail market within which A-Retailer operates,
including the costs of doing business cost in China, competitive hostility, and
environmental dynamism.

4.1 The cost of doing business in China

The rising business cost was widely cited in the interviews as the main characteristics of
the Chinese retail market. The cost of doing business in China is rising. China has been
the world’s factory and the anchor of the global dichotomy between rising material
 prices and lower consumer prices, but these halcyon days are drawing to a close. Effects of
According to all of the interviewees, rising rental and transformation costs, the current business
global financial recession, and fluctuating exchange rates are all adding to the cost of
doing business in China. Particularly, the interviewees highlighted that China’s environment
advantage in labour costs is diminishing. The new labour contract law, which took effect
in 2008, increased the costs of operating businesses in China since it brought more labour
costs and risk to the employer. For example, the new law requires individual labour 225
contracts to incorporate terms that seek to protect the rights and interests of employees.
These trade union rights include minimum wages, working hours, leave and rest, scope
and place of work, training, severance pay, and social insurance premiums.
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4.2 Competitive hostility

Competition from local retailers and other foreign retailers. China’s retail sector is
becoming increasingly competitive. A-Retailer faces keen competition not only from
local retailers also from other multinational retailers in China. Over the last decades, a
number of leading domestic giants have established dominating sales records and a
national brand name. A-Retailer’s operations manager remarked:
We [A-Retailer] currently compete with the leading Chinese retailers to snatch market share.
China’s retail market is often likened to be a big “cake”, and retailer giants rush to get a piece
of this cake. Over the last few years, some leading retailers, especially local giants, have
occupied a great deal of markets in some big cities, and ate “the best” part of the cake.
A-Retailer will invest substantially, and it has plans to expand its operations in China
by opening about 12 new stores every year. By the end of 2008, A-Retailer had opened
62 stores in China. Nineteen stores are based around Shanghai, and most stores in the
capital cities are located out of town, and not in the central business districts.
China’s entry into WTO further opened up the retail market and attracted more
foreign investors (CCFA, 2009). More and more foreign retailers are looking for
opportunities to expand their business in China. At the end of 2005, at least 35 of the
global top 50 retailers (such as Wal-Mart and Carrefour) had already developed a
foothold in China, and some foreign retailers had been operating in China for more than
ten years (CCFA, 2009). Some of the main multinational competitors of A-Retailer in
China are presented in Table II. An operations manager from A-Retailer highlighted:
We [A-Retailer] entered China in 2004 and is now ranked among the top ten largest foreign
retailers in China in terms of market share, but the market shares were purchased from our
Chinese partner.

Competitors Date of entry Sales volume (RMB billion) Number of stores

Competitor 1 1995 33.82 134

Competitor 2 1997 33.57 101
Competitor 3 1996 27.82 123
Competitor 4 1997 16.40 104
Competitor 5 1997 13.00 76
Competitor 6 1995 12.65 38 Table II.
A-Retailer 2004 13.50 62 A-Retailer and its main
multinational competitors
Source: CCFA (2009) in China in 2008
 IJRDM Comparing with some leading local retailers or other multinational retailers in China,
40,3 A-Retailer’s sales and marketing manager commented:
We [A-Retailer] have a long way to go in order to catch up in terms of establishing brand
awareness. We do not have sufficient competitive advantages in brand image, customer
loyalty, and close relationship with suppliers. While some other foreign retailers have been
marketing for several years under their own names, A-Retailer sat coyly behind its Chinese
226 partner’s logo.
Moreover, our interviewees widely highlighted that the profit margins are quite low.
Particularly in the food retail sector, some daily products have zero profit margins
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(CCFA, 2009). Price competition is becoming more and more intense in the Chinese
retail market.
Government regulations change. Over the last few years, a number of relevant
important regulations on the retail sector have been issued by the central government,
such as China’s New Labour Laws, strict food safety and quality standards, and
environmental protection. In particular, A-Retailer’s operations manager remarked:
Since the Sanlu milk powder incident in 2008, central and local governments have begun to
pay much more attention on food safety and quality control than ever before. A number of
relevant laws and regulations have been issued and taken effect over the last few months.

