RETAIL DOESN’T CROSS BORDERS

PRESENTED TO: PRESENTEDBY:MBAIB 2B ANUJ MALHOTRA

BRIJESH BAROTJASPREET SINGH

INDIAN RETAIL INDUSTRY

Expanded by 10.6 per cent between 2010 and 2012 and is expected to increase to US$ 750-850 billion by 2015.

Food and Grocery is the largest category within the retail sector with 60 per cent share followed by Apparel and Mobile segment.

Accounting for around 14-15 per cent of the gross domestic product (GDP), the Indian retail industry is estimated to be worth around US$ 500 billion currently

MAJOR PLAYERS

Pantaloon Retail/Future Group K Raheja Group Tata Group RPG Group Landmark Group Parimal Group Reliance AV Birla Group

QUIZ ON RETAIL STORES AND THEIR PARENT COMPANY

Pantaloons – Bigbazaar - Hyper city - Westside - Croma - Lifestyle - Max - Planet sports – Landmark - Piramyd Megastore -  More -

Future Group

Future Group

k Raheja Group

Tata Group

Tata Group

Landmark Group

Landmark Group

Future Group

Tata Group

Parimal Group

AV Birla Group

Globalization’s lure is almost irresistible. With US economy struggling to expand and Europe on brink of recession, fast growing markets in the developing world offer the best opportunities for boosting revenues and profits

When we focus on Grocery Retail Industry there are few exceptions, globalization benefits had not accrued to retailers. International players are almost entirely absent from even the largest retail markets.

And every grocery retailer that has ventured overseas has failed as often as it has succeeded.

POINTS FROM ARTICLE…

TOP 5 RETAILERS IN THE WORLD Wal-Mart Carrefour Tesco Metro The Kroger company

WHY RETAILERS GO GLOBAL Since retailing is low margin business, big

chains have been forced to move into overseas markets.

Quest for greater economies of scale and scope A need to diversify risk A desire to attract new talent and create new

opportunities for existing leaders. Carrefour began to enter international markets

after a law was passed in France in 1963 to restrict the development of large stores

WALMART

American multinational retailer corporation Large discount department stores and warehouse

stores World's third largest public corporation

(Fortune Global 500, 2012) Largest retailer in the United States, and in the world 8,500 stores in 15 countries, under 55 different

names (UK - Asda, Japan - Seiyu, India - Best Price, WOS in Argentina, Brazil, Canada)

Mixed results in investments outside North America: UK, South America, China are successful Germany, South Korea, Japan were unsuccessful

REASONS FOR FAILURE IN JAPAN Japanese tends to prefer quality over low prices, which

constrasts with Walmart core value: EDLP (Every Day Low Price).

When a nation has a very strong purchasing power, such as Japan, why settle for cheap stuffs when you can buy high quality expensive products and still have money to spare?

Japan is a small country with limited spaces, which has several implications for Walmart as below:

Small housings and apartment sizes, with high rent prices means that Japanese would need to minimize their purchases.

Several small purchases. High operating costs, especially because of the prices of

rent and buildings in general. Inability to apply original supply chain model

DO YOU CONSIDER ASPECTS SUCH AS WASTE RESOURCES AND ENERGY WHEN PURCHASING DAILY PRODUCTS

Waste Disposal in Japan:

Trash categorization

Costly trash disposal procedure

Impact on Walmart

“Retailers effectively represented the interest of the manufacturer,

rather than that of consumers” (Tsukiizumi, 2004)

• Protection from aboveRetailers are often protected from financial risks by wholesalers and manufacturers through a number of distinctive market practices (such as rebates). • Price and distribution control

Manufacturers and wholesalers controlled prices by enforcing districting and exclusive dealerships.• Closed-network impact to government

For foreign retailers, Japan’s complex retail and distribution system has long been inaccessible, so much so that the U.S. government considered it a nontariff barrier and a structural impediment for U.S.-Japan trade

Manufacturers Wholesalers Retailers Customers

Line of governance

Impact for Walmart

SCM strategyWalmart supply chain management system aims for strategic sourcing to find products at best price from suppliers. Walmart establishes strategic partnerships with most of their vendors, offering potential long-term and high volume purchases in exchange for the lowest possible prices.

Small profit marginWalmart’s business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. EDLP allows Walmart to break even or make small profit per sales, while customers also win by saving money buying at low prices.

Culture challengeJapan is used to the top-bottom approach, while Walmart insists on bottom-up approach. Walmart has to challenge the unusually powerful Japanese suppliers and manufacturers to conform with its Walmart model.

