Carrefour Case Analysis 2

Case Study: Carrefour

Running head: CASE STUDY: CARREFOUR

Case 7 Analysis: Carrefour

BA 462: Strategic Management

Instructor: Carlos Alsua

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EXTERNAL ENVIRONMENT

GENERAL

o DEMOGRAPHIC

Carrefour operates in 29 countries around the world. World population is

rising, geographic distribution of populations is shifting, world population is

aging rapidly, ethnic mixes in developed countries are changing rapidly, and

average household incomes are increasing.

The demographic environment presents both opportunities and threats for

Carrefour. Increases in population size and household incomes help to

expand the market in which Carrefour operates. However, changes in the

geographic distribution of populations, due to technological advances in

communications, may cause difficulties for Carrefour in determining

profitable locations for new storefronts.

o ECONOMIC

In 2004, there was substantial economic growth due to near-record low

interest rates in the United States, resulting in substantial growth in global

trade. This growth was tempered by high oil prices.

The economic environment presents both threats and opportunities for

Carrefour. Growth in global trade presents opportunities for Carrefour in

identifying new products and services to offer to its customers. High oil

prices, however, threaten Carrefour’s profitability by increasing the costs of

transportation for goods destined for Carrefour’s warehouses and storefronts.

o POLITICAL/LEGAL

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Later on, it worked with financial or industrial partners only when national

regulations made it necessary, as in China, Thailand, Malaysia, and Indonesia.

(p. C 77)

Foreign ownership laws in Thailand allowed foreign companies—except

American companies—to hold no more than 49 percent of the shares.

Carrefour argued that this law would favor its rival, Wal-Mart. When the

Central Retail Corp. sold its 40 percent shareholding in 1998, this law made it

impossible for Carrefour to purchase the shares. (p. C 79)

[A]ll products within its stores were “halhal” in compliance with prevailing

food requirements. (p. C 79)

Since 1992, foreign participation in retailing had been permitted through joint

ventures with Chinese companies. (p. C 80)

In 1999 China’s central government ruled that foreign companies could not

own more than 65 percent of any retailing enterprise in China. (p. C 81)

Subsequently, the SETC (State Economic and Trade Commission) threatened

to shut down all the stores if Carrefour did not comply with central

government regulations. (p. C 81)

In 2004 China announced that it would honor its pledges to open the booming

retail sector to foreign players such as Wal-Mart and Carrefour, abolishing

joint-venture requirements before the end of the year. Beijing also promised

to end restrictions on the location and number of foreign-owned chain stores.

(p. C 81)

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The company’s aim is to operate 70 hypermarkets in a few years’ time, but

political risk remains high in China. (p. C 82)

Instead, local distributors launched lawsuits against Carrefour as the company

opted to purchase directly rather than conform to the long-established

distribution channels. (p. C 82)

The political/legal environment presents a threat for Carrefour. The

differences in the political/legal environment across regions makes it difficult,

and sometimes costly, for Carrefour to comply with government regulations.

Political risk in some countries remains comparatively high as does the threat

of lawsuits from competitors, distributors, and consumers.

o SOCIO-CULTURAL

[N]ew markets […] had seen dramatic changes in consumer buying habits,

coupled with high growth in per capita GNP, suburbanization, greater

participation of women in the labor force, and a large increase in the

ownership of cars and refrigerators. (p. C 74)

The continued growth of suburban communities […] abroad is another major

sociocultural trend. (p. T 44)

Asian customers still tended to shop daily at wet markets or “mom & pop”

stores[.] (p. C 77)

Moreover, impulse buying was on the rise and replacing necessity purchasing.

(p. C 78)

Shopping as a form of leisure was an increasing phenomenon[.] (p. C 78)

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The socio-cultural environment presents opportunities for Carrefour. Growth

of suburban communities, rises in impulse buying, increased leisure shopping,

and other major changes in buying habits tie in nicely with Carrefour’s ability

to take advantage of such changes when entering new markets.

o TECHNOLOGICAL

Technological advances in data storage, information systems, the internet, and

other forms of communication continue at a rapid pace.

The centralization of its IT systems and administrative procedures achieves

further savings. (p. C 76)

The technological environment presents opportunities and threats for

Carrefour. Improvements in technology will allow Carrefour to perform

better analysis of data related to existing and future customer bases. The

improvements will also allow Carrefour to continue to improve its supply

chain, which is vital in enabling Carrefour to offer low prices. These

technological improvements, however, may also be readily available to

competitors. If competitors can easily mimic Carrefour’s processes through

advances in technology, Carrefour will suffer setbacks.

o GLOBAL

Rapid globalization of business markets.

Military and political conflicts continued around the globe.

Increased importance of environmentally friendly businesses.

The global environment presents opportunities and threats for Carrefour.

Military and political conflicts may increase expenses in transportation,

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among other areas, that make it difficult to maintain low prices. The rapid

globalization of business markets presents opportunities to Carrefour as

countries relax regulations that hinder trade and foreign entry into domestic

markets. The increased importance of environmentally friendly business

operations may also increase costs of operation. However, if Carrefour can

establish itself as an environmental leader, the result may be increased sales

and profitability.

INDUSTRY

o INDUSTRY DEFINITION

Carrefour is a member of the retail industry.

In 2003 Carrefour was the second-largest mass retailer in the world[.] (p. C

73)

Although primarily known as a hypermarket pioneer, Carrefour also operated

supermarkets, hard discounts and other formats, such as convenience stores[.]

(p. C 73)

In Europe and China, Carrefour is the number one retailer in terms of size. (p.

C 74)

It built a reputation as the retailer that offered the most variety and freshness

at low prices. (p. C 74)

The retailer operated exclusively in France until the late 1960s before

expanding into Spain, where under the name of Pryca, it became the country’s

second-largest retailer. (p. C 74)

o THREAT OF NEW ENTRANTS

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BARRIERS TO ENTRY

PRODUCT DIFFERENTIATION

o Carrefour developed the hypermarket concept of bringing nearly all

types of consumer goods under one roof in 1959[.] (p. C 74)

o [Carrefour] built a reputation as the retailer that offered the most

variety and freshness at low prices. (p. C 74)

o [Carrefour] has always been significantly more international than most

of its competitors[.] (p. C 74)

o In order to fight back against the hard-discounters, Carrefour expanded

its own hard discount chain, ED. (p. C 75)

o Carrefour focuses on selecting the format best suited to the particular

market and adapting that format to local needs. (p. C 75)

o For Carrefour, price is not simply a competitive advantage but an

essential means of survival. (p. C 76)

o Carrefour has added new services in developing markets, such as free

shuttle services for customers and play areas for children, as well as

home delivery. (p. C 76)

o Carrefour also works actively with local governments and nonprofit

organizations to protect the environment. (p. C 76)

o Carrefour, with Makro, was the first foreign retailer to establish the

hypermarket concept in Taiwan. (p. C 78)

o Carrefour introduced a new feature with the creation of cultural centers

in two stores in partnership with Korea’s leading newspaper. (p. C 79)

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o In 2002 Carrefour introduced a number of sales innovations that

proved successful. (p. C 79)

o Carrefour organized two “free credit” campaigns in 2002, which were

a resounding success[.] (p. C 79)

o Carrefour also sought to participate in public welfare projects and to

contribute to local communities, while cooperating closely with local

authorities. (p. C 81)

o Ito-Yokado did not reduce prices but instead emphasized higher

quality. (p. C 82)

o Japanese supermarkets chains began slashing prices in anticipation of

the “foreign threat”. (p. C 82)

o [T]he company established its first sales space specializing in French

household goods at its fully renovated store in Chiba Prefecture. (p. C

82)

o Barriers to entry are increased by the differentiation of Carrefour’s

storefronts, the level of its community interaction, and its reputation.

It would be difficult for new entrants to do something that Carrefour

has not already done or is not currently doing.

ECONOMIES OF SCALE

o [Carrefour] operated 10,378 stores in 29 countries and employed more

than 410,000 people. (p. C 73)

o [Carrefour] has always been significantly more international than most

of its competitors[.] (p. C 74)

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o Thanks to its massive buying power, Carrefour could guarantee low

prices while permanently offering about 50,000 items in stock. (p. C

74)

o Carrefour tries to establish as many stores as possible in major urban

areas in order to achieve economies of scale. (p. C 76)

o Carrefour has built big global procurement centers coordinated

through Shanghai and Hong Kong. (p. C 76)

o In 2003 Carrefour was present in eight Asian markets, operating 144

hypermarkets and 55 hard discount stores. (p. C 76)

o Carrefour’s operations are massive and global in scope. Barriers to

entry for new entrants are increased by high economies of scale.

