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Slide 1
Title

2. Slide 2
Table of Contents

3. Slide 3
Introduction

Costco is one of the world’s largest membership-only retail chains, established in 1983. Operates
in 14 countries, including U.S., Canada, Japan, and South Korea. CEO: Craig Jelinek (since
2012) continues to lead global expansion.

Timeframe:

Costco’s first international store was opened in Canada in 1985. Since then, the company has
strategically entered various countries, focusing on markets with high purchasing power and
stable economies.

Central Economic Issue

The primary economic issue for Costco has been balancing its low-cost, high-volume business
model while expanding into global markets with differing regulations, consumer preferences,
and competitive landscapes. Key challenges include adapting its operational model to suit local
markets while maintaining profitability and brand consistency.

Objective

The objective of this presentation is to analyze Costco's global market expansion and explore the
strategies used for its international success, particularly focusing on the economic challenges and
opportunities that have shaped its growth trajectory.

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Background

Industry Information
The retail world is cutthroat, with department stores competing against online giants. This
subject relates well to one niche sub-category of this market, which is a wholesale and
membership-based model operated by Costco, where customers pay an annual fee to get bulk
goods at a discounted rate. The wholesale model allows Costco to minimize costs and offer
competitive pricing. This model capitalizes on:

Economies of scale, where purchasing in bulk reduces per-unit costs. A limited product
selection that focuses on high-demand items, further optimizing supply chain efficiency.
Membership fees that generate a steady stream of revenue, helping the company maintain low
margins on products while still being profitable.

The membership-based model has been particularly successful as it creates customer loyalty and
ensures a base of recurring revenue, allowing Costco to maintain its low-cost, high-volume
strategy.

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Market Context

Costco has catered its international expansion to countries that can afford the warehouse-club
model, including countries with high purchasing power and a stable economy where retail
infrastructure is already well established.

North America: The largest Costco market is in the U.S. and Canada. Such markets, boasting
robust economies and high consumer purchasing power favor Costco's bulk buying strategy.

Asia: For Costco, countries such as Japan, South Korea, and China are still growth markets. The
value proposition that Costco offers in these areas is also attractive to middle-class shoppers who
wish to purchase merchandise at a discount throughout the lower price range.

Europe: In the U.K. and Spain, Costco also has something going on around cheeky checkout
workers. While the European markets are more fragmented it has been able to successfully
execute on local tastes and pork belly while still keeping the basics of Costco in place.
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o Economic Theories

Several economic principles can be used to explain Costco's global strategy:

Economies of Scale: With global expansion for Costco, the company takes advantage of
economies of scale and can negotiate better deals on their goods as they buy in high volume.
Which in turn lowers costs across the board and helps its cut-throat pricing business model.

Market Entry Barriers: To enter a new international market, Costco has to comply with the
relevant regulations in that market as well as work out its supply chain and delivery because of
costs associated with competition from native retailers. Costco solves this by entering countries
with strong purchasing power and a developed economy, therefore lowering its risk.

Competitive Advantage: Customer can obtain discounted goods from Costco because of their
streamlined process, bulk purchase, and reduced no. of products. This focus enables them to
stand out against other retailers and draw in the price-sensitive shopper.

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Problem Statement

Economic Problem

The biggest challenge in that context is the globalization of the company — taking Costco's no-
frills business model, centered around selling things at lower margins because everyone pays for
annual membership dues, and making it relevant to markets internationally. Costco kind of has
the makings for a month. Different countries have different regulations, consumer tastes, and
competitive challenges which dilute Costco´s success in the US when that model is transplanted
globally.

Market Regulations: There exist different laws and regulations by various countries over
business operational activities, importing tariffs, labor laws, or taxation.
Consumer Preferences: While Costco has been successful at selling large-size goods in bulk,
for some markets like Japan with less living space and need it may not be quite as appealing.
Competitive Pressures: Costco faces intense competition from both local retailers and global
giants like Walmart, Amazon, and Carrefour.

