Carrefour, Case Study Example

Introduction

The decision of exiting the Japanese market made by the leadership of Carrefour was in line with the business priorities set by the company for the year 2004. However, it is evident that exiting the market has resulted in a loss of opportunity and growth potential. The below essay will examine the reasons behind the leadership’s decision and examine whether the solution is serving the best interest of the company and stakeholders.

Strategic Problem

The weakening French market made the company move to Asia, however, the strategy failed because the company’s leadership did not take into consideration the unique feature of the Japanese market, therefore, the market entrance strategy was not tailored to the characteristics, competition and demand. Another reason why the strategy failed was because the company failed to diversify itself on the market, offered too many types of products, became the retailer of all, not a specialist.

Tactical Problem

When the company opened the first hypermarkets in Japan, they did not enter with a local partner.  Carrefour could have benefited from a Japanese partner’s existing knowledge and experience of Asian markets.

Issue Analysis

Before entering the Asian market, in particular Japan, the company should have created detailed market entry objectives. Further, their knowledge about international marketing, competition should have been considered. The case study shows that the Japanese market was not profitable for the company, therefore, as it was struggling with the burden of debt, it had to dispose of the assets, by selling the chain. The 2004 priorities of the company state that they were focusing on increasing their market share in France; indeed, it would have been cheaper and more effective than making the investment in Asia return faster. More market research would have been needed for strengthening the company’s position in Asia than building on the foundation of an already successful domestic market strategy. The 2005 strategy was focusing on strengthening the market position of Carrefour in France. Indeed, this was a more viable solution, as Japanese sales accounted for a small fraction of the total net profit of the company, while the French market made up almost half of the net profits. (Table III). The total Asian market only accounted for 7 percent of the profit in 2004.

When the company entered the Asian markets back in 1989, they did not plan for a slow expansion. The uncontrolled growth did not provide the company with enough leverage in the market, and the opening of new stores cost money. Therefore, it was almost impossible to make the markets profitable in a few years’ time. While the entrance of the Asian market was through a joint venture, Presidental Enterprise, it is not known how much they considered the diversity of national markets or applied the same strategy for market entrance in every country.

Solutions/Alternatives

In order to achieve success in market entrance strategies, the company should have engaged in customer research to understand Asian buyers’ behavior (Bech, 2010). From the case study, it is evident that the company did not create an international market analysis when entering new countries, such as Mexico and the Czech Republic. Previously, the company exited these markets as well, claiming that the strong competition was responsible, as well as the strategical focus of the organization. One of the things that the retailer should have learned from these cases is that before entering a new market, engaging in a new market-seeking strategy abroad (Ghauri & Cateora, 2006), the company should acquire knowledge about customer behavior, market competition and preferences. By choosing a local partner that has experience in the market, the company should have avoided the cost of opening and selling the stores in Japan.

Recommendations

Ovcina (2010) brings up a good example of successful expansion abroad; Wal-Mart’s entrance in Latin America. The author states that the strategy was successful because the management considered internal, external factors, desired mode characteristics and transaction specific behavior before making a final decision. Joint ventures with local companies are also proven to be successful market entry strategies, according to Le (2009).

The authors of the current study would -based on the company’s strategic priorities would recommend focusing on domestic market position strengthening, as well as strategies that make the market more profitable. Reduced costs of delivery would be a consequence of selling the non-profitable overseas supermarkets and hypermarkets. However, for domestic growth, there is also a need for a detailed market analysis, competition monitoring and a strategy that creates competitive advantage the company can build upon.

Implementation – Plan of Action

The authors would recommend that Carrefour creates a profitability and potential growth analysis for all international markets and eliminates stores in countries where no sustainable growth can be achieved, or competition is too high. Further, profitability would also need to be reviewed for all markets. Next, the company should be looking for ways to create competitive advantage on the French domestic market in order to increase its market share and profitability. The results, investments and budgets of the project need to be closely monitored on a regular basis.

Conclusion

From the above case study, it is evident that Carrefour did not create a strategy based on thorough research of markets, therefore, failed to understand customer behavior in Japan, as well as Mexico and the Czech Republic. In the future, the management needs to create a detailed market analysis and profitability predictions before engaging in international expansion.

References

Bech (2010) Designing successful international go-to-market strategies. Long value chains. TBK Consult. Retrieved from: <http://www.tbkconsult.com/assets/PDF-files-for-Downloading/TBK-   Successful-Go-To-Market.pdf>

Ghauri, P. &Cateora, P. (2006) International Marketing. 2^Nd Ed. Chapter 11. International market entry strategies. McGraw Hill.

Le, N. (2009) Foreign parent strategies, control and international joint venture performance. International Business Research. Vol. 2. No. 1

Ovcina, D. (2010) The dynamics of market entry and expansion strategy in emerging markets: the case of Wal-Mart in Latin America. MSc International Business and Management.