SWITCHING COSTS

o Carrefour has added new services in developing markets, such as free

shuttle services for customers and play areas for children, as well as

home delivery. (p. C 76)

o Carrefour organized two “free credit” campaigns in 2002, which were

a resounding success[.] (p. C 79)

o Carrefour developed the hypermarket concept of bringing nearly all

types of consumer goods under one roof in 1959[.] (p. C 74)

o The basics of Carrefour’s concept are (1) one-stop shopping, (2) low

prices, (3) self-service, (4) quality products, (5) freshness, (6) free

parking. (p. C 75)

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o [Carrefour] advertises new promotions and discounts every day,

reminding customers that they will be refunded if they find the same

product cheaper elsewhere. (p. C 76)

o When first moving into Asia, Carrefour opted for joint ventures and

partnerships to make up for its lack of knowledge of the Asian market.

Later on it worked with financial and industrial partners only when

national regulations made in necessary, as in China, Thailand,

Malaysia, and Indonesia. (p. C 77)

o Promotions, discounts, refunds, joint ventures, partnerships, credit

programs, free parking, and other offerings serve to increase

switching costs for consumers, suppliers, and partners alike.

However, many retailers behave in this fashion and offer similar

services. Because this is so common in the industry, I question how

effective these practices may be at increasing switching costs.

Therefore, the switching costs for consumers in this industry are

neither high nor low.

ACCESS TO DISTRIBUTION CHANNELS

o Access to distribution channels can be a strong entry barrier for new

entrants, particularly in consumer nondurable goods industries[.] (p. T

51)

o In some markets, such as China, Carrefour has launched its own

product line in home appliances and spices. (p. C 76)

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o In China, for instance, more than 95 percent of its merchandise is

locally sourced and the remainder is sourced through local importers

or the trading office in Hong Kong. (p. C 76)



o In order to increase its profitability, in 2000 Carrefour created the

GNX online supply platform with Oracle and Sears, whereby suppliers

and retailers can exchange information via the Internet and optimize

the flow of merchandise, thus reducing their administrative costs. (p. C

76)

o Managing the supply chain was another major challenge. (p. C 78)

o Taiwanese suppliers lacked rigor, organization, equipment, and

aggressiveness, but they were much more flexible than their Western

counterparts. (p. C 78)

o The price slump and suppliers’ concerns over retailers’ insolvency

worked in Carrefour’s favor and the company opened four stores by

1998. (p. C 80)

o As in Taiwan, Carrefour had to deal with a different negotiation

culture and at first used Taiwanese negotiators for its suppliers in

China. (p. C 80)

o Even though China is officially a centralized country, local authorities

seek to enforce their own sphere of influence. (p. C 80)

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o Since 2002 a new organization within the group has aimed to expand

market outlets for its suppliers and enhance its product offering in its

European stores. (p. C 81)

o Japan is a much more advanced market with established consumer

trends, local brands, and supplier networks. (p. C 82)

o One concrete barrier to entry into the Japanese market was the close

network of multiple layers of intermediaries. (p. C 82)

o Barriers to entry due to access to distribution channels are high. The

differing complexities of distribution channel operation and access

among countries, the existence of large global procurement centers,

regional differences within countries, and the existence of the GNX

online supply platform all serve to increase barriers to entry for new

firms.

COST DISADVANTAGES INDEPENDENT OF SCALE





76)

o In addition, in urban areas some kind of “protection” from the local

street societies had to be negotiated. (p. C 78)

o In certain cases Carrefour chose industrial and commercial parks to

develop the hypermarkets[…] [b]y adopting this strategy Carrefour

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could capture both big and small accounts and grow much faster than

its rival Makro. (p. C 78)

o Carrefour is pronounced Jia Le Fu in Chinese, which means “luck and

happiness for the whole family.” This fortunate phonetic translation

unexpectedly contributed to Carrefour’s success in Taiwan and later in

China, where foreign names often remain unpronounceable. (p. C 78)

o Despite its efforts, Carrefour failed to find large sites suitable for

developing its hypermarket concept and to acquire significant market

share. (p. C 80)




o Ito-Yokado, Japan’s largest supermarket chain, had no plans to copy

Carrefour or to open hypermarkets because land costs remained too

high. (p. C 82)

o Japanese supermarkets chains began slashing prices in anticipation of

the “foreign threat”. (p. C 82)

o Carrefour was planning to sell its eight stores in Japan due to

“difficulties in acquiring real estate for new stores and the lack of

touch with Japanese consumers’ tastes”. (p. C 83)

o High. Proprietary supply platforms, operations in desirable locations,

high costs of real estate, competition, understanding of consumers’

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tastes, participation in public projects, language translations, and the

need for protection in some areas all raise barriers to entry.

EXPECTED RETALIATION

Vigorous retaliation can be expected when the existing firm has a major

stake in the industry[…], when it has substantial resources, and when

industry growth is slow or constrained. (p. T 51)

“China represents a huge market and now it has acquired its WTO

membership.” (p. C 73)

[Carrefour] operated 10,378 stores in 29 countries and employed more


Thanks to its massive buying power, Carrefour could guarantee low prices

while permanently offering about 50,000 items in stock. (p. C 74)

In order to fight back against the hard-discounters, Carrefour expanded its

own hard discount chain, ED. (p. C 75)

Carrefour advertises new promotions and discounts every day, reminding

customers that they will be refunded if they find the same product cheaper

elsewhere. (p. C 76)

Carrefour has built big global procurement centers coordinated through

Shanghai and Hong Kong. (p. C 76)

Until the year 2000 international competition had been rather timid but

was now progressing fast. (p. C 77)

International players such as Makro, Metro, Tesco, and Wal-Mart had

shown a big appetite for the region. (p. C 77)

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“It was as if the Huns had arrived in Taiwan,” Gerard Clerc said of the

reaction of local retailers in Taiwan to Carrefour’s arrival. (p. C 78)

Carrefour continued to reinforce its lead over Makro, sometimes opening

new stores near existing Makro stores. (p. C 78)

Local conglomerates raised the stakes and invested massively to protect

the local industry. (p. C 78)

In 2003 Carrefour was the number three food retailer in Malaysia but was

facing increasing competition from strong local and foreign retailers, such

as Tesco. (p. C 79)

However, local competition remained strong and professional (NTUC)

and local suppliers resisted Carrefour’s methods. (p. C 79)

But in 1999 it experienced fierce competition and had to modify its

activity. (p. C 80)

Because most retailers concentrate their efforts in this part of China,

competition is steadily increasing. (p. C 81)

In 2002 and 2003 Carrefour stepped up its expansion in a bid to move

faster than its competitors. (p. C 81)

In the wake of the Zhongguancun store opening, Carrefour planned to

open one or two more stores in Beijing in 2004 as well as a store in Jinan,

the capital of east China’s Shandong Province. (p. C 81)

In 2004 China announced that it would honor its pledges to open the

booming retail sector to foreign players such as Wal-Mart and Carrefour,

abolishing joint-venture requirements before the end of the year. (p. C 81)

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In recent years Shanghai-based major retailers have started to defy foreign

competition. (p. C 81)

Despite the spectacular bankruptcies of local players such as Mycal in

2002, Japan’s retail sector has remained overcrowded and competition

quite fierce. (p. C 82)

Japanese supermarkets chains began slashing prices in anticipation of the

“foreign threat”. (p. C 82)

High. As demonstrated above, this industry is highly competitive, and new

entrants can expect swift and decisive retaliation when opening new stores

in many different countries.

o POWER OF SUPPLIERS



In some markets, such as China, Carrefour has launched its own product line

in home appliances and spices. (p. C 76)

In China, for instance, more than 95 percent of its merchandise is locally

sourced and the remainder is sourced through local importers or the trading

office in Hong Kong. Carrefour has built big global procurement centers

coordinated through Shanghai and Hong Kong. (p. C 76)

In order to increase its profitability, in 2000 Carrefour created the GNX online

supply platform with Oracle and Sears, whereby suppliers and retailers can

exchange information via the Internet and optimize the flow of merchandise,

thus reducing their administrative costs. (p. C 76)

16


Worldwide, Carrefour requested that its stores make less use of plastic in

packaging, thereby gaining a reputation as a model in the retailing industry.

(p. C 76)

Taiwanese suppliers lacked rigor, organization, equipment, and


counterparts. They sold products, not services, and often lacked information

regarding basic data on their sales, inventory level, and even internal

accounting. (p. C 78)

However, local competition remained strong and professional (NTUC) and

local suppliers resisted Carrefour’s methods. (p. C 79)

Carrefour is one of the world’s major exporters of Chinese products. (p. C 81)

Since 2002 a new organization within the group has aimed to expand market

outlets for its suppliers and enhance its product offering in its European stores.

(p. C 81)

[T]he traditional clout of wholesalers was slowly being reduced to a more

logistic function. (p. C 82)

[L]ocal distributors launched lawsuits against Carrefour as the company opted

to purchase directly rather than conform to the long-established distribution

channels. After the Japanese distributors lost their case, Carrefour resumed its

expansion. (p. C 82)

Power of suppliers is low. The supplier groups are less concentrated and not

dominated by a few large companies. There are many substitute products

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available to firms, retail firms are a significant customer for supplier groups,

and there is little threat of forward integration into the retail industry.

o POWER OF BUYERS

No single buyer purchases a large portion of the industry’s total output.



