‘Proactive fast-tracking’ diffusion of supermarkets in developing countries: implications for market institutions and trade

TLDR: In this article, the authors argue that rather than taking demand and market institutional and organizational conditions as "exogenous" conditions, modern food retailers instead have treated local conditions as substantially "endogenous".

Abstract: Supermarkets have spread extremely rapidly in developing countries after the ‘take-off’ in the early to mid-1990s. Former analyses of supermarket diffusion have not adequately explained the sudden burst and then exponential diffusion of supermarkets in the late 1990s and early 2000s. We argue that rather than taking demand and market institutional and organizational conditions as ‘exogenous’, as former analyses have tended to do, modern food retailers instead have treated local conditions as substantially ‘endogenous’. To enable their rapid growth, supermarkets undertake ‘proactive fast-tracking strategies’ to alter the ‘enabling conditions’ of entry and growth. Beside the retail investments that have been extensively treated in recent literature, these proactive strategies focus on improving the ‘enabling conditions’ via (i) procurement system modernization and (ii) local supply chain development. One important strategy retailers have used to facilitate (i) and (ii) is to form symbiotic relationships with modern wholesale, logistics and processing firms. An example we address is ‘follow sourcing’, where a transnational retailer encourages transnational logistics and wholesale firms with whom the retailer is working in home markets, to locate to the developing country. This is a spur to globalization of services in support of retail. Follow-sourcing has been treated for example in the automobile manufactures sector (follow-sourcing from spare parts manufacturers)—but not in the food sector. A second important strategy is that of multi-network-sourcing, in which supermarkets source from national, regional and global networks. We analyze that strategy here, adding to the literature which to date has touched on this theme only scantly, and for the first time identify typical paths, present preliminary evidence (from Central America and Indonesia) concerning this multi-sourcing-network strategy and discuss trade implications. One of these is the move to primacy of South–South trade in supermarket sourcing—a new dimension of globalization. By introducing this link of retailer transformation and trade into the literature, we hope to spur a new line of research that is timely in light of the trade, development and globalization debates in developing countries.