Business International – Wal-Mart vs. Carrefour around the Globe
The forces of globalization and market liberalization have made it possible for organizations to spread their wings beyond territorial boundaries, allowing them to operate globally. But in this dynamic and highly competitive environment, the ultimate success depends on the abilities of the managerial teams in developing and implementing the most suitable strategies relative to customers, products and services, employees, the technologies employed, shareholders and a multitude of other forces. Two relevant examples of multinationals which triumphed in this context are offered by retail giants Wal-Mart and Carrefour. This paper aims to look at their global operations, while also offering information on the organizational background and the competition between the two forces. The problem identified is that of the failures registered by the number one American retailer in Europe. Recommendations will be offered on how Wal-Mart could address this issue. The paper will come to an end with a section on concluding remarks.
2. Background on the Companies
Wal-Mart is the retail leader in the United States; the company was founded in 1962 in Rogers, Arkansas by Sam Walton, who placed an increased focus on offering his consumers products at low prices. Much of his success has been due to his emphasis on establishing fruitful relations with the staff members. Several points on Walton’s agenda are still recurrent in the strategic approach forwarded by today’s managerial team.
The motto of the organization is that of saving people’s money in order for them to live better. Wal-Mart operates in 13 countries and serves more than 176 million customers. Wal-Mart continues to thrive in these difficult times of financial challenges, despite the ongoing failures of other economic agents. This only goes to show once more the strong abilities of the managerial team, but also the independent features of the retail industry, which generates demand regardless of the cycle of the national and international economy. Wal-Mart ended fiscal year 2007 with revenues of $374.5 billion, setting a new record in the retail industry. Relative to fiscal year 2006, the revenue increase has been of 8.6% points (Wal-Mart 2008 Annual Report).
Wal-Mart is also the largest employer in the United States and Mexico, after the governments; it is also one of the largest employers in Canada. Additionally, the retail chain’s investors have enjoyed an amazing return on their investments, proving once again that the corporation is worth its leading position in the Fortune 500. Their success has however attracted numerous enemies, the most prolific of them being represented by democratic politicians (mostly those who try to win electorate by enforcing unions), union leaders, “left-wing pundits; a handful of right-wing pundits, concerned for localism; and arbiters of taste” (Nordlinger, 2004).
Throughout its existence, Wal-Mart has been subjected to wide criticism for its policies in ensuring the lowest price. They have been accused of not covering the fringe benefits of their employees, requesting them to put in extra hours without additional pay, or offering among the lowest salaries in the market. The average Wal-Mart associate is paid $7.5 per hour, out of which the has to pay his own medical coverage; this is rather expensive and as a result, only 2 out of 5 employees have this coverage. Additionally, some criticism also raised in the treatment towards women, suggesting discriminatory practices (Featherstone, 2002).
Wal-Mart currently operates 3,600 stores worldwide and the wholly owned operations are encountered in Argentina, Brazil, Canada, Puerto Rico and England. The total number of worldwide employees raises up to 1.8 million, and the annual average of the income generated by these divisions is of an estimated $90 billion. In 2008, a strong 20.1% of the multinational’s revenues were generated by the sales accomplished by the international divisions (Website of the Wal-Mart Stores, 2009). In 2009, the numbers are expected to grow to at least 25%. In choosing their locations, the Wal-Mart officials used two criteria – aiding the people in the region by helping them save money, and also, ensuring sufficient levels of profitability for the company (40-29 TvCom, 2009).
Carrefour S.A. was founded in 1957 in Levallois-Perret, France. The company sells consumer goods through an extensive network spread throughout the entire world. In 2007, the organization employed an estimated 461,260 individuals, and registered a net profit of nearly $2 billion and a gross revenue of more than $82 billion. 54% of the entire revenues are generated by the stores outside France. Careffour is the largest retailer in Europe and the second largest retailer worldwide, with stores operating in no less than 30 countries, throughout Europe, Asia and America. Within Europe, Carrefour operates 624 hypermarkets, out of which 31 are franchises, and 2,459 supermarkets, out of which 898 are franchises. In Asia, the multinational organization runs 238 wholly owned hypermarkets. Finally, in America, the France-based multinational operates through 255 wholly owned hypermarkets and 141 wholly owned supermarkets. The total number of Carrefour stores worldwide reaches the astonishing 14,991 (Carrefour 2007 Annual Report). The organization has been operating globally for nearly four decades now (Incandela, Mclaughlin and Smith-Shi, 1999) and their plans for further development are still ongoing. In Egypt for instance, the company intends to open 15 new stores throughout the following 15 years (Owen, 2001).
