Carrefours International Business and Strategy - Case Study Example

CARREFOUR’S INTERNATIONAL BUSINESS AND STRATEGY al Affiliation) Introduction Strategy has many meanings depending on the approach or method taken. In this case it suits the definition of a creative plan that is critically guides and manages the handling of specific solutions (Bradford 2008). Strategy consists of regular behavioural patterns, whether sub-conscious or conscious. Carrefour plc.is a leading retailer in Europe and has recently expanded to become an international brand. The report covers a brief analysis of the organisation’s growth strategy in capturing the Middle East market. This market is highly competitive and for Carrefour to be successful it would require a proper entry strategy. Brief description of the company Carrefour is a French multinational corporation. It is one of the leading brands in retail market in the world in terms of sales revenue and has a 20% market share in Europe. The company began its operations eight decades ago as a small retail shop in France with a wide range of products. Currently it has many products such as electronic products, books, furniture, clothing, petrol, home entertainment, financial services and other general products (Bloomberg. com). The organisation has approximately 720000 employees who dedicate their time and effort to serve the company’s various stores. All the employees go through training and recruitment before deploying them in their specific work areas. Recently, the organisation’s main performance indicators; group strategy, group performance and group financial ratios have shown an increase in performance despite the financial crisis in most parts of Europe during the year 2012. In addition to the company doubling its global online sales, it has more than 96% of its customers reporting to have got full satisfaction from visiting the company’s stores (yahoo finance). Carrefour’s Expansion Strategy The organisation intends to roll out a series of strategy that will ensure long term growth and sustainability. The first strategy is to dominate the European market since it one of the leading companies within its sector. The second expansion strategy is to dominate both online and global retail stores. The organisation intends to expand more in the Middle East market in order to improve its international market share from the current 3% to approximately 10%. In order to achieve this goal, the company intends to open 100 stores in the middle East. The organisation has 2000 stores in Europe. The next strategy is to come up with ways of improving its non-food sector to offer a wide variety. The other strategy is to enhance the company’s social responsibility in order to give back to the society. The creation of quality brands is also a strategy that the company has put into place. Its implementation by the company can take place by it supplying its label products including non-food and food products. Lastly, the company’s expansion strategy involves employee participation and team building to add the value of the entity. Its achievement by the company takes place by it engaging in mentoring programs and leadership building to promote the creation of value to its workers. Carrefour’s competitive position within the market Carrying out of both internal analysis and external analysis takes place in order to effectively evaluate the entity’s competitive position in the market. Internal analysis takes place using SWOT analysis. On the other hand, analysis of the external business environment can be done using porter’s five forces frameworks. Below are SWOT and porter’s five forces analyses of Carrefour plc. Analyses of Porter’s Five Forces New Entrants’ Threat Many potential competitors in new markets face several challenges associated with new entrants. Some of the challenges experienced are costs of conversion, sale channels and funding needs. Safeway, Sainsbury, Tesco and Carrefour are some of the retailing companies that mainly dominate the European market. Recently, this retail market has grown to hypermarkets making Carrefour the leading retail company in the retail market in Europe with a 10% market share. Carrefour’s high investment levels make it extremely difficult for new entrants to penetrate the Middle East market. The company has set aside 1 billion euros to improve its investment across the world. The improvements will ensure that all the stores in Middle East offer their customers the best shopping experience. The retail entity intends to open and invest in over 100 stores in Middle East. The organisation competes with other big retail companies such as Tesco and Wal-Mart in approximately 25 countries that the countries have invested greatly in and globally. These factors make the threat of new entrants in the retailing industry to be insignificant (Euro Monitor). New substitutes services or products Threat The high level of increase in technology is posing a great threat to entities that do not advance their services and products alongside with the change in technology. It is very crucial for companies to improve the value of their services and products in order to retain customers (Ellis and Qilliams 1995). The threat of alternative services and products offered by an entity depends on a few factors. These factors include; the propensity of the customer to substitute its products, service or product differentiation level, the number of substitute services or products available in the market and quality depreciation. In Carrefour’s situation, the threat majorly lies in the availability of other stores that are convenient for customers due to the proximity of their location. This situation makes the entity to resolve to open metro stores and express stores which are strategically located to suits its customers. The Bargaining