INTERNATIONAL OPERATION

MANAGEMENT - CASE 1.
CARREFOUR EXPANSION IN
CHINA

Faisel Mohamed
Case 1. Carrefour expansion in China

1. What are the drivers for Carrefour to enter and expand in China?

For mass retailers, the Chinese sector offers unlimited opportunities more than any other market
sector, 250 cities with a population of over 1 million and a steady increase in living standards.

However, along with incentives, international brands face various challenges about the
preferences of consumers, which in China are very specific. International brands that are now leading
the market, had to adopt sophisticated marketing strategies to attract new customers when they entered
the long-standing market. Carrefour faced considerable challenges as its targeted China in 1995 before
becoming a market leader. Here we focus on market entry and expansion strategy drivers for Carrefour
in China.

The 'learning-by-doing' part of Carrefour China 's marketing penetration and expansion strategy was
embraced by the company in 1995 when it entered the Chinese market. Researchers and foreign
companies were then not thoroughly investigating the sector, which could provide credible advices in
the sense of China's tastes. Throughout the early stages, Carrefour analyzed the market and examined
the actions of consumers and adjusted current marketing strategy. Carrefour had been in Taiwan for
seven years before they joined China. This experience has been a huge benefit for the firm if both
oriental cultures are very close to new customers. The retail stores were not directly operated by
international investors in 1995. As a local partner of the Shanghai Hualian Company, the company
was therefore introduced to the market and then maintained a close relationship with the government.
The relationship resulted in Carrefour's rapid growth in Shanghai.

Local consultants conducted in-store surveys and surveys to refine Carrefour's market penetration
strategy for China. The company imports foreign goods, wine, and cheese, if a lot of consumers are
aliens, as it does in the Shanghai Hongqiao Carrefour Store. Instead, with prevailing Chinese
customers, the stores have a wider choice of brands and longer racks. This is because traditional
Chinese clients appreciate the variety of foodstuffs and want to compare different products and
contrast them. In fact, Carrefour found that the preferences of consumers in China vary. Everyone in
Qingdao eats Tsingtao beer for example, but everyone drinks local beer in Beijing. It learned that in
the coastal cities’ customers preferred to buy fresh fish, whereas in central and western China frozen
fish preferred. With the adoption of this strategy, Carrefour 's fish sales increased by 30%.
 As mentioned above, when entering the Chinese market, market entry strategy is crucial. In its
early stage in China, even a powerful brand like Carrefour, now popular with China's customers, was
faced with numerous challenges.

2. How did Carrefour choose locations to set up its stores?

The market entry strategy of Carrefour China was primarily aimed at first-class cities, which had not
been saturated at the time with many producers. The position plays a significant part in the company's
business strategy. Shops are mostly located at the junction, where one of the roads must be a highway.
In Shanghai, the company has located its shops in areas of high-income level including the main
business and central housing areas. "Carrefour" in French means "crossing."

Within eight kilometers from the bus, Carrefour chooses the location based on its purchasing
power. It sends two independent research companies, before opening new shops, to conduct a detailed
study of the place where the local people are to buy.

Carrefour typically occupies the two floors of a building. It could be on the third floor, fourth and fifth
floors, while the first and second floors are preferable.

3. What problems did Carrefour meet in its early expansion in China?

Carrefour is China's first overseas retailer. After the Chinese government opened the retail sector only
partially in 1995, Carrefour came to China with its majority stake. The first hypermarket opened in
Beijing.

The central government in China had at that time to approve joint ventures, and only three outlets in
each of the cities approved could be opened. Carrefour has convinced local governments that it will
create employment opportunities in their regions, generate taxes for governments and help in the
development of regions, rapidly expanding its operations to different cities.

In 2001 Carrefour 's expansion was investigated by the State Economic and Trade Commission.
Carrefour was charged with not complying with the government's requirements for retail joint venture
ownership and the number of shops in every city and ordered to suspend the country in terms of
expansion.

Carrefour sought to reassure the central government of the country's expansion. The organization has
been able to continue its growth after months of operation. For each of its local subsidiaries, Carrefour
formed a holding company and passed its ownership stakes in its three hypermarkets to two local
partners.
 4. Why is Carrefour more successful than its foreign rivals?

Carrefour is better than all its foreign competitors, including Walmart in China, in terms both market
share and its sales. As China's first international retailer, Carrefour introduced local retailers to its
advanced operational experiences, management systems and retail skills. Carrefour is named by the
domestic retail managers as " “retailing Godfather in China”.

Carrefour's biggest benefit is that it responds locally to various areas in China and recognizes the many
ways Chinese are social , cultural, and competitive. Carrefour has a decentralized management
framework to establish local reactions and flexibility, with each store working with a certain degree
of independence, multi-format solutions for different Chinese customers including hypermarkets,
discounts and markets and integrated logistics structures to support local reactions.