|Chapter Six - The Global Context |
The globalisation of store-based retail operations, and the arrival of new forms of retailing with at least the potential for a global reach, must be seen within a geopolitical context: international trade, regional development, and national priorities all impinge on the progress of cross-border retailing. Globalisation itself is difficult to define, particularly in connection with retailing. Unlike other global industries - for example, oil, chemicals and air transport - e success of retailers in the global market will depend on their ability to think globally and act locally , and this demands either a particularly sensitive management structure or a very loose one. In either case, IT provides an essential tool for management control.
However, IT has had a limited - if significant - impact on the retail landscape worldwide. It will be an increasingly important factor in retail developments, particularly in the growth of global players, but local conditions, regulations and cultural attitudes still present formidable barriers to global expansion.
Political and social considerations remain important factors, particularly within the European Union which seeks to encourage cross-border expansion and the simplification of trading procedures while protecting the interests of individual nations and social groups. Attitudes to IT and communications often reflect realistic concerns about their effects on privacy, working conditions, and cultural variety. The long view of IT in retail must take into account not just the economic but the social functions of retailing.
Definitions of globalisation are not difficult to come by, although useful definitions are. The European Information Technology Observatory describes a process of `globalisation in its 1993 report:
The process of `globalisation of the economy in general is the result of the gradual convergence of competitive rules, player coverage and user demand towards a common set of factors. This set defines a new `global competitive environment that is no longer characterised or influenced by national peculiarities or boundaries.
According to the EITO report, this definition implies a subsidiary process called natural sizing in which economic activities are evenly distributed across the world. In the example to which the report addresses itself, a country s percentage share of the worldwide IT business... is likely to gravitate towards that country s share of gross domestic product (GDP). A country with a large GDP will have a large IT industry; one with a small GDP will have a small IT industry. And what goes for IT industries is undoubtedly intended to go for other economic activities.
In fact, this is little more than a pious egalitarian dream masking itself as social theory. Natural sizing assumes that global industry will spread itself evenly over the surface of the planet, while the truth is that global industry exists to a great degree because of it is possible to exploit differentials and disparities. As defined by EITO, a completely globalised economy could only exist in an environment which no longer admits national boundaries - but if it ignores more-or-less arbitrary national boundaries, then it must ignore regional boundaries at smaller or greater scales. This in turn would require that national interest and the internal and external dynamics of trading blocs were becoming increasingly irrelevant, whereas the opposite seems to be the case: polarisation and trade conflict are the order of the day.
If the EITO s process of globalisation is to have any meaning at all, then all economic activity will have to be reduced to the activity of completely self-sufficient individuals or, perhaps, households. In fact, globalisation only seems to imply a levelling and then only in certain areas. Retailing represents the uncomfortable truth that local markets and local economies still exist, are defended and will continue to exist. The point about transnational retailing is that its success depends on the ability of organizations (borrowing a valuable phrase from the environmental movement) to think globally and act locally .
In fact, rather than talk of globalisation of the economy, or a single global market, we might be better advised to think in terms of global industries - in which, according to Michael Porter writing in The Competitive Advantage of Nations, Macmillan, 1990, a firm s competitive position in one nation significantly affects (and is affected by) its position in other nations. In essence, this is a prescriptive definition which fits better with reality than the EITO s and suggests that globalisation, far from levelling the field, involves titanic conflicts between nations and companies each seeking to improve their position and defend their interest. It is the precise absence of commonality within the global arena that offers opportunities for growth - and it is IT s ability to cope with diverse conditions and circumstances in a systematic and uniform way that makes it a critical instrument in the search for global markets.
Retailing remains essentially a national activity constrained by national peculiarities . It is one of the remarkable facts of recent economic history that few retail operations have, until recently, succeeded beyond the boundaries of the home country, and those have been mostly fast food outlets like McDonald s, or fashion outlets at the upper end of the market which stretches, roughly, from Bennetton to Armani. Over the last decade, the drive to expand across borders has witnessed success on an international level by category killers like Toys `R Us, and by one-off flagship shos like Marks & Spencer s Paris or Hong Kong stores. On the whole, however, the largest retailers have pursued global objectives along different routes - notably, through joint ventures, and collaborative purchasing and marketing arrangements.
Joint ventures are a legal requirement in many Asian countries, and the combination of local knowledge and foreign expertise has stimulated the growth of retail outlets and trade in many newly industrialised countries. In saturated markets like those of Northern Europe, the possibilities for growth in outlets and trade volumes are restricted. Joint ventures are more likely to take the form of up-stream collaboration aimed at reducing costs, as with the pan-European buying groups in the grocery and food markets. But the commonest form of globalisation in retail is simply sourcing product from foreign suppliers - which, as a rule, implies high value or high volume markets and a liberal trading environment.
Oddly, retail itself often seems to be a poor cousin when economic and trade policies are considered, although according to OECD figures it accounts for between 10 and 20% of GDP in the G24 countries of the developed world [TABLE XXX]. Activity in the retail sector is universally considered a critical indicator of economic well-being, and is a prime determinant of taxation and interest rate policies. Yet, individual retail business are invariably less significant in global terms than individual businesses in oil and extraction, steel, telecommunications, computers and office machines, aerospace, banking and finance, chemicals or a number of other manufacturing, processing and service industries which sell into global markets.
