GLOBAL BUSINESS ENVIRONMENTMMUI 2010 Facing Diversity Case Study of Carrefour in Emerging Asia China – India – IndonesiaAs of 2010, Carrefour S.A. was the largest global retailer in Europe and the secondlargest of the world in terms of revenue1. Carrefour develops with a multiformatapproach ranging from its core hypermarket chains to supermarkets, convenienceand hard discount stores. For professionals, Carrefour is also developing the cash &carry format. At year-end 2009, Carrefour had over 15,600 stores in 34 countries.1 http://www.stores.org/2010/Top-250-ListBernardus Erry Nugroho (1006793113) John Anthonius (1006793706)Fanny Siskarina (1006793441) Luciana (1006793800)
Facing Diversity|2Figure 1: Carrefour’s Store Network, taken from Carrefour’s 2009 Annual Activity and Sustainability Report
Facing Diversity|3As hypermarkets chain, Carrefour combines a supermarket and a department store withan expansive retail facilities carrying a wide and attractive range of products under oneroof, including full groceries lines and general merchandise.In order to realize its vision to become the preferred retailer wherever it operates and toensure sustainable and profitable growth, Carrefour is currently focusing its globalbusiness activities in Europe, Latin America, and Asia. Carrefour’s objective is to be thestrong leader in key markets and be able to perform improvement in the organizationand operating model.Taking chance in the rapid growth in emerging markets especially in Asia and LatinAmerica represents the Carrefour group’s third priority. In order to improvecompetitiveness and optimize its knowledge of customers, the Group will focus most ofits development resources on countries with stronger growth potential; this includesChina, India, and Indonesia which we will discuss in this paper.As of 2009, Carrefour invested a total amount of $ 21.6 billion on tangible assets,increased $ 337 million compared to in 2008. The huge amount of investment mainlyincluded sales area operated by the Group. A breakdown of the investment on eachPoint of Sales (PoS) in China and Indonesia in 2009 is presented below.CHINA Hypermarkets Supermarkets Hard discount storeNumber of store 156 268Sales area (thousand sq.m) 1,230 61Sales area 1 store (sq.m) 7,885 228Investment 1 store (EUR) 3,172,748 91,590Investment 1 store (USD) 4,550,355 131,359Investment 1 store (IDR) 42,961,572,823 1,240,208,491INDONESIA Hypermarkets Supermarkets Hard discount storesNumber of store 61 15Sales area (thousand sq.m) 382 23Sales area 1 store (sq.m) 6,262 1,533Investment 1 store (EUR) 2,519,930 617,009Investment 1 store (USD) 3,614,084 884,914Investment 1 store (IDR) 34,121,898,543 8,354,803,430 Table 1 & 2: Calculation on Carrefour’s Investment, data taken from Carrefour’s 2009 Financial ReportReviewing the scale of investment and the magnitude of the risk inherent inhypermarket format as its core business, Carrefour’s investment strategy is very muchdifferent compared to the scale of investment and risk of smaller modern retailers withsupermarket and convenience format.The large difference in the characteristics of a hypermarket with a supermarket orconvenience store is reflected on the large scale of investment needed. Based onanalysis of Carrefour’s 2009 financial report, the initial investment of a hypermarketreached more than thirty-five times the investment needed to build a hard discount store
Facing Diversity|4in China and four times the investment needed for development of a supermarket inIndonesia. INVESTMENT PER POINT OF SALES $5,000,000 $4,550,355 $4,500,000 $4,000,000 $3,614,084 Investment $3,500,000 35x $3,000,000 4x $2,500,000 $2,000,000 $1,500,000 $884,914 $1,000,000 $500,000 $131,359 $- China Indonesia Store Format Hypermarkets Supermarkets Hard discount storesChart 1: Investment per Point of Sales in China and Indonesia, taken from Carrefour’s 2009 Financial Report nvestment Indonesia, RConsidering the high investment and risks for construction of a hypermarket, it ismandatory that the Group take careful consideration of all aspects that will affect thesuccess and sustainability of the business The Group as a highly capital-intensive business. highcompany needs to avoid any business failure because it will have major impact on theoverall Group’s performance performance.Careful planning by including all aspect of business environment that far from the aspectsimpression of trial and error is absolutely necessary to ensure business success andsustainability of the Group’s growth. ’sThis paper aims to analyze the challenging business environment faced by Carrefour inits business activities in Asia As a region, Asia is very different from other areas such Asia.as in Europe mainly due to its high diversity that may not be obtained elsewhere.The discussion will focus on exposure diversity aspects that affect the businesssignificantly. Focus of analysis is the country China, India and Indonesia, whichrepresent countries with high economic growth and high heterogeinity. heterogeinity
Facing Diversity|5Retail Business Environment Strategy & Rivalry Input Goal & Demand Carrefour Strategy Conditions Conditions Related & Supporting ISSUE IndustriesThe business environment can be understood in terms of four factors: Factor (Input)Conditions, Context for Firm Strategy and Rivalry, Demand Conditions, and Related &Supporting Industries.Factor (Input) Condition: presence of high quality, specialized inputs available to firms,for e.g.: human resources, capital resources, physical infrastructure, administrativeinfrastructure, information infrastructure, scientific and technological infrastructure,natural resources.Context for Firm Strategy and Rivalry Context: a local context and rules that encourageinvestment and sustained upgrading–e.g., intellectual property protection, meritocraticincentive system across institutions, open and vigorous competition among locallybased rivals.Demand Conditions: sophisticated and demanding local customer(s), local customerneeds that anticipate that elsewhere, unusual local demand in specialized segmentsthat can be served regionally and globally.Related and Supporting Industries: access to capable, locally based suppliers and firmsin related fields, presence of clusters instead of isolated industries.In order to show better the different environment between Asia and other regions, wewill take France into our comparison with the three Asian countries China, India, andIndonesia.
