While I’ve been criminally quiet around here lately, two of my colleagues (one a coauthor, one my PhD Student) have been busy penning a mighty fine teaching case about the Aussie endeavours of German supermarket giant Aldi.
For a lengthy discussion of Tom Osegowitsch and Markus Goelz’s Aldi Australia case see here.
Of course, I’ve been blabbering on about said mob for ages (back when I used to blog!), although mainly in the US context (weirdly):
Perennial soundbite provider Dick Smith has been very vocal in the past couple of days about the prospect of his namesake retail business falling into ‘foreign hands’. Despite him selling the electronics chain to Woolworth’s two decades ago, he is threatening to ‘trash the brand‘ if some foreign mob tries to buy it.
The logic he throws around on this (and other ‘buy Australian’ campaigns) is spurious at best. It is very unclear why so much importance is placed on the specific ownership structure of such businesses. Perhaps it reflects Dick’s own background as a business owner (and therefore someone who derived their income from the ‘surplus’ or profits of the firm). But for almost all stakeholders in the firm, and the overall health of the economy, the question of the location of the major shareholders (and principal decision-makers) should be of little importance.
Consider the Dick Smith Electronics case.
The firm operate 433 stores across Australia and NZ (we’ll get back to this Trans-Tasman dimension in a second), and made $1.8b in sales last year. The economic and societal impact on Australia of these operations is most heavily felt in terms of the 5300+ employees and the wages they earn (and then spend/invest), the flow of moneys to landlords, supply chain participants and other ancillary service providers. The ‘earnings’ of the firm (i.e. the ‘surplus’ or ‘profit extracted by Woolworth’s) last year was a paltry $20m or so.
If Dick Smith Electronics were sold to a non-Australian entity, they would be buying the right to extract such profit, but also taking on the role of paying a wages bill that presumably exceeds $250m, and feeding through a lot of income to the other parts of the Dick Smith sphere of activity. The firm would still pay taxes, rents, and provide consumers with access to products. The firm might remit profits offshore, but it’s just as likely said profits would be reinvested in Australian in an attempt to improve the business and its performance. This is hardly a case of ‘selling the farm’.
There is also one clearly irreconcilable contradiction in the jingoistic rants of Smith and other mercantilists: outward foreign direct investment.
If the logic says Aussie interests are hurt by any sort of inward investment (e.g. by acquisitions of local firms by big bad foreign folks), then surely any instance when an Australian firm expands offshore is similarly deleterious to the host nation. Where was Dick when his namesake firm made their imperialistic entre into NZ? And when they signed agreements to ally with Tata in India?
I’m here in Bangkok for my annual supervision of the Global Consulting Project.
And again, I have been struck by the ubiquity of 7-Elevens in this city. On the relatively quiet street of our hotel there are four branches of said store within a stretch of about 250 metres, including two pretty much directly across the (narrow) road from each other. Just 400m in the other direction there are another three stores in a 60m stretch.
This obviously generates lots of discussion. One student said he’d seen similar density in Taiwan. That got me searching for some data to check out which locations in the world have the most of these stores per person.
And here’s what I found. In terms of population per 7-Eleven store (i.e. national population/number of stores), Thailand is in the top five globally (with ‘top’ meaning not many folks per store, or, put differently, the most stores per person):
I included Australia, simply for illustrative purposes. We’re a fair way down the ranks (see here for the lengthier store count list – the US (c6,500 is missing)). The table identifies what appears to be the ‘natural home’ of the convenience store – densely populated urban centres around Asia.
For those who have missed the back story, 7-Eleven originated from the US, but was bought out globally by the firm’s Japanese master franchisee almost 25 years ago.
Japan had a pretty big head start on Thailand (opening in 1974, versus 1989 for Thailand), but Thailand is catching up fast. I saw an estimate that there are over 3,000 stores in Bangkok, which equates to about one store for every 4,000 residents in this megacity (and comfortably defeating city state Singapore).
The Thai franchisee is doing something right, with profits reportedly up fivefold in three years. No wonder there’s talk said firm is chasing the franchise rights for Laos, Cambodia, Vietnam, Myanmar (and also some regions of China!).
I do start to wonder how far such expansion within a given city can go. Could we eventually see a Bangkok headline like this one (mocking Starbucks’ rapid growth)?
These two stores are within 50 metres of each other in Silom, Bangkok
It is rare to see an Australian multinational announce two international expansion moves in the same week. And it’s even rarer when said moves are to two different continents.
Shopping centre giant Westfield made two such announcements this week, with joint ventures signed in firstly, Brazil, and today, Italy.
As I wrote about in a book chapter on Westfield a few years ago, the firm has typically been reluctant to seek opportunities beyond the English-speaking world. The firm entered the US way back in 1977, with a portfolio of properties slowly emerging over the coming two decades.
Westfield succeeded in the US by buying run-down malls that no one visited anymore and turning them around through innovative redevelopment projects. Most competitors in the industry preferred building new malls.
By the late 1990s Westfield had emerged as the dominant player on the US scene, and continued to grow right through to the global financial crisis.
In the broader world, they have been more cautious. As we argued in the chapter:
“Westfield’s internationalisation was never a story of extreme risk-taking. Frank Lowy saw little value in acting as the pioneer in environments where the payoffs were too low. As long as there were opportunities to be had in the US, then Europe, Asia and New Zealand could wait. Eventually in 1997 the group took over the management of ten St Luke shopping centres in New Zealand. In 2000 Westfield Trust and St Lukes Group merged and the New Zealand centres were re-branded as Westfield centres. Attempts to enter the UK market in the 1970s and 1980s were unsuccessful. Lowy expressed considerable frustration with the lack of dynamism in the UK investment houses and lack of planning enthusiasm (Margo, 2000). Not until early 2000 did Westfield finally obtain access with a 75 per cent stake in a centre at Broadmarsh, Nottingham. The firm has made considerable headway since, with seven centres on the books, and is set to open the largest centre in Greater London in early 2008. Westfield briefly entered Asia in 1998 with a ten per cent share of Suria Kuala Lumpur City Centre in Malaysia. This investment was short-lived, however, with the company withdrawing in 2000 after the Asian currency crisis.”
So why has the firm moved now?
On the Brazil front, the firm is tapping into one of the most exciting and fast-growing large economies in the world. The firm may see some useful urban similarities to Australia and tthe US (i.e. more ‘wide, open spaces’ in the ‘burbs), and Brazil may also be seen as far less challenging than China and India for example (with much less government intrusion likely).
At the same time the firm may see far fewer prospects in the moribund US economy and its close-to-saturated Aussie home.
Bringing a local, experienced joint venture partner is a very sensible move for a multinational with no experience in the market. While Westfield hasn’t typically hooked up with shopping centre management firms before (preferring instead to court construction firm and funds management partners – i.e. in essence, supply partners), local adaptation is clearly front of mind here. There should also be an appetite for knowledge acquisition on both sides of this equation.
The Italian move looks a little riskier, with patchier economic conditions and a reputation for bureaucratic randomness. There may be an argument for very localised attractiveness here, as the firm is targeting one of the wealthier and more retail-savvy parts of the nation – Milan (also home to some of the oldest shopping arcades in the world). Indeed, this could also be a brand-building exercise in a city/region with no shortage of brand champions, especially in the luxury and masstige segments Westfield is keen to attract across its empire.
The final piece of this strategic puzzle might well rest on the role of individuals in both constraining and driving choices.
Firm founder Frank Lowy finally handed over the reins to his baby about five months ago (stepping down as Executive Chairman). His sons appear to stamping their mark on the firm’s future with these two bold (but tentative) moves.