From this point-of-view, it is perfectly understandable that governments should see retail activity as an end-product of wealth creation. The more wealth there is around, the more people will shop. National governments have in the past looked on retail activity as a sort of neutral economic indicator and, accordingly, their interference in the sector has been minimal. But increasingly governments see consumer demand as a driver of economic growth, not merely its passenger, and they have sought to encourage retail activity by making consumer credit more easily available, manipulating interest rates, and liberalising the regulatory environment. The development of large-scale shopping centres, laxer building regulations, fewer restrictions on mergers or monopoly practices, the removal of price controls and moves towards lessening or eliminating restraints on opening hours have followed.
The French retail sector was completely transformed in the 1960s by this sort of government action aimed at improving management, regulating prices, and encouraging both investment and competition. Some of the same innovatory spirit that commentators once observed in France can now be detected in the newly industrialised countries of East Asia and Latin America, whose governments have begun to see the modernisation of their retail sectors as both popular and economically effective. Inevitably, liberalising moves cause friction with interest groups who might be opposed to Sunday trading, zero-hours contracts for staff, planning blight, or increased car-use. Traditionally, state control of planning has been the chief mechanism used to control the excessive growth of stores and shopping centres, and thus maintain a balance between the quest for profit, the provision of consumer goods, and the protection of environmental amenity. In some countries, laws have been promulgated to address development issues, for example, the French Loi d Orientation du Commerces et de l Artisanat (1973), known as the Loi Royer, or the Japanese Large Scale Retail Store Law (1974, amended 1979). These laws may act as barriers to entry for foreign retailers, and there is a complex interplay between national governments seeking to stimulate domestic retail activity, and others seeking to open markets.
There are three broad aspects to what might be called the liberalisation of the global retail market:
The dilemma of protectionism
Measures to stimulate a local retail market can provide an attractive inducement for foeign retailers to enter that market. This has been seen recently in East Asia as companies like Ikea (Sweden), Carrefour (France), Sogo (Japan), Toys R Us (US) and Marks & Spencer (UK) have been drawn by newly affluent and liberalised markets in Singapore, South Korea and Malaysia. Half the work in attracting consumers, and providing infrastructure and productive outlets is already done for them. If consumers are encouraged to buy, and encouraged to shop in particular localities, it will not matter much whom they buy from. This mutuality would present no problems in a truly global economy. In the real world, the protection of national economies and the companies that constitute them is a political goal. Politicians may welcome stores which satisfy the consumerist appetites of their countries citizens, but only up to a point. If retail trade is meant to prime the pump of domestic industry, then it has to be rooted in the domestic economy. The trouble with global retailers is that they are usually rooted elsewhere, operating a form of colonial expansion. Developing nations, and countries or blocs seeking to preserve indigenous industry are likely to impose tariffs and conditions on cross-border retail operations. Protectionism may be a dirty word, but it is the bottom-line of managed trade - the rock on which GATT (now the World Trade Organization) and all the world s bilateral and multilateral trading arrangements stand.
Cultural and commercial diversity
Within the major trading blocs themselves there is an increasing tendency towards homogeneity - the so-called level playing field at the heart of much of the European Commission s thinking. The argument is simply that successful trading blocs require large and relatively uniform internal or home markets to provide them with economies of scale. The theory is that the size of a home market has been one of the critical determinants of past success for trading nations like Imperial Britain, the US and post-World War II Japan. The much-vaunted Single European Market boasts a home base of some 320 million consumers, and the idea that such a vast unitary market is important has taken root in North America and East Asia. For retailers, level playing fields imply cultural and commercial uniformity - the same opening hours, the same preferences, the same approach to buying and selling, the same sort of shopping environment. Cultural diversity covers religious difference (is your sabbath Friday, Saturday or Sunday?), the importance of bazaars and street markets, a preference for pastels over primary colours, or spicy food over bland. It extends to attitudes towards cash and credit cards, haggling, or shopping as a social activity. Although welcome to most of us in our daily lives, cultural diversity has proved a stumbling block to retail expansion which the single market idea is dedicated to obliterating.
The management of global trade
Relations between trading blocs increasingly focus on access to markets - the other side of the protectionist coin. Clearly, the debates on access have important ramifications for retail operations. Retailers may face difficulties in attempting to set up or operate within certain countries for a number of reasons - local regulations, the lack of a suitable distribution set-up, or tariff or quota barriers to importation, among them. For similar reasons, they may be unable to purchase from overseas suppliers. Conventional vertical integration may also hinder access to markets. Retailers, wholesalers, distributors and manufacturers are often joined within single corporate entities - for example, the keiretsus of Japan - by contractual agreement, or by strong informal arrangements. It may be that governments enforce retail price maintenance or that manufacturers form price cartels. In any case, local manufacturers will receive preferential treatment in their market which may appear to be anti-competitive. According to the European Commission s 21st Report of Competition Policy, Brussels, 1992:
In today s increasingly `global economy, companies are often able to reach optimum efficiency only if they can be active in all major markets. Thus, they would be able to benefit from the economies of scale which are inherent in producing for large markets and would lead to lower prices for the consumer.
In such a global economy, global retailers will seek to source their products wherever they can find the best or the cheapest supplies, and seek to invest their profits wherever they can find the greatest return. It has become impossible to separate the international aspirations of retailers from the international character of manufacturing and finance.
It is difficult to disentangle commercial interest from economic policy in these areas. In 1990, for example, the Japanese government bowed to US pressure to curb the practice of manufacturers setting suggested retail prices . Now Japanese retailers can discount prices without losing supply contracts, but it s not clear who benefits most from this arrangement. US action on opening up Japanese consumer markets is often credited with helping to liberalise the Japanese building regulations for retailers. These used to impose severe limits on the size of a store that could be opened without approval from the Japanese Ministry of International Trade and Industry (MITI). Today, retailers are allowed to open stores with floor space of up to 1,000 square metres without government permission. In the UK, it is widely assumed that large retailers have been responsible for the liberalisation of Sunday trading. Yet Britain s arcane Sunday trading laws were only revised when it became apparent that they ran counter to the objectives of European Union single market policy.
