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Carrefour's organic growth involves their business expansion process based on the increasing customer base, new sales, and increased output per representative or customer. This form of growth typically excludes the effects of foreign exchange. This form of growth had a negative impact on Carrefour. According to business analyst Mikahil Terentiev, "it is not very easy to establish a footprint in Russia. If you want to expand in Russia rapidly it would be a good idea to buy somebody else with a very developed market" (Lionel L, 2011). Carrefour first outlet in the country was poorly located-close to the city center; it was not simply accessible, located among low income earners, and not prominently accessible (Lionel L, 2011).
There lacked growth prospects for the company for organic growth and acquisitions. After negotiations with various leading Russian retailers about a possible acquisition, no deal was closed. It will take any company years for retailers to produce reasonable results in international markets- mainly high prospective growth markets such as Russia. Lack of acquisition targets and Poor sales was the cause of the early exit of the company. Since Carrefour has been connected to the Russian market since the year 2006, and has invested a lot of time and money in opening stores in the country, the retailer would have been more privy to the difficulties of acquiring businesses in Russia well. It therefore could not have expected far-fetched results from only two stores that have brought to business in the middle of a recession.
Carrefour simply undervalued the cost of a prospective acquisition. It is also possible that the change in possession of many of the country's retailers to the local banks complicated issues; either way, if the retailer had some ambitions in the market, it certainly could have made incredible moves. The speculation here is that the Russian market is not a bed of roses and this is true with only the international retailer having had any success in the country. The acquisition process would build on strengths of Carrefour. The end result would have been to grow the business in a quicker and profitable manner than it would have been with normal organic growth.
After opening one branch in Moscow and another one in Krasnodar Carrefour the international number two retailer left. This did not go down so well with some activist shareholders. For instance US real estate fund manager- Colony Capital, and Bernard Arnault, the French billionaire, were not happy because of the €1.5bn paper loss on the 13.5 percent venture of Carrefour under their ownership since March 2007. Their suggestions are that the group divests some of its up-and-coming market operations. However, disposal of the Brazilian or Chinese operations, according to their proposal, would have been meaningless. A retreat from Russia was a clear indication to the shareholders that there was a focus on Carrefour's key business.
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A failed acquisition endeavors may also be a reason for the immediate decision. Carrefour presented more than $1bn to acquire Seventh Continent, a major retailer in Russian, from its owner, who was being faced with margin calls. After the talks failed, Carrefour had no hope of getting a significant share of the market in Russia by only organic growth. Carrefour decision says much about Russia and also about the French company. Russia is an exceedingly potential market and an exceedingly corrupt country with retail taking the number one position in the list of most corrupt sectors. Carrefour could not withstand the high hidden costs of doing business in Russia with no a local partner to steer it through the idiosyncrasies of local mores to ensure that the returns merit the risks.
An analytical framework is a path through which the analysis findings could be structured and compared to come to a conclusion in a given market. According to Carrefour's, a French international chain of companies, their ventures in Russia can be evaluated in a number of analytical frameworks. The first key framework is global completive strategy otherwise known as star analysis. This strategy is used to evaluate what key discussions and case analysis that will be used in making this analysis. This star analysis is used to make the firm be aware of the ways they will use to organize their thoughts and knowledge about geography and international business. The star analysis also provides information for international business manager to develop a competitive strategy. This global completive strategy relates to how the completive advantage of an international firm depends on five major factors.
The home country which in this case is France determines whether the particular chain of grocery stores will do well, in Russia the business initially did not do well as there were other firms already under taking the particular trade. The supplier country was also France with few commodities coming from Russia. The country is not good at producing some of the required foods hence need for importation, Carrefour has the advantage to venture into this market and be able to survive. There is a big opportunity for the firm to make some opportunity when it taps into imports of that are basic needs. Customer's country should also be used in the global competitive strategy; this is used to evaluate the needs of the customers in a particular country. The Russian country has high population and thus high demand for food stuffs.
The country is a good market for Carrefour to venture in. competitor country should also be taken into consideration in that their commodity might be cheaper to compared to those of the French, countries closer to Russia will be able to supply it with goods cheaply, the competitor countries may not be for outside Russia but retailers within the countries may proved a lot of competition in the event that the retailers are protected by their country from unfair trade from outsiders. Some of this locally produced foods are also fresher and free from preservatives and hence may attract the local market more than the international one. Foods produced by the home country may be cheaper and hence be more affordable to locals; this cost is affiliated to the lesser additional costs to these costs of the produce. The relations with neighboring country will also influence the market of their goods. The key to this strategy is that Carrefour gathers data from the countries it would like to invest in and in this case Russia, and after this analysis the company has the information needed to design competitive strategy.