Power of Buyers There are many factors that affect the bargaining power of buyers including the existence of substitute products, the level of dependency in the current distribution channels, bargaining leverage and price sensitivity of buyers (Jansson 2007). Buyers intend to get the best return from the minimal amounts they are willing to spend for their products or services. Carrefour has strategically put its performance to cater for customer suitable prices enabling the company to maintain its customer base. For example, the organisation engages in a price comparison with competitor companies such as Asda and Sainsbury in order to ensure that their prices do not differ by a large margin and are favourable to customers. The organisation also puts into check quality standards by engaging in actions such as employee empowerment. The employees receive good training in customer satisfaction and customer care in order to increase the quality of service offered to customers. These planned implementations enable the company to have a competitive advantage in attracting customers. The Bargaining Power of Suppliers This factor is very important when it comes to labour, raw materials and other forms of expertise. Suppliers get negative influence by an increase in service and product prices. Some of the issues that affect the bargaining power of suppliers include the competition among suppliers, level of input differentiation and the concentration of suppliers in relation to the concentration of buyers. For example, the company gets favourable prices with good discounts as compared with smaller competitors in the market due to its large capital investment (Johnson and Scholes 1999). Competitive Rivalry Intensity Competitors’ bargaining power or competitive rivalry defines the competition in the market. Some of the issues that affect this force include advertising strategies, differentiation of products and services, innovation that leads to a competitive advantage and the degree of competitive strategy (Rugman and Collinson 2009). Carrefour gets immense competition from its competitors in the global sector due to the increasing consumer demand for product differentiation and innovative service. Competitors such as Tesco and Asda offer tough competition in their local markets. This causes the company to compare its products and prices with them so as to offer better products. In the global market, Wal-Mart is the main competitor causing intense rivalry to Carrefour in foreign investments. Carrefour faces a lot of competition from Wal-Mart and other established firms in the Middle East. SWOT Analysis Strengths Large market share Carrefour has a 0% stake in the Middle East retail market, where it intends to open more than 100 stores. This is as a result of the company investing heavily in various strategies which cater for different consumer preferences. The company has become a convenient retail company by opening hypermarkets in metro stores and convenience stores in most parts of Europe. Carrefour intends to use the same strategy in penetrating the Middle East market. Carrefour’s successful growth Despite the harsh economic conditions, the organisation has managed to achieve a steady growth rate. According to the 2013/2014 financial report, the company managed to achieve a 10% growth in group sales and a 2.5% increase in trading profit. The company also has a 16% return on capital employed ratio as compared to the previous financial year’s 12.5%. In summary, the company shows a steady growth in the key performance indicators over the past ten years (Euro Monitor). Carrefour Online Stores The organisation has put heavy investment in the use of ICT to ensure that it offers convenient and efficient services to its customers. The company is one of the largest online stores in Europe, a sector that is growing in its global markets. The entity has launched an internet platform that offers approximately 15000 products, which customers from all parts of the world can place orders using online services enabling efficient delivery of goods and services. Carrefour’s supply chain strategy The organisation has managed to incorporate its information technology systems to effectively attain a low cost strategy. According to their annual report, the company reports of their intention to make more than 700 million euros profit closely linked to the use of ERP system due to their introduction of a digital system for restructuring operations. Carrefour also uses an electronic system that scans products to indicate the price of the product as well as the inventory levels in the warehouses. The advantage of this system is that it identifies the minimum inventory levels at the time of sale (Verbeke 2009). This will help the retailer to make orders for the products before they have stock outs. In addition, the system is connected to a customer’s platform which records purchases made by customers in the various stores that company has all over the world. The company has incorporated a store-based picking model which provides its customers with home delivery services. Additionally, the organisation initiates a program to implement a lean distribution and accurate time strategy in a move to increase the supply chain management. This gives the company an added advantage in their distribution channels. The use of these business enhanced technologies helps the organisation to minimize its stock costs and establish a stable format of scheduling which enhances the flexibility of the entity so as to adjust appropriately in the market. In addition to this, the company intends to attain protective maintenance in production stages for the suppliers in their various stores (Munchen 2009) Weaknesses Carrefour has had a few setbacks in the past four years which have negatively affected the entity’s