China has gone through several stages in development. Its growth has been rapid for the last twenty years, mainly after the Chinese oriented their market. They have gone through economic reformation and finally entered the World Trade Market. Since then, the nation has attracted several foreign investors who are very willing to serve the population of China. This paper analyses external business environment in Asia as part of the Carrefour’s plan to expand their market in China.
External Business Environment in Asia
In planning to start a new business or branches in different countries, companies face several factors to be considered both in the micro and macro environment. For those firms that supply goods globally, just like Carrefour, there are many global concerns, such as political and legal issues. For firms that have interests in investing in a foreign environment, it is advisable that PETSEL (Political, Economic, Technological, Social, Environment, and Legal) analysis be done (Lo, Lau, & Lin, 2001).
The External Business Environment in Asia
The General Environment
Retail, supermarket, and hypermarket industry in Asia are influenced by several external factors that are either encouraging or discouraging. For instance, it will be fallacious to state that the political environment in Asia is peaceful. There are too much ups and downs in the political environment in different nations, with several of them experiencing political instability and political unrest. Currently, Cambodia and Thailand are resolving border conflicts. These countries are faced with unpredictable government trends. Besides, the Philippines and Middle East countries, such as Iraq and Iran, have faced internal and external wars and conflicts (Bell, Lal,& Salmon, 2010). These nations face possibilities of political coups and instant change in public policies. However, Asian countries are well known for promoting tourism through opening up markets in different industries. Ideal location for both local and foreign investors is also assured with sound policies that encourage foreign investment. Corruption cases, nepotism, racism, and tribalism in most Asian countries are low (Lockett & Thompson, 2001).
Lo et al. (2001) explain that in the economic environment, Asian countries have been influenced by weak U.S. and European economic markets. As a result, the rate of unemployment in the region is rising, and thus citizens have cut down their expenses in luxury commodities. In the past few years, China and India have risen economically. As a result, a general increase in net-worth of individuals compounded with fear of a possibility of the property bubble burst. It is also necessary to note that most countries in Asia are third world nations. In these nations, unpredictable economic fluctuations and inflation cases are common. The cost of living rises unpredictably leading to reduced spending powers.
In the social environment, this region has different characteristics. In the majority of affluent countries, such as China and Japan, there are more aging people than youngsters. Life expectancy is high, with most people living a high class life standard. Currently, the working class have exhibited a change in trend with the most preferred lifestyle as a work-life balance. The development of the economic standards in China and India has led to increase in a number of people with a higher net worth (Bell, Lal, & Salmon, 2010). Besides, rising Asian affluence is willing to spend more on luxurious commodities. Many civil societies and green environmentalists have lobbied environment and natural habitat preservation, due to the rising number of industries in the region. This has resulted to a stronger public support for green movements in the region with the IT activists supporting this through online movements (Lo et al., 2001).
Lockett & Thompson (2001) explain that technologically this region has exhibited an encouraging progress. The local population is always ready to adopt new technology discovered locally or from other nations. Communication is not a problem because latest communication devices have been embraced by residents in the area. For instance, most countries are now using online booking and reservation services. Promotion and market information are majorly spread through the Internet and other online gadgets. The public has been involved in making decisions in the region through online forums and debates. Besides, many modern devices have been incorporated as a spa tool for resorts.
The natural environment in the region is not particularly encouraging. Several nations have experienced unexpected natural disasters, such as mudslides, typhoons, tsunami, floods, and earthquakes. These fatal incidents have brought several booming businesses to a stop, with thousands of people losing their lives. The rising number of industries and poor laws governing pollution has led to global warming and, eventually, to rising sea levels and melting ice caps. The high rate of population increase in China and most countries in the region has led to deforestation and pollution. People have resorted to clearing off forests to create space for residential homes and commercial centres (Trunick, 2006).
There are several legal factors that govern the operation of business both from local and foreign investors. Just like in any other nation, any commercial business should have an operation licence from the federal government. Firms operating in public lands are restricted from ownership of both land and foreign properties (Bell, Lal, & Salmon, 2010). The unpredictable and instant change of government policies in this region has discouraged many investors. Preceding governments come in power with their own new governmental policies and drop the ones that were there before. Besides this, the region is known for not having copyright laws i.e. foreign businesses are not properly protected. Foreign investors are expected to observe all the local laws and authorities without requesting for any adjustments. Some business strategies are not applicable to other countries thus nations have engaged in different talks to settle such challenges (Lo et al., 2001).
