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Case Study Carrefour

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Carrefour case study * Entry of Carrefour in the Russian Market in june 09 * Exit 4 month later
Reasons to enter the market: 1. Long- term potential 2. Company´s aim of having a presence in the BRIC markets 3. Russia´s proximity to Europe
Problems: absence of opportunities to grow either organically or through acquisition
Barriers of Russian market: 1. Legislative framework is highly complicated 2. Corruption is rampant at all levels 3. High start up costs and several bureaucratic procedures
2008 due to recession and global economic downturn high unemployment and low purchasing power
February 2009 negative growth rate
Late entry of Carrefour: Competitors: Metro Germany since 2001 and Auchan France since 2002 expanded rapidly
Problems in France (which accounts for 43% of total revenue) concentrate on france not Russia (demanded high resources and attention)
Emerging markets:
Political environment: remains volatile
Investing involves a lot of red tape and bureaucracy time and resource consuming
Manpower: inadequate supply of trained and qualifies manpower Result: high employee turnoer * Lack of proper educational systems- heavy investments from retailers
Competition: From the unorganized sector like: street vendors, open air markets, local supermarkets, catgory specialists (green, bio, kosher, bakery) * Those have limited stock and wide presence and are affordable
Distribution and Logistics: are underdeveloped, lack of presence of road connectivity, no cold strage facilities, retailers which want to improve supply chain need to put in a lot of effort, time and resources and it is still limited!
Conclusion
* Markets are very attractive due to huge potential * Economical and political changes have increased the accessibility * BUT: * Entry needs to be planned early to develop a competitive advantage in terms of supply chain and brand * Need to develop facilities like cold storage etc. * Which products? Assortment? Store formats experiment * Need to be prepared for the long haul no instant result

“Russian retail market Porter`s five forces”
Competition: Factors: * Number of competitors * Fixed costs * Product differentiation * Entry & exit barriers * Their strength * Maturity of the industry

* Before 1991 Products and services were state owned * Retailers now a days account for 15% of total retail sales * - preferred destinations are small grocery stores * Level of competition has increased over the years-> Company`s try to adopt different strategies to attract customers
Bargaining power of Customers:
Customers are in the position to affect the industry by for example demanding lower prices or better services * Major retailers are concentrated in a few urban areas growth of organized retailers , increased bargaining power e.g. hypermarkets grew by 450% not only a new customers from other store, but also from unorganized retail * because of difference in assortments of goods, promotion, quality of products and low prices

Bargaining Power of Suppliers: influence by increasing/ decreasing the quantity of goods they supply or by making variation in the quality.
The Power depends on the number of suppliers, degree of product variation, importance of the product, substitute availability and integration of downstream supplied.
Bargaining Power of Suppliers: * Russian retail market is dominated by small food shops and open markets especially for ffod products * Distribution sector mainly state owned * Not many facilities available outside major cities * Absence of refrigiation facilities transporting perishable goods across the country major challenge * Inadequate infrastructure delivery problems
Threat of new entrants: new entrants increase the level of competition and decrease the attractiveness of the industry * Newcomers enter when profit margins are high and barriers to enter low * Barriers are: economies of scale, product differentiation, capital, transfer cost, access to distribution channels, government policies.. * In Russia after the reform several enterprises were privatized * But entry barriers remained especially for international Companies it has very complicated registration * Widespread red tape and bureaucracy 20-30 agencies and one needs to get 40-50 approvals * Due to corruption Companies had to pay bribes to tax inspectors customs officials and lower bureaucrats
Threat of substitute Products: substitutes can be a threat of existing firms, because they can lower the attractiveness and profitability of any industry. It limits the price level.
A threat is determines by price and availability of substitute products, switching costs, perceived level of product differentiation and the buyers propensity to substitute. * After 1991, the end of limited availability, existing brands are undergoing a change to appeal to the consumers * Consumers in urban areas are especially band focus * With the recession there was an increase of sales of private labels of 20% * 2010 when Russia emerged out of recession there was a marginal decline,that is why discounted prices will be the driving force in the coming years.

Conclusion: * Inspite of several limitations the market remains highly attractive
Retailers like metro, Ikea, Auchan &Obi were able to establish also outside of the urban areas and introduce formats like hypermarkets, discount outlets DIY and Cash-and Carry

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