Carrefour advertises new promotions and discounts every day, reminding



Taking local constraints into account, Carrefour has added new services in

developing markets, such as free shuttle services for customers and play areas

for children, as well as home delivery. (p. C 76)

[T]he Asian crisis did not affect the company; on the contrary, Carrefour

benefited, thanks to its low price policy and emerged even stronger from the

crisis with a higher market share than expected. (p. C 77)

Fortunately, Taiwan was relatively spared by the Asian crisis and

consumption levels continued to increase. (p. C 78)

These [cultural centers] offered women and children weekly courses in

English, dance, cooking, drawing, and other subjects. (p. C 79)

As an example, the “pork quality line” covered the entire cycle from breeding

selection and reproduction to stocking the shelves. (p. C 79)

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In order to offer a larger section of the population its first opportunity to

purchase durable household goods, Carrefour organized two “free credit”

campaigns in 2002[.] (p. C 79)

Monthly theme promotions were introduced (French Week, Wine Fair,

Japanese Week, Bicycle Week, etc). (p. C 79)

[Consumption and purchasing power in the continental Chinese market] are

steadily increasing. (p. C 80)

For religious reasons it could not sell fresh pork, but focused on beef and

lamb. (p. C 81)

They make it their daily routine to visit a nearby supermarket where other

friends congregate, rather than to drive to a hypermarket to stock up on

groceries for a week. (p. C 82)

Carrefour was planning to sell its eight stores in Japan due to “difficulties in

acquiring real estate for new stores and the lack of touch with Japanese

consumers’ tastes.” (p. C 83)

Neither high nor low. Although buyers purchase a significant portion of the

retail industry’s output, no single buyer purchases enough to have a major

impact on the industry as a whole. However, a lack of understanding of

buying habits and tastes in different countries can increase buyers’ power on

a regional basis. Special promotions and services serve to decrease buyer

power.

o THREAT OF PRODUCT SUBSTITUTES

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Although primarily known as a hypermarket pioneer, Carrefour also operated

supermarkets, hard discounts and other formats, such as convenience stores.

(p. C 73)

For years its claim to fame was to offer a massive array of quality goods in

one place, at reasonable prices rather than bargain-basement value. (p. C 74)

In order to fight back against the hard-discounters, Carrefour expanded its

own hard discount chain, ED. (p. C 75)

Even though Asian customers still tended to shop daily at wet markets or

“mom & pop” stores, buying patterns were slowly changing and a certain

degree of Westernization of local tastes was apparent in most countries. (pp. C

77-78)

The fresh product concept was redesigned in order to reproduce the

atmosphere and merchandising style found in street markets, while

emphasizing hygienic conditions. (p. C 79)

China’s retail scene differs substantially from one store type to another as well

as geographically. (p. C 81)

They make it their daily routine to visit a nearby supermarket where other

friends congregate, rather than to drive to a hypermarket to stock up on

groceries for a week. (p. C 82)

Threat of product substitutes can be high or low depending on the region or

country in which operations take place. Generally speaking, the threat of

product substitutes is low because services and promotions increase switching

costs, and retailers may tailor their operations to the local needs of

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customers. In Japan, however, the threat of product substitutes is high due to

cultural routines.

o INTENSITY OF RIVALRY AMONG COMPETITORS

NUMEROUS OR EQUALLY BALANCED COMPETITORS

Exhibit 3 Level of Internationalization of Global Retailers in 2003

(p. C 74)

RetailerNumber of Countries

Net Sales (in million US$)

Foreign Sales %

Carrefour 29 84,000 50Metro 22 46,900 45Ito-Yokado 12 27,238 41Tesco 11 39,521 18Aeon 10 24,677 17Costco 7 37,993 16Wal-Mart 11 205,500 16Daiei 3 17,717 1

Other retailers have since joined GNX including Metro (Germany),

Sainsbury’s (U.K.), Kroger (U.S.) and Coles Myer (Australia). (p. C 76)

International players such as Makro, Metro, Tesco, and Wal-Mart had

shown a big appetite for the region. (p. C 77)

The President Group is a dominant figure on the Taiwanese business

landscape, ranking number two in size. (p. C 78)

Since the liberalization of the Korean retail market in 1996, local and

foreign retailers, such as Carrefour, Makro, Costco, Wal-Mart, and Metro,

had struggled to stake out their territory. (p. C 78)

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In 2003 Carrefour was the number three food retailer in Malaysia but was

facing increasing competition from strong local and foreign retailers, such

as Tesco. (p. C 79)



But in 1999 it experienced fierce competition and had to modify its

activity. (p. C 80)

Convenience stores and supermarkets are dominated by domestic chains

such as Lianhua, whereas hypermarkets are in the firm hands of big

international players. (p. C 81)

As an area lacking big shopping centers and supermarkets, Zhongguancun

is attracting foreign retailers such as PriceSmart, one of Carrefour’s major

rivals. (p. C 81)

In 2004 the Bailian Group, which controlled Lianhua Supermarket

Holdings, announced plans to merge with Hualian into China’s largest

retailer, the Brilliance Group, with the aim of creating a local giant with

assets of US$721.4 million. (p. C 82)

Japan was left with five major general merchandise store chains, namely

Ito-Yokado, Aeon (parent company of Jusco), Caiei, Uny, and Seiyu, of

which Wal-Mart was the largest shareholder in 2002. (p. C 82)

High. There are a tremendous number of large and medium sized firms

which are competing on local, regional, national, and international bases

22


for a share of each market. This tends to increase rivalry among

competitors.

RAPID INDUSTRY GROWTH

“China represents a huge market and now it has acquired its WTO

membership.” (p. C 73)

Carrefour was generally successful when it entered new markets that had

seen dramatic changes in consumer buying habits, coupled with high

growth in per capita GNP, suburbanization, greater participation of

women in the labor force, and a large increase in the ownership of cars

and refrigerators. (p. C 74)

Such speculation highlighted that Carrefour was vulnerable to a takeover,

or at least to increased competition from international competitors like

Wal-Mart and Tesco that were posting stronger domestic growth. (p. C 74)

Even though Asian customers still tended to shop daily at wet markets or

“mom & pop” stores, buying patterns were slowly changing and a certain

degree of Westernization of local tastes was apparent in most countries.

(pp. C 77-78)

Moreover, impulse buying was on the rise and replacing necessity

purchasing. (p. C 78)

Fortunately, Taiwan was relatively spared by the Asian crisis and

consumption levels continued to increase. (p. C 78)

Before the Asia crisis Malaysia had experienced one of the strongest

growth rates of all the Asian nations. (p. C 79)

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Singapore was not overly affected by the Asian crisis, posting a rise of

more than 2 percent in GDP in 1999. (p. C 79)

Its hypermarket in Suntec City registered significant sales growth, and a

second store was opened in Plaza Singapura in December 2003. (p. C 79)

The continental Chinese market is quite different from those of Taiwan

and Hong Kong because urbanization, consumption and purchasing power

are steadily increasing. (p. C 80)




Despite the spectacular bankruptcies of local players such as Mycal in

2002, Japan’s retail sector has remained overcrowded and competition

quite fierce. (p. C 82)

The growth of this industry serves to lessen rivalry among competitors.

This is not the case in Japan, however, where a saturated market serves to

increase rivalry among competitors.

STORAGE COSTS AND FIXED COSTS

It built a reputation as the retailer that offered the most variety and

freshness at low prices. (p. C 74)

Carrefour could guarantee low prices while permanently offering about

50,000 items in stock. (p. C 74)

In 2003 Carrefour’s hypermarkets had a 13.9 percent share of the “fast-

moving consumer goods” category in its French home market (which

24


included food as well as household goods and health and beauty products)

[.] (p. C 75)

Carrefour tries to establish as many stores as possible in major urban areas

in order to achieve economies of scale. (pp. C 75-76)

Carrefour has built big global procurement centers coordinated through

Shanghai and Hong Kong. (p. C 76)

[Carrefour] operated 10,378 stores in 29 countries and employed more


Instead of buying the sites, Carrefour rented space to operate

hypermarkets in Kaohsiung and Taipei on a much smaller scale[.] (p. C

78)

Subsequently, Carrefour increased the size of its new stores. (p. C 78)

In 2004 it planned to open a hypermarket in Kepong, Kuala Lumpur, on

three stories with 46,450 [square meters] of floorspace. (p. C 79)

Located in an area dubbed Beijing’s Silicon Valley, the outlet has

floorspace of 11,600 [square meters], much bigger than any other

Carrefour store in the country. (p. C 81)

Ito-Yokado, Japan’s largest supermarket chain, had no plans to copy

Carrefour or to open hypermarkets because land costs remained too high.

(p. C 82)

High fixed costs for massive storefronts, including land and facilities,

combined with high storage costs for perishable goods, serve to increase

rivalry among competitors.

