Case Study: Carrefour Running head: CASE STUDY: CARREFOUR

Case 7 Analysis: Carrefour BA 462: Strategic Management Instructor: Carlos Alsua

Case Study: Carrefour 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 Carrefours profitability by increasing the costs of transportation for goods destined for Carrefours warehouses and storefronts.

Case Study: Carrefour o POLITICAL/LEGAL 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 companiesexcept American companiesto 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 Chinas 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)

Case Study: Carrefour The companys 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)

Case Study: Carrefour 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 Carrefours 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 Carrefours 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,

Case Study: Carrefour 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 countrys second-largest retailer. (p. C 74) o THREAT OF NEW ENTRANTS

Case Study: Carrefour 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 Koreas leading newspaper. (p. C 79)

Case Study: Carrefour 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 Carrefours 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)

Case Study: Carrefour 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 Carrefours 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 Carrefours concept are (1) one-stop shopping, (2) low prices, (3) self-service, (4) quality products, (5) freshness, (6) free parking. (p. C 75)

Case Study: Carrefour 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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Case Study: Carrefour 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 Carrefour has built big global procurement centers coordinated through Shanghai and 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 Carrefours 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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Case Study: Carrefour 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 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 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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Case Study: Carrefour 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 Carrefours 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 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, Japans 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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Case Study: Carrefour 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 than 410,000 people. (p. C 73) 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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Case Study: Carrefour It was as if the Huns had arrived in Taiwan, Gerard Clerc said of the reaction of local retailers in Taiwan to Carrefours 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 Carrefours 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 Chinas 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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Case Study: Carrefour 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, Japans 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 Thanks to its massive buying power, Carrefour could guarantee low prices while permanently offering about 50,000 items in stock. (p. C 74) 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)

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Case Study: Carrefour 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 aggressiveness, but they were much more flexible than their Western 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 Carrefours methods. (p. C 79) Carrefour is one of the worlds 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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Case Study: Carrefour 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 industrys total output. Thanks to its massive buying power, Carrefour could guarantee low prices while permanently offering about 50,000 items in stock. (p. C 74) 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) 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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Case Study: Carrefour 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 industrys 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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Case Study: Carrefour 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) Chinas 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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Case Study: Carrefour 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)
Number of Countries 29 22 12 11 10 7 11 3 Net Sales (in million US$) 84,000 46,900 27,238 39,521 24,677 37,993 205,500 17,717 Foreign Sales % 50 45 41 18 17 16 16 1

Retailer Carrefour Metro Ito-Yokado Tesco Aeon Costco Wal-Mart Daiei

Other retailers have since joined GNX including Metro (Germany), Sainsburys (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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Case Study: Carrefour 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 Carrefours methods. (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 Carrefours major rivals. (p. C 81) In 2004 the Bailian Group, which controlled Lianhua Supermarket Holdings, announced plans to merge with Hualian into Chinas 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

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Case Study: Carrefour 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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Case Study: Carrefour 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) 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) Despite the spectacular bankruptcies of local players such as Mycal in 2002, Japans 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 Carrefours hypermarkets had a 13.9 percent share of the fastmoving consumer goods category in its French home market (which

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Case Study: Carrefour 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 than 410,000 people. (p. C 73) 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 Beijings 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, Japans 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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Case Study: Carrefour 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) However, local competition remained strong and professional (NTUC) and local suppliers resisted Carrefours methods. (p. C 79) 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 Chinas 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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Case Study: Carrefour 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 organizations to protect the environment. (p. C 76) 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 Koreas 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)

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Case Study: Carrefour Carrefour also sought to participate in public welfare projects and to contribute to local communities, while cooperating closely with local authorities. (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) 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 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993

Revenue (in million Euros) 70,486 68,728 69,486 64,802 51,948 27,408 25,804 23,615 22,046 20,778 18,708

Net Income (in million Euros) 1,629 1,347 1,265 1,065 898 647 546 476 539 324 448

Net Profit Margin (%) 2.3 2 1.8 1.6 1.7 2.4 2.1 2 2.4 1.6 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.

