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While most retailers choose corporate or franchise stores to enter Africa, some opt for joint
ventures with local partners. Also, in addition to developing infrastructure and expanding
operations, store footprints must be structured eficiently. Clustering stores in specific areas
is a must for the successful management of operations and supply chains.
2
Sources: A.T. Kearney Global Business Policy Council, United Nations Population Division
To read more about Sub-Saharan Africa, see Supplying Sub-Saharan Africa: Bring Common Sense, Patience and Ingenuity,
in Executive Agenda at www.atkearney.com.
22 Global Retail Expansion: Keeps On Moving
Morocco: dealing with instability. Morocco fell to 27th in the GRDI (from 2Cth in 2C11), primarily
because of the increased risk posed by political instability. The economy continues to grow
about percent per year, but a trade deficit and slowing growth of Moroccos main trading
partners are creating significant pressure.
Although traditional retail formats are proving resilient in rural areas, consumer preferences
and government support illustrate the continuing transition to modern retail, such as bulk
purchasing and shopping malls. Late last year, the largest mall in Morocco opened in
Casablanca, bringing with it many foreign retailers. Making their entrance: H&M, American
Eagle, Payless ShoeSource, Starbucks, Pinkberry, and anchor department store Galeries
Lafayette. In grocery, there is room for modern retail formats, as they account for only 1C to 1
percent of sales. Players preparing for expansion are testing new formats and deep-discount
food outlets, which are gaining traction.
Moroccos economy continues to
grow about percent per year, but
a trade deficit and slowing growth
of the country's main trading partners
are creating significant pressure.
Tunisia: dealing with political unrest. Following the Arab Spring protests, Tunisia drops 12
spots to Cth. Before the Arab Spring, per capita income was on the rise, and a growing middle
class was forming more sophisticated purchasing patterns. The political unrest in early 2C11 led
to GDP growth of only 1.1 percent. While the government still supports a favorable environment
for foreign investment, international retailers are hesitant to enter this recovering market.
With just 2C modern grocery retail outlets in Tunisia, there are plenty of growth opportunities
if the country manages to stabilize. Many major outlets closed in 2C11, but some are already
returning to Tunisia. For example, this year, hypermarket Gant is expected to return, Carrefour
expects to increase retail sales and, outside of grocery, Japan beauty brand Shiseido has
announced plans to enter the market.
The Retail Talent Index
In a decade spent examining retail expansion in developing countries, we know that new
markets are only as efective as their workforces, and harnessing a local talent pool is crucial
to reaching customers. Expatriates deployed from their home markets provide much-needed
support in the early stages, but long-term success hinges on a skilled, reliable, and afordable
local workforce.
This year, we have reintroduced the Retail Talent Index, which examines the best markets for
retail talent (see sidebar: About the Retail Talent Index on page 2).
A
The Index ranks the top C
4
The Retail Labor Index was introduced in 2CC6 within that years published GRDI findings; in 2C12, the name was changed
to the Retail Talent Index.
23 Global Retail Expansion: Keeps On Moving
countries in the GRDI based on talent availability, labor regulations, and labor costs for
in-store employees. A high ranking indicates a strong retail labor market for both corporate and
in-store retail. The analysis is based on 11 human resource and human capital variables; scores
are determined on a 1CC-point scale (see figure A).
Four countries with multifaceted landscapes in retail talent are as follows.
Malaysia. Malaysia, 11th in the GRDI, leads our Retail Talent Index. In the past, Malaysias
economy was faulted for focusing too much on low-wage foreign workers to drive economic
growth. Since then, the government has made a concerted efort to change those perceptions
and develop more skilled local workers. The low cost of labor, favorable regulations, and
a well-educated population support the operations of international retailers that enter and
expand in the market.
This year, Malaysia approved a national minimum wage of 8CC to CC ringgit (about $26
to $28) per month and now sits above the poverty line. In addition, the country is introducing
a residence tax to help facilitate the presence of expatriates in the country.
China. China ranks rd in the Retail Talent Index. While Chinese manufacturing wages
are rising, from a retail-labor perspective China is still among the lowest-cost destinations
in the world. Importantly, employees now have many choices thanks to the explosive economic
and employment growth in recent years. Rather than waiting for a wage increase, Chinas
Figure A
The Retail Talent Index
Note: Scores are rounded.
