Carrefour China - French Hypermarket Retail Chain - Essay Example

Carrefour China - French Hypermarket Retail Chain Chapter 1: Company Profile Carrefour is a leading French hypermarket retail chain that entered the Chinese market during the 1995, when the Chinese government initiated a tentative opening of its economy. Carrefour has been the pioneer of the concept of ‘Hyper-markets’, which it started in 1959 with stores that provided mass-sales, low delivery costs, and discounts everyday. With the above strategy, Carrefour was able to open over 9,225 stores, and employ 3,40,000 employees globally. With sales reaching 78 billion dollars annually, Carrefour stands as the second largest retailer after Walmart, in the world market. 1(Lin and Liang, 2002). Carrefour has established its presence in Asian countries like Malaysia, Taiwan, China, South Korea and Singapore. Though its growth in the Chinese market has been restricted by the governmental regulations like the mandatory requirement of a local joint-venture partner, Carrefour has increased its market share and successfully followed a policy of regional penetration in China.. Carrefur has slowly and steadily made foray in the retail industry in China, largely by taking up strategic local partners. With an agreement with the Guangzhou General Merchandise Group of south China's Guangdong province, the French company has laid the foundation of a lucrative joint venture in 2002. It also has joint venture undertakings in Kunming, the capital of southwest China's Yunnan province, and in Harbin, the capital of northernmost Heilongjiang province. 2 (Xinhua News Agency, 2002). Carrefour operates over 71 supermarkets across China, and has been said to have purchased a total of 1.5 billion U.S. dollars worth of commodities from China in the year 2001. 3 (Xinhua News Agency, 2002). The latest Carrefour store became operational in January 2006, in Shanghai. The main competitors of Carrefour are Wal-Mart China, with 42 stores in the country, and Germany-based Metro Group, with 29 stores. 4. (China Frenchiser, 2006). Chapter 1.1: Products and Services of Carrefour Carrefour has an array of over 600 products sold through its retail stores and hypermarkets spread across diverse Chinese regions. Its products include grocery, detergent and personal care goods, fish farm and poultry, dairy and milk, snacks, bakery, snacks, frozen foods and beverages, and non-food items like kitchen-grade utensils. In addition to the above, Carrefour also stocks electrical goods, clothes, toiletries, luggage accessories and cleaning products. 5(Carrefour, 2006). The Carrefour stores are based on the concept of self-service, that provides the customer the freedom to browse the products at their pace and thus exposing them to attractive display and packaging. The staff are trained to be courteous and gracious, and they are expected to assist the customers in their requirements without imposing their presence over them. The stores also offer attractive everyday discounts, a service that helps them in further influencing the impulsive buying behavior of the Asian consumers. In addition to the above, the stores provide free, and environmentally friendly packaging services. They also cater for the parking requirements of the customers, by providing the facility of free car park at the stores. The promotion of the low selling prices at the stores are also coupled by the availability of fresh and new stocks. 6(Carrefour, 2006). Chapter 1.2: The Value Drivers at Carrefour The Value Drivers at Carrefour are reflected in their endevour to provide a one-stop shopping, low prices, fresh products and friendly ambience stores. It is evidenced that Carrefour believe in presenting the best value to its customers, and its operations are guided to present one-stop shopping as a leisure experience for the customers. It also strives to generate smooth operations and high turnovers in its hypermarkets, in order to ensure the freshness of its stock. To achieve the above objectives of low price and good quality, Carrefour is driven to utilize economies of scale by an integration of its stores. Further, it regulates the use of technology to communicate with its suppliers, and largely undertakes centralize procurement. This helps Carrefour in responding in real-time to its store replinishment needs. These activities are directly driven by its need to deliver new stock at low prices to its customers. Carrefour is also committed to presenting itself as a friendly and caring organization. As such, it keeps in mind the distinct needs of the diverse regions of China, and is always vigilant about the community development needs of the local population. Carrefour has continuously shown a tendency to forms links with local projects that help generate employment, and prosperity in the region. In order to make a substantial impact on the local buying behavior, Carrefour undertakes meticulous background research into the purchasing power and the demographic make-up of the prospective locale. This is again driven by its value of integrating its operations with the local needs. To serve its customers better, and to provide them with a leisure shopping experience, Carrfour is determined to provide spacious display arrays and adequate parking space. It is also committed to train and develop its employees to serve the customers better, and also carries out special offers and buy-back schemes to attract its price conscious customers. Chapter 2: Business Model Of Carrefour According to Osterwalder, Pigneur and Tucci (2005), “a business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.” 