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Case Study: Carrefour 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, Malaysia, and Indonesia. (p. C 77) 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 worlds 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

Case Study: Carrefour 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

Case Study: Carrefour 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) o Carrefour tries to establish as many stores as possible in major urban areas in order to achieve economies of scale. (pp. C 75-76) 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 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 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

Case Study: Carrefour 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) 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 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 companiesto 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

Case Study: Carrefour o Legal restructuring was performed in collaboration with the Chinese authorities and allowed expansion to resume. (p. C 81) 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 This approach was a clear departure from Carrefour Japans 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 FIRMS 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 Carrefours international operations are located in three major geographical zones: Europe and the Middle East, Latin America, and Asia. (p. C 74) o In order to fight back against the hard-discounters, Carrefour expanded its own hard discount chain, ED. (p. C 75)

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Case Study: Carrefour 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) 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 Carrefour tries to establish as many stores as possible in major urban areas in order to achieve economies of scale. (pp. C 75-76) 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 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) o All stores consistently had pilot departments to introduce new product ranges. (p. C 78)

34

Case Study: Carrefour o In certain cases Carrefour chose industrial and commercial parks to 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) o Carrefour introduced a new feature with the creation of cultural centers in partnership with Koreas leading newspaper. (p. C 79) 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 In 2003 Carrefour Thailand counted 19 stores with net sales of 392 million. (p. C 79) o In 2003 Carrefour was Indonesias 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 Carrefours 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

Case Study: Carrefour 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 o The basics of Carrefours concept are (1) one-stop shopping, (2) low prices, (3) self-service, (4) quality products, (5) freshness, and (6) free parking. (p. C 75) o Before entering a new international market, local conditions are analyzed against a set of socio-economic criteria. (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) o One important factor in cost management is its sourcing strategy. (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 All stores consistently had pilot departments to introduce new product ranges. (p. C 78)

36

Case Study: Carrefour o Despite such differences, thanks to its adaptive capabilities Carrefour became the largest mass retailer on the island. (p. C 78) o Carrefour introduced a new feature with the creation of cultural centers in two stores in partnership with Koreas leading newspaper. (p. C 79) 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 among the small population of 4 million Singaporeans. (p. C 79) o Carrefours aim had always been to pioneer urban centers that had been ignored by competitors[.] (p. C 81) 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 Along with demonstrating its professionalism in fresh produce, the company established its first sales space specializing in French household goods at its fully renovated store in Chiba Prefecture. (p. C 82) o INTANGIBLE RESOURCES HUMAN RESOURCES KNOWLEDGE o Carrefour developed the hypermarket concept[.] (p. C 74)

37

Case Study: Carrefour o Before entering a new international market, local conditions are analyzed against a set of socio-economic criteria. (p. C 75) 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 Carrefours 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 knowhow of the local business environment. (p. C 76) o In China, Carrefour employs 95 percent of local Chinese managers and invests heavily in their training. (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

Case Study: Carrefour 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) 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) TRUST 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 knowhow of the local business environment. (p. C 76) 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 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

Case Study: Carrefour 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 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 In order to fight back against the hard-discounters, Carrefour expanded its own hard discount chain, ED. (p. C 75) o Before entering a new international market, local conditions are analyzed against a set of socio-economic criteria. (p. C 75) 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 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 One important factor in cost management is its sourcing strategy. (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)

40

Case Study: Carrefour o In 2002 Carrefour employed about 200 expatriate executives with solid experience of adapting Carrefours 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 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) o During this period real estate prices skyrocketed, making some adaptation of Carrefours policy necessary. (p. C 78) o This cross-learning was vitally important as it spread the know-how within the company. (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) o Legal restructuring was performed in collaboration with the Chinese authorities and allowed expansion to resume. (p. C 81)

41

Case Study: Carrefour 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 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 Although primarily known as a hypermarket pioneer, Carrefour also operated supermarkets, hard discounts and other formats, such as convenience stores. (p. C 73) 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) o Before entering a new international market, local conditions are analyzed against a set of socio-economic criteria. (p. C 75)

42

Case Study: Carrefour o However, Carrefour does not believe only in extensive market research. (p. C 75) 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) o Carrefour tries to establish as many stores as possible in major urban areas in order to achieve economies of scale. (pp. C 75-76) 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 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 One important factor in cost management is its sourcing strategy. (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 Carrefour also works actively with local governments and nonprofit organizations to protect the environment. (p. C 76) o While venturing into new markets, Carrefours human resource policy has relied on a small number of expatriates. (p. C 76)

43

Case Study: Carrefour o When opening a new market, Carrefour operates a dual system for employing expatriates and local executives. (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 or industrial partners only when national regulations made it necessary[.] (p. C 77) o All stores consistently had pilot departments to introduce new product ranges. (p. C 78) o In certain cases Carrefour chose industrial and commercial parks to 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) o Legal restructuring was performed in collaboration with the Chinese authorities and allowed expansion to resume. (p. c 81) o Carrefours aim had always been to pioneer urban centers that had 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)

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Case Study: Carrefour 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 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 Like other Western megastores, Carrefour had apparently swept into the Japanese market with much fanfare and little sensitivity to Japans retail culture. (p. C 82) o Along with demonstrating its professionalism in fresh produce, the company established its first sales space specializing in French household goods at its fully renovated store in Chiba Prefecture. (p. C 82) INNOVATION RESOURCES IDEAS o [A]ll products within its stores were halhal in compliance with prevailing food requirements. (p. C 79) o Along with demonstrating its professionalism in fresh produce, the company established its first sales space specializing in French household goods at its fully renovated store in Chiba Prefecture. (p. C 82)