Facing Diversity|6BUSINESS ENVIRONEMENT CHINA INDIA INDONESIA FRANCEKey Indicators, 2009Population (millions) 1,345.80 1,198.00 230 62.3GDP (US$ billions) 4,909.00 1,236.00 539.4 2,675.90GDP per capita (US$) 3,678 1,031 2,329 42,747GDP (PPP) as share (%) of world total 12.52 5.06 1.38 3.03Factor (Input) Condition, 2009Infrastructure (rank 1 = best condition) 50 86 82 4Venture capital availability (rank 1 = very easy) 27 31 9 32Technological readiness (rank 1 = most ready) 78 86 91 12Context for Firm Strategy and Rivalry, 2009Market Size (rank 1 = largest market) 2 4 15 7Intensity of local competition (rank 1 = intense) 19 30 54 17Extent of market dominance (rank 1 = spread) 23 26 42 22Demand Conditions, 2009Buyer sophistication (rank 1 = based on 7 43 35performance attributes) 26Related and Supporting Industries, 2009Local supplier quantity (rank 1 = very numerous) 19 7 43 17Local supplier quality (rank 1 = very good) 54 60 61 10 Table 3: Data & rank are based on Global Competitiveness Report 2010-2011 by World Economic ForumTwo most important input conditions with biggest impacts to Carrefour’s businessstrategy in emerging Asia are economical and sociocultural business environments.Without intention to minimize the influence of other business environment factors suchas politics, technology, legal and ecology aspects, economical and socioculturalbusiness environments relates more directly to the potential for business growth andconsumer behavior as the main object of the retail business. Economical Business Environment Preferred Carrefour retailer Sociocultural Business Environment
Facing Diversity|7Economical Business EnvironmentDuring the past 30 years Chinas economy has changed from a centrally plannedsystem that was largely closed to international trade to a more market-oriented that hasa rapidly growing private sector. A major component supporting Chinas rapid economicgrowth has been exports growth.Indias diverse economy encompasses traditional village farming, modern agriculture,handicrafts, a wide range of modern industries, and a multitude of services. Theeconomy has posted an average growth rate of more than 7% in the decade since1997, reducing poverty by about 10 percentage points.Indonesia is the largest national economy in Southeast Asia. It has a market-basedeconomy in which the government plays a significant role by owning more than 164state-owned enterprises.GDP Growth Chart 2: GDP Growth Rate 2007-2011, taken from http://www.tradingeconomics.comDuring 2007–Q1 2011, GDP growth in China varied between 6.2%-13%, in Indiabetween 5.8%-9.6%, and in Indonesia between 4.08%-6.9%. Compared to that ofFrance which varied between -1.6%-0.8%, the average standard of living in those threeAsian countries is steadily increasing.Distribution of RevenueHousehold final consumption expenditure is the market value of all goods and services,including durable products (such as cars, washing machines, and home computers),purchased by households. It excludes purchases of dwellings but includes imputed rentfor owner-occupied dwellings.