JAPAN-US GEERT-HOFSTEDE COMPARISON

Power Dominance Index

• Relatively equal

• Japan is more hierarchical than US.

Individualism Index

• Contrasting• Collectivism of

supply chain and relation to customer is difficult for US.

Masculinity Index

• Contrasting• Japan strives for

quality and perfection. While Walmart enters market with value-goods approach

Uncertainty Avoidance Index

• Contrasting• Japan may have

numerous restriction and laws which may be viewed as unnecessary by US.

Long Term Outcome Index

• Contrasting• Japan may plan

ahead and more punctual and strict, contrast to US.

PDI IDV MAS UAI LTO

5446

95 92

80

40

91

62

46

29

JapanUnited States

First changes brought by Walmart is by successfully persuading Seiyu to dismiss 25% of their HQ staff, including 1500 employees and managers.

Japan never have anything like this mass layoffs, because this kind of action would create too much embarrassment for a typical Japanese company.

Walmart, a US corporation, is seen as the outsider who meddle too much in Japan’s community (Communitarianism)

Walmart viewed it as a company’s priority to cut cost, in order to implement EDLP (individualism)

This created a climate of resistance for policies that Walmart is trying to implement

Introducing cheap products from China doesn’t help, especially with bad relations between Japan and China.

High communitarianism: high peer pressure, need peer approval to make decisions.

High uncertainty avoidance: tried and true is better, something new is to be avoided.

Variety offered by Walmart is not attractive to Japanese, who tends to choose a small selection of tried and tested product.

Not to mention, they are wary of the “new” products offered by Walmart.

WALMART FAILURE IN GERMANY Wal-Mart entered the German market at the end of 1997

with the purchase of 21 stores from Wertkauf and added to this in 1998 with the purchase of 74 Interspar stores from the French company, Intermarché.

After only 4 years of operation in Germany it was clear that Wal- Mart was struggling with estimated accumulated losses at around 1 billion Euro, although only estimates were available as the company published no accounts.

REASONSThe nature of the German market

The acquisitions

The senior managers

Corporate culture

Supply chain issues

products

Employee relations issues

Pricing issues

Customer relations issues

Image and publicity

Financial reporting.

By 2006, Wal-Mart had 85 stores remaining in Germany. In July that year these were sold to a rival company Metro.

In typical fashion no financial details were disclosed but the deal is estimated to have been concluded at less than the value of the assets at a loss to Wal-Mart of US$ 1 billion.

Just after the conclusion of the deal in Germany, Wal-Mart sold all its stores in South Korea and by 2007 operates in only 13 countries.

Its international rival Carrefour operates in 29 countries. Historically Wal-Mart has always done best in markets closest to the USA, namely Mexico and Canada.

Asda in the UK is a rare success contributing 43% of Wal-Mart’s international revenue.

The failure in Germany is summed up by two academics thus: “Wal-Mart’s attempts to apply the company’s proven US success formula in an unmodified manner to the German market.

CAREFFOUR

As of 31 Dec. 2012, Carrefour group operates over 9,994 stores in 33 countries

CAREFFOUR

Carrefour is a French multinational retailer headquartered in Boulogne Billancourt, France, in Greater Paris.

It is one of the largest hypermarket chains in the world.

The second largest retail group in the world in terms of revenue (after Wal-Mart)

The third in profit (after Wal-Mart and Tesco). Carrefour operates mainly in Europe, Argentina,

Brazil, China, Dominican Republic, United Arab Emirates, Qatar and Saudi Arabia etc

Carrefour is closing up shop in much of South-East Asia. Its 44 stores in Thailand, 23 in Malaysia and two in Singapore are for sale.(2010)

Carrefour was one of the first foreign grocers to open shops in South-East Asia in the 1990s. But the later-arriving Tesco proved cannier in figuring out what consumers wanted. When the firm found out that Thai shoppers travelled for miles by bus to its “big-box” stores, it opened smaller stores in rural towns. Carrefour focused on Bangkok's higher spenders and stuck to its hypermarket format.

On April 28, 2006, Carrefour, the second largest retailer in the world, sold its 32 hypermarkets in South Korea to E.Land Corporation for 1.75 trillion Won The sale marked the exit of Carrefour from the South Korean organized retail market. Then agreed to 1.48 trillion in september.

As a part of the plan, Carrefour exited several markets including Japan, Mexico, Czech Republic and Slovakia and began concentrating on the markets where it had a strong position including Brazil, Poland, Turkey and China.