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HIGH STRATEGIC STAKES

Competitive rivalry is likely to be high when it is important for several of

the competitors to perform well in the market. (p. T 54)

But the Asian crisis forced these local retailers to freeze their expansion

plans, and some even had to file for bankruptcy. (p. C 78)



As a result, Royal Ahold, which operated 46 stores until 2002, withdrew

from China and eventually divested all its activities in the Asian region.

(p. C 81)

In recent years Shaghai-based major retailers have started to defy foreign

competition. In 2004 the Bailian Group, which controlled Lianhua

Supermarket Holdings, announced plans to merge with Hualian into

China’s largest retailer, the Brilliance Group, with the aim of creating a

local giant with assets of US$721.4 million. (pp. C 81-82)

It is important for several competitors to perform well in local, regional,

national, and international markets. Where the scope of operations of

different firms match, and when they operate in the same region, the

strategic stakes will be high. In this case, the rivalry among competitors

will intensify.

HIGH EXIT BARRIERS

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In the United Arab Emirates (UAE), the joint venture company between

Majid al Futtaim and Carrefour was the most dynamic and fast-moving

hypermarket chain[.] (p. C 74)

In order to increase its profitability, in 2000 Carrefour created the GNX

online supply platform with Oracle and Sears, whereby suppliers and

retailers can exchange information via the Internet and optimize the flow

of merchandise, thus reducing their administrative costs. (p. C 76)

Carrefour also works actively with local governments and nonprofit


When first moving into Asia, Carrefour opted for joint ventures and

partnerships to make up for its lack of knowledge of the Asian market. (p.

C 77)

The retailer entered a partnership with a local food and retailing

conglomerate, the President Group, which held 40 percent of the shares.

(p. C 78)

Carrefour introduced a new feature with the creation of cultural centers in

two stores in partnership with Korea’s leading newspaper. (p. C 78)

Its relationship with Lianhua, one of the two major local retailers, helped

Carrefour to establish its leadership in China. (p. C 80)

An “export service” was established in Shanghai, and 10 liaison offices

were set up with the objective of doubling export volumes by 2005. (p. C

81)

27


Carrefour also sought to participate in public welfare projects and to






Government regulations and strategic interrelationships, along with some

specialized assets, cause there to be high barriers to exit in this industry.

INTERNAL ENVIRONMENT

RESOURCES

o TANGIBLE RESOURCES

FINANCIAL

Year

Revenue (in million Euros)

Net Income (in million Euros)

Net Profit Margin (%)

2003 70,486 1,629 2.32002 68,728 1,347 22001 69,486 1,265 1.82000 64,802 1,065 1.61999 51,948 898 1.71998 27,408 647 2.41997 25,804 546 2.11996 23,615 476 21995 22,046 539 2.41994 20,778 324 1.61993 18,708 448 2.4

Carrefour has seen consistent growth in revenues and net income since 1993. Also, net

profit margin has experienced consistent growth from 1999-2003, after experiencing a

sharp fall from 1998-1999.

28


BORROWING CAPACITY

o In 2003 Carrefour was the second-largest mass retailer in the world

with net sales totaling €70.5 billion (US$84 billion) and net profits of

€1.6 billion. (p. C 73)

o Later on it worked with financial and industrial partners only when

national regulations made it necessary, as in China, Thailand,


o [Indonesia] was still facing major problems of financial sector fragility

and private sector debt. (p. C 79)

o Carrefour, which wholly owned many of its stores, was subsequently

ordered to sell its excess shares (above the regulatory 65 percent limit)

and in 2002 signed a deal to sell stakes to local partners. (p. C 81)

o Carrefour is one of the world’s major exporters of Chinese products.

(p. C 81)

ABILITY TO GENERATE INTERNAL FUNDS

o During the 1980s and 1990s, Carrefour continued its international

expansion through a combination of organic growth and acquisitions[.]

(p. C 74)

o Carrefour focused intensely on integration and repairing weak

domestic sales and by the end of the year it had successfully

repositioned itself to continue its international expansion at its

historically fast pace. (p. C 74)

29


o Because Carrefour operates on tiny margins […], the slightest

improvement in these translates into significant growth for the bottom

line. (p. C 76)

o One important factor in cost management is its sourcing strategy. (p. C

76)

o The centralization of its IT systems and administrative procedures

achieves further savings. (p. C 76)

o Carrefour, which wholly owned many of its stores, was subsequently

ordered to sell its excess shares (above the regulatory 65 percent limit)

and in 2002 signed a deal to sell stakes to local partners. (p. C 81)

o Carrefour has only just started making profits in all its stores[.] (p. C

82)

o Thus its three stores were showing major losses and Carrefour had to

review its ambitious plans to expand to 13 stores by 2003. (p. C 82)

ORGANIZATIONAL

FORMAL REPORTING STRUCTURE, PLANNING, CONTROLLING

AND COORDINATING SYSTEMS

o From 2000 to 2003 Carrefour wrestled with integrating Promodes’

businesses into it existing operations. (p. C 74)

o Before entering a new international market, local conditions are

analyzed against a set of socio-economic criteria. (p. C 75)

o However, Carrefour does not believe only in extensive market

research[.] (p. C 75)

30


o Once the feasibility study is conclusive, Carrefour focuses on selecting

the format best suited to the particular market and adapting that format

to local needs. (p. C 75)


areas in order to achieve economies of scale. (pp. C 75-76)


76)

o The centralization of its IT systems and administrative procedures

achieves further savings. (p. C 76)





76)

o When opening a new market, Carrefour operates a dual system for

employing expatriates and local executives. (p. C 76)

o As early as 1969 Carrefour was the first mass retailer to measure

performance on the return on invested capital instead of the classic

concept of gross profit margin used in traditional trade. (p. C 76)

o The pressure for sales and profit is put on department heads, as each

store is a profit center. (p. C 76)

31


o In Asia, department heads are much more autonomous than in France

and are also in charge of recruiting employees and negotiating salaries.

(p. C 76)

o In China, Carrefour employs 95 percent of local Chinese managers and

invests heavily in their training. (p. C 76)



(p. C 77)

o The retailer entered a partnership with a local food and retailing

conglomerate, the President Group, which held 40 percent of the

shares. (p. C 78)

o All stores consistently had pilot departments to introduce new product

ranges. (p. C 78)

o Rather than sharing their knowledge with their staff, local managers

had the tendency to withhold information. (p. C 78)

o Restructuring and modernization of existing stores started in 2001. (p.

C 78)

o Foreign ownership laws in Thailand allowed foreign companies—

except American companies—to hold no more than 49 percent of the

shares. (p. C 79)

o Backed by a dynamic commercial strategy with frequent and original

promotional campaigns, Carrefour, No. 5 in food retail, adapted well

to the local economic environment. (p. C 79)

32


o Legal restructuring was performed in collaboration with the Chinese

authorities and allowed expansion to resume. (p. C 81)




o This approach was a clear departure from Carrefour Japan’s existing

policy of localizing its merchandise and the highly successful store

would serve as a benchmark for future store openings. (p. C 83)

PHYSICAL RESOURCES

SOPHISTICATION AND LOCATION OF FIRM’S PLANT AND

EQUIPMENT

o It operated 10,378 stores in 29 countries and employed more than

410,000 people. (p. C 73)

o Although primarily known as a hypermarket pioneer, Carrefour also

operated supermarkets, hard discounts and other formats, such as

convenience stores[.] (p. C 73)

o Carrefour’s international operations are located in three major

geographical zones: Europe and the Middle East, Latin America, and

Asia. (p. C 74)



33





o Carrefour has opted in many Asian countries for an urban location for

its stores due to the population density, and has positioned its

hypermarkets in proximity stores rather than suburban stores, offering

a limited product range but producing greater volume. (p. C 75)





o In 2003 Carrefour was present in eight Asian markets, operating 144

hypermarkets and 55 hard discount stores[.] (p. C 76)

o Another advantage of the Taiwanese experience was that it served as a

human resource hub for other Asian markets, especially in China. (p. C

78)

o Instead of buying the sites, Carrefour rented space to operate

hypermarkets in Kaohsiung and Taipei on a much smaller scale (3,500

[square meters]) in urban centers on two stories instead of the classic

one-floor layout. (p. C 78)


ranges. (p. C 78)

34



develop the hypermarkets. (p. C 78)

o By 2003 Carrefour was operating 31 stores in Taiwan[.] (p. C 78)

o Restructuring and modernization of existing stores started in 2001. (p.

C 78)


in partnership with Korea’s leading newspaper. (p. C 79)

o The fresh product concept was redesigned in order to reproduce the



o In 2003 Carrefour Thailand counted 19 stores with net sales of €392

million. (p. C 79)

o In 2003 Carrefour was Indonesia’s leading foreign hypermarket with

11 stores and net sales of €286 million. (p. C 79)

o In 2004 it planned to open a hypermarket in Kepong, Kuala Lumpur,

on three stories with 46,450m2 of floorspace. (p. C 79)

o Carrefour’s net sales [in Malaysia] represented €226 million in 2003.

