P. 1
METRO CASE Group 3 Solution

METRO CASE Group 3 Solution

|Views: 86|Likes:
Published by adhinayakg

More info:

Published by: adhinayakg on Apr 22, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less

07/05/2013

pdf

text

original

GD CASE /TNZ/ IMM 3

?INTERNATIONAL MARKET SELECTION (IMS ) PROCESS OF METRO CASH AND CARRY The Metro Group, with a net turnover of €55.7 billion in 2005 and about 250,000 employees, is the world’s fourth largest retailer. Presence in 29 foreign countries (at the end of 2006) and a foreign turnover of 53.4% (in 2005) make Metro one of the most internationalized of the world’s 30 largest retailers. The roots of the firms belonging to the group today extend back into the 19th century. A reorganization in 1996 led to the formation of the Metro Group, headed by a strategic Management- Holding (Metro AG), which, after some portfolio adjustments, operates sales divisions in four business areas. These are Cash & Carry (with the wholesale brands Metro and Makro), hypermarkets and large supermarkets (Real and Extra), nonfood specialist outlets (Media Markt and Saturn), and department stores (Galeria Kaufhof and Inno) (see Figure 1). The sales divisions operate in the marketplace independently, assisted by cross-divisional companies which provide such services as purchasing, logistics, IT, advertising, financing, insurance, or catering to the entire group. Market selection process in the Cash and Carry division (MCC), generally has a pioneering role in the group in terms of internationalization and has developed a model that all group’s companies apply, adapted according to their specific requirements. With its C&C format, the Metro Group is among the world market leaders. Over 90,000 people work for MCC; 50.4% of group sales are generated in this sector, some three-quarters of which are outside Germany. The C&C principle means that the customers, unlike in traditional

North Africa. it is the corporate strategy that is relevant. The latter two have a smaller sales area and a larger proportion of fresh food. portfolio optimization (of the sales divisions in terms of their economic value added). North America. and also have to transport the goods. to a lesser extent. based on three key pillars: sales growth (aimed at further extending the foreign sales share). Goals. and also focus of assortment: Classic. either because the markets are less attractive or because there are substantial entry barriers (strategic decision). the goal is greater expansion (penetration) with additional outlets. and concept optimization (further development of the retail brands). Asia and. which would only be accessible through acquisitions. innovative concept in a new country market. 2. cannot be considered in this observation. The internationalization strategy rests on two key pillars. Availability of resources for foreign commitment is limited. by first exploiting the expansion potential in large countries and then consolidating the expansion potential in other countries. Pre-Decision Factors: Principles. size. 1. this means that countries with high competitive intensity. Metro’s regional focus lies in Europe. Asia Pacific) and second aim at exploitation of individual country opportunities. For market selection. pay in cash.000 food articles and 30. Junior and ECO. Strategies and Resources At corporate level in the Metro Group. for example in China and Japan. .GD CASE /TNZ/ IMM 3 wholesaling. 3. Openings in new countries as a second key pillar initially have a regional focus (particularly in the Commonwealth of Independent States. The MCC format operates in three wholesale formats that differ in area. The following corporate principles and strategies provide the framework for market expansion and selection: .000 non-food products. go round the premises gathering their purchases themselves. The C&C assortment comprises up to 20. There must be some potential for achieving a place among the top three in the country . The international commitment is based on the principle of organic growth sometimes with joint venture (JV) partners. Central Asia. market in question and the MCC format must be viewed as a new. In country markets where there is an existing presence. South America and Oceania are currently not considered. 4.