FAILURE IN SOUTH EAST ASIA SOUTH KOREA

Choice of going alone(no local partners) Activist shareholders to reverse the firm's global

expansion and focus on Europe. The company failed to localize its stores and the

products sold according to the needs and preferences of Korean consumers.

All top managements from France, this was not viewed favorably by the local employees, and Carrefour too often faced problems from local labor unions.

FAILURE IN SOUTH EAST ASIA SOUTH KOREA Localization of products A pleasant shopping environment and

friendly service are crucial to satisfy the tastes of South Korean customers

South Korean customers tend to shop more frequently and buy less each trip than in other countries because of their desire for fresh food, such as high-quality meats and vegetables

• Carrefour filed a court case against the local union, demanding damages for alleged losses caused by trade union members coming to work in their union jackets.

Leadership

• Negative attitudes toward foreign discount chain stores. Carrefour has been criticized for the treatment of its workers throughout the world

Ethics

• Didn't Understand the culture of South Korea and applied global strategies

Culture

• Due to Carrefour’s extreme level of store decentralization support areas that were not directly under store responsibility, such as IT and logistics, were normally treated as vendors. Over time this led to under investment and the company’s support services generally lagged behind the market leaders in terms of efficiency

System

On the departure of Carrefour (and the subsequent departure of Wal-Mart) from Korea, the South Korean media reported that 'Native Korean retailers won a battle with the world's retail Goliaths.'

TESCO

Tesco is the world's third largest retailer with a turnover of £72 billion ($115 billion), a presence in 12 countries with a market leader position in 6 of them. With over half a million employees, 6600 stores, and a strong online business, Tesco is dedicated to bringing best value, choice and service to millions of customers each week.

What drives us is our Core Purpose, which is: WE MAKE WHAT MATTERS BETTER, TOGETHER.

GLOBAL PRESENCE UK China India Malaysia South Korea Thailand Czech Republic Hungary Ireland Poland Slovakia Turkey

FAILURE IN USA

The stores had only self-checkouts.

European model.

Treat the US as one country

Unfortunate timing- Recession

Failure to understand that the US retail landscape is different from the UK's

Metro is a German global diversified retail and wholesale/cash and carry group based in Düsseldorf. It has the largest market share in its home market, and is one of the most globalized retail and wholesale corporations.

It is the fifth-largest retailer in the world measured by revenues (after Wal-Mart, Carrefour, Tesco and Kroger)

GLOBAL PRESENCE

Austria Belgium Bulgaria China Croatia Czech Rep. Denmark Egypt France Germany Greece Hungary India Italy Japan Kazakhstan

Luxembourg Moldova Netherlands Pakistan Poland Portugal Romania Russia Serbia Slovakia Spain Sweden Switzerland Turkey Ukraine Vietnam

KROGER

The Kroger Co. is one of the world's largest grocery retailers, with fiscal 2012 sales of $96.8 billion. Kroger’s Family of Stores spans many states with store formats that include grocery and multi-department stores, discount, convenience stores and jewelry stores.

They operate under nearly two dozen banners, all of which share the same belief in building strong local ties and brand loyalty with our customers.

Alabama KrogerAlaska Fred MeyerArizona Fry's, Smith's, Fry's Marketplace

Arkansas Kroger, Kroger MarketplaceCalifornia Ralphs, Food 4 Less, Foods Co.

Colorado King Soopers, City Market, King Soopers Marketplace

Georgia Kroger, Kroger MarketplaceIdaho Fred Meyer, Smith'sIllinois Kroger, Food 4 LessIndiana Kroger, Kroger Marketplace, Jay C, Ruler Foods, Pay Less,

Owen's, Food 4 Less, Scott's

Kansas Dillons, Dillons MarketplaceKentucky Kroger, Kroger MarketplaceLouisiana KrogerMichigan KrogerMississippi KrogerMissouri Kroger, Dillons, GerbesMontana Smith'sNebraska Baker's, Food 4 LessNevada Smith's, Food 4 LessNew Mexico Smith's, City Market, Price Rite

North Carolina KrogerOhio Kroger, Kroger MarketplaceOregon Fred Meyer, QFCSouth Carolina KrogerTennessee Kroger, Kroger MarketplaceTexas Kroger, Kroger MarketplaceUtah Smith's, Smith's Marketplace, City Market

Virginia KrogerWashington QFC, Fred MeyerWest Virginia KrogerWyoming Smith's, King Soopers, City Market

THE RETAILERS GOLDEN RULES OF GLOBALIZATION

RULE 1:The home market is the linchpin of globalization.

RULE 2:Always bring something new to the

market.RULE 3:Differentiation is

more important than synergies.

RULE 4:Timing is critical.