FDI in the Retail Sector: Some Implications for Host Countries · PDF fileFDI in the Retail...

FDI in the Retail Sector:

Some Implications for Host Countries

Beata Javorcik

Professor of Economics

University of Oxford

Research theme

How does the presence of global retail chains affect the performance of firms in the supplying industries?

Methodology / Outline

Case study

Survey

Econometric analysis

Two settings

Wal-Mart in Mexico

Foreign chains in Romania

Wal-Mart’s Invasion in Mexico

NAFTA and growing middle class in Mexico enticed entry of Wal-Mart

Joint venture with Aurrera in 1992

Bought controlling interest in Aurerra in 1997 and became Wal-Mart de México (Walmex)

By 2001, “only 4 chains dominated the market" (Chavez, 2002)

Wal-Mart de México with almost half (45.6 percent)

Comerical Mexicana with a little over a fifth (20.6 percent)

Gigante (15.5 percent) and

Soriana (14 percent)” (Chavez, 2002, p. 507)

By 2002, Walmex’s total sales had grown to $10.1 billion (Tegel, 2003), and by 2004 to $12.5 billion (Wal-Mart, 2005)

Case Study of Wal-Mart in Mexico

Walmex has introduced new business practices

stimulated innovation among suppliers

driven high-cost suppliers out of business and provided the surviving firms a larger market

lowered distribution costs for suppliers which has allowed SMEs to compete with large producers

Evidence from Romania

Global Retail Chains in Romania

Romanian subsidiary

parent

company

country of

origin year of entry

METRO CASH & CARRY

ROMANIA SRL Metro Germany 1997

BILLA ROMANIA SRL Rewe Germany 1999

MEGA IMAGE SA* Delhaize Belgium 2000

PROFI ROM FOOD SRL Louis Delhaize Belgium 2000

SELGROS CASH & CARRY SRL Rewe Germany 2001

HIPROMA SA Carrefour France 2001

REWE (ROMANIA) SRL Rewe Germany 2001

ROMANIA HYPERMARCHE SA Louis Delhaize Belgium 2003

KAUFLAND ROMANIA SCS* Kaufland Germany 2005

Global Chain in Romania: Rising

Importance & Superior Performance

0%

5%

10%

15%

20%

25%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Employment (LHS)

% total sales of retail

sector (RHS)

Much larger in terms of employment, capital stock, sales

More capital intensive

More productive: sales per worker, labor productivity, wages

Larger market shares

Data source: A World Bank Enterprise Survey in Romania (2008), and authors’ calculation

What were the effects of the entry of

foreign retail chains on the market in your

city?

0%

20%

40%

60%

80%

100%

competition fromimports increased

new competitorsemerged

some competitorswere eliminated

market has becomemore competitive

Agree Happened within 2 years after entry

(a) All manufacturing sectors

What happened after your company began to supply a foreign retail chain?

(Respondents supplying foreign retailers)

Data source: A World Bank Enterprise Survey in Romania (2008), and authors’ calculation

Was you company affected by the entry of foreign retail chains into your city?

(Respondents not supplying foreign retailers)

Econometric analysis

Difference-in-differences approach

Compare the performance of

food sectors before and after entry of global chains into their region

to the performance of non-food sectors

during the same period

Summary

Expansion of global retail chains leads to an improved performance in the supplying industries

On average, food suppliers’ productivity increases by 3.8-4.7 percent as foreign chains enter their region

Large firms seem to be affected more than SMEs

Entry of global retail chains stimulates both within-firm productivity growth as well as reallocationof market shares towards more productive suppliers

References

Javorcik, Beata S. and Yue Li (2013) Do the Biggest Aisles Serve a Brighter Future? Global Retail Chains and Their Implications for Romania. Journal of International Economics, 90(2): 348–363

Javorcik, Beata S. and Yue Li (2014) Global Retail Chains and the Supplying Industries: Evidence from Romania CESifo Economic Studies 60 (1): 107-134

Javorcik, Beata S., Wolfgang Keller and James R.Tybout (2008). Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers. The World Economy, 31(12)

Iacovone, L., B. Javorcik, W. Keller and J. Tybout. Supplier Responses to Walmart’s Invasion in Mexico. Journal of International Economics, forthcoming