7 Carrefour follows a model of business that helps it take advantage of its economies of scale and to align its marketing plans according to the local requirements. Its objective of providing smooth operations and high turnovers are backed by its value propositions and its effective utilization of its core capabilities of using an efficient supplier network, and by its strategic use of local partnerships. Value Propositions Carrefour believes in providing a one-stop shopping arena, lowest price, fresh products, self-served shopping in a hypermarket with the added advantage of free parking lots. Target Customer Segments Carrefour’s target segment are home-makers who are price, as well as quality conscious. The Chinese consumer market being more impulse-driven than a rational-need based, Carrefour is faced with the opportunity of presenting itself in a friendly and attractive image. Distribution Channels Carrefour has jointly built the global net exchange supply-chain e-commerce system in 2000 along with Sears and Oracle. As a result, the retail giant is able to transact globally with over 50 thousand suppliers electronically and deal in exchanges of the order of 80 billion dollars annually. Carrefour’s website too are providing a platform for purchase. Customer Relationships Carrefour is continuously involved in promoting healthier customer relations as well as carrying out activities towards fulfilling it social responsibilities. It is guiding physical education activities such as Marathon run and environmental protections, as well as working with local governments and non-profit organizations to reduce packaging-pollutions. Carrefour had jointly initiated the “green packaging joint actions” in 2002 with the Chinese Packaging Corporation initiated. It also maintains that all its stores make less use of plastics in packages and has already established itself as a model in retailing industry. Core Capabilities Carrefour’s core capabilities can be said to be its readiness to adapt and internalize in local markets. This ability helps the retailer to easily penetrate local markets and build its strengths in the local context. Secondly, its strong supplier and distribution system help in backing its claim of fresh products at low prices. Partner Network Carrefour has established a credible partner network in the Chinese market, largely owing to the governmental regulations and legal requirements. Resources and capabilities Carrefour uses advanced communication equipment and technology to communicate with its suppliers, and maintains an information network and internal administration system to provide competitive advantage. Its main resource are its local suppliers that ensure that the costs are cut while fresh quality products are maintained at the stores. In addition to an efficient supplier network, Carrefour is also credited with recruiting local workforce at all levels of its operations. This is an important capability as the local recruits provide the required insight into the customized needs of the region, but such a strategy places the organization in an amiable light – it is seen as friendly and understanding towards the regional people and caring for their needs. Chapter 2a: Strategic Position (using BCG Matrix for Carrefour) 8(NetMba, 2006) Carrefour Hypermarket chain in China is currently positioned at an advantageous position, where the market growth is expected to increase over the coming years. The vast presence of Carrefour outlets in various provinces of the country, place the organization in a competitively better position than its main rivals, Walmart and Metro. According to the BCG matrix presented in the figure above, Carrefour’s strategic position in the Chinese market could be stated as that of a performing Star. There are several factors that indicate that the Chinese retail segment will be doing well over the next decades. The Chinese Hypermarkets & Supermarket segments have grown tremendously in the past one and a half decade, from a negligible presence in the early 90s. There are over 20,000 supermarkets and hypermarkets outlets, and sales in 2005 amounted to around 400 billion Yuan or US $ 48 billion. This figure was equivalent to 10% of the total retail volumes accrued in China. 9(Przoom.com, 2006). China, having a massive population and being one of the fastest growing economies, is stanced to attract huge foreign investment in its retail sector as well. With its entry in the World Trade Organization, it is increasingly opening up the economy to facilitate such investments. Though there are still several restrictions like the mandatory presence of a local partner in any retail undertaking by a foreign company, the use of local content ore recruitment, it is expected that these restrictions will be further relaxed in the future. 