In general, expanding world trade has been a key goal of post-war economic policy in the developed world and the globalisation of the retail sector has an increasingly important part to play in this. Typically, nations and trade blocs will not seek direct intervention in the affairs of other nations or trade blocs, but will attempt to remove impediments to ordered growth. But cultural differences and legislative restrictions remain legion, despite the best efforts of trading blocs to end anti-competitive practices. Incompatible technical standards, packaging and labelling regulations, or health and safety laws may create insurmountable barriers to the development of global markets, and while these problems are increasingly resolved by the process of converging national and international standards, retailers seeking to expand across borders still face a complex set of problems even before outlets become operational. It is hardly surprising that most solutions to date have been partial. But although complexity may have defeated expansion in the past, technology has now rendered it susceptible to management.
Four broad areas affect the use of IT in retail at a national level: regulatory measures; culture and attitudes; the level of development of the retail sector itself; and the general technological environment. Clearly, these are not entirely independent. For example, statutes such as France s Loi Royer may inhibit the growth of large stores or restrict mergers and acquisitions. They may therefore slow the development of an oligopolistic retail sector. Oligopoly encourages the use of IT in retail, and substantial demand for sophisticated technology by the retail sector may stimulate the development of IT itself.
Nevertheless, there may be differences from country to country in each of the areas mentioned which play a detectable part in the complex equation.
These fall into a number of categories:
Policies to regulate competition;
Policies to safeguard consumer interests;
Policies to regulate trading conditions;
Policies to protect conditions of employment; and
Infrastructural, environmental andeconomic policies.
In most countries, the development of the retail sector is regulated to some degree. Even the traditionally laissez faire US enjoys a wide range of land-use controls, zoning ordinances, and prohibitions against price discrimination. Broadly speaking, governments seek to promote free competition rather more than they seek to promote fair competition. Their problem is one of definition; free competition suits those retailer with commercial muscle, just as bare-knuckle boxing suits the strongest and meanest fighters. For smaller retailers, unrestricted competition is not necessarily free, and of course retailing does not just involve retailers.
Governments tend towards the view that free competition is competition which benefits the community at large, but this view also begs many questions. In practice, regulations governing retailing are invariably the result of a political process involving the full range of interest groups: small traders, large retailers and their suppliers, consumer organizations, management organizations, and trade unions. Even religious organizations have been known to enter the fray. The areas that regulation addresses are typically: prices, location, floor area, and opening hours. The introduction of IT is not, as such, an issue, but it may be indirectly affected by the other issues. For example, investment in EPoS systems may be cost-justified with reference to store size, while government price controls (as in Portugal), food subsidies, or tax compensation schemes (as in Norway) may be effectively and more cheaply administered using IT than in any other way.
Policies to safeguard consumer interests, or regulate trading conditions and employment conditions, may impose costs on the introduction of IT, but they may also support its use. For example, credit regulations and laws which seek to control aggressive selling techniques may require the recording and storage of certain data. Privacy and data protection regulations also impose restrictions on the use to which personal data can be put. This would affect both the specifications of IT systems and their use for marketing or promotional purposes. Other regulations in these categories might require staff training (frequently compulsory in Germany), or specify minimum environmental requirements for the use of computers and terminals.
Perhaps most significant of all, at least in the long term, are regulations addressing infrastructure, environment and the economy. Consumer credit laws are of obvious importance to retailers, and will affect the form and use of electronic funds transfer (EFT) technology. Similarly, environmental legislation may limit the utilisation of satellite communications or energy-inefficient technology and, under the same category, we can include the purely planning-related aspects of store locations and sizes. But perhaps the most influential single class of measures to affect retail growth and the use of IT are those which address infrastructural development.
In the past, it has been fairly observed that the postwar American programmes of road building and housing development have probably done as much as any other phase of action in shaping contemporary retailing (S.C.Hollander, `Retailing and public policy: retrospect and prospect, in Allvine (ed.), Public policy and marketing practices, Chicago: American Marketing Association, 1973). Today, the US Vice President, Al Gore, has drawn an explicit comparison between the highway construction programme of the 1940s and 1950s and his proposal for a data superhighway to reinvigorate the American economy.
Governments in every part of the developed world have formulated similar programmes with similar intentions. The development of high speed national and international data networks for everyday use will undoubtedly accompany the next dramatic change in retailing. Already we can see how it is becoming an information-focused business and an international business, and data communications technology will allow retailing to transform itself completely. The data superhighway can bring digital home shopping to every house; it can allow retailing to focus on distribution and marketing rather than display; large stores may become redundant, certainly they will become smaller. Quite what the impact of all this will be on national regulatory structures is hard to say, but we are already beginning to see how international data communications can challenge existing copyright, censorship and data protection laws. Just as local and national planning authorities have regulated the spread of earthbound highways, international ones will undoubtedly be called on to regulate their ethereal equivalents.
Culture and attitudes
Retailing, so it s said, is the world s second-oldest profession (at least if you discount spying and juggling - there s no doubt about the first). Traditions of buying and selling are deeply ingrained and affect each country s willingness to accept new and alien methods and technologies. In countries with small scale retailing, for example, haggling may be common: the introduction of systems which effectively enforce fixed pricing may not be welcome. But there is no simple connection between retail development and technological awareness. For example, Japan is a technologically sophisticated society with a retail sector which is still predominantly small-scale and family-dominated. In East Asia as a whole, shopkeepers probably use the abacus as often as the computer.