containing countries and possible entry dates. The inter-country starting-point comprises all countries that are included in a regional segmentation and evaluated with so-called knock-out criteria (see below). Each country included in the ranking (so-called ‘pipeline’) goes through a countryspecific.e. The ranking as calculated is contrasted with group principles. however. successful internationalization in many countries was based on managerial experience or single projects. Since 2003. In contrast. Normally. strategic considerations. Newly formed. for example. This list is updated annually. For a long time. small private enterprises are the core target group of MCC. three-stage feasibility study process when the planned entry date according to the pipeline approaches. If all stages yield positive results for the . this is one or two years before actual entry. it forms the foundation for expansion by the other sales divisions. consumers themselves generally do not yet have the appropriate consumer spending potential. i. i. and situational opportunity assessments as so-called ‘competition and adjustment factors’. This is followed by a scoring model resulting in a ranked list of countries. the group has a concept or model for market selection with a twin structure (see Figure 2). the initial market economy structures offer potential for MCC.GD CASE /TNZ/ IMM 3 An important group principle is that MCC is generally the first sales division in the group to enter a new market.e. This pioneering role of MCC in the group’s internationalization process is due mainly to the fact that the C&C concept can be introduced at a relatively early stage in countries whose markets are changing or only just opening up because. opening of a first outlet.

g. comprising economic and business considerations combined with Metro’s strategic focus. the country is also eliminated from the selection process. urban population. there is little probability of MCC entering the market. If the top three to five retailers dominate more than 40% of the food retail volume. legal uncertainty. The executive board then decides whether or not to continue examining the country in the feasibility process and whether or not to enter the market. The process takes between six to eight months. poverty line. politics. These countries are excluded from any further evaluation. So-called regional segmentation is applied to these countries. and number of cities with a . If any of these criteria applies to a country. for example. each country selected is assigned to a planned entry date or year. a market entry project is commenced. The population. inflation. Examples of such knock-out criteria are legal aspects (e. this period may be extended depending on the data available. this is followed by an evaluation of the intensity of competition. Inter-Country Market Selection: Funnel Approach The final goal of the multi-stage. two factors are examined: first. if the answer is yes. natural resources. currency not convertible). competition. cars per 1. a review is conducted to establish whether there is any potential for the MCC business area.000 inhabitants. i. wholesale reserved exclusively for nationals). Regional Segmentation and Knock-out Criteria All countries. where there is a low market potential combined with high intensity of competition.g. however. which are also critical knock-out criteria. taxation (e. Country Scoring and Preliminary Country Ranking The remaining countries are assessed in a scoring model. We should point out that the purpose of each stage is to make recommendations to the executive board as to whether the country concerned has potential or not. Secondary market research is used to collect legal. GDP per capita. and financial data.e. Each factor is calculated from different variables: 1. Pipeline means that these countries are placed in order on a time bar. and financial showstoppers (e. inter-country market selection process is to obtain a pipeline of potential new country openings. Both market selection processes are described in more detail below. private consumer spending. and administration is used to determine a country score. except the existing Metro countries. The extent of competitive intensity is used to draw conclusions as to whether the group’s principle of organic growth abroad is viable in the countries concerned. taxation. A set of factors relating to macroeconomics.g. In concrete terms. This applies in Australia. unfavourable tax regime).GD CASE /TNZ/ IMM 3 country in question. form the starting point for market selection.