Facing Diversity|8 Chart 3: Household Final Consumption Expenditure 1967-2009, taken from http://www.tradingeconomics.comOverall, the annual percentage growth of consumption was increasing in China andIndia before declining after 2008 (along with that of France) due to 2008 global financialcrisis. Indonesia seemed not much affected by the crisis as the annual percentagegrowth remained stable. The percentage of consumption per GDP of China was only35% which was the lowest compared with other three countries. Meanwhile, the growthrate of consumption of China was 9.7% as of Q1 2011 which was the highest in theworld. China still has extensive room for market growth.Consumer ConfidenceAccording to Wikipedia, consumer confidence is the degree of optimism that consumersfeel about the overall state of the economy and their personal financial situation.Measures of average consumer confidence can be useful indicators of how muchconsumers are likely to spend. In essence, if consumer confidence is higher, consumersare making more purchases, boosting the economic expansion. On the other hand, if
Facing Diversity|9confidence is lower, consumers tend to save more than they spend, prompting thecontraction of the economy. Chart 4: Consumer Confidence 2000-2011, taken from http://www.tradingeconomics.comChina’s consumer confidence was decreasing during 2010 but returned to increase dueto slowing inflation in December. India’s consumer confidence was steadily increasingwhile Indonesia’s was declining, compared to decreasing in France.Inflation Chart 5: Inflation 2008-2011, taken from http://www.tradingeconomics.comInflation rate in China was steadily increasing while India was declining. Indonesia’sinflation rate was also declining after increasing in 2010. France’s inflation rateremained stable. Moderate inflation results in higher goods prices and will directly driveup the sales amount of retail enterprises, thus, helps retail sales growth.
F a c i n g D i v e r s i t y | 10CreditPublic credit registry coverage reports the number of individuals and firms listed in apublic credit registry with current information on repayment history, unpaid debts, orcredit outstanding. The number is expressed as a percentage of the adult population. Chart 6: Public Credit Registry Coverage (% of Adults) 2006-2010, taken from http://www.tradingeconomics.comAs seen in above chart, percentage of adults that have credit was increasing in Chinaand India while declining in Indonesia, compared to increasing in France. This meansmore people use credit as a method of payment excluding in Indonesia. Chart 7: Domestic Credit to Private Sector (% of GDP), taken from http://www.tradingeconomics.comDuring Q1 2011, inflation rates in China, India and Indonesia varied between 5%-9%,compared to 2% of France. Due to inflation, level of prices was increasing which couldlead to decreasing purchase power. In order to cope with inflation, people could eitherincrease their credit as an alternative to afford product expense or decrease theirspending. It’s a good option that Carrefour consider credit sales to sustain sales.
F a c i n g D i v e r s i t y | 11During 2009 in India, inflation rate and credit went linear, for exception in 2008.Meaning, when inflation increases, credit also increases. In China, the pattern reversed.Inflation increases, the credit declines. While in Indonesia, between inflation and creditdoes not have a constant pattern.Minimum Turnover of One PoS & Number of Target Market Turnover, 2009 CHINA INDONESIANet Sales 2009 (in millions of euros) 3,473 812Net Sales 2009 (in millions of USD) 4,981 1,165Total sales area (thousand sq.m) 1,291 405Sales area 1 hypermarket (sq.m) 7,885 6,262Net Sales per hypermarket (USD) 30,420,670 18,007,120GDP per capita (USD) per year 3,678 2,329Final consumption expenditure 34% 61%Distribution of revenue (USD) per year 1,251 1,421No of ppl req for 1 hypmrkt (BEP 1 yr) 24,326 12,675Population (millions) 1,346 230Middle Class 23% 36%Middle class population 309,534,000Middle up class population 21,600,000Number of possible hypermarkets 12,724 1,704Tabel 2: data taken from Carrefour’s financial report & Global Competitiveness Report 2010-2011 by WEFBy considering number of middle class population around 309.5 million people in Chinaand 21.6 million people in Indonesia, there were about 12,724 potential market in Chinaand 1,704 potential market in Indonesia in 2009.Sociocultural EnvironmentProducts People Buy in HypermarketProduct categories in the three Asian countries vary across regions and are highlydiversified. Localization is key and including local products in the product assortment ishighly important. The ranges of private label are mostly economy products due to lowacceptance among consumers. In east coast China consumers prefer fresh food, whilewestern and middle China prefer frozen fish. India consumers in urban areas preferfood & apparel while those in rural areas buy more seeds, urea, FMCG goods and farmproduce. Indonesia consumers buy FMCG, electronics, instant noodles and fresh food. Chart 8: Traditional Grocery Trade 2009 vs 2000, taken from Retail & Shopper Trends Asia Pacific 2010 by ielsen
