Foreign Divestment in the Retail Sector – The Host Market’s Perspective

Abstract

Transnational grocery retailers increasingly dispose of their foreign subsidiaries. The existing literature on this development mainly focuses on the perspective of transnational retailers on their own divestments, and neglects the view of the actors in the remaining market. Addressing this bias, this paper analyses the dynamics and drivers of foreign divestment from the host market perspective. It is based on data from qualitative interviews with host market competitors and sold subsidiaries of transnational retailers in Turkey. The research reveals that, while home market actors present their divestments as strategic decisions, for the host market's actors the TNCs' divestments are stories of failure. We propose a holistic framework of the foreign divestment decision process showing that a divestment decision is not just the inverse of an investment decision. This framework incorporates pull factors (reasons to reallocate resources), push factors (host market hurdles) and foreign retailers' possibilities to take on the challenges in foreign markets.

Foreign divestments: a review and research agenda

“…Our analysis suggests that several factors explain the marketing perspective: the host environment/institutions, moral agent, legitimation and a RBV. FDs accelerate in the presence of high local retailer competition, changing consumer dynamics and complex supply networks (Gersch and Franz, 2019). A parent firm may decide against divesting a subsidiary if strengths exist in having a diverse customer base and other local advantages (Silva and Moreira, 2019b).…”

“…A divestment trigger lies with unsatisfactory performance, management issues and better alternatives (Boddewyn, 1979). Consequently, a divestment decision is not just the inverse of an investment decision (Gersch and Franz, 2019).…”

Archetypes of Driver Combinations Leading to Foreign Market Exit: An Investigation into European Grocery Retailing

“…Various authors have identified the risk of overemphasizing the "official corporate line", which might be distorted toward positive rationales for divestment rather than offering an objective image of the actual events (Alexander et al, 2005;Gersch & Franz, 2018;Palmer, 2004;Palmer & Quinn, 2007). Considering this issue carefully, we adopted several measures to minimize it.…”

“…(Turun Sanomat, 2016) Intermarché ( 2015) exited Serbia during a time of economic instability in the country. In the year before the exit, Serbia's nominal GDP had decreased by 2% (World Bank, 2020) (Aklamanu, 2015;Burt et al, 2003;Coe & Wrigley, 2017;Gersch & Franz, 2018;Song, 2014) Countries with weak institutions do not offer a stable legislative environment to companies (Henisz & Delios, 2004) Interstate conflicts cause problems for companies (e.g., nonpayment of creditors, damage of physical assets, sanctions) (Al Khattab et al, 2007;Burmester, 2000) "No firm in Latvia is protected from unreasonable insolvency proceedings due to an unclear interpretation of the bankruptcy law […] the decision to stop investing in the Latvian market was also accelerated by the insolvency lawsuit filed against the company in Latvia in 2012." c Emil Stefanov, CEO, Palink (Lyrtas, 2014) Negative retail market outlook Industry growth rates are an indicator for future market opportunities (Alexander et al, 2005;Belderbos, 2003;Hennart et al, 1998) "The rationale of the [exit] decision is that the Danish market is considered saturated so that it does not offer satisfactory prospects for growth."…”

“…c Emil Stefanov, CEO, Palink (Lyrtas, 2014) Negative retail market outlook Industry growth rates are an indicator for future market opportunities (Alexander et al, 2005;Belderbos, 2003;Hennart et al, 1998) "The rationale of the [exit] decision is that the Danish market is considered saturated so that it does not offer satisfactory prospects for growth." Press release, Metro Competitive situation in the host country Markets characterized by high competitive intensity are less attractive (Aklamanu, 2015;Gersch & Franz, 2018) "The retail sector has invested heavily in both countries [Latvia & Lithuania] in recent years, and as a result, the square footage of retail space in relation to population and consumer purchasing power is already quite high. "…”