The Industry and Competitor Environment
According to Lockett & Thompson (2001) in Asia there are several established firms in the retail, supermarket, and hypermarket industry. Some of the big companies in this industry are Giant Hypermarket, Milimewah, Mydin, Servay, Chua Kah Seng operating in China, Sabah, and Malaysia. In particular, Giant Lion has taken the Lion’s share of the industry. It considerably benefits from the economies of scale it has. As a result of their dominance in the market, they have resorted to using the price mechanism of competitive strategy whereby goods and services are offered at the lowest price possible. This company dominated Western Malaysia, but it is currently expanding its market to Sarawak, Sabah and other countries, such as Indonesia, Vietnam, Hong Kong, India, Indonesia, and Brunei.
According to Scullion & Starkey’s (2000) SWOT analysis of the key success concerns in these industries fully depends on the strategic plans of a firm. Unlike Carrefour that is fully focussed on consumers from large cities, Giant Hypermarket has concentrated in both cities and small towns, upcoming urban centres with 85 outlets strategically situated all over the states and countries. This makes them appear more customer centred and thus attractive and impressive to customers. Besides this, Giant Hypermarket uses house brand as a brand marketing tool. This tool is much cheaper than other tools in this market that appear more sellable (Bell, Lal, & Salmon, 2010).
Milimewah has heavily invested in his experienced and competent marketing team, who take proper charge of marketing and promoting the company name to the public. It uses a primary marketing strategy of buying billboards and advertising space and distributing flyers with captivating messages. This approach is particularly useful when the firm opening new outlets or introducing a new brand in the market (Yang, Jiang, Kang, & Ke, 2009). Other encouraging strength of Milimewah is their close relationship and contact with their suppliers. During the opening of their new store in Kolombong, they agreed with their suppliers to get free products in cases where they made voluminous purchases for the opening stock. These free products are sold for only RM0.10 during the first month after opening. This did not only promote healthy relationship but reduced supplier bargaining power (Lockett & Thompson, 2001).
A major weakness in most of these competitors is that they face a high employee turnover in their operation departments, with most of them resigning due to dissatisfaction with their workplace and responsibilities (Yang et al., 2009). Carrefour can use this as a competitive strategy and gain a considerable market share. To guarantee reliable services to customers and suppliers, companies should ensure employee satisfaction since the employees are company ambassadors. Failure to maintain employees damages company reputation. For instance, the Giant Hypermarket’ outlet in Karamunsing, which is poorly maintained, has lost customers since it is not in proper order for customers (Trunick, 2006).
Carrefour's Business and International Strategies
Carrefour has several strategies in its international business. For instance, the store format, which refers to a communication strategy within a store or outlet, has fully focused on creating a customer friendly outlet. The size, shape, typography, arrangement, and layout of information sought or given in an advertisement, form, or document has shown a well arranged and spacious hypermarket. The store format is strategically significant for consumers, including retailers. Under this strategy other competitive things exploited are high discount, cash-and-carry outlet and convenient positioning of stores (Lockett & Thompson, 2001).
The G4 strategy is another profitable strategy used by this company. G4 literally refers to the growth of geographical priorities in France, Spain, Italy, and Belgium, which are the closest and more mature markets. This strategy ensures compatibility in operations that are critical in foreign markets. It has proved an instrumental tool in expanding the dominance of the company in different foreign markets. This explains why Carrefour was criticized for fully concentrating on the four countries. This internationalization strategy helps the nation to occupying a high market position in the international market (Trunick, 2006).
Another fundamental strategy used by the company is structured development via a multi-format approach. This strategy has enabled the company to carry out a world-wide expansion program. Since 1999, Carrefour has carried on its development agenda and acquisition of new businesses using this strategy. This strategy was encouraging and welcomed by several nations since it created an impetus of international growth (Yang et al., 2009). Establishing well performing hypermarkets in foreign countries necessitates creating tools and control measures for future development. This strategy can also be extended by putting in place discount stores and supermarkets. In cases where the domain country is remarkably mature, large retailing outlets and convenience stores can be set up. The sustained and world-wide expansion is the result. The foregoing strategy, therefore, leads to increase in global sales and helps an organization to gain a better market position in the countries (Peng, 2001).