F a c i n g D i v e r s i t y | 12Based on survey by Nielsen (chart 8 & 9), proposition people buy grocery and FMCGproducts in modern retail market is increasing compared to traditional market. Chart 9: Total FMCG Growth in 2009, taken from Retail & Shopper Trends Asia Pacific 2010 by ielsenThe chart below shows that in each category of product, Indonesian consumers tend tospend more than Chinese and Indian consumers. Consumer’s willingness in Indonesiato buy meat is almost ten times higher than in China and India, and willingness to buybottled water is more than twice compared to China and India. This could lead to betterstrategy of supply chain of products to make sure their availability in CarrefourIndonesia. Consumers Willingness to Buy Products 70% 50% 30% 10% -10% Dairy Feminine Bottled Carbonated Meat Mobile Products Hygiene Water Drinks Phone India Indonesia China
F a c i n g D i v e r s i t y | 13Based on survey by Nielsen, Indonesia grocery food, personal care, home care, and grocery,pharmaceutical in 2009 increase by 5.9%, 5%, 8.5%, 6%, and 7.9% respectively increasedcompared to 2008. In addition electronic sales increased by 7.6%; while cell phone addition,delivery was 8 million, increased 48% compared to 2008, with 90% of the products sold swas under one million rupiah. n Chart 10: Indonesia Retail & Consumer Trend Oct 2009, by ielsen : Trend-OctHow People Do ShoppingIn India and Indonesia, housewives make up more than 50% of all main groceryshoppers compared to just 10% in China. This can indicate that in countries like India dicateand Indonesia purchase decision is driven by housewives which are more selective instocking their purchase basket. On the other hand, approximately 75% of shoppers in matelyChina are female maids which generally are more flexible and open to new products. ibleConsumers in China and India are more focused on promotions compared toIndonesian consumers. Thus, price cut or other promotion strategy can drive Chineseand Indian consumers to purchase more more.Across the region shoppers tended to visit Hypermarkets less frequently during 2009 as tendedthey tried to limit their overall spending and use more convenient alternatives. Chart 11: % of main shoppers 2009 : shoppers, Chart 12: % of shoppers focused on promotions, 2009 ocused promotions
F a c i n g D i v e r s i t y | 14 Chart 13: Frequency of visiting hypermarkets, 2009Both in China and Indonesia, Carrefour targets on middle class people withhypermarket format; while in India it targets on middle class professional, retailers, andrestaurants with cash-and-carry format.In the three countries, location determines consumers’ willingness to visit the store.Consumers prefer location within cities that close to where they live, have easy access,and can be reached by foot, bike, or car. Nevertheless, typical Indian consumer doesnot travel more than 6 km (3.75 miles) or 7 km to shop, and that few suburbanites owncars.Price and quality is an important factor for consumers in the three countries. Chineseconsumers perceive hypermarkets to offer better quality products than local player.They spend more on luxury products, trade up across all product categories, will quicklyabandon products for newer alternatives, put more faith in brand names, and in thesame time they will always be smart shoppers regardless of price. Shopping for them isfun rather than a task. Nevertheless, chinese consumers were fussier shoppers andused multiple senses, especially chinese females which were more careful shoppers.Chinese consumers usually visit hypermarket three times a week. Number of visitorswill increase during lunar new year (spring festival) with festive supplies and foods beingthe popular categories.Indian consumers perceive hypermarkets differently. Unlike western consumers, theythink that bigger store has higher prices; while smaller shops can offer lower pricesbecause their overheads are lower. In local markets, the dynamics of retail competitionexist everywhere. Indian consumers are highly diversified with variations in thefrequency with which people like to shop, variation in the kind of products that drivepeople to the store, and variation in the importance of the retail assortment.The Indian consumers are also noted for the high degree of value orientation (pricesensitive-right product pricing), family orientation, and values of nurturing, care andaffection. Even, luxury brands have to design a unique pricing strategy in order to get afoothold in the Indian market.Brand consciousness is increasing but varies across different product categories,gender, etc. Brands with longer presence are more likely to be known and used, andbrands with identities that support family values tend to be popular and accepted easilyin the Indian market. In addition, product which communicate feelings and emotions gelwith the Indian consumers.