4.3 Environment dynamism

Our interviewees reported that the shopping habits and lifestyles of Chinese consumers
are very different from those of Western countries. A sales and marketing manager of
A-Retailer remarked:
In order to compete in the Chinese retail market, it is very important to fully understand the
fundamentals of Chinese consumers’ unique shopping habits.
In particular, Chinese consumers largely emphasise the economics of their purchase
and are very cost-conscious. When purchasing for home consumption, Chinese
consumers, especially in small- and medium-sized cities, tend to focus their purchasing
decisions on the price of a product and buy whatever is least expensive. Our
interviewees widely acknowledged that most people do not consider store brands, and
customers just shop at stores providing them with the required products at the
cheapest price. Price competition is becoming more and more intense in the Chinese
retail market.
While Chinese consumers are price sensitive, they also value convenience and
quality. Retail customers in China are a big and rapidly growing group with increasing
buying power. Over the last few decades, the standard of living in China has
drastically increased. Shopping is no longer about basic need-fulfilment; customers
also want the products to have some added value in terms of quality. Furthermore,
Chinese consumers, even those with lower incomes, remain conscious of food quality,
particularly its freshness. The interviewees highlighted that Chinese consumers have
become more discerning and demand higher quality products and services. People are
purchasing well-known, genuine brands instead of the previously ubiquitous,
counterfeit alternatives (CCFA, 2009; Mofcom, 2011). This is actually part of the same
development that has changed the customer behaviour from buying from traditional
marketplaces and roadside markets to supermarkets or hypermarkets. More and more
 Chinese consumers have begun to pursue better quality of life through better quality Effects of
products and fashion clothing. Therefore, it is very difficult to achieve and maintain business
strong customer loyalty in China’s retail market. A-Retailer’s sales and marketing
manager highlighted: environment
Customer loyalty in China’s retail market is ephemeral, and customers are easily poached.
227
5. Discussions
To survive in today’s competitive and dynamic business environment, A-Retailer has
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developed appropriate operations strategies (such as low cost, quality, delivery and
flexibility). The main empirical insights from our case study are discussed further
throughout the remainder of the section.

Business environment and low cost strategy

Our interview data suggests retailers facing more rising business cost respond with a
greater emphasis on a low cost strategy (such as introducing retail technology). As
mentioned previously, over the last few years, business costs (such as labour, rental
and transport costs) have increased tremendously in China. In particular, the current
global financial recession has direct influence on retail sales volumes. Our interviewees
reported that A-Retailer has made great efforts (such as introducing retail technologies
and opening energy-saving stores) to reduce its business costs. A-Retailer adopted
advanced retail technologies (such ERP, EDI and PoS) from its global headquarters, to
improve retail efficiency and productivity. Retailing is a brands and products
management sector with providing thousands of varieties of food and non-food
products, so procedure of inventory management and data processing is very
complicated and time-consuming. Information technology can be used to resolve this
problem. Our interviewees widely acknowledged although investment in retail
technology would be a huge expense, the successful technology applications are
valuable for business cost reduction and performance improvement. In addition,
A-Retailer opened some energy-saving stores. The energy-saving stores use new types
of lighting, heating and ventilation equipment that help to reduce power losses and
overall business costs. The introduction of technology and innovation is playing the
critical role during the process of retail internationalisation (Dawson, 1994).
Technology is a key determinant for multinationals to explore possibilities of
gaining competitive advantage and generating good profits globally (Cavusgil and
Nevin, 1981; Cox and Brittain, 2000).