10 (Euromonitor International, 2006). As the average household incomes rise strongly, and also, the Chinese demographics are currently tainted towards a relatively young and spending population, the overall spending of the nation is expected to rise. 11 (Euromonitor International, 2006) In addition to the strong overall economic growth of the nation, the hypermarket culture is increasingly finding acceptance in the region. This is because of the ease of purchase, low prices and variety that are available through such stores. In such a scenario, Carrfour is doing well to have recognized the local needs and made adjustments in its regional procurement and supply services. It has established over 70 stores, utilizing local vendors for over 90% of its supplies and thus has delivered on its availability commitments. While Walmart is depending on its everyday low price strategy, Carrefour is better able to capture market share by adopting everyday discounts strategy - which is better accepted by the local Chinese population. The trends indicate that Carrefour is increasing its presence and capturing the largest segment of the consumers through its innovative discounting, strategic partnering and targeted positioning. As such, it can be stated that Carrefour is placed in a growing market, and is itself a market leader in that segment. This adequately qualifies the market position of the Organization as what is described as the “Star” by the BCG matrix. 12(Kotler, 1999). Chapter 3a: Value creating activities – (using Value chain analysis) 13(LearnMarketing.net, 2006) Carrefour is trying to place itself at a competitively advantageous position by utilizing its activities efficiently and cost-effectively. The flow of activities and processes, from the inbound logistics to the operations and the outbound logistics, is being streamlined to add value to the overall process and maintain standards of timely delivery and quality. The organizations activities, both primary and support, are adding value to make the best customer experience available to its Chinese clientele. Primary Activities Inbound Logistics Carrefour uses EDI as well as the global net exchange supply-chain e-commerce system to communicate with its suppliers. In China, approximately 90% of the supplies are procured locally – thus leading to fast and fresh deliveries for the customers. Operations Carrefour customizes product offerings by increasing local procurement. It provides its customers with a one stop shopping platform where they can buy all their daily requirements of food and drink, as well as browse for clothes and household appliances. It provides friendly and helpful ambience at its outlets and facilitates its customers in making healthier and better choices. This way, it helps in providing the customers with low cost purchases, as well as prevents them from searching diverse stores for diverse needs like grocery or electronic goods. Outbound Logistics The hypermarkets provide the customers with the point of purchase, as such, the outbound logistics cannot be strictly separated from its operations. However, the friendly and knowledgeable staff help in creating a memorable ambience for the customers. This helps in retaining the customer base, and with the added advantage of free parking, Carrefour also provides another reason for the customers to return. Marketing & Sales Carrefour’s marketing and sales efforts are directed twofold. Firstly, the organization follows a policy of rapid expansion and internalization in the Chinese market. This is an important marketing stance as the retail industry success largely depends upon marinating a strong presence near the customer. In addition to the above, Carrefour maintains itself as a daily discount retailer. This strategy acts as a cue to attract customers with daily new surprises and maintains a degree of enthusiasm in the buyers purchasing. Carrefour has also crafted for itself an image of an environmentally concerned and responsible organization – a stance that helps attract Service Carrefour being a retail chain, the service provided at its outlets includes the services of its helpful and friendly staff, multiple checkouts to avoid waiting and free parking. In addition to these, the retail chain also provides a variety of products with guarantee and warranty. Bring a daily discount store, the retailer also provides customer service in terms of one of the lowest process, top brands and good quality of products. Support Activities Infrastructure Carrefour is among the top retail brands in the global market. Its organizational structure is flexible and the company culture promotes that management know-`how is shared among all the different regions, and best-practices universally emulated. It also believes in maintaining uniformity of operations under one common Brand and thus lowering its operating costs and uncertainty. However, its greatest strengthen contributing to its competitive advantage in the Chinese market is the flexibility and the discretion to adapt according to the local customized requirements. Human resource management Carrefour follows a hands-down approach in its human resource planning and training. Though recruiting locally, the decision-making is carefully maintained at the top level. The employees are trained to continuously be vigilant about the stocks’ situation in the stores and to be empathic with the customers. However, being a French organization, Carrefour’s Chinese outlets too retain