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Various factors come into play in this strategy such as cost of labor, technology available, and the political legal and regulatory climate. This factors help in the analysis of the global competitive strategy. The products being offered by Carrefour are grocery and the fact that this are part of the basic wants may have other substitutes such as foods from other countries and this may lead to competition with this country's leading to bad business. The limitation of this method is that it doesn't reflect total on the ground and that it does not take into consideration the deviations that may arise from the natural or human caused events that may affect the cause of business. This analytical framework advantageous in that the analysis helps in the planning of the business and the outcome are almost known for a particular business (Davis, 2000).
Another key analytical strategy is the global the global added value, the global value is created by global business. This is the gains from trade when the cost of trade or all the expenses of the business. Global added value is a competitive advantage of a global business. The global business can be defined as a multinational business that is operating in various countries. In this case study the multinational is Carrefour and they deal in grocery stores. The costs associated in this business include the cost of transporting foods to required country and the cost of storage and that of labor among other costs. The means to create and capture global added value are captured in this global competitive strategy. Their five major gains from trade in this analysis. Preference for product variety and production economies of scale is one of this and it relates to what products does the demand want, and what the supplier can supply in large quantities to obtain a good margin. The supplier should be able to compare the productivity and the wages paid and determine the advantages of it. The firm should also consider availability of the facts of production. The difference in innovation and technology should also be considered under this analytical strategy, this can be taken to be the availability of technology in France that may favor production also available in Russia; the limitation of this analytical framework is it's not well detailed and doesn't focus on the key role of demand and supply (Hass, 2008).
The last analytical framework is the G5 competitive strategies. According to the global platform strategy, the analysis the integration of the global market and looks at how markets depend on each other. Global network strategy is whereby the country retailing the good develops a good communication system with other countries and is able to trade well with it. Global entrepreneur strategy is where by the firm is able to identify its opportunities and evaluate their profitability without much trouble. The investment strategy is the last of this and is where the country sinks funds into a particular project such that the venture can commence. In relation to Carrefour this strategies had been applied and the resultant failures were due to competition and the rigidness of the market. The key role of global competitive strategy is to identify a geography that's suits such a venture and the firm Carrefour has its eyes on Russia because of its adverse climatic condition. The country is also close to countries with better weather and hence better productivity hence France is able to obtain a stable source of food for supplies. The target market can be identified as Russia as its demand is higher than what it can supply. The competitors from within Russia are weak due to the lack of variety and the analysis of this markets and the global competitive strategy seeks to integrate economic and geographical forces from competitive advantage. The limit to this strategy is their inter dependence and failure in one might lead to failure of the whole investment.
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Carrefour's Key Competences
For any business that is willing to thrive and have a worldwide command in market and all other operations it is important to understand the dynamism of all areas of operations (Fernie 2005). There are many factors that determine where a business will be able to thrive or not. The situation is made worse by the fact that it is not possible to have pin point accuracy in citing any likely changes that would occur in future. Therefore many businesses need to understand and create a room for the possible changes in future and especially the big ones. One such business that attempted and to a great extent succeeded in surviving markets all over the world with such a great level of dynamism is Carrefour. There are many competences that enabled Carrefour has the capacity to face these differences and survive the harsh competition faced by businesses in the modern world.
One of the key competences which Carrefour capitalized on is the economies of scale. The chain store has a huge operating capital and so it is able to buy goods at the cheapest prices offered as it can buy the stock in bulk. It is always possible that a buyer who buys in bulk is able to convince the supplier to offer a lower price and earn a little profit per item though it is for many units thereby leading to more profits (Rugman & D'Cruz 2000). For this reason, Carrefour can afford buying stock in large quantities but at prices which are relatively low. This is one of the reasons that Carrefour will manage to continue selling the products at very low prices thereby increasing the sales. This consequently resulted in more profits which could be ploughed back and be used to start new stores either in the mother country, France or even abroad.
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Again on economies of scale, after the chain store has spread to more areas, it has the capacity to acquire a wide customer range and so the chain store prefers to sell its products at lower prices but increase the number of units sold and so the profits would be more not because of the a large margin between the buying and the selling price but because of the many units of each item sold (Rugman & D'Cruz 2000). A chain store in with as many as 15,430 stores globally by September 2008 can afford to make the minimum profit per item and still be leading in the profits gained and so this was a strong point to capitalize on. This especially offers the stiffest competition to other competitors in the market and works in favor of the chain store as more customers will shift even in the new markets. As the chain store spread its wings it meant attracting more customers from the new markets and reducing the sales for the other competitors.
