Managing Business In Emerging Economies

Over the last two decades, the retail industry has been characterized by increasing internationalization with major retailers such as Wal-Mart, Carrefour and Metro spreading their operations across Europe, Latin-America and Asia (Burt et al, 2008). Carrefour had been particularly adventurous as it has spread its operations to over 30 countries and foreign sales accounting for over 55% of its total revenue (Carrefour, 2006) while major competitor Walmart’s 12 markets account for a little over 20% of its total sales1. (Figure 1)
2007 financial reports as seen below in figure 2 shows that foreign sales are crucial to Carrefour’s survival and long term objective of being “being the point of reference in modern food retailing”. That year the over 500 stores in Asia accounted for about 7% of the retailer’s total sales (Carrefour, 2007). However, as CEO Lars Olofsson rightly identified, Asia remains Carrefour’s key growth market. Although margins fell due to need to stay price competitive and contribution from Asia represents only 7% of the group’s results, contribution rose by 10.
9% to i?? 242m result topped only by Latin America (Figure 3), (Carrefour, 2009). The major driver for the above stated growth in the Asian market is China. It delivered i?? 1,018m of i?? 1. 86b of total Q1 2008 sales in Asia and over 45% of the full year results2. This report will analyze Carrefour’s entry, learning, survival, evolution, adaptation and management strategies from 1995 when Carrefour opened its 1st 7 stores till date with its 135th store in China. Post evaluation, recommendations will be made as to what could have been done differently.

Carrefour (meaning crossroads in French) opened its 1st store in 1969 at Annecy suburb in France and till date France is still responsible for most of its revenue. With an appetite for risk, Carrefour is the pioneer for non-domestic operations in the retail industry with joint ventures into Belgium and Italy and also the 1st retailer to enter Asia through Taiwan in 1989. In 1980s some key ventures failed and Carrefour had to withdraw from some European markets (Burt et al, 2008); most of which it has re-entered (Forbes, 2006).
With over 12,000 stores; 500,000 employees, 82. 15b turn over and over 30 markets, the tradition remains the same – aggressive expansion and market domination. Carrefour is currently ranked the 2nd largest retailer in the world (NewGD, 2006). Appendix 3 presents detailed information on the Carrefour Group. Carrefour’s 6th largest market, China, joined the Carrefour’s portfolio of markets in 1995 with 7 stores (Carrefour, n. d) when the Chinese government partially opened the sector to foreign organizations. It has since been applauded as being successful in China and has outperformed its biggest competitor Wal-Mart.
Carrefour is currently China’s largest foreign retailer, and has since been described as the Bosporous (where the East meets the West) of the retail industry by Forbes (2006). Carrefour opened its 135th store in China February 2009, total sales in 2008 where above i?? 2b. It currently has presence well spread across 32 cities in China with concentration in major cities such as Beijing, Guangzhou, Shanghai and Shenzhen. Sales from China are expected to grow steadily at an average of 20-25% per annum (Carrefour, 2009).
The retailer is hard-line about succeeding in this region as it is pulling out its operations is some saturated European markets to enable it focus its resources on China (Icmrindia, 2006). Entry into China was via a Joint Venture with Chinese management consulting firm Zhong Chuang and both established a firm called Jia Chaung in which Carrefour had majority shares. Although there had no options at the time (Chinese law enforced JVs as only means for entry) as seen in Figure 4 below, JV/Alliances is the recommended strategy in high market and cultural risk environment such as China in the 1990s (Durand, 2007).
According the “Relatedness Matrix” (figure 5) entering into China was a heartland business for Carrefour as it could leverage on its 20 years of experience in global retailing and replicated some of its best practices in the region. Ward (2005) as cited by Icmrindia (2006) says “Carrefour has gotten right China much more successfully than “Iconic” Wal-mart”. Till the 1980s China’s retail industry was fully controlled by the government and Carrefour entered in 1995. The company recognised the influence that this formal institution and the informal one within it would have on its success in China.
In a bid to build social capital, it entered into direct deals with the local governments of various provinces to get approval to open its stores (Icmrindia, 2006). This social capital proved invaluable when in 2001 Carrefour allegedly had illegal operations in China against the “Experimental Method for Foreign Businesses Investing in Commercial Enterprises” which stipulated it must operated only Joint Ventures and not wholly owned subsidiaries. Carrefour was found to have 100% stake of some stores.
The consequences of this ordinarily should have been dire, and led to shutdown of Carrefour’s operations. Instead an apology was made by the then CEO saying “sometimes we may not understand rules and regulations”. The business did not go “down-hill”, after all, “it was issued a warning yellow card and not banished by a red one” (People’s Daily, 2001). Carrefour was keen on being Chinese in China and its management strategy reflected this. Majority of its staff were Chinese (NewsGD, 2008), store managers were also Chinese and they were empowered to run their stores freely (Direction, 2008).
The stores and its branded product were designed to suit the frequency and portions preferred by Chinese customers (Burt et al, 2008). To satisfy the Chinese preference for fresh food, Carrefour developed a supply chain system with majority of its procurement being carried out locally. As such, the retailer successful averted culture clash that did Wal-Mart-in in Japan (Icmrindia, 2006). Its business strategy of high value and variety at low cost (Figure 6) enables it cater to both the growing “western-culture-seeking” middle class and the vast population in the rural cities.
At point of entry, the Chinese economy was in the growth phase and urban preferences appeared to shifting towards westernization. Carrefour recognized that bringing the French way of business to China would be an error as less than 20% of China’s population lived in these urban areas. Carrefour recognized the diversity in China and tailored its operations to satisfy this diversity. As Chairman Jean-Luc Chereua puts it “China is nearly as big as Europe and each area differs from the other. We have to keep learning something new (Forbes, 2006). ”