performance. In several circumstances these setbacks have tainted the brand image of the company greatly. For the example, some years back there were accusations of the company selling donkey and horse meat in their snacks and burgers instead of using the required meat such as goat, mutton or beef meat. Inspections results approximated that at least 20% of their fast food snacks have horse meat in February 2012. In one of their stores, 65% of their burgers contained horse meat instead of beef meat. These incidences significantly tarnished the brand name of the company so much that the organisation lost a vast portion of its customers. Opportunities Recently the organisation has expanded geographically by opening more than 500 stores outside Europe since 2008. This is a well-planned move designed to ensure sustainable growth of the company on an international scale. In addition the entity’s decision to enter the Asian market is a well-planned move which intends to boost the international performance of the entity. Also partnering with other companies from Asian countries gives the organization an upper hand in penetrating the Asian retail market. Statistics show that Carrefour will increase its sales margin of general products by 25% which is a positive indicator of growth. Threats The past international economic recess negatively impacted the economy of most countries in Europe resulting to a 3.1% contraction rate. Explanations derived from the International Monetary Fund show that these economies are subject to shrink by a further 3.5%. Since majority of the stores of Carrefour are located in Europe, the economic situation will directly affect their customers. It will reduce their propensity to purchase products and services from their various stores. The organisation also faces rivalry from both its local competitors and international competitors such as Sainsbury, Morrisons, Wal-Mart and Tesco. Recommendation for the sustained development of Carrefour’s strategic activity According to Porter’s distinct five forces of determining a firm’s performance, growth and maintenance of rivalry advantage, the recommendations below will be of great help for Carrefour to compete favourably in the international market. The firm has an upper hand in competing against the new entrants in its local market due its big market share in the region. Globally, the firm faces a lot of competition from its competitors like Wal-Mart and Tesco as compared to the threat of new entrants in the international market. Carrefour needs to invest more in the expansion of its stores in many more parts of the world in order to be at par with its competitors in the sector. In respect to substitution of services or products, the firm should focus on service and product diversification to stand for the diverse consumer groups. The organisation has re-launched the everyday products value with a range 600 products to select from in a move to introduce new products in the market. Carrefour also intends to advance more than 1500 products by introducing a special category. The firm should strive to retain its local cost strategy by ensuring that its prices are competitive in the sector due to the level of competition in the retail market. The retail company should try to maintain improving services such as beauty salons, banks and telecommunication that it offers in its subsidiaries. It help the company to differentiate and diversify the services they provide in order to attract the diverse needs of different consumer groups. Moreover, the company should differentiate and diversify the available commodities in the stores by improving its stocking of non-food products. With regards to the customers’ bargaining power, it is highly important that the firm continues to offer competitive prices for all their services and products. These value added services and products are important factors that consumers consider when purchasing in the retail market. It is highly encouraged that the firm should carry out a market research to enable it to satisfy customer expectations and also develop innovative ways of providing low cost products that have high quality. It is necessary that the company compares the prices of its products and services with that of its local and international competitors so as to be at par with them. References Business strategy series. 2008. Bradford, England: Emerald. Top of Form Bottom of Form CARREFOUR SA (CA: EN Paris): Stock Quote & Company Profile. (n.d.). Retrieved February 21, 2015, from http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=CA:FP Top of Form Bottom of Form Carrefour SA Company Profile - Yahoo Finance. (n.d.). Retrieved February 21, 2015, from http://biz.yahoo.com/ic/40/40719.html Top of Form Bottom of Form Carrefour SA in Retailing. (n.d.). Retrieved February 21, 2015, from http://www.euromonitor.com/carrefour-sa-in-retailing/report Top of Form Bottom of Form Ellis, J., & Williams, D. 1995. International business strategy. London [England: Pitman Pub. Top of Form Bottom of Form Jansson, H. 2007. International business strategy in emerging country markets: The institutional network approach. Cheltenham, UK: Edward Elgar. Top of Form Bottom of Form Johnson, G., & Scholes, K. 1999. Exploring corporate strategy (5th Ed.). London: Prentice Hall Europe. Top of Form Bottom of Form Rugman, A., & Collinson, S. 2009. International business (5th Ed.). Harlow, England: Prentice Hall Financial Times. Top of Form Bottom of Form SWOT analysis: A tool for making better business decisions. 2008. Washington, D.C.: U.S. Dept. of Agriculture, Risk Management Agency. Top of Form Bottom of Form Verbeke, A. 2009. International business strategy: Rethinking the foundations of global corporate success. Cambridge, UK: Cambridge University Press. Top of Form Bottom of Form Read More