Source: A.T. Kearney analysis
rank
1 Malaysia
Country Talent availability (%) Labor regulations (%) Labor costs (%) Score
62.8 77. 8.7 7.C
2 China 6. 71. 7.C 68.
Chile 66.7 6.7 68. 6.A
A Indonesia 1.C . 8A. 6.A
Azerbaijan A2.1 . 72. 6.C
6 India A8. 6A.2 7.6 62.
7 Lebanon 6.1 7A.8 61.A 62.C
8 Saudi Arabia 7.A . C.8 61.
United Arab Emirates 67.7 A.2 .6 61.8
1C Sri Lanka A8.7 A.A 8C. 61.
About the Retail Talent Index
The Retail Talent Index is
calculated based on a countrys
performance in three areas:
talent availability, labor
regulations, and cost of labor.
A countrys value is indexed
on a o- to 1oo-point scale to
allow for relative comparisons
across three areas:
Talent availability (o percent):
Scores are based on the quality
of the educational system
and management schools,
secondary and tertiary education
enrollment, labor-force
participation, and brain drain.
Labor regulations (zo percent):
Scores are based on hiring and
firing practices and flexibility
of wage determinations.
Cost of labor (o percent):
Scores are based on retail
salaries for an average sales
associate and pay and product-
ivity metrics; a higher score
indicates a lower-cost
labor country.
24 Global Retail Expansion: Keeps On Moving
white-collar workers are prone to leave their jobs for other opportunities. As one example,
annual turnover rates in Shanghai are estimated to be 18 to 2C percent.
To address this issue, China is moving quickly and often to increase the minimum wage.
Recently, Beijings minimum wage rose 8.6 percent, and Shenzhens increased 1A percent.
Many retailers are increasing their pay packages to retain skilled talent. In March, Tesco
entered into a collective labor agreement that structures wage adjustments around
a mutually beneficial platform.
New markets are only as ehective as
their workforces. Harnessing a local talent
pool is crucial to reaching customers.
Qualified management is an evolving issue in China as foreign companies realize that expatriates
alone will not solve the talent dearth and so struggle to cultivate talent at the top. Retail executives
in China must be well-versed in the nuances of the Asian consumerwhich cannot be taught
overnight. Foreign companies, therefore, often lean on local managers for an authentic
perspective. A balance of local and expatriate talent is essential for retailers entering China.
Chile. Chile, Ath in the Retail Talent Index, has seen explosive economic growth, which
is directly impacting the nations retail sector. Retail growth is supported by an available,
well-trained pool of labor. But these workers are tied up in the thriving construction, industrial,
and retail sectors. Unemployment in Chile is relatively low at approximately 6 percent.
In retail, the number of sales associates has increased, but their salaries have not, indicating
that supply has exceeded demand. The government is making a concerted efort to expand
the workforce by encouraging more women to join the ranks of the gainfully employed. Female
employment in Chile is relatively low (7 percent versus A percent in the United States).
To attract more women to the workforce, President Sebastin Piera is proposing an additional
three months of government-funded maternity leave, for a total of seven months.
Recognizing their value to the retail sector, Chileans are taking a more active role in wage
negotiations. In 2C1C, the retail sector had its largest number of employees collectively
negotiating their contracts. Of the 27,CCC retail employees involved in collective bargaining,
8,CCC were from Cencosud. As the wage issue gains more press, some retailers are in the
crosshairs of negative publicity, which is helping to fuel change.
India. India ranks 6th in the Retail Talent Index thanks to many years of a large, young,
well-educated, and attractive labor market. The information technology (IT) and business
process outsourcing (BPO) industries have taken advantage of this talent pool, thus
experiencing rapid growth for a decade. India also provides an attractive talent pool for
international retailers. The retail sector employs approximately 8 percent of Indias population,
with demand for skilled workers expected to rise. A shortage of talented professionals,
especially at the middle-management level, will pose a significant challenge for the countrys
retail sector in the years ahead as retail is not yet a preferred career option for young people.
To address this issue, the Retailers Association of India and leading local retailers such as Bharti
25 Global Retail Expansion: Keeps On Moving
and Vishal are increasing the number of specialized retail courses ofered. Coca-Cola partnered
with the Indian School of Business to launch a retail academy.
Saudi Arabia. Saudi Arabia ranks 8th in the Retail Talent Index. Labor availability is a pressure
point, largely because of low participation rates, but availability is projected to improve in the
near term as more women enter industries such as retail, marketing, fashion, and cosmetics.
The government is committed to hiring more women and helping with their transition. For
example, the Human Resource Development Fund in Saudi Arabia provides financial support
and training to Saudi women interested in working in womens fashion shops. And many
well-established Saudi companies, such as Nayomi, Mikyaji, and The Body Shop, are focused
on creating jobs and opportunities for both sexes. Programs like this will continue to increase
labor force availability and attractiveness. Retailers are also hiring women to fill call centers and
e-marketing positions. Telecommuting makes job opportunities for women even more viable
and could represent two million jobs.