Business environment and flexibility strategy

Our case analysis suggests that foreign retailers need to adapt to Chinese culture in
many ways in order to succeed. Flexibility is particularly important in an increasingly
volatile business, and it permits a company to respond and exploit the uncertainty over
future changes in areas such as customer preference and taste, competitive moves, or
government policy (Anand and Ward, 2004; Kogut and Kulatilaka, 1994). Generally,
flexibility is one capability that international retailers can develop to cope with a
dynamic environment in which the behaviours of customers and suppliers are difficult
to predict.
 IJRDM Today, understanding culture may be the primary problem associated with doing
40,3 business in China. China has unique cultural characteristics, different even than other
Asian countries. Our interviewees reported that expanding a business in China with a
non-homogenous consumer base offers a great challenge for them. The study of
relationships between culture and retailing reveals that cultural barriers to retail
internationalisation might be more important than technical obstacles (Evans and
228 Bridson, 2005; Evans et al., 2008). For example, selection of overseas markets and entry
modes lies at the very heart of any international strategy (Sarkar and Cavusgil, 1996;
Palmer et al., 2010). Since many elements of external, internal, and environment bear
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significantly on the conduct and outcomes of the market and entry mode selection.
Therefore, A-Retailer initially set up a joint-venture with a Chinese partner to share its
partner’s extensive local knowledge and operating expertise.
Our interviewees acknowledged that Chinese consumers’ shopping habits are very
different from those of Western countries. A-Retailer learned from the joint venture
partner so it can understand and respond to what local people want, beginning when
the company plans to open a new store. In the industrial sector, learning in the
context of international joint ventures has been identified as an important way to
shape the whole international retail process (Palmer and Quinn, 2005; Palmer, 2006).
Chinese people like to eat fresh foods, and therefore A-Retailer in its daily counter
introduced hundreds of ready-to-eat, freshly-cooked foods in Chinese style. In
addition, A-Retailer offered street style food such as little dumplings (mantou in
Chinese) and rice cakes in the chain stores. To meet customer’s needs, A-Retailer set
up the special shelves to offer some imported products. According to the shopping
habits of Chinese consumers, during the promotional period and different season
periods (e.g. national holidays and Chinese New Year), A-Retailer provided a large
range of products, free storage service for reserved electrical appliances for three
months and deliver on customer requirements. During that period of time, it also
offered special services such as free consultancy service and mend/fix/repair service.
In addition, China is a big place, and because customer needs are very different
across regions, it is impossible to run all stores from one central office.
Understanding these regional differences, A-Retailer appointed three regional
managing directors who will each look after different regions: the North and North
East region, the Eastern region, and the Southern region. The interview data clearly
indicates that a multinational retailer should recognise the unique needs of the
foreign market and adapt the retail offer accordingly (Evans et al., 2008). Our findings
are consistent with previous studies demonstrating the importance of flexibility in
international retail operations. Using sample survey data from 106 retailers in China,
Yu and Ramanathan (2011) found that, comparing with local retailers,
product/service flexibility is particularly important for foreign retailers to survive
in an increasingly volatile business.
Local market knowledge and flexibility are essential to success of international
retail operations (Palmer et al., 2010; Evans et al., 2008). Our interviewees reported that
A-Retailer sought to improve its operational flexibility to survive in the current fiercely
competitive Chinese retail market. As noted above, A-Retailer is facing competition not
only from local retailers also from other foreign retailers. The increasingly tough
competition in the supermarket business has shown its effects. The price competition is
becoming more and more intense in the Chinese retail market (CCFA, 2009). Our
 interviewees also widely acknowledged that the customer loyalty is quite thin in China, Effects of
and customers are easily lost. To compete with other leading retailers and to enhance business
customer loyalty, A-Retailer tried to identify strengths and weaknesses of main
competitors through competitor analysis. A-Retailer set up a special marketing environment
research team. They are responsible for checking the price of about 50 household
products every day in other supermarkets and hypermarkets, and then adjusting
A-Retailer’s price. Generally, local retailers tend to obtain consumer confidence from 229
their low prices rather than quality. So, to compete with domestic retailers and develop
consumer confidence, A-Retailer provided unconditional refunds, even without product
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quality problems, whereas few domestic retailers provide such guarantees. In addition,
A-Retailer offered a nicer shopping environment than domestic retail stores. The
effective competitor analysis helped A-Retailer gain knowledge of China’s retail
market. In-depth local market knowledge and expertise have been identified as
potential incentives or barriers to the retail internationalisation (Palmer et al., 2010).
Some previous studies (e.g. Yu and Ramanathan, 2011) have also identified that
international retailers facing greater competitive hostility responded with a greater
emphasis on flexibility strategy, for example creating innovative and creative
solutions to problems that are encountered in satisfying customers.

