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In the context of a market characterized by the enduring legacy of socialism through governmental ownership of retail businesses, the continued presence of domestic retailers, and increasing levels of competition, this article examines the organizational challenges faced by, and the strategic responses adopted by, a group of leading food and general merchandise retail transnational corporations (TNCs) in developing networks of stores in the post-WTO-entry Chinese market. On the basis of extensive interview-based fieldwork conducted in China from 2006 to 2008, the article details the attempts of these retail TNCs to embed their operations in Chinese logistics and supply networks, real estate markets, and consumer cultures—three dimensions that are fundamental to the achievement of market competitiveness by the retail TNCs. The article illustrates how this process of territorial embeddedness presents major challenges for the retail TNCs and how their strategic responses vary substantially, indicating different routes to the achievement of organizational legitimacy in China. The article concludes by offering an analysis of the various strategic responses of the retail TNCs and by suggesting some future research propositions on the globalization of the retail industry.

The globalization of the retail industry is rapidly becoming a defining characteristic of the world economy. In the past decade, the heightened competition and increased regulatory restrictions of Western retail markets, together with the opportunity for growth offered by the emerging markets of East Asia, Eastern Europe, Latin America, and, more recently, Russia and India, have motivated an elite group of food and general merchandise retail transnational corporations (TNCs)—primarily Carrefour (France), Wal-Mart (United States), Metro (Germany), and Tesco (United Kingdom)—to expand and diversify their business operations across a variety of markets1 (Wrigley 2000b; Coe 2004; Coe and Hess 2005; Wrigley, Coe, and Currah 2005; Coe and Wrigley 2007). While the internationalization of the retail industry is not a new phenomenon, the speed and breadth of the coverage of foreign markets in the past decade has been unprecedented and has prompted increasing attention from both academic researchers and policymakers. The geographic and economic dimensions of the retail industry are being reconfigured in radical ways, affecting the economies of cities, regions, and nations; the competitiveness and strategic choices of both distribution and manufacturing companies; and the welfare of consumers.

China represents one of the most attractive market destinations for the retail TNCs (AT Kearney 2007). Since the start of economic reforms in 1979, the country's gross domestic product (GDP) has experienced an average annual growth rate of 9.4 percent (National Bureau of Statistics of China 2007). The improved living standards have induced consumers to upgrade their consumption patterns, making China the world's seventh-largest retail market in 2007 with retail sales of $860 billion ("Retailing in China" 2006). It comes as no surprise, then, that since the mid-1990s, several retail TNCs have focused their investment strategies on China. Nevertheless, navigating the complexities of the Chinese business system requires the retail TNCs to adopt appropriate organizational and operational strategies. Drawing on insights from recent conceptualizations of the retail TNCs that have stressed their necessarily high territorial embeddedness in host-economy cultures of consumption, planning and property systems, and logistical and supply-chain operations (Wrigley, Coe, and Currah 2005), this article investigates the organizational2 challenges to the retail TNCs that are posed by those business-system complexities and the strategic responses that the retail TNCs have adopted. Based on insights into the Chinese retail market and operations of the retail TNCs in that market obtained via in-depth qualitative interviews conducted in China from 2006 to 2008, the article suggests key elements of a wider future research agenda on the role and impacts of retail TNCs in the post-World Trade Organization (WTO)-entry Chinese retail market.

The article is structured as follows. The next section presents an overview of the rise of the retail TNCs and the changing geo-economy of the food retail industry. The third and fourth sections discuss the theoretical framework and research methodology of our study. The fifth and sixth sections offer an assessment of the key institutional changes that have reconfigured the economic and geographic dimensions of the Chinese food retail industry and the consequences of these changes. The seventh section analyzes the major organizational challenges that the retail TNCs have faced in attempting to embed themselves in the Chinese market and the strategic responses of the retail TNCs to these challenges. The article