French hypermarket Carrefour is facing a peculiar kind of growing pain for its breakneck growth in China: systemic corruption among its management ranks at the local levels.
As many as eight managerial staff at Carrefour China have been detained by Chinese police in a wide-ranging probe initiated by the company itself over bribe taking by its managers at its city procurement center in Beijing and seven other outlets, including one in Shenzhen.
Their detention is seen as part of radical shakeout precipitated by Eric Legros, the new executive director of Carrefour China. Legros is looking to rein in wayward local managers and tighten up a decentralized procurement system that has set Carrefour on a high-growth path in China but that appears to be outgrowing its usefulness.
The police summoned 22 suspects for questioning between June 25th and August 1, including 12 local suppliers, according to two major publications, Shanghai Securities News and China Business News. The investigation netted an unidentified number of corrupt managers working at the fresh produce department who requested kickbacks in the form of promotional fees from suppliers. Carrefour did not dispute the reports’ accounts.
Unlike the centralized system in procurement and coordinating logistics employed by its top competitor in China, Wal-Mart, Carrefour has been racing ahead in China through a model that empowers local managers at each outlet to manage pricing, choose suppliers and conduct negotiations on promotional campaigns, as well as arranging store displays.
This high degree of flexibility gave ample room for managers to expand fast in the early stages of building the chain, but the wide leeway it allowed also encouraged endemic bribe taking at the local level and, over time, exacted higher operating costs than would a centralized system.
Under Legros, Carrefour has been moving to