Of course, fashions can change and traditions gradually be replaced, but - television notwithstanding - we are still some way from a global village. For global companies, cultural variation can be a problem, while national governments tend to see it as a virtue with which they can leverage their own popularity. Mistrust of technology may be rooted in an arts-based educational system - it can be exploited to support a populist political message. Technocratic societies may seem to be the reverse, their politicians promoting new technologies with modernizing zeal.
That said, a technologically developed retail sector may shield technology from consumers, and technology itself may adopt one of many guises. In this respect, retailers in different countries are increasingly able to choose appropriate technologies to support their operations. The may even benefit from government support for or sponsorship of particular technologies. The French PTT s promotion of the minitel videotex network is the leading example of this. Launched in the early 1980s, the minitel network was initially aimed primarily at domestic users as an electronic replacement for the telephone directory. The system s popularity was boosted by government sponsorship, but it was undeniably rooted in France s technocratic culture. Uses for the minitel proliferated because individuals and organizations were willing to experiment and were encouraged to do so. One early user was Renault, the French state-owned car manufacturer, which used the minitel system to link its dealerships to a central product database. The system allowed dealers to give customers accurate information about the availability and delivery times of particular models or components at the point of sale.
By the end of the 1980s, minitels were being used to access reference material in museums and libraries, for tele-dating, and as a direct selling medium. A 1989 report from the European Commission (Commerce and distribution, EUR 12089 EN) observed that:
Specialised applications for the network are currently being developed in the commercial sector, particularly in chain stors and by wholesalers responsible for chains of independent stores. The system is particularly useful for organizing the placing of orders by a retail store with its usual suppliers.
Other countries have introduced similar videotex facilities (for example, Prestel in the UK or Videotel in Italy), but they have generally been more narrowly focused than in France and have met with less success. Italy s Videotel system, for example, has virtually collapsed. Some shops in the UK use videotex for inventory location (for example, Rumbelows and BhS) or for customer service, and almost all travel agents use videotex for holiday and flight bookings. But these are exceptional cases. Even where individuals and organizations have been encouraged to use videotex systems (notably, in connection with TV-based services like Oracle and Ceefax), the take-up has often been low. On the other hand, audiotex services using premium rate phone numbers have been very successful in the UK, albeit predominantly in marginal areas, while teleshopping programmes have flourished in Italy. In Italy, such considerations have led US West and the Italian state telecommunications company, Stet, to announce ambitious plans for a multimedia network aimed at video on demand and home shopping.
The retail sector
The level of development of the retail sector in any given country will clearly influence the success or failure of foreign companies operating within that country. The critical issues here are the state of the retail environment, the availability of suitable staff, and the expectations and attitudes of consumers.
There are a number of ways of looking at and measuring the retail environment: number of shops per capita, average store size, percentage of population employed in retail, contribution of retail to gross domestic product, household expenditure broken down by category, price levels and differentials, population density and store density, and so on. The variations are enormous even within broadly similar economies. Different forms and areas of retailing will have different characteristics, while the economy itself will also influence the retail environment.
It would, of course, be relatively simple if we could detect a simple trend from less to more developed retail environments. Then it would be possible to locate any particular economy on a scale and to read off the relevant outcomes: optimum store size, best location, assortment and pricing strategy, marketing activity. Apart from a tendency towards oligopoly control, however, there is no simple view of market developments in retail that could inform the choice of a territory to expand in or how to negotiate local conditions. Increasingly, multiples are pursuing two approaches in managing their expansion: either they embark on joint ventures with local retailers already established within a market, or they expand into geographically or culturally similar localities (or both, of course). Carrefour s most successful expansion has been into Spain; the Swiss multiple, Migros, has decided to expand into neighbouring countries which share some of the attitudes and preferences of the Swiss.
Successful retailing depends on the ability of management to coordinate the functions required in building and fostering an exchange environment. This means that corporate strategy must be directed to establishing or maintaining procedures for merchandising and distribution, determining trading formats, and developing customer service and customer communications strategies. None of these things can be achieved without a clear understanding of the wider context of retailing within a particular territory but, more significantly, they can all be aided by the implementation of appropriate information systems. The issue then becomes to determine what is appropriate. IT systems can be employed to automate routine procedures, to enhance productivity, to achieve competitive edge, or to refocus an organiation completely. But there is little point, for example, in investing potentially ruinous sums on a system to achieve competitive edge for the only supermarket in town.
The technology environment
Clearly, the local availability of technology, and technology-based services and support, will affect the extent to which technology is used. But low technology countries need not be written off completely. Current developments in electronics and communications make IT portable enough for use in the poorest of areas. Inevitably, the main issues are economic. Retailers themselves may not view investment in technology as worthwhile in a localised and fragmented market, while the IT industry itself is unlikely to supply technology services or support in areas with insignificant IT sales.
The IT market is even more skewed than retail. According to research undertaken by the International Data Corporation for the European Information Market Observatory in 1993, Western Europe (comprising the European Union the European Free Trade Area) and the US account for just over a third of worldwide IT consumption each, with Japan representing a little more than a sixth. In other words: more than three quarters of the world s population accounts for less than one sixth of its IT use [TABLE XXX].
