The case of SmartRetail: HRM convergence, divergence or a hybrid?

SmartRetail is a food retail company which is based in the UK and employs over 200,000 staff worldwide. The company has already successfully expanded into Europe with over 150 operating food retail sites. The main objective for SmartRetail entering into the Noughties was to competitively expand its outlets into Asia. This provided a rich source of opportunity for the brand.

The expansion began with a focus on Thailand and Malaysia, using existing links with locally successful retailers to gain market entry to both countries. As a result, SmartRetail invested heavily in buying sites around Thailand and Malaysia which offered an opportunity to expand through its 130 sites. The sites followed a similar format to those currently operating in the UK and offered food retail shoppers an opportunity to purchase products from small shops located on petrol forecourts to large hypermarket settings. The strategy was clear from the outset and the company’s UK blueprint was used and appeared to work in partnership with existing local retailers.

The next objective for the expansion strategy was to move into China. The company saw this as a key strategic opportunity which would tap into large sales advantages and help promote its brand on a global scale. Similarly to Thailand and Malaysia, the company entered the market through building valuable relationships with local food retailers. By this stage, the company also had a ‘secret weapon’ in mind to ensure that the customer would be attracted to the products and transfer to the brand – the loyalty card. This would be used to tie customers into the SmartRetail Way by offering discounts through a points-based system which had proved hugely successful in the UK market. From the retailer’s perspective, this provided an opportunity to access thousands of customer shopping habits, allowing SmartRetail to tailor its products and services to the local customer base. The retailer planned to launch the loyalty card as part of the store opening strategy.

SmartRetail began to open its new stores and poured vast amounts of financial resources into the expansion in China. This included launching an international assignment programme for all store managers based in the UK. The people strategy that the company adopted saw 150 of the ‘best’ store managers seconded to China to support the launch of the expansion operation. The managers had to have two main criteria to apply for the position – over ten years working at a senior level in UK operations and a willingness to relocate for a minimum of three years. That said, some of the ‘best’ store managers were simply handpicked by the Director of Retail Operations without adhering to a formal recruitment process. The expatriate training programme consisted of a six-week initiation focusing on supporting the company’s objectives in China: these were simply to launch the store and follow the people strategy using the ‘SmartRetail Way’ underpinned in the UK.

With the senior managers on board and stores preparing to open in China, a 20-week pre-opening plan was induced for each store. The plan included recruitment of staff from shop floor and cashiers to team leaders and department managers. The company was insistent that UK people processes were to be followed to the letter. These included practices around performance appraisal, induction, training and development, communication and customer service skills. Only four weeks into the pre-opening plan, store managers began to report a torrent of issues such as difficulty in interviewing for the posts as parents were attempting to sit in on the interviews with their children (some of whom were over 30 years old). Other problems included concerns with communication, as in the UK the process encouraged members of staff to participate in a two-way share of ideas and issues for the day. In China, individuals felt intimidated and would rather be given opinions and work as collective groups. Other concerns from the management team suggested that many university students were not interested in working in food retail as it was seen negatively by their families, so large gaps were appearing in the proposed staffing schedules.

The SmartRetail headquarters insisted on persevering with these issues as they were merely seen as ‘teething’ problems, and the people strategy worked well in the UK so why wouldn’t it work well here? The management team was encouraged to recruit local staff yet there wasn’t any priority to recruit locals with management experience or capability. The UK managers were exceptional performers within the context of the UK retail food sector, moreover the SmartRetail Way, yet out of the 150 store managers seconded only three had ever been to China. The company had anticipated that the ‘rollout’ to China could be facilitated through the seconded managers and directed from the parent HQ in the UK.

The stores opened with huge deficits in their staffing schedules. Human resource managers reported working 18-hour days to ‘fill the gaps’ in the schedule, which involved sitting on a till, filling the toilet roll aisle and helping delivery drivers reverse into the warehouse. Staff that had been successfully recruited were barely trained and struggled to cope with the demands of the job, resulting in some walking out and leaving checkouts unmanned with queues of customers.

Besides the notable operational people issues on a large scale, the store loyalty card heralded as a ‘secret weapon’ failed to take hold in the Chinese market. Customers there prefer to shop around and have multiple store cards to give them more power of control and motivation to shop.

After a 12-month period of turbulence within the Chinese food retail market, SmartRetail announced that it was to withdraw from China and sell its outstanding assets. The company had clearly struggled to gain sufficient market share and was unable to adapt its rigid processes of people management centralized from the UK-based headquarters.

Questions

Q1. Which of the IHRM models do you think SmartRetail follows?

Q2. What problems do you believe the MNC encountered in trying to enforce the parent company practices?

Q3. What main issues, tensions or challenges does this case throw up for IHRM?