These variables are surveyed for each country. ranked in descending order according to their country score. population (10%). clearing. private consumer spending (30%). urban population (10%) and development of GDP per capita (4%). This means that if a country that has also been ranked as a potential entry country can be developed and worked by a neighbouring country business unit. This first stage also results in a preliminary (country) ranking as described above.000 are included in the macroeconomics factor. the country . The score is calculated by GDP per capita (30%). A realization that this procedure was too stringent (by means of the factors’ weightings) resulted in the scoring model being modified into a two-stage process. with the factors being calculated and allocated to the corresponding country score to obtain a preliminary (country) ranking. This ranking reflects the market entry potential for the countries of the list. and foreign affairs.000 (10%). land ownership. 2. The politics factor (20% of the country score) evaluates the variables ethnic conflicts. 4. As part of the competition factor. The first factor is whether there are gaps to be closed in the existing (country) portfolio. which accounts for 30% of the country score. including assessment of competition. as specified in the following part and builds the second stage of the process. this country will be able to move further up the ranking ladder. logistics and administration. If.GD CASE /TNZ/ IMM 3 population of over 500. At the first stage a scoring model is still in use but only concerning macro-economic data. and thus has a good chance of success. formerly gathered at this stage. Import restrictions. A second regulating factor is benefits from synergies. This consists of a list of the countries remaining. The information on competition. such as specific goals and opportunities for foreign expansion. convertibility. now complements the adjustment factors. similar to the first factor. of private consumer spending (4%) and of inflation (2%). the national and international retail firms operating in the country in question are analysed. power base (of the government). are variables that are included in the administration factor. and so on. These considerations are based on four separate adjustment factors. which includes strategic considerations. Competition and Adjustment Factors and Management Decisions These preliminary country rankings are subject to adjustment factors. accounting for 10% of the country score. in the next stage. corporate tax. 3. number of agglomerations/cities with a population of over 500. personal tax. greater synergies can be obtained in purchasing. a country market can be worked from neighbouring countries (where there are existing operations) and thus. which accounts for 40% of the country score.

The fourth factor looks at the so-called provisional risks. for example. Thus. and detailed data have to be collected on each country in order to achieve market entry at . Third. In practical terms. because of the ‘critical mass’ problems. These are not like the knock-out criteria identified above. Furthermore. it is important when upgrading a country to also look at which country market is downgraded as a result and thus. it is assessed what kind of Metro wholesale format would best fits into the market.g. This was the case. the firm has to decide. it has to consider that it may no longer be possible to enter at a later date following downgrading if. however. further analyses and planning work are required. that could lead to postponement of market entry. Here. the countries are assigned to a time bar. the structure of competition is surveyed. Here. whether it is more important to open a further outlet in Russia or to open the first outlet in Estonia. e. the intensity of competition increases in the meantime and organic entry to the country market is then no longer possible. but there were transit agreements with neighbouring countries since it is close to Romania where MCC has been operating since 1996. This type of criteria can also lead to postponement of market entry decisions in later phases of market selection.e. a planning basis showing which market entries are to be prepared and/or implemented in which year. as was the case in the United Arab Emirates. These four adjustment factors are now complemented by a qualitative analysis of the competition in each country. but more short-term and current factors. by concentration ratio. political instability or economic problems. for example. occurrence of a modern grocery market. Since the investment capital available for expansion abroad is limited. MCC thus has a pipeline of potential new country markets for some years in the future. so-called trade-offs are investigated. hypermarkets and warehouse clubs. When doing so. the group expected to achieve synergies by servicing this country from Romania. which being a small country was ranked lower. In addition. e.GD CASE /TNZ/ IMM 3 will also move upwards in the ranking. with Moldavia. cannot be entered until a later date. the top executives decide whether to proceed with a detailed analysis for a specific country.g. the result reflects the so-called final country ranking pipeline. the goals stated and the opportunities for foreign expansion. i. saturation concerning cash and carry. Final Country Ranking Pipeline When the preliminary ranking has been evaluated and adjusted. the government offered infrastructural aid. for example. Subject to the pipeline suggested. For this. which moved Moldavia up the ranking and led to market entry being brought forward to 2004.