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Dilemma

Costco’s main dilemma is the balance between maintaining its core business model and
adapting to local market demands:

Maintaining Low Prices: Costco’s value proposition revolves around offering high-quality
goods at low prices. However, keeping prices low in international markets becomes challenging
due to import tariffs, higher operational costs, and the need to comply with local labor and tax
laws.

Localizing Operations: To succeed in foreign markets, Costco must sometimes adapt its
product offerings and operational strategy. For example, in South Korea, Costco found success
by offering locally sourced products alongside international brands. But too much localization
risks diluting its streamlined, efficient model that depends on a limited number of SKUs and bulk
purchases.

This dilemma forces Costco to walk a fine line between adapting enough to be accepted in new
markets while keeping the operational efficiencies that define its global business model.

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Importance

Solving this issue is critical for Costco’s long-term global growth and dominance for several
reasons:
Sustained Revenue Growth: As Costco approaches market saturation in its core regions (like
the U.S. and Canada), international expansion becomes a crucial driver of revenue growth.
Successfully navigating the challenges of international markets will allow the company to
continue growing and diversifying its revenue streams.

Global Brand Consistency: While adapting to local markets is necessary, maintaining a

consistent brand image and operational efficiency is equally important. If Costco is unable to do
both, it risks either alienating local consumers or eroding the very efficiencies that make its
business model profitable.

Competitive Edge: By solving these expansion issues, Costco can solidify its competitive
position in global markets, especially against local and global competitors. Successful adaptation
would give it an edge in markets with large, growing middle-class populations, like China and
India, positioning it for continued dominance in the retail sector.

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Analysis

Economic Theories

Costco's global expansion can be analyzed through several key economic and business strategy
theories:

Standardization vs. Localization:

This theory addresses whether companies should standardize their operations across global
markets or adapt (localize) their strategies based on local market conditions. Costco largely
follows a standardization approach, maintaining uniformity in its warehouse layout, product
offerings (limited SKUs), and membership-based model. However, it has also localized in some
markets—e.g., in South Korea, Costco introduced local products like kimchi to meet local
consumer preferences. This hybrid approach helps balance operational efficiency with market
relevance.
International Business Strategies:
Costco employs a global strategy for expansion, which emphasizes centralized decision-making
and consistent global operations while adjusting to local regulations and consumer needs. This
contrasts with a multinational strategy, which would require significant localization and
independence in each market. The global strategy has allowed Costco to benefit from economies
of scale and maintain low prices internationally.

Tariffs and Trade Regulations:

One of Costco's main challenges in expanding internationally is the impact of tariffs and trade
regulations. For example, in markets like Japan and China, Costco faces higher costs for
importing certain products due to tariffs. This has forced the company to adapt by sourcing more
products locally to reduce these costs, though local sourcing can disrupt its core low-cost bulk
buying model.

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Data and Charts

International Revenue Growth:

Costco’s international expansion has been a significant driver of revenue growth. As of 2023,
international markets accounted for approximately 28% of Costco's total net sales. Countries like
Canada, Japan, and South Korea have seen consistent revenue growth, with South Korea being
one of Costco’s most profitable international markets.

Region Percentage of Net Sales Year-over-Year Growth

(2023) (2023)
United States 72% 6%
Canada 14% 8%
Asia (Japan, South Korea) 8% 12%
Europe 4% 7%
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Market Share:
In many of its international markets, Costco holds a significant market share in the wholesale
retail sector:

Canada: Costco is one of the leading retailers, with over 100 warehouses.

South Korea: Costco dominates the warehouse retail market, with high membership renewal
rates and revenue.

Japan: While facing stiff competition from domestic retailers, Costco has been able to steadily
increase its market share.

Compared to its competitors like Walmart and Amazon, Costco focuses more on physical
warehouse retail rather than e-commerce. However, it is investing in growing its online sales,
particularly in international markets where e-commerce is gaining traction, like in China.

Company Global Focus Area Market

Revenue Expansion
(2023) Approach

Costco $242 billion Bulk buying, Direct

low-cost retail ownership of
stores

Walmart $611 billion General retail, Mix of direct

low prices ownership and
franchises

Amazon $538 billion E-commerce Focus on

digital and
logistics
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Competitor Comparison:

Alternative Solutions

Franchising Description: Local entrepreneurs operate

Costco stores in exchange for fees.