About 27 percent of 2C- to 2-year-olds in the Saudi labor force are unemployed; this is mostly
attributed to jobs being filled by expatriates. For years, the government has been trying to
address the issue with its Saudization quota system that requires companies to employ Saudis
for at least C percent of their positions. Unfortunately, to date, only a third of the target has
been achieved, according to the Labor Ministry. As a result, there is a sense of animosity among
locals toward some of the expatriate population.
New Globalization
The 2C12 GRDI finds a world that is truly globalizing. While the usual giants of the developing
world, particularly the BRIC nations, still make their impact, there are also many exciting and
lucrative opportunities in some of the smaller, more far-flung markets around the globe. By
finding the right locationsand tapping into the local talent thereretailers can make an
immediate impact and create a long-term advantage in competitive markets.
Authors
Hana Ben-Shabat, partner, New York
hana.ben-shabat@atkearney.com
Helen Rhim, consultant, New York
helen.rhim@atkearney.com
Mike Moriarty, partner, Chicago
mike.moriarty@atkearney.com
Fabiola Salman, consultant, New York
fabiola.salman@atkearney.com
26 Global Retail Expansion: Keeps On Moving
Appendix: About the Study
The annual A.T. Kearney Global Retail Development Index ranks C developing countries
on a C-to-1CC-point scalethe higher the ranking, the more urgency there is to enter
a country. Countries are selected from 2CC developing nations based on three criteria:
Country risk: or higher score in the Euromoney country-risk analysis
Population size: two million or more
Wealth: GDP per capita of more than $,CCC (Note: The GDP per capita threshold for countries
with more than million people is more flexible because of the market opportunity.)
GRDI scores are derived from an analysis of the following four variables.
Country and Business Risk (z percent)
Country risk (So percent): Political risk, economic performance, debt indicators, debt in
default or rescheduled, credit ratings, and access to bank financing. The higher the rating,
the lower the risk of failure.
Business risk (zo percent): Business cost of terrorism, crime, violence, and corruption.
The higher the rating, the lower the risk of doing business.
Market Attractiveness (z percent)
Retail sales per capita (o percent): Based on total annual sales of retail enterprises
(excluding taxes). A score of zero indicates an underdeveloped retail sector; a score
of 1CC indicates a mature retail market.
Population (zo percent): A score of zero indicates that the country is relatively small
with limited growth opportunities.
Urban population (zo percent): A score of zero indicates a mostly rural country;
1CC indicates a mostly urban country.
Business ehiciency (zo percent): Parameters include government efectiveness, burden
of law and regulations, ease of doing business, and infrastructure quality. A score of zero
indicates ineficiency; 1CC indicates highly eficient.
Market Saturation (z percent)
Share of modern retail (o percent): A score of zero indicates a large share of retail sales
is from a modern format within the average Western European level of 2CC square meters
per 1,CCC inhabitants. Modern formats include hypermarkets, supermarkets, discounters,
convenience stores, department stores, variety stores, warehouse clubs, and supercenters.
Number of international retailers (o percent): The total score is weighted by the size of
retailers in the countrythree points for tier 1 retailers (among the top 1C retailers worldwide),
two points for tier 2 retailers (within the top 2C retailers worldwide) and one point for tier
retailers (all others). Countries with the maximum number of retailers have the lowest scores.
Modern retail sales area per urban inhabitant (zo percent): A score of zero indicates the
country ranks high in total modern retail area per urban inhabitant, close to the average
Western European level of 2CC square meters per 1,CCC inhabitants.
27 Global Retail Expansion: Keeps On Moving
Market share of leading retailers (zo percent): A score of zero indicates a highly
concentrated market, with the top five competitors (local and international) holding
more than percent of the retail food market; 1CC indicates a fragmented market.
Time Pressure (z percent)
The time factor is based on 2CC7 to 2C11 data, measured by the compound annual growth rate
of modern retail sales weighted by the general economic development of the country (CAGR
of GDP and consumer spending) and CAGR (2CC6 to 2C11) of the retail sales area weighted by
newly created modern retail sales areas. A score of zero indicates a rapidly advancing retail
sector, thus representing a short-term opportunity.
Data and analysis are based on the United Nations Population Division database, the World
Economic Forums Global Competitiveness Report -, national statistics, Euromoney
and World Bank reports, and Euromonitor and Planet Retail databases.
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