Based on common Carrefour position, international expansion has been encouraged by its business format. They have maintained flexibility during the period of adaptation to new business environment. Specifically, their stores in foreign countries have responded properly in relation to the local population needs. This strategy can be simplified by four key targets:
• Being the price leader in most customer catchment zones,
• Attaining excellence in mastering costs,
• Developing the finances invested in the outlet formats
• Getting profits from the synergies purchase
This strategy was implemented thanks to tangible actions in all countries where the country had stores or outlets. In 2004, the company fully concentrated on cutting down prices, on the improvement of sales and purchase connection, and expanding loyalty programmes. The company also uses a profitable international strategy. The latter holds that the company’s growth programmes should be particularly vigorous but not to the level that it turns out detrimental to the company. After full implementation of this strategy, the company was identified as one of firms that had fully made use of their strategy to meet their goals, objective, and priorities. Through this strategy, the company decided to dispose of all its assets that were not profitable or could not give 1 billion Euros after a financial year. As a result, the firm sold Chile outlet where they had a 2.5% market share while the other competitors had more than 40% (Peng, 2001).
Strategies Used in the Eight Asian Countries
In India, the company majorly used the direct procurement strategy, which insisted on shelving 90-95 locally produced goods and maintain low prices as compared to other retailers. This strategy attracted a lot of consumers since India is made up of middle class people. Besides, shelving locally made products has enabled the local population to identify itself with the firm since they felt that their originality was being maintained. This strategy was also used in nations such as Iran, Iraq, and Oman (Trunick, 2006).
Trunick (2006) explains that in Indonesia, the company fully used low pricing strategy to gain a competitive market position. In 2004, the Carrefour’s core competitor TESCO used non-prising mechanism to challenge the low pricing strategy but did not achieve a lot. In Singapore, the company used several strategies, namely, per month income promotion and dynamic strategy. The two strategies focused on using promotions to build customer brand loyalty. Consumers were given promotions in the form of high discounts, which substantially attracted many of them.
In the United Arab Emirates, Carrefour applied brand strategy to capture the market. This strategy focused on producing several brands of commodities so as to satisfy consumer satisfaction. In Jordan, the store uses format and non-pricing strategy, to attract consumers. They ensured that their outlets were spacious, and the post purchase services were offered to customers. Some of the non-price mechanism used was home delivery for bulky goods and 24-hour operation services (Trunick, 2006).
From this strategy analysis, it is apparent that Carrefour used different strategies in eight different nations in Asia. However, similar strategies were used in different nations. For instance, procurement strategy was used in India, Iran, Iraq, and Oman (Trunick, 2006).
It is hard to accurately ascertain what to expect from an investment. The results of a business opportunity might prove immensely lucrative but may turn up bringing great losses. Generally, investment is all about making risks. High risk takers receive the best outcomes from their investment.
From this environmental analysis in Asia, I recommend that Carrefour should give their plan to expand their investment in China. Just as has been discussed above, China has a more encouraging external business external environment than the discouraging ones. For instance, the population growth rate in China is high. This assures the company of a ready market if only they will be bright enough to pull customers on their side.
On the other hand, China is a developed nation with an exceptionally high GDP. Citizens spend heavily on food stuff and luxurious commodities. Their life expectancy is high with most of the people living a high class life standard. Similarly, the Chinese people have embraced the latest technology . The improved communication technology in this country encourages easy conveying of messages to consumers. In this population, the company should employ market strategies, such as price mechanism, non-price mechanism, branding, and discounts on the commodities (Bell, Lal, & Salmon, 2010).
Just as explained above, one cannot be sure of the returns he or she will get from an investment. Businesses have several uncertainties that can change all possible gains into losses overnight. However, Carrefour cannot fear to invest because of such threats. They have to continue investing and expanding their territory since their operation has come out positive so far.