(p. C 79)

o In 2003 it was ranked the top foreign retailer [in China] with net sales

of €1,031 million, operating 40 hypermarkets and 55 hard discount

stores in all major cities. (p. C 80)

35


o An “export service” was established in Shanghai, and 10 liaison

offices were set up with the objective of doubling export volumes by

2005. (p. C 81)

TECHNOLOGICAL RESOURCES

STOCK OF TECHNOLOGY, SUCH AS PATENTS, TRADEMARKS,

COPYRIGHTS, AND TRADE SECRETS


prices, (3) self-service, (4) quality products, (5) freshness, and (6) free

parking. (p. C 75)



o In some markets, such as China, Carrefour has launched its own

product line in home appliances and spices. (p. C 76)


76)





76)


ranges. (p. C 78)

36


o Despite such differences, thanks to its adaptive capabilities Carrefour

became the largest mass retailer on the island. (p. C 78)





o Carrefour succeeded in modifying both shopping habits and price

expectations among the small population of 4 million Singaporeans.

(p. C 79)

o Carrefour’s aim had always been to pioneer urban centers that had

been ignored by competitors[.] (p. C 81)



2005. (p. C 81)

o Along with demonstrating its professionalism in fresh produce, the

company established its first sales space specializing in French


82)

o INTANGIBLE RESOURCES

HUMAN RESOURCES

KNOWLEDGE

o Carrefour developed the hypermarket concept[.] (p. C 74)

37




o When we decided to set up stores in Romania, it was more an

instinctive feeling than the results of the market study. (p. C 75)

o In 2002 Carrefour employed about 200 expatriate executives with

solid experience of adapting Carrefour’s retailing concept to local

contexts. (p. C 76)

o Local managers receive six months’ training in a country of the region

where Carrefour is already successfully operating. (p. C 76)

o Thereafter they work hand-in-hand: the expatriates contributing their

expertise and experience and the local executives sharing their know-

how of the local business environment. (p. C 76)



o […] 1,000 Chinese department heads were trained in retail techniques

and business management. (p. C 76)

o This cross-learning was vitally important as it spread the know-how

within the company. (p. C 78)

o Corporate culture, training, and company goals, among other factors,

were difficult to communicate to all staff members, and promotions

were only possible for English-speaking staff. (p. C 78)

o Rather than sharing their knowledge with staff, local managers had the

tendency to withhold information. (p. C 78)

38


o Based on the lessons learned in Taiwan, Carrefour moved into China

in 1995 with its first store opening in Shanghai. (p. C 80)

o “Sometimes, we may have problems in understanding Chinese laws

and regulations[.]” (p. C 81)



2005. (p. C 81)

TRUST








(p. C 76)

o Rather than sharing their knowledge with their staff, local managers

had the tendency to withhold information. (p. C 78)

o Its relationship with Lianhua, one of the two major local retailers,

helped Carrefour to establish its leadership in China. (p. C 80)

MANAGERIAL CAPABILITIES

39




convenience stores. (p. C 73)

o Carrefour focused intensely on integration and repairing weak

domestic sales and by the end of the year it had successfully

repositioned itself to continue its international expansion at its

historically fast pace. (p. C 74)







o Taking local constraints into account, Carrefour has added new

services in developing markets, such as free shuttle services for

customers and play areas for children, as well as home delivery. (p. C

76)


76)

o Shared processes and systems increase operational efficiency and the

introduction of international product ranges complements its locally

sensitive strategy. (p. C 76)

40


o In 2002 Carrefour employed about 200 expatriate executives with

solid experience of adapting Carrefour’s retailing concept to local

contexts. (p. C 76)

o Local managers receive six months’ training in a country of the region

where Carrefour is already successfully operating. (p. C 76)



(p. C 76)



o During this period real estate prices skyrocketed, making some

adaptation of Carrefour’s policy necessary. (p. C 78)



o Managing the supply chain was another major challenge. (p. C 78)

o Communication was another challenge. (p. C 78)

o Despite such differences, thanks to its adaptive capabilities Carrefour

became the largest mass retailer on the island. (p. C 78)

o Since entering this mature and sophisticated market in 1997, Carrefour

succeeded in modifying both shopping habits and price expectations

among the small population of 4 million Singaporeans. (p. C 79)



41




2005. (p. C 81)

o Carrefour fell short of its original plan to persuade all of its Japanese

suppliers to adopt the Carrefour direct-purchasing system. (p. C 82)

ORGANIZATIONAL ROUTINES




o For years its claim to fame was to offer a massive array of quality

goods in one place, at reasonable prices rather than bargain-basement

value. (p. C 74)

o Carrefour was generally successful when it entered new markets that

had seen dramatic changes in consumer buying habits, coupled with

high growth in per capita GNP, suburbanization, greater participation

of women in the labor force, and a large increase in the ownership of

cars and refrigerators. (p. C 74)

o During the 1980s and 1990s, Carrefour continued its international

expansion through a combination of organic growth and acquisitions[.]

(p. C 74)



42


o However, Carrefour does not believe only in extensive market

research. (p. C 75)






o Carrefour advertises new promotions and discounts every day,

reminding customers that they will be refunded if they find the same

product cheaper elsewhere. (p. C 76)




76)


76)






o While venturing into new markets, Carrefour’s human resource policy

has relied on a small number of expatriates. (p. C 76)

43


o When opening a new market, Carrefour operates a dual system for

employing expatriates and local executives. (p. C 76)



Later on it worked with financial or industrial partners only when

national regulations made it necessary[.] (p. C 77)


ranges. (p. C 78)


develop the hypermarkets. (p. C 78)

o In order to offer a larger section of the population its first opportunity

to purchase durable household goods, Carrefour organized two “free

credit” campaigns in 2002[.] (p. C 79)

o Monthly theme promotions were introduced[.] (p. C 79)

o In different provinces it used different partners. (p. C 80)


authorities and allowed expansion to resume. (p. c 81)


been ignored by competitors, as with Wuhan and Shenyang, where it

opened hypermarkets in 1999 despite a 30 percent rate of

unemployment. (p. C 81)

44




2005. (p. C 81)




o Like other Western megastores, Carrefour had apparently swept into

the Japanese market with much fanfare and little sensitivity to Japan’s

retail culture. (p. C 82)




82)

INNOVATION RESOURCES

IDEAS

o [A]ll products within its stores were “halhal” in compliance with

prevailing food requirements. (p. C 79)




82)

45







2005. (p. C 81)










ranges. (p. C 78)




76)




46








SCIENTIFIC CAPABILITIES










76)

CAPACITY TO INNOVATE




82)

47




2005. (p. C 81)










ranges. (p. C 78)




76)


REPUTATIONAL RESOURCES

REPUTATION WITH CUSTOMERS

o It built a reputation as the retailer that offered the most variety and


48


o Worldwide, Carrefour requested that its stores make less use of plastic

in packaging, thereby gaining a reputation as a model in the retailing

industry. (p. C 76)

o “It was as if the Huns had arrived in Taiwan.” (p. C 78)


happiness for the whole family.” (p. C 78)





credit” campaigns in 2002, which were a resounding success[.] (p. C

79)




o Although officially welcomed, the press often blames foreign retail

operations for destroying jobs and killing the local retail industry. (p.

C 81)

o […] Carrefour’s arrival was portrayed as “a foreign attack on the

Japanese retail market.” (p. C 82)

BRAND NAME



49



happiness for the whole family.” (p. C 78)




PERCEPTIONS OF PRODUCT QUALITY AND RELIABILITY




prices, (3) self-service, (4) quality products, (5) freshness, and (6) free

parking. (p. C 75)






82)

o “[…] difficulties in acquiring real estate for new stores and the lack of

touch with Japanese consumers’ tastes.” (p. C 83)

REPUTATION WITH SUPPLIERS

o Thanks to its massive buying power, Carrefour could guarantee low

prices while permanently offering about 50,000 items in stock. (p. C

74)

50


o In China, for instance, more than 95 percent of its merchandise is

locally sourced and the remainder is sourced through local importers

or the trading office in Hong Kong. (p. C 76)

o Taiwanese suppliers lacked rigor, organization, equipment, and


counterparts. (p. C 78)

o However, local competition remained strong and professional (NTUC)




China. (p. C 80)




o Instead, local distributors launched lawsuits against Carrefour as the

company opted to purchase directly rather than conform to the long-

established distribution channels. (p. C 82)

INTERACTIONS AND RELATIONSHIPS

o In France, due to regulatory constraints, Carrefour merged in 1999

with rival Promodes, the number two in the French market. (p. C 74)

o In the United Arab Emirates (UAE), the joint venture company

between Majid al Futtaim and Carrefour was the most dynamic and

51


fast-moving hypermarket chain, with a total of eight stores in 2004. (p.

