Carrefour's Exit from South Korea
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Case Code: BSTR241 Case Length: 19 Pages Period: 1995-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Carrefour Industry: Retail Countries: South Korea Themes: International Business Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Going Global
Carrefour began to enter international markets after a law was passed in France in 1963 to restrict the development of large stores. For its international expansion, Carrefour adopted the route of forming alliances with local partners. Its first international venture was in Belgium, where it opened an outlet in association with Delhaize Fréres-Le-Lion , in 1969.
Carrefour's first venture outside Europe was its hypermarket in Brazil in 1975. In foreign markets, Carrefour was careful to customize its operations to the preferences of local customers. Instead of selling imported French products, Carrefour sold local products through its stores. In 1978, Carrefour developed a hard discount store format, under the banner Ed, in France.
The store offered a limited range of products at very low prices. By 1985, Carrefour was operating in ten countries and had introduced private label products that were priced 10-20% lower than the branded products and were said to be of superior quality...
Carrefour in South Korea
During the late 1980s, the economies of several Asian countries like Taiwan, Singapore, South Korea, Thailand etc. were booming. In order to reap the benefits of this growth, Carrefour started its Asian operations by entering Taiwan in 1989. It established a joint venture with Uni President Enterprises Corporation there. Its next destination was Malaysia, followed by China and South Korea (Refer Table III for details of Carrefour's entry into Asian markets). In the early 1990s, there was a growing demand from the South Korean consumers for modern shopping experience owing to the country's rapid economic growth and increasing income. The Government had adopted protectionist policies and the retail sector was not open for foreign direct investment at this time. The retail sector was dominated by mom-and-pop stores, which accounted for about 80% of the total retail sales in the country...
What went Wrong?
Despite its experience elsewhere, Carrefour failed to localize its stores to a sufficient extent, as per the preferences of South Korean customers. Instead it tried to introduce its global practices and strategies in the country. Carrefour's stores layout, ambience, products, location, etc. failed to attract customers. The company wanted to attract the customers by providing them high quality products in bulk at low prices. Its stores were styled like warehouses and were simple in appearance compared to the stores of its competitors. Initially, customers in South Korea were enthusiastic about the warehouse style of Carrefour stores, but most of them were not bulk purchasers.
In several other countries in which Carrefour operated, the customers were more concerned about the price of the products and not much attention was given to the ambience. But in contrast, South Korean customers especially housewives, preferred a clean and sophisticated atmosphere along with low prices and turned to retailers like E-Mart which offered both...
The Road Ahead
When Carrefour announced its decision to withdraw from the Korean market, the decision surprised analysts. Despite its problems they believed that the company was on the verge of success and had made an unnecessarily hasty retreat. They pointed out that the country was just recovering from credit card related personal debt problems and there was a marked improvement in consumer confidence, and retail spending had been registering continuous growth. Other factors like the stable job market and increasing incomes were also helping consumer spending...
Exhibits
Exhibit I: Carrefour South Korea - Profile of the Competitors
Exhibit II: Carrefour - Store Formats
Exhibit III: Carrefour - Consolidated Store Network (December 2005)*
Exhibit IV: Carrefour - Consolidated Net Sales per Format/Region (2005)
Exhibit V: Overview of the South Korean Economy
Exhibit VI: Retail Industry in South Korea
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