Just like Wal-Mart, Carrefour is following a constantly ascendant trend, with sales increasing from one year to the next one. But just like its American competitor, the French retail giant has been subjected to intense criticism. A story which captured the attention of the local media for weeks has been that of a three-year-old Indonesian boy, who was instantly killed when a metal rack fell on him. The company was accused of being reckless and then not meeting the family to settle the case (Detik News). Other accusations revolved around the implementation of false advertising campaigns or the operating of sweatshops (Peuples Solidaires, 2005).
For 2008, Fortune 500 listed Wal-Mart as the number one company, stating that its efforts throughout the year had been focused on improving its relationship with the customers and the employees. This reveals that the managerial team has paid attention to the criticism made and is trying to improve its agenda. Carrefour was ranked number 33 in the same Fortune 500 list for 2008. While Wal-Mart maintained its leading position comparative to the previous year, Carrefour was downgraded two positions (CNN Money, 2009).
Each of the two companies competes against a wide number of retailers in both national and international contexts. The Hoover Website however notes that while Carrefour encounters the most competition from Auchan, Casino Guichard and E. Leclerc (all based in France), Wal-Mart’s number one rival is in fact Carrefour, followed by United States-based Costco Wholesale and Target (Hoovers, 2009).
The retail industry in which the two giants operate depends directly on their ability to implement low prices and generate large volume sales, as well as their strength in developing strong distribution networks. Throughout the overall industry, 2008 ended with a 3% decrease in sales; 2009 is expected to generate a 2% reduction in sales, but numbers are expected to pick up starting with 2010, when sales will increase by 3%. By 2013, the growth is expected to reach 4% (Hoovers, 2009).
Wal-Mart first entered Europe in 1997, through the secret purchases of 21 warehouses from the retailer GermanWertkauf GmbH; the following year, it purchased an additional 74 warehouses from retailer Spar Handels. Its threat upon the European chains was not however taken seriously until its acquisition of British ASDA in 1999. At that time, Carrefour (fifth largest retailer in Europe) and its fierce rival Promodes (seventh largest retail chian in Europe), decided to take action. Carrefour bought Promodes and decided to become the second largest retailer in the world. The acquisition was investigated by the European Commission, who ruled in favour of it and the new Carrefour overthrew German Metro, becoming as such the largest chain in Europe. Despite the fact that Wal-Mart was used to dealing with strong competitors, they found Carrefour extremely nimble. One of Wal-Mart’s retail executives who observed the actions of Carrefour stated that they were “just relentless, the toughest competitor I’ve ever seen anywhere” (Holtream and Devinney, 2000).
Carrefour has also recognized the power of the American competitor and implemented various strategies in response. They for instance remodelled their store design, even further reduced the already low prices, or relocated their stores. The strategies of international expansion were however different – while Wal-Mart was more cautious, Carrefour was more daring. By 1998, international sales for Wal-Mart accounted for only 9%, whereas Carrefour’s international operations were generating 44% of its total sales (Holtream and Devinney, 2000).
4. The Problem
Despite its intense efforts and promising start, the operations in Europe do not generate the expected success for Wal-Mart. The company was even forced to close down its store in Germany. This quote from an article in the Business Week best reveals Wal-Mart’s difficulties in Europe: “It’s peak shopping time on a sunny Friday evening, but customers are few and far between at the local Wal-Mart Supercenter in Maintal, just outside Frankfurt. Perhaps they’re put off by the cracked floor tiles or the cobwebs on the headless, foam-rubber mannequins. Whatever the reason, the store’s rock-bottom prices and helpful service clearly aren’t pulling in many shoppers” (Fairlamb and Cohn, 2003).
After nearly a decade of trying to penetrate the German market, Wal-Mart counted its losses and exited Germany. A Wal-Mart spokesman argued that, despite the million dollar losses, the experience was a positive one as it represented a turning point and a lesson for the future. The lesson was that in spite of its national success, Wal-Mart is vulnerable in the international context (Lander and Barbaro, 2006). Similar situations are also encountered in Asia, and the question that is being posed here refers to the future strategies Wal-Mart could implement in order to reduce its vulnerability and increase its position in the global context.