C 74)

o Wal-Mart had coveted the French market for years but its attempts to

buy a French subsidiary had been stymied since its abortive courtship

of the Auchan and Carrefour chains in 1999. (p. C 74)





76)








Later on it worked with financial and industrial partners only when

national regulations made in necessary, as in China, Thailand,


o In addition, in urban areas some kind of “protection” from the local

secret societies had to be negotiated. (p. C 78)

52




o However, Carrefour still had to tackle different business approaches,

especially to negotiation. (p. C 78)

o Communication was another challenge. (p. C 78)

o The cultural gap was also a source of misunderstanding amongst

management. (p. C 78)



o However, local competition remained strong and professional (NTUC)




China. (p. C 80)

o Its relationship with Lianhua, one of the two major local retailers,

helped Carrefour to establish its leadership in China. (p. C 80)

o In 2000 Carrefour experienced legal tribulations due to the intricate

network of central, provincial, and local authorities that resulted in

lengthy negotiation procedures at many different levels. (p. C 81)



53





o Instead, local distributors launched lawsuits against Carrefour as the

company opted to purchase directly rather than conform to the long-

established distribution channels. (p. C 82)

CAPABILITIES

o Thanks to its massive buying power, Carrefour could guarantee low prices while

permanently offering about 50,000 items in stock. (p. C 74)

o Carrefour tries to establish as many stores as possible in major urban areas in

order to achieve economies of scale. (p. C 76)

o Carrefour has built big global procurement centers coordinated through Shanghai

and Hong Kong. (p. C 76)

o Carrefour organized two “free credit” campaigns in 2002, which were a

resounding success[.] (p. C 79)

o Carrefour developed the hypermarket concept of bringing nearly all types of

consumer goods under one roof in 1959[.] (p. C 74)

o [Carrefour] advertises new promotions and discounts every day, reminding



o In some markets, such as China, Carrefour has launched its own product line in

home appliances and spices. (p. C 76)

54


o In order to increase its profitability, in 2000 Carrefour created the GNX online


exchange information via the Internet and optimize the flow of merchandise, thus

reducing their administrative costs. (p. C 76)

o Carrefour also sought to participate in public welfare projects and to contribute to

local communities, while cooperating closely with local authorities. (p. C 81)

o As in Taiwan, Carrefour had to deal with a different negotiation culture and at

first used Taiwanese negotiators for its suppliers in China. (p. C 80)

o Since 2002 a new organization within the group has aimed to expand market

outlets for its suppliers and enhance its product offering in its European stores. (p.

C 81)

o [Carrefour] operated 10,378 stores in 29 countries and employed more than

410,000 people. (p. C 73)

o In order to fight back against the hard-discounters, Carrefour expanded its own

hard discount chain, ED. (p. C 75)

o Carrefour is one of the world’s major exporters of Chinese products. (p. C 81)

o Taking local constraints into account, Carrefour has added new services in

developing markets, such as free shuttle services for customers and play areas for

children, as well as home delivery. (p. C 76)

o Although primarily known as a hypermarket pioneer, Carrefour also operated

supermarkets, hard discounts and other formats, such as convenience stores. (p. C

73)

55


o For years its claim to fame was to offer a massive array of quality goods in one

place, at reasonable prices rather than bargain-basement value. (p. C 74)

o The fresh product concept was redesigned in order to reproduce the atmosphere

and merchandising style found in street markets, while emphasizing hygienic

conditions. (p. C 79)

o It built a reputation as the retailer that offered the most variety and freshness at

low prices. (p. C 74)

o When first moving into Asia, Carrefour opted for joint ventures and partnerships

to make up for its lack of knowledge of the Asian market. (p. C 77)

o Its relationship with Lianhua, one of the two major local retailers, helped

Carrefour to establish its leadership in China. (p. C 80)

o An “export service” was established in Shanghai, and 10 liaison offices were set

up with the objective of doubling export volumes by 2005. (p. C 81)

o From 2000 to 2003 Carrefour wrestled with integrating Promodes’ businesses into

it existing operations. (p. C 74)

o Before entering a new international market, local conditions are analyzed against

a set of socio-economic criteria. (p. C 75)

o However, Carrefour does not believe only in extensive market research[.] (p. C

75)

o One important factor in cost management is its sourcing strategy. (p. C 76)

o The centralization of its IT systems and administrative procedures achieves


56


o Backed by a dynamic commercial strategy with frequent and original promotional

campaigns, Carrefour, No. 5 in food retail, adapted well to the local economic

environment. (p. C 79)

o Legal restructuring was performed in collaboration with the Chinese authorities

and allowed expansion to resume. (p. C 81)

o Despite such differences, thanks to its adaptive capabilities Carrefour became the

largest mass retailer on the island. (p. C 78)

o In 2002 Carrefour introduced a number of sales innovations that proved

successful. (p. C 79)

o Carrefour succeeded in modifying both shopping habits and price expectations


o Carrefour’s aim had always been to pioneer urban centers that had been ignored

by competitors[.] (p. C 81)

o When we decided to set up stores in Romania, it was more an instinctive feeling

than the results of the market study. (p. C 75)

o Thereafter they work hand-in-hand: the expatriates contributing their expertise

and experience and the local executives sharing their know-how of the local

business environment. (p. C 76)

o Shared processes and systems increase operational efficiency and the introduction

of international product ranges complements its locally sensitive strategy. (p. C

76)

57


o In terms of remuneration it has a reputation for paying employees well:

Department heads earn 20 percent more than they would with other supermarkets,

and can earn a bonus linked to the results of the department. (p. C 76)

COMPETENCIES

o Thanks to its massive buying power, Carrefour could guarantee low prices while

permanently offering about 50,000 items in stock. (p. C 74)

o Carrefour tries to establish as many stores as possible in major urban areas in


o Carrefour has built big global procurement centers coordinated through Shanghai

and Hong Kong. (p. C 76)

o Carrefour developed the hypermarket concept of bringing nearly all types of

consumer goods under one roof in 1959[.] (p. C 74)

o [Carrefour] advertises new promotions and discounts every day, reminding



o In some markets, such as China, Carrefour has launched its own product line in

home appliances and spices. (p. C 76)

o In order to increase its profitability, in 2000 Carrefour created the GNX online


exchange information via the Internet and optimize the flow of merchandise, thus

reducing their administrative costs. (p. C 76)

58


o Since 2002 a new organization within the group has aimed to expand market

outlets for its suppliers and enhance its product offering in its European stores. (p.

C 81)

o [Carrefour] operated 10,378 stores in 29 countries and employed more than

410,000 people. (p. C 73)

o In order to fight back against the hard-discounters, Carrefour expanded its own

hard discount chain, ED. (p. C 75)

o Carrefour is one of the world’s major exporters of Chinese products. (p. C 81)

o Taking local constraints into account, Carrefour has added new services in

developing markets, such as free shuttle services for customers and play areas for

children, as well as home delivery. (p. C 76)

o Although primarily known as a hypermarket pioneer, Carrefour also operated

supermarkets, hard discounts and other formats, such as convenience stores. (p. C

73)

o The fresh product concept was redesigned in order to reproduce the atmosphere

and merchandising style found in street markets, while emphasizing hygienic

conditions. (p. C 79)

o It built a reputation as the retailer that offered the most variety and freshness at

low prices. (p. C 74)

o When first moving into Asia, Carrefour opted for joint ventures and partnerships

to make up for its lack of knowledge of the Asian market. (p. C 77)

o An “export service” was established in Shanghai, and 10 liaison offices were set

up with the objective of doubling export volumes by 2005. (p. C 81)

59


o From 2000 to 2003 Carrefour wrestled with integrating Promodes’ businesses into

it existing operations. (p. C 74)

o Before entering a new international market, local conditions are analyzed against

a set of socio-economic criteria. (p. C 75)

o However, Carrefour does not believe only in extensive market research[.] (p. C

75)

o One important factor in cost management is its sourcing strategy. (p. C 76)

o The centralization of its IT systems and administrative procedures achieves


o Backed by a dynamic commercial strategy with frequent and original promotional

campaigns, Carrefour, No. 5 in food retail, adapted well to the local economic

environment. (p. C 79)

o Legal restructuring was performed in collaboration with the Chinese authorities

and allowed expansion to resume. (p. C 81)

o Despite such differences, thanks to its adaptive capabilities Carrefour became the

largest mass retailer on the island. (p. C 78)

o In 2002 Carrefour introduced a number of sales innovations that proved

successful. (p. C 79)

o Carrefour succeeded in modifying both shopping habits and price expectations


o When we decided to set up stores in Romania, it was more an instinctive feeling

than the results of the market study. (p. C 75)

60


o Thereafter they work hand-in-hand: the expatriates contributing their expertise

and experience and the local executives sharing their know-how of the local

business environment. (p. C 76)

o Shared processes and systems increase operational efficiency and the introduction

of international product ranges complements its locally sensitive strategy. (p. C

76)

o In terms of remuneration it has a reputation for paying employees well:

Department heads earn 20 percent more than they would with other supermarkets,

and can earn a bonus linked to the results of the department. (p. C 76)

CORE COMPETENCIES (valuable, rare, costly to imitate, non-substitutable)

o Carrefour is able to adapt its business model to new regions, cultures, and

customer tastes and preferences.

