Carrefour free essay sample

Gomez, Xia Xia, Ray Chou, Sam Nora, Ivan Perkovic Professor Nicholas Imparato Final Memo Team 1 Van Ness Cohort Carrefour Managerial Issues Introduction Carrefour as of 2011 is the second largest retailer in the world when it is referred to its sales revenue, and is ranked third in the world when acknowledging the profit of this company. Carrefour is the largest retail hypermarket chain in the world, which has it’s headquartered in Boulogne Billancourt, France. Problem Statement Globalization today is the driving force behind many business endeavors. Company’s, in their never ending search for boosting the margins and increasing profits, have realized that one of the best ways to grow is to find new and unexplored markets. That is why over the past decades we have seen a rapid interconnection and interdependence of the economies of the world, meaning the companies of the world. Therefore, this is the very beginning of the many problems that Carrefour faces. In 1995, the company decided to enter the Chinese market. At the time it was immediately apparent that such a move is a risky decision simply because of the legislation, mandated by the Chinese government, that no foreign retailer can own more than 49% of the company, primarily meaning assets, when entering the Chinese market. Years later, China entered the WTO which has changed, but Carrefour’s problems were far deeper. In recent years Carrefour has suffered from rapidly declining market share, along with decrease in profit margin. Recently Carrefour has been faulted upon fixing prices and discriminating on products, which they sell. Different stores around China have promoted discounted prices in different outlets within the country at prices that were even higher than original prices, and stated these prices as being discounted for. Further, Carrefour participated in fraudulent activities that derived from the fact that the company was trying to create a close relationship with few suppliers by accepting bribes from them so that they can supply their outlet. The Carrefour stores within China suffer a high amount of profit on sales commissions and entrance fees than compared to its other retail competitors, which implies that the supplier has a tense relationship with the retailer. Further relevant problems include severe lack of keeping pace with the industrial standards, primarily in terms of retail technology and market entry operations, all which have taken their toll on the competitive edge of the company, and allowed Carrefour rivals to take over their marketplace in China as well as worldwide. Some critics attribute it to poor management, while some go even further and blame the culture for all the troubles. One thing is certain, Carrefour must undergo heavy restructuring or at least change its current operations if they wish to stay in the Chinese market, and for that matter, remain competitive in the world’s marketplace in general. Pestle Analysis In terms of political situation, the same communist party has ruled China for several decades now. Many issues can be found when using the PESTLE approach. Back in 1995, when Carrefour first entered the Chinese market, it was immediately apparent that such a move is a risky decision simply because of the legislation. In 1995, the government set out a policy, which stated that no foreign retailer could own more than 49% of the company, which primarily meant assets. In other words, this ultimately meant that Carrefour’s investment is not quite secure, because opening a company in China means acquiring and investing in assets while at the same time the company is not being the proprietor of the investment it is making. Additionally, the Chinese government seeks control of every business that lies within the country. Citizens have no freedom of speech to this day, and many entrepreneurs that work within this country say that running a business is similar. The government is attentive to every move the firm makes. This is one of the reasons why the government favors national companies to be in their market for they can force these companies to give them a higher rate of control of how the business is going to be run. Finally, to make matters more challenging, the Chinese government directly owns one of Carrefour’s main competitors. This means that the company must deal with a market where the government has the absolute power, in both, legislative and executive branches, while it is one of Carrefour’s direct competitors. In terms of economic factors, China is definitely a market that is worth entering and investing in. It counts for over a billion people and provides an opportunity for great success. But as any market that has so much promise, there are many places were a company can go wrong and fail to succeed in such a promising market. However, as mentioned recently this country is booming economically, and due to this has been receiving a higher rate of international companies that are in their industry. This has increased the acceptance of different cultures within this thriving republic. Nevertheless, China has many values that lie within the culture and business, which needs to be studied upon for the international firm to be accepted in China. Such cultural necessities that this country requires for all their businesses in order to succeed is trust. Customers need to trust the firm, and believe that the business is truly offering the highest most proficient product at a well reasonable