their native (French) managers to streamline operations at the local level. Technology development: Carrefour is continuously committed to adopting information technology within and across its supplier networks. The use of EDI and global exchange network, help it in increasing operational efficiency and in maintaining flexibility. Real-time monitoring of sales, vigilance regarding stocks availability, quick ordering and procurement etc. are further facilitated by using the new technology effectively. Carrefour is also moving towards a system of supply chain management, enterprise resource planning, and customer relationship management, that will further improve its value chain. Procurement Carrefour is able to exploit economies of scale owing to its global operations. It goes a step further by accommodating the local differences of customer preferences by sourcing majority of its products from local vendors. Carrefour does indulge in centralized sourcing, however, its suppliers regularly deal directly with its different stores. With its global procurement centers that are supported by Shanghai and Hong-Kong, Carrefour is currently the biggest procurement center in Asia, procuring over 1.5 billion dollars. 14(Lin and Liang, 2002) Chapter 4: Environmental Analysis (Using PEST Analysis) 15(All China Industry Research, 2004) An analysis of the Environment of Carrefour in the Chinese market reveals that there is a rather big possibility that with the further opening up the Chinese Economy, there will be a major growth in the retail segment. This will lead to more opportunities of expansion, though, at the same time, bringing in newer players into the market. Political Environment Its expected that the Chinese government will exhibit a certain degree of easing down on its restrictive regulations regarding the mandatory presence of a local partner in retail ventures of foreign firms. There is also expected possibility that the government will initiate and facilitate greater FDI in this sector, and thus attract more investors. This condition poses both as an opportunity, as well as a threat to Carrefour. Economic Environment - The continuous growth of the Chinese Economy at the exhilarating pace of over 8% is expected to continue over the future. Though largely driven by the manufacturing industry and the foreign investments, this growth is expected to drive all the sectors of the economy, including retail.. The economic environment of Chine is therefore a strong point for Carrefour to cash upon. Social Environment The purchasing power of the mammoth population of the nation too, is expected to grow in tandem with the economic growth. As more and more Chinese are preferring to adopt an easy and comfortable lifestyle, the Hypermarket culture appears to have found a firm ground in the country. This, again, is good news for Carrefours plans of future expansion. In addition to the above, it Carrefour has been able to successfully project itself as an environmental friendly organization – a tag that will go well with the increasing awareness about pollution and conservation that’s growing in all parts of the world including China. Technological Environment Technology is increasingly becoming a crucial factor in providing good quality and services to the customers. The retailers are updating their business processes and activities by using the benefits of e-commerce, and systems like supply-chain-management, ERP, SAP, and making full use of EDI to streamline procurement and deliveries. This is an important aspect that Carrefour, perhaps, needs to pay more attention to – especially, since its biggest competitor, Wal-mart, has substantial expertise in using the technology to add competitiveness to its storage and transportation processes. Chapter 5: Critical evaluation of the organization’s current strategies Carrefour is currently the market leader in the Chinese market, with Walmart coming a close second. This position has been largely achieved by its strategy of customizing its offerings to reflect the regional needs and its ability to develop a dependable local supplier base. The above strategy, coupled by its continuous efforts to partner the local retailers, is paying lucrative dividends to Carrefour. It appears that the giant French retailer is effectively utilizing a strategy of internalization and by selecting appropriate locations for starting new stores throughout China. Its rate of expansion is continuously on a rise in China, as it is able to make the best use of the local factors and generate and maintain fulfilling partnerships, both with its suppliers as well as with partnering retailers. Making adequate use of its core capabilities of integrating its business processes with the local needs, Carrefour is again being successful in providing high value at low prices. Carrefour finds itself in a strong position in the Chinese market largely because of its initiative and willingness to go ahead with the legislations of the country, and to quickly adapt to the local tastes. The country’s demographics and economic factors too are favorable for a high growth in retail buying. In the present attractive environment, Carrefour can further consolidate its position by developing its local network of vendors, and following an aggressive promotional and pricing