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Carrefour Enters India

Current Issues in International Business

Seminar Paper 2012 25 Pages

Business economics - Trade and Distribution

Excerpt

Content

1 Introduction
1.1 Scope and Foundation of Paper – Current Issue Defined
1.2 Carrefour in Brief

2 Carrefour’s Framework of Influences
2.1 Business Ideology Influences
2.1.1 Political Influences
2.1.2 Environmental Influences
2.2 Socio-Cultural Influences
2.2.1 Country Level Analysis of India
2.2.2 Consumer Level Analysis – The Indian Retail Culture
2.3 Carrefour’s Internal Influences – Corporate Culture

3 Managing Influences
3.1 Strategic Orientation
3.2 Evaluation Framework for Carrefour
3.2.1 Entry Mode Strategy
3.2.2 Local Response Activities
3.3 Overall Assessment of Carrefour’s Success in India and Future Direction

4 Conclusion and Outlook

5 Bibliography

1 Introduction

1.1 Scope and Foundation of Paper – Current Issue Defined

In accordance with Carrefour’s global strategy to show presence in all major emerging markets, the company entered India (Economic Times, Dec 31 2010), although the Indian government is still following strict regulations for foreign companies. No foreign direct investment (FDI) is allowed in the so-called multi-brand retail category, that is, organized retail that sell multiple-brands to end-consumers (Chari, Raghavan, 2011). However, there are no such obstacles for the so-called cash&carry retail category, which refers to wholesale retail; thus, foreign companies are allowed to sell goods and merchandise to other retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers (Chari, Raghavan, 2011).

Given this situation, Carrefour used an approach to set-up a cash & carry format store to circumvent the barriers imposed by the government (Economic Times, Dec 31 2010). The store is located in Delhi, has opened in December 2010 and sells over 10,000 products in both, the food and non-food category (Economic Times, Dec 31 2010). Using this as a first step, Carrefour will be able to learn and understand the specificities of the Indian market and use the store as a hub for further expansion throughout the market (Economic Times, Dec 31 2010).

1.2 Carrefour in Brief

Over the last 40 years, the Carrefour Group has grown to become one of the biggest hypermarket chains in the world; it is now the largest retailer in Europe, the second-largest in the world, and the third largest in profit after Walmart and Tesco, with over 9,500 stores in Europe, Asia, Latin America and North Africa (Carrefour, 2012f).

The group has been able to operate and penetrate the market in countries such as China, India and Brazil, through franchises or company-operated stores; its stores comprise of four different formats: hypermarkets, supermarkets, cash&carry and convenience stores (Carrefour, 2012g).

2 Carrefour’s Framework of Influences

As Carrefour entered the Indian market, it was faced with several influences, which can be grouped into two main categories: These are business ideology influences – which comprise of economic, political and technological influences – and socio-cultural influences. We thus depart from the traditional perspective and follow an approach as suggested by Ralston, conducting a logical clustering along a time orientation perspective (Ralston, 2008).

This paper identifies major influences (See: Exhibit 1.), groups them and contrasts them with internal-driven determinants. The framework of important influences is summarized in Exhibit 1.

Abbildung in dieser Leseprobe nicht enthalten

Exhibit 1. Carrefour’s Framework of Influences. (Source: (Ralston 2008); slightly adopted by Markus Slamanig).

2.1 Business Ideology Influences

Business ideology influences imply a shorter time-horizon for any changes to occur and are interrelated to business activities (Ralston, 2008). In general, technological influences play an important role, especially in technology driven industries. However, we regarded them as less influencing for Carrefour.

2.1.1 Political Influences

India is a federal republic consisting of 28 states and 7 union territories. It has a common law system, whereas separate personal law codes apply to Muslims, Christian and Hindus; the administrative power is shared between the executive, legislative and judicial branch (CIA, 2012). FDI in the Indian retail sector is still very strict. The retail industry in India has always been characterized with administrative and licensing burdens (Fernandes, et al., 2000), leading to a diversified set of political barriers. Until recently the Indian government followed a harsh protecting regime over its economy; through strict controls – coupled with high tariffs – large multinational enterprises (MNE) were kept out of the country (Fernandes, et al., 2000). The main concern for the government has been that the small, independent retail stores, the so-called Kirana (or mom&pop stores) will be forced out of business (Sinha, Kar, 2010). By law, foreign retailers cannot just enter the Indian market and set up their front-end stores in the country on their own (DIPP, 2010).

As market liberalization progressed and increasingly assertive consumers achieved efforts towards a more open market, India has become of major interest of MNE as there are tremendous opportunities for growth (Fernandes, et al., 2000). The political scene is slightly changing and reforms for the industry are on the way. E.g. the government is slowly revoking the Argicultural Produce Marketing Committee Act (Sinha, Kar, 2010), which will have a special impact on Carrefour’s strategy. Retailers will be allowed to buy agricultural products directly from farmers, and will not be dependent on wholesale markets, the so-called Mandis (Sinha, Kar, 2010). Licensing requirements have been cut back and import restrictions have been removed (Fernandes, et al., 2000). However, liberalization efforts for foreign investments are still lacking behind (Fernandes, et al., 2000). Thus, Carrefour will have to completely change the way it does business in India (Lapoule, 2010).