Advantages: Reduces financial risks and

operational costs by relying on local partners.

Disadvantages: Potential loss of control over

quality, pricing, and brand consistency.
Joint Ventures Description: Partnering with local companies
to navigate regulations and gain market
insights.

Advantages: Leverages local expertise,

especially in complex markets like China and
India.

Disadvantages: Limits control over operations

and profits, with potential for partner
conflicts.
Direct Ownership (Current Model) Description: Costco fully owns and operates
its international stores.

Advantages: Retains full control over supply

chain, pricing, and brand consistency.

Disadvantages: High capital investment and

increased financial risk in unpredictable
markets.
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Economic Implications

Franchising would reduce Costco’s capital outlay but could limit the company’s ability to control
its brand and pricing structures, which are core to its competitive advantage. Joint Ventures
allow Costco to share the financial risks and navigate local regulations more effectively but
would mean a compromise in operational control. Direct Ownership, while more expensive,
provides Costco with the greatest control over its global strategy, ensuring uniformity in
customer experience, pricing, and product quality across all markets. This model also maximizes
profits, which is crucial for long-term growth. Evaluating these options, it’s clear that Costco’s
current strategy of direct ownership has been effective in high-potential markets.

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Recommendations

Strategic Recommendations for Costco’s Future Expansion

Target Emerging Markets

Focus on India, Brazil, and Southeast Asia with growing middle classes and rising demand for
wholesale products.

Why: Tapping into these markets diversifies Costco’s revenue and reduces dependence on
saturated regions like North America and Europe.

Strengthen E-Commerce

Invest in online platforms in markets like China and South Korea, improving logistics for fast
delivery.

Why: E-commerce growth allows Costco to reach digital consumers and expand its customer
base in regions where online shopping is dominant.
Expand Product Localization

Offer region-specific products while maintaining the bulk-buying, low-cost model.

Why: Adapting to local preferences attracts more customers without compromising Costco’s
core value proposition.

Invest in Sustainable Practices

Focus on reducing carbon footprints, using renewable energy, and promoting eco-friendly
products.

Why: Sustainability boosts brand image, attracts eco-conscious consumers, and aligns with
regulatory requirements.

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How Recommendations Address the Economic Problems Identified

Regulations: Joint ventures help navigate complex regulations and market entry barriers.

Consumer Preferences: Product localization adapts to regional tastes while maintaining core
operations.

Competition: E-commerce expansion and emerging market entry counteract competition and
price sensitivity.

Efficiency: Sustainability investments reduce costs, supporting Costco’s low-price strategy.

These recommendations enable Costco to address its global expansion challenges and sustain
long-term growth.

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Conclusion
Costco has grown into a global retail leader through its membership-based, low-cost, high-
volume model. International expansion poses challenges that require strategic adaptation. Mature
markets like the U.S. and Canada remain strong, but Costco must target emerging economies like
India and Brazil for continued growth. Key challenges include adapting to local regulations,
cultural preferences, and competition from local and global retailers. Costco must balance its
cost-efficient model with the need for product localization and regulatory compliance. Current
strategies like direct ownership and joint ventures need to evolve with changing market
dynamics and the rise of e-commerce. Expand into emerging markets to unlock new revenue
streams. Strengthen e-commerce to capture tech-savvy consumers in international markets.
Continue localizing products to meet regional preferences while maintaining efficiency. Use
joint ventures in regulated markets to mitigate risk. Invest in sustainable practices to enhance
operational efficiency and brand reputation.

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Importance of Strategic Global Expansion

Strategic global expansion is essential for Costco’s long-term success. As the company nears
market saturation in its core regions, international growth offers the most viable path for
increasing revenues and market share. By implementing the recommended strategies, Costco can
overcome the challenges of global expansion, maintain its competitive advantage, and secure its
position as a leading global retailer for years to come.

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Thankyou!

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Any Questions?