Carrefour’s Misadventure in Russia Case Study Questions And Sample Answers
Carrefour, the French global hypermarket chain has chosen to close its business in Russia after operating there for only four months because of deficient growth and opportunities acquisitions. The likely applicants to purchase the Carrefour stores are X5 Retain Group, Aushan, Okay and Lenta. Other international retailers that are thinking of entering the market will undoubtedly be affected by Carrefour’s exit from Russia (Deresky, 2014).
Question 1: According to Thierry Garnier, Member of the Carrefour Group Executive Committee, “We are confident that retail business in Russia has considerable long-term potential, and the market is strategically important for the development of our company.” In light of this statement, what were the factors that led to Carrefour’s sudden exit from the Russian retail market?
After operating in Russia for only four months, Carrefour proclaimed its plans to exit Russia on 15th October 2009. Several factors were highlighted by the company as its main reasons of selling off its property in Russia. Some of the reasons given were deficient growth and opportunities acquisitions that prevented the company from becoming the leading retailer in Russia. There are other possible reasons for Carrefour’s exit from Russia with the main one being identified as Carrefour’s failure to acquire the Seventh Continent grocery chain after suspension of negotiations (Deresky, 2014). In 2009, Carrefour realized a 2.9 per cent drop in its group sales for the third quarter, and the largest drop in sales came from the European base. The percentage decline in sales was higher in the rest of Europe as compared to that of France with drops of 6.6 per cent and 3.4 percent respectively. Only Latin America and Asia reported positive growth in sales with values of 5.3 percent and 5.1 percent respectively (Deresky, 2014).
Another reason why Carrefour’s decide to exit Russia could be that in spite of the solid growth potential in the Russian retail market, real deterrents to market entrance exist, including a confounded authoritative system, government administration, and formality. Corruption likewise endures at both local and regional levels, further obstructing business improvement (Deresky, 2014). Pierre Bouchut, Carrefour Chief Financial Officer said that the organization has no present arrangements to desert other markets, but it is perpetually reassessing the circumstances of all specialties units to guarantee that they are in a position to secure a productive administration position over time. Again, Carrefour has reported that their three stores presently working in Russia will stay open until the organization discovers a buyer (Deresky, 2014).
Press reports show that Carrefour is making recommendations to different Russian retailers to discover a franchising accomplice, which it has done in Japan, Africa and the Middle East. The organization would offer residential retailers to create a chain of stores under the brand name Carrefour. Most retail players are however contented with their own particular brands. Discovering a franchising accomplice is appealing to Carrefour in light of the fact that it offers them the chance to come back to the business later on. As at now, only the Victoria Retail Group has indicated enthusiasm toward franchising under the Carrefour umbrella (Deresky, 2014).
X5 Retail Group, Lenta, Aushan, and Okay are all viewed as likely competitors to purchase the Carrefour stores. Carrefour’s departure from Russia will without doubt influence other global retailers planning to enter the market. Wal-Mart might now be careful about proceeding with its advancement in Russia. Conversely, it may see this as a chance to get resources at little to no cost and with one less outside contender. Wal-Mart has for a long time concentrated on the Russian business and years of careful arrangement delineate that it is hesitant to make a fast move. Meanwhile, as Russia certainly remains a dangerous market, it can gain abundantly from successful market entry. Ideally, Carrefour may return to this nation after vital reforms will have occurred in the market and when Russia gets to be more open to global retailers (Deresky, 2014).
Question 2: According to Jamie-Vazquez, analyst at JP Morgan Chase & Company in London, “Stores in emerging markets are the only ones doing well and offering good growth prospects, so selling them makes no sense other than making short-term financial gain.” Do you agree with this statement? Take a stand and justify it.
I do support this statement due to various reasons. Business analysts claim that the reasons given by Carrefour for exiting Russia are invalid. Stores in the emerging markets do not take their time to evaluate future opportunities. The analysts point out that it takes retailers several years to establish themselves in new markets. Carrefour, for example, has spent several years studying the market in order to gain a comprehensive understanding of the factors that influence various businesses in the market. This means therefore that Carrefour should not expect results within such a short time. The main idea behind Carrefour’s exit from Russia might just be the pressure to gain finances within a short time by selling its stores. I do agree that emerging markets are the only ones doing well and offering good growth prospects, so selling them makes no sense other than making short-term financial gains (Hill and Jonah, 2013).
Question 3: Critically analyze the Russian retail market in light of Porter’s five forces model. Do you think the market is lucrative enough to attract more foreign players? Explain.
Porter’s Five Forces analysis is based on the applied industry and competition. The five forces under consideration include rivalry, power of buyers, power of suppliers, threats of new entrants, and substitutes. Porter’s Five Forces analysis of the Russian retail market reveals that, strong rivalry exists amongst competitors and this is influenced by differentiation and price. Therefore, companies that lack different products and economies of scale are likely to have low power. Buyers in the Russian market are many and have limited options to switch, meaning that they cannot affect the purchasing power. Many buyers prefer low price items and local unbranded items to high priced branded items from other countries. The Russian market is saturated and there are a lot of suppliers with low power. Other companies do not find it easy to enter the Russian market due to high rates of corruption and complicated legal regulations that make market entry very costly to organizations. Substitutes however exist for manufactured products as several options are available for buyers to switch to. Generally, the Russian market is good for investment (Lorentz, Hakkinen, and Hilmola 2006).
I think that the Russian market is lucrative enough to attract more foreign players. According to the Economist Intelligence Unit, the Russian retail market is set to grow by more than 80 percent over the next two years. More foreign players are likely to be attracted to join the Russian market in order to benefit from this anticipated growth. Russia is likely to become the second biggest retail market after France and its huge number of buyers is likely to attract foreign players into the country. However, as foreign player attempt to enter the Russian market, they face a number of challenges corruption and complicated regulations, unpredictable taxation, and unfair judiciary (Lorentz, Hakkinen, and Hilmola 2006).
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