Article Review #1

Article Review #1: Costco in China

Shoves, brawls and shouts: Welcome to Costco’s opening day in China

The Chinese and American economies are inextricably intertwined, even in the midst

of the trade war.

By Anna Fifield and Rachel Siegel

August 29, 2019

BEIJING — The United States and China may be involved in a trade war, but the Chinese

shoppers at an American wholesaler were at war with one another this week in a pitched battle

that forced the warehouse store to close early.

The opening of the first Costco store in China, in the commercial capital of Shanghai, was a

scene of chaos. Shoppers lined up for hours to get into the store upon opening, ducking under the

roller door as it inched up from the ground.

They fought over Birkin bags and Moutai liquor. They wrestled for detergent and grabbed at a

piece of pork with their bare hands, even as the butcher was trying to cut it. There was a three-

hour wait for a space in the parking lot — and sometimes longer in checkout lines.

By the afternoon, the discount retail store was in such chaos that it had to close early. “Please

don’t come,” Costco said in an alert sent to members, who paid $28 to join for a year.

Even for veterans of Black Friday in the United States, the scenes would have been

extraordinary.

Beyond the chaos, they illustrated an important political point. The Chinese and American

economies are inextricably intertwined. Chinese shoppers want American products, especially at

bargain prices, and American companies want Chinese shoppers.

President Trump a week ago ordered — without the authority or the ability to do so — American

companies to leave China.

Chinese state media outlets responded by gleefully pointing out some of the big-name American

companies, including Costco, that are doing just the opposite.

The Global Times, a nationalist newspaper that often reflects the foreign policy thinking of the

ruling Communist Party, noted that Starbucks and Walmart were expanding, Tesla was set to

produce Model 3 cars at its Shanghai factory by the end of the year, and the local head of Coca-

Cola said it “must not give up” on China.

“It’s just one beautiful daydream of U.S. President Donald Trump that U.S. companies will give

up China,” Liang Ming, a research fellow of the Chinese Academy of International Trade and

Economic Cooperation, told the paper.

If the American retail landscape has created winners and losers, the rifts are even more stark

between companies that make it in China — and those that don’t.

Home Depot closed its last stores in 2012. Best Buy bought a majority stake in a Chinese

electronics chain in 2006 and then withdrew from China altogether eight years later.

Walmart has been in China since 1996 and made steady progress through brick-and-mortar

stores and a partnership with the Chinese e-commerce platform JD.com

Retail analysts pointed to Costco as a retail darling that has bested the competition, when it

comes to international expansion, as a result of the company’s measured and thoughtful approach

to every country it enters — and the long-game it plays before officially opening a new store.

Five years ago, Costco partnered with Alibaba — China’s dominant e-commerce platform —

which helped the big-box store gain legitimacy among Chinese shoppers, said Mark Cohen,

director of retail studies at Columbia Business School. And even after Alibaba gave Costco a

platform, Costco took its time, he said, waiting years to prepare for its “grand opening day,

where thousands of people showed up.”

“They’ve built a link — a very powerful link — between who they are and what they do, and

Chinese consumers who gleefully signed up as subscribers and showed up,” Cohen said.

In a statement, Costco said that when its doors opened in Shanghai, the store “encountered a

record-breaking volume of members who wanted to shop with us. We are working closely with

local authorities to control traffic flows, and provide smooth transitions to and from our new

warehouse.”

Beyond its 543 locations in the United States and Puerto Rico, Costco says it has opened stores

in 11 other countries. It has 100 locations in Canada, 39 in Mexico, 29 in the United Kingdom,

plus a slew in Taiwan, Japan, Australia and elsewhere. The company has 163,000 full- and part-

time employees in the United States and 243,000 worldwide.

But that success isn’t enough to secure a Chinese audience, experts say. Walmart, for example,

learned that its model wasn’t replicable everywhere when it had to pull out of Germany 13 years

ago. For Costco to maintain such high interest in China, it will have to tailor its selection

specifically for this new market.

“Target went to Canada, and it didn’t work,” said Moody’s Vice President Charlie O’Shea.

“Canada is literally over the border. Going from the U.S. to China is not going from the U.S. to

Canada. There are huge differences over there.”

Unlike retailers that are barely hanging on, O’Shea said that Costco can afford to test a Chinese

expansion. Growing slowly doesn’t carry much risk, but there can be a huge payoff from

“throwing stuff at the wall and seeing what sticks.”

“They’ve gone in there and picked that site [in Shanghai] with a lot of thought, and look what

happened,” he said. “They were mobbed. If anyone can make this a go in that market, it’s

Costco.”

Reference

Fifield, A. & Siegel, R. (2019). Shoves, brawls and shouts: Welcome to Costco’s opening day in

China. The Washington Post. https://washingtonpost.com/business/economy/shoves-

brawls-and-shouts-welcome-to-costcos-opening-day-in-china/2019/08/29/fda3a208-c9a4-

11e9-a1fe-ca46e8d573c0_story.html

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Assignment

1. How is Costco trying to take advantage of globalization/globalization of markets?

2. Do you believe that China is a developed market, an emerging market, or a traditional

market? Why?

3. Do some research on Hofstede’s Value Dimensions in China. Briefly explain Chinese

culture under each Value Dimension.