With the increasing consumption and economic growth in India, the government needs to focus its reforms in the areas of infrastructure development and product market reforms (Pandit, 2005). The latter are especially important for the retail industry because it directly impacts further expansion strategies for retailers like Carrefour (Pandit, 2005). A more liberalized retail sector will be beneficial for the Indian population as well; Indian consumers will benefit from better quality at lower prices and liberalization will further decrease unemployment (Pandit, 2005). Last but not least, an open retail sector will provide consumers with an international shopping experience and a better shopping environment for the whole Indian society (Sinha, Kar, 2010).

Another major political problem in India is its unstable environment; terrorism and political uncertainties constitute security concerns (Chellaney, 2011). Religious and caste-related violence is a serious issue that affects the political environment of the Indian nation (Mishra, 2006). The lack of homogeneity in the Indian population causes a division between different sections of the people based on religion, region, language, caste and race (Mishra, 2006).

2.1.2 Environmental Influences

The different retail culture is considered to be the main influence for Carrefour. As history shows the company already experienced failures from its engagements in Japan, as it tried to build stores without taking into account Japan’s retail culture (WSJ, 2004); the results have been damaging in terms of trust issues and the negative effects on the company’s image (Jiji, 2005).

The retail market in India – accounting for approximately 12 % of India’s Gross Domestic Product (GDP) in 2011 – can be classified into two major segments, comprising of the so-called organized retail and the unorganized (or traditional) retail (Pick, Müller, 2011). The former includes supermarkets, hypermarkets, and accounts for only a small share of the retail market (Pick, Müller, 2011). The latter is by far the prevailing sector and is mainly driven by small, private domestic retailers (Pick, Müller, 2011). Typical grocery business has been dominated by small so-called father&son stores with strict government direction (Fernandes, et al., 2000). As market liberalization efforts are progressing, an ongoing retail consolidation and increase in the organized retail can be identified, which will lead to supply chain efficiencies (Sinha, Kar, 2010). Domestic firms will have better chances to join with global retail players and to transfer technological know-how to India (Sinha, Kar, 2010).

The main category is the sale of food and grocery (accounting for approximately 75 %), followed by apparel and accessories (representing around 10 %) (Pick, Müller, 2011); other categories may be deemed less important for the purpose of this paper. Although forecasts might differ from source to source, retail business is expected to grow up to 833 billion USD in 2013 and further increase to 1.3 trillion USD by the year 2018 (Pick, Müller, 2011). India’s urban per capital GDP is projected to increase at an annual rate of 6 % until 2025; this increase in per capita income provides significant opportunities to serve new markets (Dobbs, Sankhe, 2010).

Due to the ongoing liberalization and growth, the Indian retail market is receiving global recognition and attention, which led to the entrance of big global players (Sinha, Kar, 2010). Walmart, Tesco, and the METRO Group are by far the biggest rivals for Carrefour (Sinha, Kar, 2010). Additionally, domestic retail companies – such as Reliance, TATA, KK Modi, the Aditya Birla Group and the Bharti Group – are expanding throughout the region (Sinha, Kar, 2010). Attracted by the high growth potential, Carrefour needs to be aware, that it has to compete in a market with heightened competition.

Given the prevailing unorganized retail (including small retail shops), the supply chain infrastructure is rather fragmented; as such, there is no way to offer consumers standardized products throughout the retail chain (Fernandes, et al., 2000).

2.2 Socio-Cultural Influences

In order to determine the influences due to cultural differences, the paper follows a top-down approach. First, it briefly conducts a country level analysis of India on a general perspective, followed by the examination of the more important second perspective, that are the prevailing socio-cultural attributes and attitudes of the retail market and consumer behaviour. Both perspectives are the influencing socio-cultural determinants Carrefour needs to face and cope with.

2.2.1 Country Level Analysis of India

India’s population accounts for about 1.21 billion (Pick, Müller, 2011). About 70 % of the people live in 138 million households in villages, whereas the remaining 30 % live in one of the country’s 5,170 cities (Pick, Müller, 2011). India’s population in terms of age is comprised of people younger than 14 years (30.5 %), people between the ages of 15 and 64 (64.3 %), and people above 65 years (5.2 %) (Pick, Müller, 2011). The majority of the population can be described as young and employed and thus, has a high purchasing power (Sinha, Kar, 2010). Average Indian consumer spending has increased from 130 USD (in 1992) up to 400 USD (in 2003) and further growth is expected to be at a rate of 12%. This situation provides an excellent opportunity for Carrefour (Sinha, Kar, 2010). Forecasts indicate that by the year 2025, roughly 2.5 billion Asians will live in cities; thereof India/China will account for more than 62 % of the Asian urban population (Dobbs, Sankhe, 2010).

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Details

Pages
25
Year
2012
ISBN (eBook)
9783656181620
ISBN (Book)
9783656183457
File size
1.3 MB
Language
English
Catalog Number
v192955
Institution / College
Florida International University, Modesto A. Maidique Campus
Grade
A
Tags
Carrefour India Market Entry Current Issue Markus Slamanig International Business

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Title: Carrefour Enters India