IT production - including hardware, software and services - is even more unbalanced, with the US responsible for nearly half of it. [TABLE XXX] Despite the growing strength of the Japanese computer industry, the US is still the dominant power in IT. Historically, governments with indigenous IT industries have supported national champions, believing initially that IT was militarily, politically, and scientifically strategic, and more recently that it was economically vital. As a result, companies like IBM, ICL, Bull, Siemens-Nixdorf, Norsk Data, and Olivetti have achieved dominance within their respective national markets: the US, UK, France, Germany, Norway and Italy. Along with AT&T Global Systems (formerly NCR) these companies dominate the market for retail systems, although the increased complexity of retail technology means that systems integrators are increasingly used to develop enterprise-wide networks involving hardware and software from a variety of sources.
The skills needed to implement and maintain integrated systems are in short supply in the developed, IT aware countries of the world. They may be all but absent everywhere else. Similarly, the technical standards introduced to facilitate integration (typically, those associated with open systems) can increase the cost of technology even while they encourage competition, and may create barriers to the successful implementation of reliable integrated systems in those countries without an appropriate or effective infrastructure in support of standards. In short, the technology environment displays massive inequalities which require positive action by governments or industry if a spiralling decline is to be avoided. In this respect, retail is no different from any other economic activity in which IT can play an important role, and IT itself is not significantly different from other aspects of the economic infrastructure: sustainable economic activity can be stimulated only by investment in infrastructure.
Most of the world, including Africa, the majority of Asia, Eastern Europe, Russia, and Latin America, is IT poor. It is badly served by IT vendors who see small returns for any effort on the sale of hardware, software or services - unless, of course, they are of direct military value. Retailers in these areas of the world can expect little in the way of local support or services for any information systems they might wish to install. On the contrary, most of the countries concerned have large, low-paid labour forces, and it clearly makes economic sense for a retail operation in, say, Bulgaria or Bhutan t adopt a traditional labour-intensive approach. The tendency is for retail to remain locked in to traditional, small scale forms.
While this may be cost effective, it doesn t necessarily fit well with management techniques developed in the US or Western Europe where large scale retailing and the use of new technologies prevail. Nor does it satisfy the demands of consumers in some underdeveloped parts of the world whose horizons have expanded beyond their own local economies.
It is one of the ironies of IT that the technology tends to become cheaper and easier as it becomes more sophisticated. It is another that IT users in developed countries are often locked in to older technologies because of the uneven development of technology infrastructures and the need to amortise expenditure. The poorer countries of the South and East, entering the field later, may be able to take advantage of new and cheaper technologies as they become available without the encumbrance of old infrastructure. For example, it may not be worth cabling some countries for telephone services which could make the leap straight to more advanced and increasingly widespread cellular and satellite-based communications. The availability of this sort of technology has already helped retailers expand across significant geographic distances while maintaining close management control of their operations. The ability to implement an electronic trading system without landlines should, in principle, make retailers much more flexible in countries which may not have adequate IT and telecommunications infrastructures.
Retail management under these circumstances becomes vastly different from its familiar form. Managing the store itself will become secondary to controlling the logistics of supply and distribution. In many countries, particularly those which once belonged to the Eastern Bloc, consumer demand is growing rapidly. Inevitably, it is fed largely by overpriced imports, but the opportunities are great. At present, old-style traders - deal-makers - tend to dominate the exchange environment, although new retail operations are already beginning to grow. The new outlets demonstrate both the pivotal position that retail can have in regenerating an economy and the potential of IT to effect transformation. For example, Russia s first discount warehouse for office supplies and furniture, Office Club, was to have been a branch of the US-based Office Depot. But Office Club s founder, Viktor Naishuller, disliked the terms that Office Depot offered and, with help from two former employees of the US chain, opened his own store on the outskirts of Moscow. This store carries 8,000 lines, only 85 of which are made in Russia. Distribution is difficult, but coordination would be impossible without IT. Naishuller intends to invest in Russian manufacturers, and to open stores in St.Petersburg, Siberia and Southern Russia.
With an unreliable and overstretched telephone system, many Russian businesses already use data communications and basic e-mail to manage their supply chains. The IT infrastructure need not be that sophisticated to to support a vigorous retail sector.
The European Union - a Case Study in Globalisation
European Union policy on retailing was set out as a programme of work in a 1991 Communication issued in response to a request from the Council of Ministers made in November 1989. The Communication was called Towards a single market in distribution (COM(91) 41). The policy is worth loking at in some detail, partly because the EU represents the largest and most integrated trading bloc in the world and partly because the issues it addresses with regard to retail are common to all cross-border expansion in this sector.
In general, retail activity contributes a higher proportion of GDP in the poorer southern countries of the EU than in the richer north. For example, OECD figures (which include restaurants and hotels in the same category) show wholsesale an retail activity contributing around 20% of GDP in Spain and Portugal and only 10% in Germany. Except in a few cases, this proportion remains fairly stable - much more so than the proportion of GDP represented by other service sectors, such as finance, insurance, real estate and business services. This stability indicates that, whether as cause or effect, retail activity is a reliable measure of general economic health. Within the EU, the wholesale and retail sector accounts for around 17% of employment - with comparatively little divergence (from around 22% in Spain to about 13% in Denmark). It is, therefore, an important source of employment and wealth.
According to a European Commission background report:
Commercial supply of goods to consumers through the wholesale and retail trades is essential to the working of the [single] market. The commercial sector accounts for about 17% of output... in the Community, but there are substantial differences between the operations in the member states; and there have been substantial changes in the last forty years. There are few companies operating across national borders and medium-sized companies (SMEs) in particular are restricted by national difference.
Typically, the Commission decided on a three-stage course of action:
to define the problems of the retail sector;
to encourage self-regulation rather than impose legal measures; and
to employ a variety of support programmes to help further developments in European retail.
