What competitive advantages do foreign retailers such as Wal-Mart and Carrefour enjoy when they enter Asian markets?

Scenario

Giants in Asia

The world’s two largest retailers have targeted Asia with varying results. U.S.-based Wal-Mart and France’s Carrefour both offer large stores stocked with groceries and general merchandise. Their entry into new national markets is invariably a shock to local retailers, who suddenly see the status quo of decades upset by these international competitors.

Government officials in China have credited Wal-Mart with revitalizing the retail sector. For years, government-owned retailers offered the same limited products, while employees took naps on the counters. When Wal-Mart opened its new store underneath the soccer stadium in the city of Dalian, the store was soon packed to capacity. Still, Wal-Mart chose to enter China slowly in order to learn as it went along. When it opened its first stores, customers arrived on bicycles and made only small purchases. Wal-Mart also discovered that it couldn’t sell a year’s supply of soy sauce to customers who lived in small apartments. Furthermore, the firm faced a variety of government restrictions. Foreign retailers needed government backed partners, and cities often restricted the size of stores. In response to these challenges, Wal-Mart invited government officials to visit its headquarters in the United States, donated to local charities, and even build a school. Wal-Mart sourced nearly all its products locally, and nearly all employees were Chinese. To understand Chinese consumption patterns better, Wal-Mart’s American manager walked the streets to see what the Chinese were buying.

Whereas Wal-Mart thrived in China, the company’s decision to enter Japan proved more problematic. Wal-Mart studied the Japanese market for four years and decided it needed a local partner. It agreed to buy 6 percent of Japan’s fifth-largest supermarket chain, Seiyu, with the option to increase its share to 67 percent. Still, Wal-Mart faced challenges: Japanese consumers associated low prices with poor quality. If the price of fish was low, it must be old.

Carrefour, which has stores in 34 countries, began its Asian operations in Taiwan and then moved into China and Korea. Carrefour entered Indonesia at the height of the Asian financial crisis, opening six stores in the capital city of Jakarta in just two years. The new stores competed on selection and low prices, and challenged both open-air markets and city’s small Chinese owned neighborhood grocers. The 280-member Indonesian Retail Merchant Association urged Jakarta to impose zoning restrictions on hypermarkets. Carrefour has also proved a threat to the larger, locally established grocery chains. One such chain, Hero Supermarkets, admitted it couldn’t compete with Carrefour on overall prices and chose instead to discount high visibility products such as rice and to offer a variety of promotional specials. Hero also competes on freshness and has an excellent reputation among consumers for its produce.

Carrefour entered the Japanese market about the same time as Wal-Mart, investing $150 million to set up its first three stores. Carrefour had avoided Japan previously because of its high land prices. Although a depressed Japanese economy had lowered land prices, it meant the stores were opening in a climate of slow retail sales. Like Wal-Mart, Carrefour found itself making adaptations to local culture. Within days of opening in Japan, the stores began selling more vegetables in packages of two or three, as other Japanese grocers do, instead of by weight.

Indonesian and Japanese competitors could take some hope in the fact that Carrefour had to retreat from the Hong Kong markets. The company citied stiff competition and restrictive development laws. Analysts suggested that the hypermarkets were unable to attract enough customers, most of whom were unwilling to go out of their way to do their daily shopping. Both Carrefour and Wal-Mart had also exited South Korea, despite the fact that South Koreans were very accepting of hypermarkets and had the highest penetration per capita of hypermarkets in Asia.

Local competitor E-Mart bought Wal-Mart’s stores in South Korea. Wal-Mart was credited with inspiring E-Mart’s cost cutting efficiency. However, the South Korean retailer had its own unique spirit. The atmosphere in these stores was bright, loud, and frenetic, as E-Mart was attempting to capture the feel of a traditional outdoor market. Shinsegae, the company that owns E-Mart, had also entered the Chinese market and currently has more than 17 stores operating there.

Your Role

Your role is to consider the following:

1. Why do you think hypermarkets are more common in some countries than others?

2. What competitive advantages do foreign retailers such as Wal-Mart and Carrefour enjoy when they enter Asian markets?

3. What are some possible competitive advantages of local retailers? Are those advantages transferable to other Asian countries?

Key Players

Small Business Owner

I own a global franchise and purchase business supplies from Wal-Mart. I have a lot of respect for Wal-Mart as it has several global competitive advantages. It has considerable purchasing power. In other words, the company is able to convince suppliers to reduce prices. Wal-Mart is then able to pass the savings onto its global customers. In addition to purchasing power, Wal-Mart has invested resources into strengthening its global distribution system. This system is very efficient and is used to decrease operating costs.

Business Student

You are correct in that Wal-Mart has numerous competitive advantages. Yet, I am concerned about Wal-Mart’s ability to compete against foreign retailers. Some foreign retailers have been entrenched in various foreign markets for years. This has allowed retailers to foster long-term customer relationships. This might make it difficult for Wal-Mart to compete in certain foreign markets.

Business Partner

Excellent observations. It might take time, but I believe Wal-Mart can still compete in markets that have heavy competition. Wal-Mart has successfully entered many different foreign markets. Thus, Wal-Mart needs to leverage these experiences in order to compete in more competitive markets.

Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.

Prepare a written response to the questions following the You Decide assignment. The length of this case study should be 2-3 pages, double spaced. Spell check your work before turning it in and remember to submit your assignment in the DropBox. The written assignment should address the following:

1. Why do you think hypermarkets are more common in some countries than others?

2. What competitive advantages do foreign retailers such as Wal-Mart and Carrefour enjoy when they enter Asian markets?

3. What are some possible competitive advantages of local retailers? Are those advantages transferable to other Asian countries?

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