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?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 worlds 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 worlds 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 groups 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
wholesaling, go round the premises gathering their purchases themselves, pay in cash, and also have to transport the goods. The C&C assortment comprises up to 20,000 food articles and 30,000 non-food products. The MCC format operates in three wholesale formats that differ in area, size, and also focus of assortment: Classic, Junior and ECO. The latter two have a smaller sales area and a larger proportion of fresh food. Pre-Decision Factors: Principles, Goals, Strategies and Resources At corporate level in the Metro Group, it is the corporate strategy that is relevant, based on three key pillars: sales growth (aimed at further extending the foreign sales share), portfolio optimization (of the sales divisions in terms of their economic value added), and concept optimization (further development of the retail brands). The internationalization strategy rests on two key pillars. In country markets where there is an existing presence, the goal is greater expansion (penetration) with additional outlets, by first exploiting the expansion potential in large countries and then consolidating the expansion potential in other countries. Openings in new countries as a second key pillar initially have a regional focus (particularly in the Commonwealth of Independent States, Central Asia, Asia Pacific) and second aim at exploitation of individual country opportunities. The following corporate principles and strategies provide the framework for market expansion and selection: .
group principles, strategic considerations, and situational opportunity assessments as so-called competition and adjustment factors. This list is updated annually. Each country included in the ranking (so-called pipeline) goes through a countryspecific, three-stage feasibility study process when the planned entry date according to the pipeline approaches. Normally, this is one or two years before actual entry, i.e. opening of a first outlet. If all stages yield positive results for the
1. The population, natural resources, GDP per capita, inflation, private consumer spending,
cars per 1,000 inhabitants, poverty line, urban population, and number of cities with a
4. Import restrictions, corporate tax, personal tax, clearing, convertibility, land ownership,
and so on, are variables that are included in the administration factor, accounting for 10% of the country score. These variables are surveyed for each country, with the factors being calculated and allocated to the corresponding country score to obtain a preliminary (country) ranking. This consists of a list of the countries remaining, ranked in descending order according to their country score. This ranking reflects the market entry potential for the countries of the list. 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. At the first stage a scoring model is still in use but only concerning macro-economic data. The score is calculated by GDP per capita (30%), private consumer spending (30%), population (10%), number of agglomerations/cities with a population of over 500,000 (10%), urban population (10%) and development of GDP per capita (4%), of private consumer spending (4%) and of inflation (2%). This first stage also results in a preliminary (country) ranking as described above. The information on competition, formerly gathered at this stage, now complements the adjustment factors, as specified in the following part and builds the second stage of the process. Competition and Adjustment Factors and Management Decisions These preliminary country rankings are subject to adjustment factors, including assessment of competition, in the next stage, which includes strategic considerations, such as specific goals and opportunities for foreign expansion. These considerations are based on four separate adjustment factors. The first factor is whether there are gaps to be closed in the existing (country) portfolio. 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, and thus has a good chance of success, this country will be able to move further up the ranking ladder. A second regulating factor is benefits from synergies. If, similar to the first factor, a country market can be worked from neighbouring countries (where there are existing operations) and thus, greater synergies can be obtained in purchasing, logistics and administration, the country
Desk Research as a First Step The first step in the feasibility study process is desk research. At the head office, database research, specialized information agencies (such as Planet Retail, Feri, EIU), embassies, chambers of trade and industry, and statistics agencies, among others, are used to compile an exact country profile. Macro-economic, political, competitive, and administrative factors are processed as an information basis in much more detail than in the preceding funnel approach. The data analysed relate, for example, to the geographical and macro-economic profile and potential of the country, to analysis of the main national and international players in the market, the level of market saturation, the political situation and suitability for investment by MCC, as well as to the legal, taxation and financial environment. By way of example, 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. 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. As a result, market entry to the UAE was postponed and the feasibility study process was abandoned at this point, but a fixed date was also set for a renewed study of the Gulf region.
closing of gaps in the MCC portfolio and making use of synergies between countries, exploiting opportunities arising in new markets, and .new regional focus, for example on a first Muslim country in Asia for 2007.
Further expansion activities may not make MCC a world-wide player, represented in every country. Instead, the focus lies on a more regional identity, i.e. working with groups of countries that fit together in order to achieve synergies, particularly in regressive value-added functions and processes, for example purchasing or supply chain management. 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). There appear to be advantages for a basic strategy geared to specific regions. Case Question: 1. Describe the IMS process of MCC and comment on its effectiveness. 2. Do you think some steps can be omitted or added to make the process more purposeful? .