The EU reveals in microcosm all the main pressures shaping global retail activities, with the significant difference that the European Commission seeks actively to encourage expansion as a means of promoting cultural and economic homogeneity within its territory.
The Single European Market
The Single Market Act came into effect on 1st January, 1993. Its purpose is to establish an internal market in the European Community which will eventually be characterised by the removal of all tariff and non-tariff barriers to trade between different member states. The result should be a $4bn market of 320 million people - and growing.
Achieving this end implies the establishment of a uniform technical, legal and commercial environment - harmonisation , as the European Commission has it. The complex task of `levelling the playing field is still in hand: the Commission s 1985 white paper on the single market idntified 282 separate measures to encourage the free movement of goods, services, people and capital between member states; nine years on, 5% of them have still to be agreed. Nine of the 282 measures were particular to IT and telecommunications, although a number of other regulations, directives, decisions and recommendations are relevant.
In IT in particular, the Commission s measures have been designed to encourage the opening of the market in public sector procurement of hardware, software, and services. The effect of measures such as the IT Standards Decision (87/95/EEC) and the various Supplies, Works and Services directives have been to stimulate the market for open systems and outsourcing even in the private sector. Outsourcing (or facilities management) is particularly popular in countries with a well-developed consultancy and computer services sector - which tend to be those, like the UK, which have been the most enthusiastic privatisers. Open systems technology is particularly popular in countries with no significant indigenous IT industry; lacking national champions with proprietary technology, the governments of these countries have been keen to develop alternative approaches.
Most of the Commission s single market measures in IT and telecommunications have focused on the latter, simply because telecommunications is itself a cross-border phenomenon. In the telcommunications arena, proprietary technologies and national standards have supported national operators with monopoly power while denying them markets abroad. The single market demands a single telecommunications infrastructure, and the realisation of this hs led the Commission to issue directives aimed at:
coordinating the introduction of integrated digital services network (ISDN) facilities (digital telephony);
stimulating the development of a unified and competitive telecommunications services market covering data transmission;
providing a framework for EC-wide rules of access to network infrastructures and services - so-called Open Network Provision ;
encouraging competition within the market for telecommunications terminals (handsets, switchboards, modems and so on);
introducing common standards, specifications and procedures for testing and certifying telecommunications terminals;
establishing an EC-wide market in information services.
As far as IT in retail is concerned, the Commission has promulgated a variety of relevant measures. It launched the Trade EDI Systems initiative to promote the use of electronic data interchange (EDI) by industry and commerce, and to encourage the development of a universal standard. It introduced regulations covering the operation of computerised reservation systems; recommendations on a code of conduct and contractual terms relating to electronic card-based payment systems and a variety of more-or-less relevant directives on banking, credit, accountancy practices, and corporate mergers and acquisitions. This is not to mention the directives on packaging and labelling.
The twin purposes of these measures are to promote uniform practices across the Community and to guarantee the security and rights of the parties concerned. For example, credit and debit cards should be usable throughout the Community. Technical standards themselves may be of less importance than the guarantee of mutual recognition. In other words, the relevant directives tend to focus on issues like how the cards are issued, the rights of card-holders and the security of card-issuers, rather than on the narrow technological aspects of how the cards work. The key to levelling the playing field here is not to provide users with a uniform technology, although this may be a longer term desirable goal, but to ensure that credit regulations are uniform across the Community.
Similarly, the harmonisation of financial systems and associated legal structures is an axiom of the single market, but just how data processing or IT departments manage these harmonised structures is very much their concern.
Two relevant directives may have an impact on staff within an IT environment and on members of the general public whose personal details are held on a database. The so-called VDU Directive has been transposed into health and safety regulations, where it is designed to protect staff who routinely use computer terminals as part of their job from health hazards such as repetitive strain injury (RSI) and eye-strain. It doesn t apply to people using EPoS tills or portable computers with LDC or LED displays, but it may apply to back-office workers whose job involves using a computer system. Many countries (notably, Sweden and Germany) already impose stringent ergonomic standards on workstations and computer systems, which may represent an additional cost to retailers.
Data protection regulations also tend to differ from country to country - they are more stringent in France, for example, and less stringent in the UK - and they will be of relevance to any retailer using marketing databases. The Commission has introduced a draft directive, which has caused much debate, representing a compromise between the goal of unrestricted cross-border traffic in personal data and the civil libertarian demand to protect the right to privacy (which is not mentioned in the UK law). The Commission would like to avoid a situation in which global marketers contemplate the possibility of using unregulated third-party nations as repositories of personal data, but harmonisation of data protection laws seems fraught with difficulties. Compliance with data protection regulations may represent an unacceptable cost for retailers seeking to exploit the power of IT to collect, collate and analyse sales data. Developments subsequent to the introduction of the Singl Market Act suggest that this may become an increasingly pressing problem.
The Commission observes that the single market has made an number of trends evident:
larger distribution companies gaining holdings in companies in other member states;
leading retailers making formal or informal links with those in other member states;
mail order, television sales and telephone marketing is expanding from a low current level (about 2% of total retail sales) and will be aided by harmonisation measures in broadcasting, by multilingual publishing, and by advances in telecommunications;
some of the largest wholesale companies are forming voluntary chains.
Under these circumstances, cross-border competition will inevitably increase - and we have already witnessed this occurring. The demand for advanced IT systems will accordingly increase as retailers seek competitive advantage and coordinated management.