Business environment and quality strategy

Our interview data suggests that the standard of living in China has drastically
increased over the last decades. The rapid rise in household income has simultaneously
increased the demand for consumer goods. Consumers, especially in big cities, are
becoming more discerning and demanding in terms of quality. More and more Chinese
consumers have begun to pursue better quality of life through better quality products
and services. Moreover, central and local governments have issued the relevant
regulations and placed heavy emphasis on food safety and quality control. To address
these concerns, A-Retailer set up a special Trade Law and Technology (TLT)
department for quality control. The quality control engineers and managers in this
department are responsible for checking the quality of own-brand products and the
products selected by purchasing agents. Our interviewees also highlighted that
A-Retailer maintained quality testing facilities within its production bases and
distribution centres to ensure high-quality products. A-Retailer required all suppliers
to pass a formal certification of food safety and quality improvement system (e.g. QS
and ISO9001). Our interviewees further acknowledged that the standardised
international marketing strategy on “quality, value and service” helped A-Retailer
build a strong brand image in China’s retail market. In the industrial sector,
establishing a clear and consistent global brand positioning image plays an important
role in international retail operations (Evans et al., 2008). Some previous studies using
survey data in a developing country context (e.g. Yu and Ramanathan, 2011) have also
identified strong relationships between environmental factors (such as government
regulations and increasing consumer awareness) and the quality strategy adopted by
multinational retailers.

Business environment and delivery strategy

Our interview data shows that the standard of living in China has drastically increased
over the last few decades. Chinese consumers have become more demand higher speed
 IJRDM and dependability. Time seems to be the factor most critical to customers’ shopping
40,3 experience, especially in grocery stores or supermarkets. Speed of service has become a
competitive weapon in retail operations (Yu, 2011). Our interviewees widely
acknowledged that providing fast and reliable delivery service for customer is
crucial for retail success in China. A-Retailer endeavoured to use its skills and
knowledge to improve supply chains. A-Retailer currently has three purchasing
230 centres in Shanghai, Shenzhen, and Hong Kong, and shares logistics information with
its global headquarters through the ERP system. In March 2007, A-Retailer opened a
new fresh food distribution centre (FFDC) in Shanghai which now supplies 30 stores in
Downloaded by CHALMERS UNIVERSITY OF TECHNOLOGY At 06:13 30 January 2016 (PT)

Shanghai, Jiangsu and Zhejiang provinces. Having control of its distribution network
means A-Retailer can improve the shelf life of its products through better temperature
control and ensure consistent quality. Additionally, A-Retailer also purchased
products directly from manufacturers or a third-party delivery company (a company
that subcontracts with both the retailer and the supplier to deliver goods), and required
its suppliers to directly deliver their products (such as fresh fruits and vegetables) to
supermarkets. Our interviewees commented that such innovative logistics have
provided fast and reliable delivery, and reduced purchasing and labour costs. The
empirical analysis clearly reveals that an extensive logistics network combining
international purchasing, distribution centres and direct store delivery play an
important role in supporting international retail operations. Some studies (e.g. Lowson,
2005; Yu and Ramanathan, 2011) have made similar observations concerning
relationships between environmental uncertainty and competitive positioning of speed
and responsiveness in a dynamic retail market.