price. As we can see, Carrefour did not seek to attain this verb from its clients, for it has not managed this international firm in the most proficient manner in one of the fastest growing countries in the world. One of Carrefour’s greatest errors that it made was by signing lease contracts to open stores within the nation, and not acquire property. Unlike all of their competitors, that all own the property and the land of their company, Carrefour never decided to make such an investment. Many reasons were behind this decision Carrefour had taken when first entering the Chinese market. Carrefour did not want to risk investing such a large sum of money when they could not own a share greater than 49% at the time, so this decision seemed way too risky. On the other hand, they thought that by leasing the retail space they would be able to turn their inventory and enjoy the extra benefits of having lowered costs. However, as we can now see, the opposite has occurred within this company. Carrefour signed a lease deal in 1995, contracting the retail space for 20 years (ending in 2015). The problem was with the fact that in those 20 years the price of real estate went soaring up. Carrefour in 1995, did not see this opportunity, and saw the risk of the interference of the government as a threat for them to own property and land within this nation. Do to the fact that close to one hundred percent of their retail stores are leased, technological innovations are highly lacking. As one can deduce, almost all retail giants within China offer and invest in the newest technological innovations for their clients. This is another category where Carrefour is having issues. The problem here is that Carrefour has yet to keep up with its competitors and introduce some new technology. Do to almost all of Carrefour’s retails being under a lease contract, hardly any innovations have been established within each retail outlet since 1995. The vast majority of Carrefour’s outlets even lack the basic technological innovation which most retail giants carry in all of their stores, self-checkouts. Hofstede Frameworks Analysis Carrefour entered one if not the most challenging markets when entering the Chinese Retail Industry in 1995. As we know China is a country, which has a very pungent history, which still lies at the heart of this vast growing economy. Currently China has the second largest economy that provides many opportunities to succeed and flourish. However, this market has many areas that when not studied upon carefully, will impose you from flourishing in this roaring economy. Though China does not dwell any longer with a communist dictatorship, there are many parts that lie in this culture that are rooted from having been dictated by one. The Chinese government seeks control over all retail stores and feels insecure when they lack control of an industry that is running through their economy. The Chinese government was never thrilled with Carrefour entering their market. Carrefour being one of the largest hypermarkets in the world, and has been seen as a threat ever since this industry has entered their chain of retail markets. Two reasons why Carrefour is seen as a threat is because it is an outsider and it has granted very limited access for the government to intervene within it. Under Hofstede’s five cultural dimensions, China is ranked eighty among power distance. The higher this number, the more the government is wanting to intervene within the companies and have a say of how it is to be run. This explains why China has been trying to convince Carrefour to hand over the operations within China to the local China Resources Group conglomerate; however they have yet to succeed in this proposition. Thinking beyond personal affections and more onto what is the best for the country as a whole is the mentality of the Chinese culture. China is referred to as a collectivist country within Hofstede’s perspective, which implies that they worry for the interest of the group, and not individualistically. Due to this when Carrefour has done many actions that has diminished its credibility and trust with their customers and government and has made shopping an unpleasant activity. Recent actions that have lead its customers to picturing Carrefour as this have been due to mismanagement. Carrefour has allowed each outlet to set their own prices for each of there products. Due to this they have made many of their customers think if they are being overpriced for a product, which they are buying. Lately stores within China have been temporarily closed due to the outlet selling expired food to their customers. This has entitled their customers to question upon the quality and price of the product, which they are consuming from this hypermarket. Instant change needs to be made within Carrefour for China’s citizens to start accepting this vast growing hypermarket within their culture. Chinese government has set many standards upon industries and stores so that it can avoid feeling threatened upon situations which the people do not have control under. They want to feel certain upon the market they are dealing with, and want to rely on good reputable and safe products which they, the customers, can rely and feel certain upon. Though since Carrefour has sold expired foods to their customers and have incremented prices, while stating that they are at a â€Å"discount rate†, different retail stores within the country have been fined over $100,000. Actions such as these have