Limits to Expansion
The European Community s experience suggests that there may be limits to the international growth of retail. Many companies find it difficult to achieve significant turnover in purchasing or sales outside their home market, and few retailers have expanded significantly into more that tow or three countries. The Commission notes that no retailer has achieved a substantial market share throughout the Community.
The Commission argues that differences in national laws are being removed under the internal market programme, but identifies three other blocks on expansion:
differences in commercial structures hinder companies with organized, concentrated structures seeking to expand into areas where looser, more fragmented structures are the norm;
differences in commercial methods, which may reveal themselves in cultural, commercial or linguistic practice, impose limitations on the development of networks and chains;
the diversity of management attitude and style tends to limit the uptake of sophisticated technology which may be observed in the US or Japan and emphasises reliance on human interaction and negotiation.
The Commission s Work Programme
In 1991, the Commission proposed a programme of work aimed at promoting the expansion of retailing within Europe. The programme had four stages:
analysis of commercial activities;
creation of legal framework for distribution;
formulation of policies for economic cohesion and development.
Results have been patchy, and demonstrate some of the less tractable problems involved in establishing a competitive international regime in retail. Consultation has proceeded within the framework of the Committee for Commerce and Distribution, established in 1978, and including representatives of traders, mail order companies, wholesalers, retailers, hoteliers, caterers, advertising agencies and equipment leasers. This committee has played an important role in developing Community policy in packaging, consumer protection and similar areas. Other organizations representing people engaged in retail and wholesaling which have consulted include the Conf‚d‚ration Europ‚enne du Commerce du Detail (CECD), the International Federation of Commercial, Clerical, Professional and Technical Employees (Eurofiet), and the Federation of European Wholesale and International Trade Associations (Fewita).
The analysis of commercial activities has meant developing a new system of statistical information, with internationally agreed definitions of the types of retail and wholesale activities. This has not proved as easy as it might be hoped. The Intrastat system introduced alongside new, single market VAT regulations has been less than adequate to date, largely because of the failure of individual companies to comply with the reporting requirements. Intrastat still doesn t impose uniformity on the reporting of national statistics, and these may be subject to political distortions. In 1996, the VAT rules will chane once again, with the result that consistent and reliable reports of retail trade will not be available until at least 1997 or 1998.
Subsidiarity - the principle that actions should only be taken at Community level when they cannot usefully be undertaken at national or lower levels - has now been embodied in the Maastricht Treaty (The Treaty on European Union). The Commission has recognised that subsidiarity implies self-regulation, and it has avoided too interventionist a stance on the creation of a legal framework for distribution, relying on the largely indirect, infrastructural measures adopted for the single market. At the same time, the observed growth of oligopoly threatens the Commission s goal of stimulating the competitive environment. As a result, it has paid particular attention to encouraging study of the impact of technology on commercial methods, the changing relationship between distributors and producers, developments in wholesale, and the role of new forms of organization and selling - franchising, buying groups, voluntary chains, and mail order or distance selling.
Such developments - particularly in new forms of organization and selling - can support activities by small and medium-sized enterprises (SMEs), but may also conflict with Community competition regulations. Some forms of joint venture are allowable within the framework laid down by Artices 85(1) and 85(3) of the Treaty of Rome, because they are in the interests of the consumer, notably exclusive distribution agreements and franchising. But the potential for problems in this area is great. Cross-border retail operations which are tied through vertical integration to suppliers in one country or trading bloc may also conflict with GATT agreements on importation. This has, in the past, proved particularly problematic with textiles where outward processing has enabled retailers and their suppliers to breach trading agreements and label goods as locally produced despite having been part-processed in countries operating under quota.
New Technologies - Who Benefits?
The European Commission has observed that:
The impact of technology in the commercial sector has been in two directions. On the one hand, it has freed management to develop skills in marketing, design and strategic planning; and on the other it has reduced the skill level needed at the operational level. In retail, 70-80% of the workforce is female; and though an increasing number are entering lower levels of management, few are reaching senior levels.
This observation has been used to encourage retailers and distributors to engage with of the EC s programmes for education and training. The problem is that deskilling may benefit larger retailers in the short term by reducing labour costs. The Commission s response to this sort of problem is to focus many of its activities on structural realignment, social redistribution, and support for small and medium-sized enterprises (SMEs). Most governments and international organizations maintain a similar focus to a greater or lesser degree, combining the stimulation of economic growth with socially redistributive measures, and this has implications for their approach to new technologies which may tend to work - as the Commission has observed - to increase inequalities between companies of different sizes and the groups of individuals who relate to them in different ways. Such considerations have universal relevance wherever buying and selling takes place.
Throughout the world, industry welcomes new technology. It stimulates demand for capital equipment, intermediate products and services. It can reduce costs dramatically and provide new business opportunities and access to new markets. Manufacturers and distributors supplying retail outlets also benefit from new technology - in particular from IT, which can help provide more accurate information on sales, make it possible to monitor the influence of price, promotion and packaging, and generate more accurate sales forecasts.
But IT can als have a negative impact on manufacturers. The tendency for large retailers to reduce stock holding and introduce Just-In-Time delivery schedules often moves stock back up the supply chain. The myth is that JIT and electronic trading reduce absolutely the value of inventory by reducing absolutely the volume of goods being held. The reality is that stock is often waiting in a truck parked somewhere off the road, or is being held in a central warehouse ready to replenish a store as necessary. Manufacturers typically have to absorb the costs. The result is that they seek closer ties with large retailers, and the retailers reciprocate knowing that they can increasingly dominate the relationship. Data sharing arrangements, in particular, make it relatively simple to adjust production runs, eliminate unprofitable lines, and launch new products with better market information. While such arrangements may reduce prices and meet consumer demand, they are clearly anti-competitive and act as a block to smaller retailers and suppliers.
