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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