Two recommendations are of vital importance when addressing the previously stated matter:
an adaptation to the cultural features of the region penetrated change in the internal politics of Wal-Mart
The second course of action is necessary as, unfortunately, Wal-Mart has created a negative perception throughout the world. While some causes of this perception are independent of them, some did emerge from their actions that could be readdressed. The independent reasons could include the blaming of the capitalist era or the assimilation of globalization with Americanization and the belief that the United States wants to rule the world. The forces emerged from within the company could include the treatment of their employees and that of the customers. The first thing they could do then is to strive and increase employee-on — the job satisfaction. This could be achieved through the offering of incentives, such as medical coverage, premiums and bonuses, promotional opportunities or flexible schedules. Training programs could also be offered to increase the sentiment that the associate is being valued by the employer, but also to create a stronger sales force which is better able to satisfy the customer. Aside the increase in the quality of the products and services offered, customer strategies could also integrate increases in the security levels in the Wal-Mart parking lots. Wal-Mart: The High Cost of Low Price (2005) reveals that the chain does not employ surveillance of their parking lots and that numerous violent incidents occurred here, some even ending with the death of the victims, both customers and employees.
The first strategy has been intentionally left to be discussed last for the simple reason that it requires more specific measures and is applied directly onto the foreign market strategies, rather than the company. In this order of ideas, the adaptation to the cultural values of the new market should commence with the recognition of these values, different from those in the U.S. Wal-Mart entered the European market with great pride and simply expected that their reputation would ensure success (Lander and Barbaro, 2006). Once they have recognized the cultural diversity, Wal-Mart must also become aware that they are new comers to the region and must prove their worth before expecting to see beneficial results. Other suggestions that could be made refer to the elimination of the morning greet, as the Europeans are generally more reserved and less exuberant than the Americans and might find this behavior awkward, or the elimination of the requirement for the cashiers to smile all the time as some male shoppers might find such behavior flirtatious (Lander and Barbaro, 2006).
The freedom and democracy which govern the contemporaneous global market allow players the implementation of various strategies that ensure their success. The same principles however increase the standards to be acquired in order to triumph and make the task of international expansion an extremely challenging one. Wal-Mart and Carrefour managed to expand territorially, but despite the fact that Wal-Mart remains the number one global retailer, its international strategy has been inferior relative to its French competitor’s. To ensure its success and avoid a repetition of the events occurred in Germany, the U.S. based retailer should develop courses of action that recognize and adapt to the individual characteristics of each new location.
Fairlamb, D., Cohn, L., October 6, 2003, a Bumpy Ride in Europe, Business Week
Featherstone, L., December 16, 2002, Wal-Mart Values: Selling Women Short, the Nation, Vol. 275
Featherstone, L., June 28, 2004, Rollback Wages! Will Labor Take the Wal-Mart Challenge? The Nation, Vol. 278
Greenwald, R., (Director), 2005, Wal-Mart: The High Cost of Low Price
Holtream, a., Devinney, T., 2000, Carrefour vs. Wal-Mart: The Battle for Global Retail Dominance, Australian Graduate School of Management, Retrieved at http://www2.agsm.edu.au/agsm/web.nsf/AttachmentsByTitle/CARREFOUR.PDF/$FILE/CARREFOUR.PDFonFebruary 26, 2009
Incandela, D., Mclaughlin, K.L., Smith-Shi, C., 1999, Retailers to the World, the McKinsey Quarterly
Lander, M., Barbaro, M., August 2, 2006, Wal-Mart Finds that Its Formula Doesn’t Fit Every Culture, the New York Times
Nordlinger, J., April 19, 2004, the New Colossus: Wal-Mart Is America’s Store, and the World’s, and its Enemies and Sadly Behind, National Review, Vol. 56
Owen, T., April 2001, Regional Retail: Supermarkets vs. The SOUQ, the Middle East
February 11, 2009, Wal-Mart’s International Sales Remain Strong, 40-29 Tv Com, http://www.4029tv.com/news/18696579/detail.htmllastaccessed on February 26, 2009
June 24, 2005, Bangladesh – Carrefour has to do better, Peuples Solidaires, http://www.peuples-solidaires.org/article618.htmllastaccessed on February 26, 2009
May27, 2004, the Ever-Expanding Empire; after Wal-Mart Chief Talks to Key Men in Europe He Has a Big Message for His Shareholders, the Evening Standard
2009, Carrefour SA, Hoovers, http://www.hoovers.com/carrefour/–ID__40719 — /free-co-competitors.xhtmllastaccessed on February 26, 2009
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Bocah 3 Tahun Tewas Tertimpa Rak di Carrefour Mangga Dua (a 3-year-old boy died when a metal racj fell onto him), Detik News, http://www.detiknews.com/index.php/detik.read/tahun/2007/bulan/04/tgl/09/time/193426/idnews/764856/idkanal/10lastaccessed on February 26, 2009
Carrefour 2007 Annual Report, Retrieved at http://www.carrefour.com/cdc/finance/publications-and-presentations/annual-reports/on February 26, 2009
Wal-Mart 2008 Annual Report, Retrieved at http://walmartstores.com/Investors/7666.aspxonFebruary 26, 2009
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