Smaller companies are, not surprisingly, often sceptical about the benefits of IT - particularly where such benefits will actually incur costs. This scepticism has slowed the take-up of EFT because of the merchant fees involved and has generally kept technology out of small stores, unless it has direct administrative functions. Accordingly, computerised accounting systems, and checkout scanning are relatively widespread, while bar coding generally and EDI systems are not. There is more resistance to new technology than usual from those outlets which pay high regard to personal service and skills - stores selling fresh produce, hair-dressers, and specialist retailers in general.
The deskilling associated with new technology clearly affects staff and trade unions most of all. The Commission argues that unions have recognised that new technology is inevitable and may, in the longer term, improve the employment and working conditions of shop staff. Nevertheless, automation reduces employment and devalues certain jobs. The intrusion of new technology into the workplace threatens the stability and familiarity of old practices, and the pace of change in some areas can render obsolete qualifications, skills and career paths before individuals have had a chance to replace them. For the most part, the introduction of new technology in retail has increased the demand for part time and casualised employees. These are often women. Wage levels have been reduced and many employees are now obliged to accept zero hours contracts, which guarantee them no income while binding them to terms of employment. There is an argument that these developments are transitional, and that we are seeing dramatic but impermanent upheavals in the economic and commercial fabric of society. The moral force of arguments for improved conditions of employment and opportunities for shopworkers to acquire new skills is probably less important than longer term economic considerations.
First, in an economy marked by rapid technological advance, investment in a skilled workforce shows better returns than investment in capital, particularly if the skills are transferrable. Competitive advantage bought at the cost of continuously updating technology is both more expensive and shorter-lived than competitive advantage bought at the cost of employing a skilled and creative workforce. Secondly, there are direct and simple correlations between rates of pay, levels of employment and consumer expenditure - any enterprise which seeks a healthy home base should, in the longer term, encourage improved pay and conditions. Naturally, these arguments carry little weight when considering short term costs and benefits. Instead, they are the focus of governmental and intergovernmental action. The introduction of new technology cannot be divorced from issues like the promotion of training (for example, by establishing tax breaks for companies, or introducing national or international training schemes) and the rotection of employment (typically through the protection of markets or support for new businesses).
Consumers are generally slow to adapt their habits to new technologies, although there are a few notable exceptions. Consumer organizations are clearly concerned about issues relating to communications and databases - confidentiality, fraud, and easy access to information. German consumer associations, for example, have drawn up a number of conditions for the use of videotex and tele-shopping. These include the clear labelling of advertising, and the right to cancel orders for goods sent on approval. The German associations are concerned that there must be procedures for correcting delivery errors, or cancelling order made by minors or unauthorised people, and generating order confirmations. Card purchasing raises issues of confidentiality, security, and reliability. Bar coding causes concern if it means that item pricing is not available. On the other hand, consumers generally welcome itemised receipts, improved information and the greater convenience of tele-shopping. Consumer expectations are conditioned by their past experience. An innovation which produces a lower quality of service will be unwelcome and may lose customers, regardless of whether it is technologically more sophisticated than a competitor s system. Innovations can produce this result for two reasons:
If they involve premature technology, they may be unreliable and buggy . For example, multimedia kiosks which accept credit, debit and charge cards are based on the technology used in bank automatic teller machines (ATMs). Kiosks which record phantom transactions would certainly prove to be unacceptable to consumers, despite the convenience they offer the customer and the cost saving they offer the retailer.
If they are introduced simply in order to reduce costs, they may result in reduced service levels from the customers point-of-view. For example, the introduction of EPoS terminals may allow retailers to reduce staff numbers. If the result is an overall increase in queuing outs, the technology itself will prove useless.
No innovation should be introduced without paying close attention to the existing retail environment and consumer expectations.
Retailing remains predominantly a national activity, notwithstanding the existence of transnational companies.
IT's ability to cope with diverse conditions in a systematic and uniform way makes it a critical instrument in the search for global markets.
Retailing accounts for between 10% and 20% of GDP in the developed world.
Increasingly, governments see retail activity as a driver of economic growth and so seek to stimulate it in a variety of ways.
The opening of national markets to international competition can threaten domestic retailers and suppliers.
Regulatory and cultural factors may impede globalisation, but IT can help manage the complex global environment.
Regulatory frameworks may slow the oligopolisation of the retail sector within individual countries and, indirectly, the development of retail applications of IT in those countries.
Regulatory frameworks can directly affect the adoption of IT - restrictions on store size make it harder to justify investment in EPoS, for example, while food subsidies and tax compensation schemes may be more cheaply and efficiently administered using IT.
The most influential class of public policy measures for retailers are those which address infrastructural development and the sponsorship of new technologies, from road building to minitels.
Successful retailing depends on the ability to coordinate the functions required in building and fostering an exchange environment, which is a prime function of information systems.
The use of IT by retailers within an individual country must be approrpiate to the technological environment - there should not be too big a gap between general levels of IT use and retail appications.
IT-poor countries tend to focus on traditional labour intensive forms of retailing but may overleap intermediate stages of technological development by adopting appropriate cheap technology (for example, by leaping from a restricted telecommunications system to digital cellular technology without passing through the intermediate stages of cabling).
The political and commercial goals of developing global markets will be assisted by the universal adoption of technical and cosnumer-related standards.
The evidence from European countries suggests that all parties concerned - industry, employees and consumers - accept the inevitability and ultimate desirability of the increased influence of technology in trade and commerce.
-end chapter six-