policy. Its value chain is strong and Carrefour is able to ensure high turnovers. In the event of the Chinese government further relaxing restrictions on foreign organizations that want to set up establishments in the country, as is expected with the entry of China in the World Trade Organization, Carrefour should be well prepared for an accelerated rate of competition. At present, its competitors include Wal-Mart and Metro, which are largely driven by different, though well-understood, ideologies that Carrefour is used to countering. The future might bring in more retailers in the Chinese markets who bring in new capabilities, newer technology, and newer values that might pose a serious threat to Carrefour’s dominant position in China. There is also scope of improvement in the use of technology and e-commerce at Carrefour. Its main rival, Wal-mart, is considered to be an expert at exploiting the benefits of information technology in communicating to its suppliers as well as in controlling its logistics. Carrefour is implementing EDI and other packages like ERP etc., but at a slow pace. It is also investing in the development of its online commercial websites to facilitate the purchases – but, again, it has not been able to develop its Chinese site effectively yet. Carrefour is going strong on its internalization and local-perspective policy, however, the organization will be better advised to assimilate the latest technology if it has to maintain its leadership in China. References 1. Lin and Liang, 2002, A Comparative Study of Asia Strategy: Wal-Mart versus Carrefour, available online at http://blake.montclair.edu/~cibconf/conference/DATA/Theme5/China.pdf, accessed on 2-Nov-2006. 2. Xinhua News Agency, June 27, 2002, “Carrefour Expands Business in China”, available at http://www.china.org.cn/english/BAT/35720.htm, accessed on 30-Oct-2006. 3. Xinhua News Agency, June 27, 2002, “Carrefour Expands Business in China”, available at http://www.china.org.cn/english/BAT/35720.htm, accessed on 30-Oct-2006. 4. China Frenchiser, 2006, “Carrefour Opens Its 1000th Global Supermarket ”, available at http://www.chinafranchiser.com/2006/10/31/carrefour-opens-its-1000th-global-supermarket/, accessed on 30-Oct-2006 5. Carrefour Shopping List, 2006, available online at http://www.carrefouruae.com/downloads/eng/Shopping_list_09a.pdf, accessed on on 1-Nov-2006. 6. Carrefour Shopping List, 2006, available online at http://www.carrefouruae.com/downloads/eng/Shopping_list_09a.pdf, accessed on on 1-Nov-2006. 7. Osterwalder, Pigneur and Tucci, 2005, Clarifying Business Models: Origins, Present and Future of the Concept, Communications of AIS, Volume 15. Available online at http://www.businessmodeldesign.com/publications/Preprint%20Clarifying%20Business%20Models%20Origins,%20Present,%20and%20Future%20of%20the%20Concept.pdf, accessed on 3-Nov-2006. 8. NetMba, 2006, “The BCG Growth-Share Matrix”, available online at http://images.google.co.in/imgres?imgurl=http://www.netmba.com/images/strategy/matrix/bcg/growthshare.gif&imgrefurl=http://www.netmba.com/strategy/matrix/bcg/&h=267&w=323&sz=7&hl=en&sig2=FgQP8xzXwAYIcHlkriLsqQ&start=1&tbnid=9AbXvnq9PcpnzM:&tbnh=98&tbnw=118&ei=Y21LRZv8Ba_8JM7J7M0I&prev=/images%3Fq%3DBCG%2BMatrix%26svnum%3D10%26hl%3Den%26lr%3D%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official_s%26sa%3DN, accessed on 1-Nov-2006. 9. PRZOOM, 2006, “Supermarkets and Hypermarkets – The New International ‘Trendies’ in China” available online at http://www.przoom.com/news/8212/, accessed on 1-Nov-2006. 10. Euromonitor International, 2006, “China: Growth Market for the Future ”, available online at http://www.euromonitor.com/China_Growth_Market_for_the_Future, accessed on 1-Nov-2006. 11. Euromonitor International, 2006, “China: Growth Market for the Future ”, available online at http://www.euromonitor.com/China_Growth_Market_for_the_Future, accessed on 1-Nov-2006. 12. Kotler, 1999, Marketing Management, “Winning Markets: Market-Oriented Strategic Planning”, Prentice-Hall of India Private Limited: India. 13. LearnMarketing.net, 2006, “Value chain analysis”, available online at http://images.google.co.in/imgres?imgurl=http://www.learnmarketing.net/porter_1.gif&imgrefurl=http://www.learnmarketing.net/valuechain.htm&h=359&w=600&sz=7&hl=en&sig2=g1KvHfHCsFTno8_rUJAybg&start=1&tbnid=wDL1C2k67omxiM:&tbnh=81&tbnw=135&ei=I25LRduOCc7QJInL3fsI&prev=/images%3Fq%3DVALUE%2BCHAIN%2BANALYSIS%26svnum%3D10%26hl%3Den%26lr%3D%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official_s%26sa%3DG, accessed on 3-Nov-2006. 14. Lin and Liang, 2002, A Comparative Study of Asia Strategy: Wal-Mart versus Carrefour, available online at http://blake.montclair.edu/~cibconf/conference/DATA/Theme5/China.pdf, accessed on 2-Nov-2006. 15. All China Industry Research, 2004, “Industrial Product PEST (Marketing Environment) Analysis Structure”, available online at http://images.google.co.in/imgres?imgurl=http://btob.acmr.com.cn/English/images/pest.gif&imgrefurl=http://btob.acmr.com.cn/English/model02.htm&h=339&w=488&sz=9&hl=en&sig2=XQapSxelssK5zH2CmbPlBg&start=4&tbnid=I-VbCUjfZc9W_M:&tbnh=90&tbnw=130&ei=hydMRZHyNo7GJNuvlfAI&prev=/images%3Fq%3DPEST%2Banalysis%26svnum%3D10%26hl%3Den%26lr%3D%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official_s%26sa%3DN, accessed on 3-Nov-2006. Read More