Carrefour: Abandoning Russia

The social style and culture affect on international business. One problem why Pepsi cannot rapidly grow in Russia is language and cultural barriers. The culture is traditional. There are not many people who have English knowledge. Moreover, confidential issue should be careful because everyone talks and share information to each other in their society. The other interesting point is that Russians are not get use to western style resulting to difficulty of working in western company. Russian system is flexible and no specific rule in some topics; for example businesses cannot get reference checks for their employments. Because of social factors, Russians are less interest in foreign business even though there are many western companies in Russia, so that it creates the difficult work for HR department when they want to hire efficient labor.

During the mid-1990s, Carrefour Group initially established a representative office in Moscow as its early enter strategy, however, as the result of financial storm in 1998, Carrefour had to exist Russia market. Till June 2006, Carrefour slowly started to plan to enter the retail market in Russia again. During the years 2006 and 2007, due to Carrefour decided to spend plenty of time on studying the Russia retail market, they had to postpone the time of entering the Russia market. After that, in 2008, because of the financial crisis, Carrefour had to delay its entry project again. A group executive director of Carrefour named Thierry Garnier said that their strategies were waiting for the best opportunity to enter Russia market, and they are rather coming late, because it would be more efficient to purchase a chain that already established distribution and logistics network (Andrew E, 2009). However, things went contrary to their wishes. By the time Carrefour prepared for taking action to enter the Russia market, other competitors had already built the significant presence in the Russia market early. For example, Auchan had opened 34 hypermarkets and presented in the eight Russian cities. Even during the Financial times, Auchan didn’t delay its opening program. Metro also had established 74 stores throughout the Russia market. At the same time, some local retail players also had achieved better performance and profit growth behavior in the local market. Consequently,

The first part of this assignment based around the case study of Carrefour in Russia is to analyse the macro environment in Russia at the time of the case. Opportunities and challenges associated with that environment will also be considered. The best way to understand the macro environment in Russia is to carry out a PEST analysis. PEST stands for the political, economic, social and technological environments. This type of analysis can be considered an external appraisal of the business. The aim of this framework is to supply a reasonable overview of the different macro-environmental factors that affect a business’s strategy.

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.

To better understand their declining performance, the company then launched an internal review of their operations and determined that the main reasons for their recent struggles were: a decline in department store sales, the rise of fast fashion retailers, the company’s own out-of-date supply chain model, and that the company’s focus was diluted over too many brands and too many initiatives. (“The

New parts of the world that were not long ago considered undeveloped, backwater countries, are now taking center stage in the global economy. Much has been publicized about the ascendance of China's economy, as it has become a major venue for the manufacturing of products sought after by worldwide consumers eager for cheaper goods. However, China's Asian neighbor, India, also has a vigorously growing economy. India's economy is partly being fueled by companies around the world seeking to reduce their costs by outsourcing some of their operations there.

And lastly, the various opportunities that the U.S. companies might foresee are increased demand for their products and services in the two countries due to increased incomes as well as high economic growth. Companies will thus profit as a result of selling western products in the two countries. Due to the increasing rate of internet usage, in the near future, companies can sell their products via the internet; they can also constantly conduct marketing surveys in order to identify consumer taste and preference of consumers in the two countries.

One of the main mergers in the retail industry is the merger of Carrefour and Promodes in France to create the world’s second largest retailer after Wal-mart. One of the main reasons for this merger is that both companies find it difficult to grow organically. Nevertheless the need for growth is not only to boost their financial performance but also to create a major force to fight Wal-mart, which entered the German market and later acquired Asda a major retailer in the UK’s market (The Economist, 1999). Through this Merger Carrefour created instant growth and positive impact on its shareholder value.

* The Russian economy is discouraging foreign investments, but the producers needed that money to update technology, modernize infrastructure, develop marketing and packaging solutions, develop dealer and distributor networks and so on.

CASE DESCRIPTION The primary subject matter of this case concerns the management of international joint ventures. Secondary issues examined include: business in Russia; government’s intervention in business and how it affects multinational companies; market entry and modes of market entry decisions;; and dimensions and elements of culture (Fang 2003). The case has a difficulty level appropriate for first or second year graduate level. The

a. These countries are now open to FDI and companies in places that are developed want to go to places people don’t have all the products or as many of the product they sell.

The state of the Russian economy does not make the situation any better. Oil makes up two-thirds of the total exports from Russia, despite multiple discussions to diversify resource reliance (David, 2017). The global financial crisis of 2009 coupled in with “falling oil prices, international sanctions, and structural limitations pushed Russia into a deep recession in 2015, with the GDP falling by close to 4%.” (CIA World Factbook, 2017). The trend followed into 2016, with the GDP falling another 0.6% and is expected to fall again by another 5% in 2017 if oil continues to be below $40 per barrel (CIA World Factbook, 2017). Without an immediate negotiation to either lift trade sanctions or find an alternative resource dependence, the economic decline will only get worse. Those trade sanctions, which were emplaced after the Crimea incident in 2014, were implemented by both the European Union (EU) and the United States to target the Russian financial, energy, and defense sectors (Lee, 2016). What makes matters even worse is that the ruble, the currency for Russia, was lowered at the same time. It has fallen nearly 50% since the middle of 2014, making it more expensive for Russia to import from other countries (Lee, 2016). The future of Russia’s economy hangs in the balance and unless their leadership intends to alter their strategies, their national debt will only increase.

I am an executive of XYZ, Inc., a well-known company in United States for its luxury watches, jewellery and handbags. There are 22 retail outlets in whole of United States. Achieving great success in the United States the company has decided to expand their business and open their retail outlets in different countries. To start off with the company has decided to open their first international store at Shanghai, China. Then after a year of time the company has decided to open stores even in Brazil, Russia, India and China.

Carrefour pioneered in terms of its internationalization process as compared to their main competitors (Shiue et al, 2006). Its internationalization process is much more extensive and swifter than that of its main international rivals i.e Tesco and Walmart. In 10 years, Carrefour entered more than 50 international markets, through various investment market entry modes i,e greenfield, joint ventures, acquisitions (refer to appendix 1.1) The company has entered most major regional markets like Asia, Europe and South America.

Carrefour, the world’s second largest retail chain, entered the Japanese market a month earlier than Wal-Mart with the goal to take away market share before Wal-Mart had a chance to streamline with Seiyu. However, growth of Carrefour 's Japanese business has been slower than expected. In 2005, Carrefour sold its 8 hypermarkets to AEON group. But stores still use the Carrefour name and brand. Most recently, on March 9, 2007, AEON made a $535M deal to take 15% wedge of supermarket chain Daiei to become the No. 1 retailer in Japan. This move makes both companies more competitive by increasing their economies of scale.