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Case Study: Carrefour 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 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 Carrefours aim had always been to pioneer urban centers that had 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) o Monthly theme promotions were introduced[.] (p. C 79) 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 All stores consistently had pilot departments to introduce new product ranges. (p. C 78) 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)

46

Case Study: Carrefour o This cross-learning was vitally important as it spread the know-how within the company. (p. C 78) o Shared processes and systems increase operational efficiency and the introduction of international product ranges complements its locally sensitive strategy. (p. C 76) o Carrefour developed the hypermarket concept[.] (p. C 74) SCIENTIFIC CAPABILITIES o Before entering a new international market, local conditions are analyzed against a set of socio-economic criteria. (p. C 75) 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 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) CAPACITY TO INNOVATE o Along with demonstrating its professionalism in fresh produce, the company established its first sales space specializing in French household goods at its fully renovated store in Chiba Prefecture. (p. C 82)

47

Case Study: Carrefour 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 Carrefours aim had always been to pioneer urban centers that had 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) o Monthly theme promotions were introduced[.] (p. C 79) 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 All stores consistently had pilot departments to introduce new product ranges. (p. C 78) 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 Carrefour developed the hypermarket concept[.] (p. C 74) REPUTATIONAL RESOURCES REPUTATION WITH CUSTOMERS o It built a reputation as the retailer that offered the most variety and freshness at low prices. (p. C 74)

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Case Study: Carrefour 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) o Carrefour is pronounced Jia Le Fu in Chinese, which means luck and happiness for the whole family. (p. C 78) o Carrefour introduced a new feature with the creation of cultural centers in two stores in partnership with Koreas leading newspaper. (p. C 79) 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, 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 Although officially welcomed, the press often blames foreign retail operations for destroying jobs and killing the local retail industry. (p. C 81) o [] Carrefours arrival was portrayed as a foreign attack on the Japanese retail market. (p. C 82) BRAND NAME o It built a reputation as the retailer that offered the most variety and freshness at low prices. (p. C 74)

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Case Study: Carrefour o Carrefour is pronounced Jia Le Fu in Chinese, which means luck and happiness for the whole family. (p. C 78) o Although primarily known as a hypermarket pioneer, Carrefour also operated supermarkets, hard discounts and other formats, such as convenience stores. (p. C 73) PERCEPTIONS OF PRODUCT QUALITY AND RELIABILITY o It built a reputation as the retailer that offered the most variety and freshness at low prices. (p. C 74) o The basics of Carrefours concept are (1) one-stop shopping, (2) low prices, (3) self-service, (4) quality products, (5) freshness, and (6) free parking. (p. C 75) o In 2002 Carrefour introduced a number of sales innovations that proved successful. (p. C 79) o Along with demonstrating its professionalism in fresh produce, the company established its first sales space specializing in French household goods at its fully renovated store in Chiba Prefecture. (p. C 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)

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Case Study: Carrefour 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 aggressiveness, but they were much more flexible than their Western counterparts. (p. C 78) o However, local competition remained strong and professional (NTUC) and local suppliers resisted Carrefours methods. (p. C 79) 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 Instead, local distributors launched lawsuits against Carrefour as the company opted to purchase directly rather than conform to the longestablished 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

Case Study: Carrefour 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) 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 Carrefour also works actively with local governments and nonprofit organizations to protect the environment. (p. C 76) o Thereafter they work hand-in-hand: the expatriates contributing their expertise and experience and the local executives sharing their knowhow of the local business environment. (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 In addition, in urban areas some kind of protection from the local secret societies had to be negotiated. (p. C 78)

52

Case Study: Carrefour o This cross-learning was vitally important as it spread the know-how within the company. (p. C 78) 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 Carrefour introduced a new feature with the creation of cultural centers in two stores in partnership with Koreas leading newspaper. (p. C 79) o However, local competition remained strong and professional (NTUC) and local suppliers resisted Carrefours methods. (p. C 79) 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 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) o Legal restructuring was performed in collaboration with the Chinese authorities and allowed expansion to resume. (p. C 81)

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Case Study: Carrefour 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 Instead, local distributors launched lawsuits against Carrefour as the company opted to purchase directly rather than conform to the longestablished 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 customers that they will be refunded if they find the same product cheaper elsewhere. (p. C 76) o In some markets, such as China, Carrefour has launched its own product line in home appliances and spices. (p. C 76)

54

Case Study: Carrefour 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 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 worlds 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

Case Study: Carrefour 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 further savings. (p. C 76)

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Case Study: Carrefour 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 among the small population of 4 million Singaporeans. (p. C 79) o Carrefours 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)