the level of market saturation. but a fixed date was also set for a renewed study of the Gulf region. the process can either be stopped entirely or resumed at a later date. The full-feasibility study in the third stage is coordinated and supported by the Corporate Development department. are used to compile an exact country profile. too. indicating that market entry is not (yet) advisable or is not possible after all (e. if intermediate results are positive. Desk Research as a First Step The first step in the feasibility study process is desk research. Country-Specific Selection: Feasibility Study Processes When a market entry according to the pipeline is approaching. this leads to compilation of a business plan and then to market entry. market entry to the UAE was postponed and the feasibility study process was abandoned at this point. Of course. chambers of trade and industry. among others. specialized information agencies (such as Planet Retail. Inter-country market selection is concluded at this point and the decision process moves on to the more complex and more cost-intensive country specific evaluation. The data analysed relate. All feasibility studies are conducted and controlled by the Corporate Development department. competitive. the desk research conducted on the United Arab Emirates (UAE) revealed that this and other countries in the region did not have sufficient market potential. taxation and financial environment. and statistics agencies. to the geographical and macro-economic profile and potential of the country. the process is largely standardized. EIU). a feasibility study process begins and.g. Here. and administrative factors are processed as an information basis in much more detail than in the preceding funnel approach. which initiates the first two of the following steps and involves experts if problems are encountered. Market entry would only be worthwhile if extended to cover the entire Gulf region and adequate market potential were created by synergies between the various countries. embassies. the firm maintains flexibility and the possibility of strategic reaction instead of remaining strictly with the plan. the political situation and suitability for investment by MCC. database research. with the many years of intercultural experience together with the German roots of the Metro Group being considered favourable pre-conditions for successful market entry. . as well as to the legal. but carried out by a team of experts from within the firm who come to a decision and submit their recommendation as a team to the executive board. At the head office. due to previously unknown legal restrictions).GD CASE /TNZ/ IMM 3 a later date. If the detailed data are not positive in the course of the feasibility study process. By way of example. Feri. Macro-economic. As a result. political. for example. to analysis of the main national and international players in the market.

Questions that remained unanswered from desk research. etc. where it tries to obtain as much information as possible beforehand and then supplement this information by means of trips to the country (depending on the topic/department). In this way. involves an initial visit to the country concerned. profit (particularly the average margins for food and non-food). a team of approximately 10 to 15 experts from all disciplines involved (sales. mainly with suppliers. whether the Metro concept is attractive to the market.income level. among other things. They gather initial data and hold discussions. finance. knock-out criteria (particularly whether there are any real or potential showstoppers). the actual market potential can be assessed more accurately and any obstacles to market entry exposed. and from independent or specially commissioned analyses. an in-depth analysis. at the market potential. to deal with the more operational tasks) spends approximately one week in the country. used to evaluate clear customer potential and spending potential estimates. In this step. Pre-Feasibility Study as a Second Step This second stage. on the other hand.e. The analysed data during this step cover sales (particularly the number of potential Metro customers by category and country level). for example on special taxes or taxation of sales and office premises. both figuratively and literally speaking. i. the process moves on to the next stage. unemployment rate and the like often deviate from the official figuresand can be reviewed on the spot. In detail. assisted by a feasibility manual. A survey of the existing retail environment permits the team to assess the fit between the format and the foreign country. taxation. the . the desk research continues to favour market entry. Full-Feasibility Study as a Third Step If analysis of the second step continues to indicate a potentially suitable market. opportunities.g. which is the full-feasibility study. from a neighbouring country. A small team of around three experts (one or two from the Corporate Development department and one or two experts. a decision is taken on the third stage. take a close look. and so on. purchasing. and appeal (particularly attractiveness of the business concept for the country market). e. This analysis comprises checklists and questionnaires.) conducts. these being to validate the preceding desk research findings at first hand and make an initial ‘touch down’ in the market itself.GD CASE /TNZ/ IMM 3 If. market (particularly intensity of competition in the C&C and hypermarket sector). Primarily. i. can be settled and information gathered on suppliers and partly on how willing officials and politicians are to cooperate. this trip is used to meet the main objectives of the pre-feasibility study.e. the pre-feasibility study. the objective is to gain a first impression in the country itself and to assess whether there is a country market there for Metro stores. In particular. costs (particularly the existence of costs that are significantly higher or lower than average). human resources.