F a c i n g D i v e r s i t y | 15One uniqueness of Indian consumers is they see traditional products along side modernproducts. For example, hair oils and tooth powder existing with shampoos andtoothpaste.Indonesian consumer is among the most optimistic in emerging markets. Indonesia’sborrowing penetration is only 33%. This should drive demand further.Despite Indonesia being a low-income country, foreign brands tend to be more popular,especially for luxury products. There is a clear and consistent pattern in consumption ofbranded goods as income levels improve. The lack of local expertise, unlike in the casefor China, may also put limited options for Indonesia’s consumers to choose. For luxuryitems, such as auto, carbonated drinks and electronics, Indonesia is among the highestin terms of preference towards foreign brands.Interestingly, however, for personal care, the Indonesia consumers’ preference forforeign brands was the lowest in the other emerging countries, which may suggest thepotential demand for local brands if Indonesia’s manufacturing sector is able to producedomestically. Another evidence found is the low preference for foreign brands forbranded goods such as sport shoes and garments and watches.Indonesia consumers usually visit hypermarket after working hour at weekdays and thenumber of visitors doubles during weekend. They perceive hypermarket as a one stopshopping and entertainment place to spend weekend with their family. During Idul Fitrifestive, sales usually doubles for food and clothes categories.Engine of DevelopmentTop five factors influencing Indian consumers to shop at hypermarkets are productquality, assortment selection and newness, service, store ambience and convenience,and price. Chinese consumers on the other hand are brand driven, but prefer middlebrand that offer low price and good quality. They also focus on promotions. Indonesianconsumers are also brand driven. They tend to see hypermarket as symbol of lifestyle.CONCLUSIONCarrefour is the second largest global retailer worldwide. China, India, and Indonesiaare Asia’s growth engine which along with Latin America represent the Group’s thirdpriority after France, and other “G4” countries.Considering the large scale of investment and the magnitude of risk inherent inhypermarket format as its core business, it is mandatory that the Group take carefulconsideration of all aspects that will affect the success and sustainability of the businessand avoid any business failure.Due to high heterogeinity of Asian business environment that may not be obtainedelsewhere, the Group needs to focus its business activities on its key market (China,India, and Indonesia) in order to optimize its knowledge of customers and avoid thesame mistake of its failure in some countries.
F a c i n g D i v e r s i t y | 16REFERENCE2010 Top 250 Global Retailers http://www.stores.org/2010/Top-250-ListCarrefour’s 2009 Annual Activity and Sustainability Report http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/RA/RA_Carrefour_PDF _WEB_2009VE.pdfCarrefour’s Strategic Orientations http://www.carrefour.com/cdc/group/our-strategy/Carrefour’s SG Premium Conference Dec 2010 http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Presentation_aux_anal ystes/SGPREMIUM_3%20DEC_2010.pdfCarrefour’s 2009 Financial Report http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Assemblee_generale/R FI_VGB_BAT_def_ve.pdfRotman’s Global Competitiveness http://www.rotman.utoronto.ca/research/competitive.htmWEF’s Global Competitiveness Report 2010-2011 http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdfVarious economic indicators http://www.tradingeconomics.comNielsen’s Retail and Shopper Trends Asia Pacific 2010 http://hk.nielsen.com/documents/APACRetailandShopperTrendsReport2010.pdfCredit Suisse’s Emerging Consumer Survey 2011 https://www.credit- suisse.com/news/doc/media_releases/consumer_survey_0701_small.pdfNielsen’s Indonesia Retail & Consumer Trend October 2009Carrefour’s Shanghai Group http://www.ln.edu.hk/mkt/staff/gcui/Carrefour.pdfFrench retailer Carrefour opens first wholesale store in India http://www.sify.com/finance/french-retailer-carrefour-opens-first-wholesale-store-in-india- news-default-km4pasfgdig.htmlWill Wal-Mart Succeed in India? Perhaps...But It Wont Be Easy http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4133Consumer Behavior in India http://www.google.co.id/url?sa=t&source=web&cd=2&ved=0CB8QFjAB&url=http%3A%2 F%2Fedms.matrade.gov.my%2Fdomdoc%2FReports.nsf%2F0%2F2F841B9F6D04D59 44825709000263441%2F%24File%2FPMSChennai05- ConsumerBehavior_1.doc%3FOpenElement&ei=-O_PTfe- C4aJrAfTjvjCCg&usg=AFQjCNFEiuzeyQLtDTmXTqRsCogn--jTYgNew Insights into Modern India Shopper Behavior and Implications for Global Retailers andLocal Policymakers http://www.google.co.id/url?sa=t&source=web&cd=1&ved=0CBkQFjAA&url=http%3A%2 F%2Fwww.cci.som.yale.edu%2Fsites%2Fcci.som.yale.edu%2Ffiles%2FIndian%2520co nsumer%2520survey%2520- arpita_final%2520100702.ppt&ei=mvHPTZ_4BpCsrAeU3vnCCg&usg=AFQjCNGenR2C Gb-Maree1DoVLerBtPf4TQCredit Suisse’s Indonesia Consumer Survey 2011 http://doc.research-and- analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=8 68401141&serialid=bOXyWRGos2LStSMDEdWMyrGkXijx4xcRY2neqvmX7Ls%3DExchange rates http://www.exchange-rates.org/Rate/EUR/USD/12-31-2009