decreased uncertainty for Carrefour within the country. China under Hofstede’s perspective for uncertainty ranks China with a low 30. In the world of business China prioritizes trust as one of its most important standards. This is a fundamental key if one is to succeed in this fast growing economy. Though, Carrefour besides being an outsider has done the opposite of gaining trust within the Chinese industry. Carrefour, to begin with, is a relatively new company in the Chinese market. Besides, they have done many negative actions, which have led the Chinese citizens and government to come to question how long this vast retailing hypermarket will last in their industry. China aims at having a long-term relationship with industries that lie within their market, though due to recent activities that have taken place within this hypermarket, many are questioning how long they will last. Under Hofstede’s point of view, China is ranked extremely high in long-term orientation. With a ranking at 118, this implies that this country aims at long term relationships within their market. This culture bears with reliance and dependence, something that Carrefour has yet to demonstrate. Solutions Carrefour has been dealt with issues ever since entering this booming market. Though, Carrefour has been overflown with many managerial issues, which have been imposing it to succeed in this flourishing economy. Within the same country, different outlets are granted the freedom to sell their products at the price they desire. Though this has led Carrefour to commit many fraudulent activities that has steered different stores to be temporarily closed, and make customers loose faith for in this store. These activities though can be blamed at management for provoking such negative competition upon one outlet to another. Due to giving management so much freedom, management has done many activities with the intention to lower cost and increase revenue. Different outlets have accepted bribes from suppliers, sold expired products, and overpriced many of their merchandises. The solution to this, and to begin to change the image of this company in China is by centralizing power within the same country. Carrefour needs to remove the power each outlet has for determining its price for its products and set one price for each product within the same nation. This will remove price discrimination, and increase the customer’s contentment when he or she is shopping. If this policy were set, Carrefour would become a friendlier place for customers to shop. The customer would know that the product he or she is buying is a reliant merchandise, which is sold at a centralized price within all Carrefour’s within the same nation. A second problem this hypermarket is facing is one of its first actions that were placed when entering this market in 1995. As we may recall, in China the government had set a policy that foreign retailers could only run business in joint venture form and they couldn’t own more than 49% of share. This policy was set by the Chinese government to aid local businesses as a protectionism policy. Therefore, Carrefour was being forced to cooperate with other local businesses and because it has less than 49% of share, Carrefour was not willing to invest capital into long-term assets, such as land and technology. Although China hasn’t regulated the foreign retailers’ investment in 2005 because it joined World Trade Organization, Carrefour kept its ‘non-long-term’ strategic of not buying any land and paid their rent to keep their business. However, Carrefour is beginning to recognize that they should not extend their lease, which terminates for most of their stores in 2015, or they would need to pay an unreasonable high rent that is unreasonable for Carrefour to pay. We suggested that Carrefour should begin to buy property. The property, which would be bought, would be in the most booming cities within China. Also the most recent technology would be installed upon each new Carrefour outlet that would be opened. This would remove many threats this company has faced within this year in China. By investing in high technology within each outlet the risk of selling expired products would not be an issue. Updated technologies would be keeping track of Carrefour’s inventory and acknowledge to the employees when certain products are about to expire so that they can  be removed from the shelves to ensure that their customers are purchasing the highest quality of products. Though this might seem as a risky investment, Carrefour needs to change its image within this nation. Shopping in Carrefour needs to be acknowledged as a memorable and embracing activity. If Carrefour accomplishes the first two suggestions we have made, this hypermarket would begin to attain an important verb as we might recall, that i s needed to succeed in the Chinese market, trust. Customers would know that they are buying high quality products at a great price. Customers would not be probing as to whether the product, which they are purchasing, is at a higher cost than that of another Carrefour outlet, for all prices would be centralized. Carrefour would bring the highest technology to its customers while shopping. Self-checkouts would be enhanced within every new Carrefour, so that long lines would not diminish the satisfaction of shopping at Carrefour. Carrefour would change its imagine in the Chinese market and live up to its mission statement, â€Å"helping customers live a better quality of life†.