Carrefour is also able to apply expertise and especially in analyzing potential markets before investing in them (Fernie 2005). For a chain store of its might, it is possible to employ top class business analysts who can study the potential markets and give almost a guaranteed survival of the business if it is started in the new markets. Although this did not work well for the case of Russia, it can be attributed to the fact that it is not possible to predict with pin-point precision about all the likely negative changes that may occur in the market in future. However, there was a high success rate in all the other markets and one of the strongest points was making a survey of the potential markets and therefore capitalizing on the cited opportunities.
The chain store can also benefit on capitalizing on its reputation in all markets. Carrefour tried to conquer all markets and be amongst the top three operators in all markets and so more customers would be attracted to the top performer. In fact the chain store used a strategy which was very successful whereby they could buy out a top retailer in each of the countries they invested in and the strategy worked well for them. The chain store can therefore capitalize on the reputation of the other retailers before completely taking over after it is well established (Rugman & D'Cruz 2000). This is key towards building the reputation and maximizing their sales based on the trademark. The chain store can also use indirect advertising through corporate social responsibility which will also boost the reputation of the chain store. It could also secure strategic sites in the cities as the promised corporate social responsibility activities will lure the local councils to give the chain store a site in preferred location and with the right size of the land to suit the huge building area and other facilities availed by the chain store such as parking lots.
However, one factor that the chain store did not consider is that there is a dynamism in cultures which is as big as the market ventures made by the chain store. The more the number of stores there are the more the difference in cultures and more often than not they determine how the business operates for the different cultures. It is not uncommon to find that foreign owners of businesses often find their businesses not performing as good as the businesses owned by the investors in their own countries (Kobrak 2002). Therefore Carrefour needs to determine ways of surviving the seemingly silent discrimination of their businesses.
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One strategy that could be useful is the use of corporate social responsibility which the chain store applied already in various places as the case was in Russia. There is need to respect other culture and to develop a good relationship between the foreign business and the local communities where the business is located (Fernie 2005). Although mutual respect is seemingly the only needed balance, corporate social responsibility acts as an icebreaker and a show of respect between the local communities and the business and once the locals feel acknowledged and appreciated by the foreigners then it will be easier to lure them as new and stable customers for the business.
It is also appropriate to establish an existing operator who will act as a Godfather in the foreign country and help in developing a lasting relationship between the foreign investor and the local communities (Kobrak 2002). Due to the fact that the local communities believe that one of their own understands them and respects their culture, there is all possibility that the local communities will also appreciate someone who already has a good relationship with one of their own. The strategy will also be useful in helping Carrefour understand what is against the cultural beliefs and therefore exclude it from the available items on sale. A single item that is not culturally accepted may lead to collapsing of the whole business and so it is important to get to know what is acceptable and what is unacceptable in the different places (Kobrak 2002). Therefore Carrefour will benefit more by using the existing operators in the market to learn what is unwanted in the foreign country. Carrefour should also study the cultural values of the foreign markets before entering so as to minimize any chances that some beliefs or practices may be overlooked before the investment.
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The requirements of multinational companies for instance expansion plans into the international market have continuously heightened the need to be aware of the cultural dimensions of various countries to accomplish better results.
It's important to note that Carrefour is setting business in a global environment. Therefore it cannot regard its locations or primary market bases, but also put into consideration the rest of the globe. In this context, then it is characterized as a multinational company. In accordance with the globalization campaign, Carrefour supply chains can be enriched, high cost work force can be transformed and expansion of potential markets can be achieved. Consequently the competitive advantage of the organization is highly boosted in the global market.
Otherwise, various problems are encountered in the new environments in foreign countries at the same time. These changed environments can be broken down into four key aspects; legal environment, cultural environment, economic environment and political environment difficulties. All these new environments in foreign countries are hindrances to multinational companies. Particularly problems which are as a result of changed cultural environment are the most significant aspect of running a multinational business.
Kobrak (2002)has stated that "culture is complex whole which includes knowledge, beliefs, art, morals, laws, customs and any other capabilities and habits acquired by man as a member of society". In line with this definition, it is easy to realize that every country has got different national tastes, value standards and cultural preferences. These and many other factors impact on all parts of management in multinational companies' particularly on marketing management, alliances management and in human resource management. It is therefore important that a multinational company such as Carrefour puts into consideration the cross culture issues in their efforts to run multinational business. This is for the reason that various national cultures results to varied consumer behaviors.