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Case Study: Carrefour 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 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 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 customers that they will be refunded if they find the same product cheaper elsewhere. (p. C 76) 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 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)

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Case Study: Carrefour 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 worlds 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)

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Case Study: Carrefour 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 further savings. (p. C 76) 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 among the small population of 4 million Singaporeans. (p. C 79) 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)

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Case Study: Carrefour 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 atmosphere and merchandising style found in street markets, while emphasizing hygienic conditions. (p. C 79) 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)

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Case Study: Carrefour 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 authorities and allowed expansion to resume. (p. C 81) 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. 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) 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) 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. Thanks to its massive buying power, Carrefour could guarantee low prices while permanently offering about 50,000 items in stock. (p. C 74) Carrefour tries to establish as many stores as possible in major urban areas in order to achieve economies of scale. (p. C 76)

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Case Study: Carrefour [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) 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) One important factor in cost management is its sourcing strategy. (p. C 76) The centralization of its IT systems and administrative procedures achieves further savings. (p. C 76) 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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Case Study: Carrefour 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 Carrefours 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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Case Study: Carrefour 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 Carrefours 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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Case Study: Carrefour 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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Case Study: Carrefour 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 Carrefours best interest to localize many of its activities where necessary. This is especially true when it comes to general management,

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Case Study: Carrefour 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 Carrefours 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 Operates in 22 countries. Has net sales of $27.2 billion. Foreign sales account for 41% of its total sales. Emphasizes higher quality rather than lower prices.

o TESCO Operates in 12 countries.

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Case Study: Carrefour Has net sales of $39.5 billion. Foreign sales account for 18% of its total sales. Has shown a large appetite for the Asian region.

o AEON Operates in 10 countries. Has net sales of $24.7 billion. Foreign sales account for 17% of its total sales. Aggressive and innovative.

o COSTCO Operates in 7 countries. Has net sales of $40 billion. Foreign sales account for 16% of its total sales.

o WAL-MART Operates in 11 countries. Has net sales of $205.5 billion. Foreign sales account for 16% of its total sales. Has shown a large appetite for the Asian region. Foreign ownership laws in Thailand favor Wal-Mart. Largest shareholder of Seiyu in Japan.

o DAIEI Operates in 3 countries. Has net sales of $17.7 billion. 69

Case Study: Carrefour Foreign sales account for 1% of its total sales.

o LOCAL COMPETITION 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 70

Case Study: Carrefour and mothers who do most of the grocery shopping and take on most household activities for the family. o NEEDS THAT PRODUCT SATISFIES 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 households needs. o LOW COST OR DIFFERENTIATION 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. o NEEDS THAT PRODUCT SATISFIES Allows customers to save money on items that have a long shelf life and items that are used in large quantities. o LOW COST OR DIFFERENTIATION

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Case Study: Carrefour 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. 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. o NEEDS THAT PRODUCT SATISFIES Allows customers without transportation to take advantage of cost savings from large stores that otherwise would be outside their reach. o LOW COST OR DIFFERENTIATION 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. o NEEDS THAT PRODUCT SATISFIES Allows customers to shop without the stress associated with shopping with ones own children. Allows customers greater flexibility in choosing when and where they can shop, given the constraints of their childcare duties. o LOW COST OR DIFFERENTIATION 72

Case Study: Carrefour 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. HOME DELIVERY o TARGET CUSTOMER Busy professionals and people who are not mobile enough to perform shopping duties at a storefront. o NEEDS THAT PRODUCT SATISFIES 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. o LOW COST OR DIFFERENTIATION 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.

o NEEDS THAT PRODUCT SATISFIES Allows women and children to further their education every time they venture out to purchase goods for the household. o LOW COST OR DIFFERENTIATION

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Case Study: Carrefour 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 o TARGET CUSTOMER Customers who do not have enough disposable income to purchase durable household goods outright. o NEEDS THAT PRODUCT SATISFIES Allows customers access to durable household goods, such as refrigerators, that they would otherwise have to do without. o LOW COST OR DIFFERENTIATION 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. o NEEDS THAT PRODUCT SATISFIES Gives customers a sense of cultural growth and awareness, while satisfying their need to try new things. o LOW COST OR DIFFERENTIATION

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Case Study: Carrefour 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.

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

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Case Study: Carrefour 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 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

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Case Study: Carrefour 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 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.

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Case Study: Carrefour SYNERGY o There is a high level of synergy among Carrefours 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 Carrefours hypermarkets, and vice versa. However, these high levels of synergy indicate interdependence between business units which can cause Carrefours 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

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Case Study: Carrefour transnational strategy may help explain Carrefours 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 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

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Case Study: Carrefour 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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Case Study: Carrefour 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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