This makes it possible to allocate resources for penetration of larger markets. Once again. MCC’s competitive position). the management decides to enter the market on this basis. as well as a recommended sequence of sites.e. infrastructure. final scrutiny and checking of provisional risks (particularly whether there are issues that have not been considered to date and extending to whether a foreign investment list will be requested to facilitate operations). for example. consultants. based on the individual strategy for a particulartown or city. Special Features and Future Prospects In the early days. If. profit (particularly margins and volumes by categories considering market structure.GD CASE /TNZ/ IMM 3 income relevant to spending. potential turnover and number of stores). The sources of information used vary from one country to the next. the first site selection is made. market (particularly characteristics of MCC’s competitors. In China. A statement is then made together with a government spokesman. the key issues relate to sales (particularly the number of Metro customers by category. normally have to be estimated. sealing the formal act of market entry. but in the 1990s there were more and more simultaneous steps. i. in the end. and with how much return on investment. property prices. The selection is based on detailed customer and micro-analyses (competition. These are extrapolated or assessed independently on the basis of the data available and of estimates—margins and personnel costs. China alone has so much market potential that setting up an intensive network of outlets could claim the entire internationalization capital. etc. such as Russia in Europe or China and India in Asia. with parallel market entries using synergies between the markets (see Figure 1). but include such institutions as the members of state and local government. business plan (particularly the question of how many stores and in what sequence. use of synergies. and suppliers. for how long. costs/investment (particularly the costs to operate the business and the overall investment). with its extensive presence of Western retailers) will probably lead again to slower development of new country markets.). developing other Asian countries in parallel. customer behaviour and competition). in particular. At this point. The future situation (in eastern Europe. and the number of outlets possible in the country in the long term. is irrelevant. human resources (particularly personnel requirement. the result is a strategy that maps the first three years of expansion. The final result of this process is a business case that indicates exactly how much can be invested. a delegation headed by the Metro Group’s CEO often visits the country to finalize the investment. instruction and task structures). as well as what type of investment and costs will generate EVA). Ultimately. customer focus groups. for example. country-specific internationalization of Metro developed in stages. This includes (at this time) the ideal number and position of Metro sites. This .

Forty outlets in existing markets and one new country market are to be opened per year. Do you think some steps can be omitted or added to make the process more purposeful? . developments have taken a positive turn in 2004/2005. Furthermore. Case Question: 1. the Asian countries still hold substantial economic risks. Focus will continue on making economies of scale and scope in order to generate added value. are relevant as part of the systematic search for country markets: • • • closing of gaps in the MCC portfolio and making use of synergies between countries. Instead. and . 2. Another exception in the expansion pipeline is Japan. the following motives. particularly in regressive value-added functions and processes. to make use of the permission granted to extend joint venture participation to 90% at the end of 2005. This was to be tested. the focus lies on a more regional identity.GD CASE /TNZ/ IMM 3 is not possible. Following initial problems. inter-country selection has also yielded plans to expand into more countries. exploiting opportunities arising in new markets. however. working with groups of countries that fit together in order to achieve synergies. Still.new regional focus. The intensity of competition prevailing there would have been a knock-out criterion right away in the market selection process. Increasing standardization can be detected in relatively homogenous country markets (such as western Europe) and parallel differentiations in newer markets (such as Japan and in parts of central and eastern europe). MCC entered the market there in 2002. As suggested. Metro was the first Western retailer. There appear to be advantages for a basic strategy geared to specific regions. The idea here was to gain a successful share of the market with the niche concept ECO. Describe the IMS process of MCC and comment on its effectiveness. i. Nevertheless. Nevertheless. due to the financial restrictions. represented in every country. for example purchasing or supply chain management. whose assortment contains virtually only fresh products. in China. . for example. The basis of MCC’s international activities for the next few years is to increase penetration and expansion. also in order to be sure that it is possible to operate successfully in such markets. Further expansion activities may not make MCC a world-wide player.e. to the extent that concentration of resources here could lead to financial problems if there is an economic crisis. for example on a first Muslim country in Asia for 2007.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->