Taking local constraints into account, Carrefour has added new services in

developing markets, such as free shuttle services for customers and play areas

for children, as well as home delivery. (p. C 76)

The fresh product concept was redesigned in order to reproduce the




partnerships to make up for its lack of knowledge of the Asian market. (p. C

77)

61


Backed by a dynamic commercial strategy with frequent and original

promotional campaigns, Carrefour, No. 5 in food retail, adapted well to the

local economic environment. (p. C 79)

Legal restructuring was performed in collaboration with the Chinese


Despite such differences, thanks to its adaptive capabilities Carrefour became

the largest mass retailer on the island. (p. C 78)

o Carrefour is able to spread important knowledge throughout their organization.






partnerships to make up for its lack of knowledge of the Asian market. (p. C

77)

Thereafter they work hand-in-hand: the expatriates contributing their

expertise and experience and the local executives sharing their know-how of

the local business environment. (p. C 76)

o Carrefour is able to keep its prices lower than its competitors.



Carrefour tries to establish as many stores as possible in major urban areas in


62


[Carrefour] advertises new promotions and discounts every day, reminding







One important factor in cost management is its sourcing strategy. (p. C 76)

The centralization of its IT systems and administrative procedures achieves


Shared processes and systems increase operational efficiency and the

introduction of international product ranges complements its locally sensitive

strategy. (p. C 76)

o Carrefour is able to acquire top-talent employees by paying its employees more

than its competitors.

In terms of remuneration it has a reputation for paying employees well:

Department heads earn 20 percent more than they would with other

supermarkets, and can earn a bonus linked to the results of the department. (p.

C 76)

VALUE CHAIN ANALYSIS

o PRIMARY ACTIVITIES

INBOUND LOGISTICS

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Since Carrefour competes on cost, it is vitally important that Carrefour is

able to acquire goods at costs lower than its competitors. Carrefour has

developed a system of acquiring goods that drives down costs. This

system includes local sourcing, which serves to lower transportation and

coordination costs. Carrefour should continue to investigate ways in

which it can further reduce procurement costs from suppliers, further

enforcing its competitive advantage in this area.

OPERATIONS

Carrefour has worked diligently to renovate its stores and warehouses in

order to take advantage of new technologies and economies of scale. It

has also worked with suppliers to reduce the amount of packaging used in

providing goods and services. Because it operates a vast number of

warehouses and storefronts, it is in Carrefour’s best interest to maintain

their facilities and equipment to ensure that goods can be delivered to

customers at the lowest possible cost.

Carrefour should investigate the benefits of RFID, as well as other

emerging technologies, in order to reduce the amount of labor required to

stock, track, package, and deliver its products. Benefits of the use of

emerging technologies can also come in the form of reduced wear and tear

on equipment and facilities, which will reduce the maintenance required

for equipment and facilities.

OUTBOUND LOGISTICS

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Carrefour is able to drive down its costs, and thus improve profitability,

through coordinating its suppliers, warehouses, and storefronts. Carrefour

benefits from having a software system in place to help in these

coordination activities. Carrefour should continue to work to build

warehouses in areas which provide the most benefit, taking a number of

factors into account.

Carrefour needs to continue investigating areas in which the processes of

collecting, storing, and distributing products can be improved. The area of

outbound logistics is possibly the most important source of profitability

for Carrefour. It is the coordination of these activities that allows

Carrefour to provide low prices to its customers.

MARKETING & SALES

This part of the value chain helps Carrefour to push its goods to market.

Carrefour has effectively changed the buying habits and expectations of

customers in many geographically and culturally diverse populations.

Frequent promotions and themes have proven successful, so Carrefour

should continue to invest in and develop its marketing and sales force.

Acquiring local talent in regions where Carrefour is less knowledgeable

about consumer tastes, habits, and preferences, will help Carrefour’s

marketing and sales campaigns to continue to be successful.

SERVICE

Carrefour has been innovative in identifying and providing services which

its customers value. Examples include shuttle services, cultural centers,

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and credit campaigns. These services serve to differentiate Carrefour from

its competitors and help to maintain customer loyalty even when Carrefour

cannot compete with other firms on price alone. Carrefour should

continue to investigate and develop innovative services to further

distinguish itself from its competitors.

o SUPPORT ACTIVITIES

PROCUREMENT

The coordination of suppliers’ activities with Carrefour through the use of

web-based technologies has helped to improve procurement efficiency.

Carrefour has also built procurement centers in strategically relevant areas.

By increasing its sales volume, it has been able to procure products at

lower costs than many of its competitors. Carrefour should continue to

investigate emerging technologies that would enable it to further automate

many of its procurement activities.

Carrefour has seen rapid expansion in recent years and has opted to

purchase land and buildings in some cases, while opting to lease land and

buildings in other cases. Carrefour should continue to determine, on a

case by case basis, whether it is in its best interest to purchase or lease

capital. Political instability in some regions may increase risk, but this

risk can be reduced through the proper selections of lease and ownership.

TECHNOLOGICAL DEVELOPMENT

The bottom line for Carrefour already benefits through the use of certain

technological advancements. Since technology is changing at such a rapid

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pace, it is important for Carrefour to stay on top of developing

technologies that may improve their profitability. Carrefour could benefit

through the use of technologies that improve logistical functions, as well

as human resource management, warehouse and store layouts, market

research, and services.

HUMAN RESOURCE MANAGEMENT

The success of a firm is highly dependent on its ability to attract and retain

talented associates. Carrefour has demonstrated that it can successfully

assemble and maintain a highly skilled workforce. Its strategy of using a

small number of expatriates in coordination with local talent has proven to

be highly valuable. In acquiring human resources, Carrefour should

continue to use its current strategy while continually seeking ways in

which it can improve its human resource management.

Carrefour pays its employees as much as twenty percent more than its

competitors do. Although this helps to acquire the top talent, it can be

detrimental to the bottom line. Carrefour should investigate whether it can

pay its associates more than its competitors, but at lower levels, so it can

keep high talent employees and achieve cost savings overall.

FIRM INFRASTRUCTURE

Because Carrefour operates globally, the issues that it faces while trying to

operate its business are highly diverse. Because of this global diversity, it

is in Carrefour’s best interest to localize many of its activities where

necessary. This is especially true when it comes to general management,

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negotiations, planning, and governmental relations. Finance and

accounting may benefit more from centralization.

OUTSOURCING

A firm as large as Carrefour benefits from keeping many of its activities

in-house. However, I would recommend temporarily outsourcing certain

activities as needed, while Carrefour becomes more familiar with new and

diverse markets. Once Carrefour has achieved the level of knowledge

necessary to understand new markets, it should take those activities and

place them back into Carrefour’s operations.

COMPETITOR ANALYSIS

o METRO

Operates in 29 countries.

Has net sales of $46.9 billion.

Foreign sales account for 45% of its total sales.

Has shown a large appetite for the Asian region.

o ITO-YOKADO




Emphasizes higher quality rather than lower prices.

o TESCO



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o AEON




Aggressive and innovative.

o COSTCO


Has net sales of $40 billion.


o WAL-MART





Foreign ownership laws in Thailand favor Wal-Mart.

Largest shareholder of Seiyu in Japan.

o DAIEI




o LOCAL COMPETITION

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A variety of locally owned stores compete with Carrefour in many countries

around the world.

BUSINESS LEVEL STRATEGY

HYPERMARKET

o TARGET CUSTOMER

Customers who wish to purchase all of their domestic goods in one stop, while

paying low prices for quality goods. Target customers are not those who seek

high levels of quality, or are willing to pay a premium based on brand names.

o NEEDS THAT PRODUCT SATISFIES

Satisfies the need for consumers to spend less time shopping while acquiring

quality goods at low prices.

Provides low to mid-level quality products for those who are not interested in

paying top dollar for high-level quality brands.

o LOW COST OR DIFFERENTIATION

Low cost. Many of the goods carried in hypermarkets are also carried by

competitors. Due to the diversity of the goods carried, it would be difficult to

compete based on differentiation.

SUPERMARKET

o TARGET CUSTOMER

Customers who wish to make less frequent visits to stores in order to stock up

on household necessities. Depending on the region in question, housewives

and mothers who do most of the grocery shopping and take on most

household activities for the family.

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Allows customers to purchase groceries and other important non-durable

goods under one roof, effectively eliminating the need to shop several

different stores in order to satisfy a given household’s needs.


Low cost. Many of the household goods that are carried in one supermarket

are also carried in other competing supermarkets. Although there may be a

small amount of differentiation regarding the types of goods offered and the

brand names carried, ultimately, price is the deciding factor in determining

which store to shop.