6. Conclusion
This study has investigated the effects of business environment on retail operations
strategy, using a case study of a fast-growing foreign retailer in China. The study
enriches the literature on international retail operations in a number of different ways.
Our study has indicated that retailers that intend to expand their businesses in
emerging markets face many challenges on new business environment, such as rising
operating costs, cultural differences, government regulation, and increasing consumer
awareness. Our results are consistent with findings in the international retail literature
that identified a range of factors that impede the process of internationalisation (e.g.
Vida and Fairhurst, 1998; Dawson, 2003; Burt et al., 2003; Evans et al., 2008). Our case
analysis has further suggested that business environment appears to have substantial
impacts on retail operations strategy (such as low cost, quality, flexibility and
delivery). More specifically, a flexibility strategy is particularly important for
international retailers to survive in an increasingly dynamic and complex
environment. Foreign retailers need to be flexible and agile, adapting to Chinese
culture in many ways in order to succeed. These findings are consistent with previous
research showing that the environmental factors that drive and inhibit retail
internationalisation also influence the business strategy adopted in foreign markets
(Evans and Bridson, 2005; Evans et al., 2008). Moreover, this research has provided
new insights into international retail operations strategy (competitive priorities of cost,
quality, flexibility and delivery), especially in the Chinese context. Our results have
confirmed the findings obtained by empirical studies in operations strategy using
 questionnaire surveys (e.g. Ward et al., 1995; Yu and Ramanathan, 2011), and provided Effects of
some detailed empirical evidence which was not given by those previous studies. business
Our study has its limitations which opens opportunities for future research. Like all
case studies the external validity of our proposed model needs to be empirically tested environment
in a much larger sample. The research reported here draws on a very small sample. As
such, any analytical generalisations drawn from a limited number of case studies, no
matter how carefully sampled and researched, clearly deserve healthy caution. Most 231
notably, future efforts should include measures which capture environmental
complexity (Miller and Friesen, 1983; Dess and Beard, 1984), dimensions not explored
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in this research. Since China’s market and retailers will evolve with social, cultural, and
historical change, and the business environment is constantly changing, longitudinal
follow-up studies should be designed to identify these changes and re-examine whether
and how these relationships are changing. Moreover, empirical research into the
international retailing in terms of operation management should be welcomed. Future
research could undertake further empirical investigation into the problem areas
encountered and the root causes of those problems, with particular attention to
international retail operations strategy. Operations strategy in this study was
characterized by four familiar competitive priorities of cost, quality, flexibility, and
delivery performance. However, the traditional four critical success factors in
operations have counterparts in service companies (Roth and van der Velde, 1991).
Future study may identify more foremost critical success factors for service companies.
Moreover, future research can explore the unique characteristics of service operations
in other service industries (e.g. banking, insurance, tourism, and hospitality sectors)
and also confirm the results obtained in this research. Our present study focuses on
Chinese retailers. Since similar studies have been carried out in other country context, a
comparative study of Chinese and other retailers may be an interesting future course of
research.

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About the authors

Dr Wantao Yu is a Senior Lecturer in Operations Management at the School of Applied
Management & Law, Buckinghamshire New University. His research interests are operations
management; operations strategy; supply chain management; environmental sustainability;
retail operations and logistics; and performance analysis. He has published papers in
International Journal of Retail & Distribution Management and Journal of Retailing and
Consumer Services.
Dr Ramakrishnan Ramanathan is a Professor of Operations Management in the University of
Bedfordshire Business School, Luton, UK. In the past, he has worked and taught in a number of
countries, including the UK, Finland, The Netherlands, Oman and India. He has taught basic and
advanced courses on operations management, supply chain management, optimization theory,
data envelopment analysis, management science, business statistics, simulation, energy and
environment, energy and environmental economics, energy and transport economics, and others.
His research interests include operations management, supply chains, environmental
sustainability, economic and policy analysis of issues in the energy, environment, transport
and other infrastructure sectors. He works extensively on modelling using techniques such as
optimisation, decision analysis, data envelopment analysis and the analytic hierarchy process.
He is the area editor of Opsearch, the journal of the Operational Research Society of India. In
addition, he is on the editorial boards of International Journal of Quality and Standards,
International Journal of Advanced Operations Management and International Journal of Business
Performance and Supply Chain Modelling. In the past, he was the co-editor of a special issue of
International Journal of Production Economics, 2006-07 and the editor of a special issue of
International Journal of Agile Systems and Management, 2006-07. He has authored two books,
one on Indian transport and another on data envelopment analysis. His research articles have
appeared in many prestigious internationally refereed journals including Omega, International
Journal of Production Economics, Supply Chain Management, International Journal of
Operations & Production Management, European Journal of Operational Research, Computers
& Operations Research, Journal of Environmental Management, Energy Economics, Transport
Policy, Transportation Research, IEEE Transactions on Systems, Man and Cybernetics, and
IEEE Transactions on Power Systems. Ramakrishnan Ramanathan is the corresponding author
and can be contacted at: ram.ramanathan@beds.ac.uk

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