HARD DISCOUNTS

o TARGET CUSTOMER

Customers who are interested in the highest level of savings. These customers

are willing to make the trade-off between price and quantity. These customers

can include businesses as well as consumers with large families. Variety is

not necessarily an important factor for these customers.


Allows customers to save money on items that have a long shelf life and items

that are used in large quantities.


Low cost. Customers who shop hard discount stores are looking for the

highest savings overall, while giving up the ability to purchase smaller

quantities or the ability to select from a wide range of goods.

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FREE SHUTTLE SERVICES

o TARGET CUSTOMER

Customers who live in areas with poor or underdeveloped infrastructure and

have little access to personal transportation. Handicapped customers who are

unable to transport themselves.


Allows customers without transportation to take advantage of cost savings

from large stores that otherwise would be outside their reach.


Differentiation. Providing free shuttle services only increases costs to the

company. These shuttle services are not generally offered by most retailers.

CHILD PLAY AREAS

o TARGET CUSTOMER

Stay-at-home mothers, fathers, and other care providers who cannot afford to

leave their children at home or elsewhere while doing their shopping.


Allows customers to shop without the stress associated with shopping with

one’s own children. Allows customers greater flexibility in choosing when

and where they can shop, given the constraints of their childcare duties.


Differentiation. Child play areas, offered as a free service, only help to

increase costs to the firm. These services are intended to set Carrefour apart

from its competitors in order to gain a greater market share.

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HOME DELIVERY

o TARGET CUSTOMER

Busy professionals and people who are not mobile enough to perform

shopping duties at a storefront.


Allows busy professionals to order goods remotely so that they can focus

more on work. Also, allows handicapped and elderly people access to a wide

variety of products that may not be available in their area of mobility.


Differentiation. Like other services, home delivery only adds to the costs of

operation for Carrefour. However, home delivery capabilities set Carrefour

apart from competitors who do not offer similar services.

CULTURAL CENTER

o TARGET CUSTOMER

Women and children.


Allows women and children to further their education every time they venture

out to purchase goods for the household.


Differentiation. Offering a variety of classes in English, dance, cooking, and

drawing, among other subjects, helps to set Carrefour apart from its

competitors. It certainly does not help to lower costs for the firm.

FREE CREDIT

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o TARGET CUSTOMER

Customers who do not have enough disposable income to purchase durable

household goods outright.


Allows customers access to durable household goods, such as refrigerators,

that they would otherwise have to do without.


Differentiation. Money is not free. Offering goods to customers on credit

without charging interest only adds costs to the bottom line. It does serve to

set Carrefour apart from competitors who are not offering similar services.

THEMED CORNER

o TARGET CUSTOMER

Adventurous consumers who are looking to broaden their horizons by

purchasing “exotic” goods from other countries.


Gives customers a sense of cultural growth and awareness, while satisfying

their need to try new things.


Differentiation. Themed corners are intended to introduce consumers to new

products that they have not been exposed to before. These products are

generally very specialized and are generally not carried by competitors.

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CORPORATE LEVEL STRATEGY: RELATED CONSTRAINED

Carrefour is using a related constrained corporate level strategy because their

dominant business, the hypermarket, accounts for 57.6% of their overall sales. Other

formats, such as supermarkets, hard discounts, and other stores all share product,

technological, and distribution linkages. These other formats generate a significant

amount of revenues for Carrefour and will continue to do so as Carrefour continues to

expand.

VALUE CREATING DIVERSIFICATION

o ECONOMIES OF SCOPE

SHARING ACTIVITIES

Carrefour is able to share activities such as procurement, logistics,

operations, and human resources across several different formats in order

to create value. Goods destined for all different formats can be housed in

a shared distribution facility. Practices and knowledge associated with

human resources can be shared on local and global bases across many

different business units. The success of pilot departments in one format

can be used to further develop other formats as well. Activities such as

those described above, when shared among closely related businesses, can

also help to reduce business risk.

TRANSFERRING CORE COMPETENCIES

Carrefour has demonstrated a unique ability to adapt its concept to local

contexts across the globe. By observing the success or failure of certain

initiatives in one business format, Carrefour is able to transfer the

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knowledge of this success or failure across all business units at little cost

to the company. Carrefour is able to spread the knowledge that it contains

within its human capital by employing expatriates to work side-by-side

with local managers. This arrangement allows for the spread of

knowledge within the company both upstream and downstream, thus

creating value for the entire firm.

MARKET POWER

VERTICAL INTEGRATION

o Carrefour has attempted to gain market power over its competitors by

manufacturing and distributing its own line of goods in home

appliances and spices. By integrating this production into its existing

operations, Carrefour is able to achieve cost savings in operations, by

avoiding some market costs, and possibly improve the quality of its

products over competitors.

FINANCIAL ECONOMIES

EFFICIENT INTERNAL CAPITAL MARKET ALLOCATION

o Carrefour has the best information available in the market to use in

determining the most profitable and proper allocation of capital

amongst its business units. Carrefour has a tremendous amount of

capital at its disposal, and should only seek to borrow from creditors

when absolutely necessary.

VALUE NEUTRAL DIVERSIFICATION

LOW PERFORMANCE

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o Carrefour has diversified its businesses to include hypermarkets,

supermarkets, hard discounts and other formats. Although they have

seen good returns in international markets, the returns in their

domestic market continue to underperform the domestic markets of

their competitors. Because of these low returns in the domestic

market, Carrefour has reached out to international markets. They

should continue to branch out into new markets and pursue new

formats if the domestic market continues to underperform competitors’

domestic markets.

UNCERTAIN FUTURE CASH FLOWS

o The future cash flows of any business can be uncertain at times. As

the retail industry continues to mature, Carrefour will increasingly see

a need to continue to diversify. However, many markets across the

globe are just beginning to mature, and many remain untapped. Until

Carrefour sees the world market reach maturity as a whole, it should

not need to diversify for future cash flow reasons.

SYNERGY

o There is a high level of synergy among Carrefour’s product offerings.

By operating a variety of formats for its retail operations, it achieves

synergy in its procurement and distribution channels. A Carrefour

convenience store benefits from the buying power generated through

the operation of Carrefour’s hypermarkets, and vice versa. However,

these high levels of synergy indicate interdependence between

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business units which can cause Carrefour’s flexibility to deteriorate.

This, in turn, increases the risk of corporate failure. Carrefour may

want to inhibit the levels of synergy achieved between business units

in order to maintain its flexibility. This flexibility has proven

invaluable to Carrefour in expanding internationally.

INTERNATIONAL CORPORATE LEVEL STRATEGY

o TRANSNATIONAL STRATEGY

In Asian markets, Carrefour has sought to achieve both global efficiency and

local responsiveness. They have had to hold costs down due to the growing

number of global competitors they face, but they also have had to meet the

demands of a highly diverse set of cultures, buying habits, and tastes. Its

strategy of cross-training expatriates with local managers helps to increase

local responsiveness. Also, many Asian business operations require more

autonomy than domestic operations. So, with Carrefour, there seems to be a

combination of the multidomestic and global strategies. The use of this

transnational strategy may help explain Carrefour’s overwhelming success, in

most cases, of opening new business operations in other countries.

o ENTRY MODE

Carrefour has implemented the use of strategic alliances, at first, in entering

new unfamiliar markets. Once Carrefour becomes more familiar with a

market, it then rapidly expands its operations through the development of new

wholly owned subsidiaries. This approach appears to balance the risk

involved with greenfield ventures, with the lower returns associated with

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strategic alliances. Because this approach has proven successful in the past, I

would recommend that Carrefour continue this approach in the future.

CONCLUSION

Carrefour has positioned itself as an international leader in the retail industry.

Their strategies have proven successful for a number of reasons. First, they have been

able to successfully transfer competencies to associates and managers across the globe.

Also, they have been able to adapt to local cultures and consumer tastes as necessary. In

some cases, they have even managed to change consumer tastes and buying habits. They

have succeeded in entering new markets aggressively and gaining a large share of each

market. Carrefour has even been able to restructure when legalities made it necessary.

The question remains, then, what should Carrefour do in the future. Carrefour

should remain in the retail industry. It should continue those practices that have proven

successful and profitable in the past. Also, Carrefour should continue to leverage its

knowledge of international markets to continue its rapid expansion across the globe.

Carrefour should, however, be wary of threats to its operations, and remain vigilant in

exploring new ways to improve its products and services. Carrefour has come this far

based on its ability to pioneer new retail concepts and should remember that this

pioneering spirit is what will carry it into the future.

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References

Gehlen, C., Jones, N., & Lasserre, P. (2005). Carrefour in Asia. INSEAD.

Hitt, Ireland, Hoskisson. (2008). Strategic Management: Competitiveness and

Globalization (Concepts and Cases). (8th ed.) Mason, OH: Thomson Higher

Education.

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Documents

Carrefour Case Analysis 2