1995 – Carrefour looked for passive partners, willing to give it the control needed to realize the learning curve. It did not face cost pressure, as the partners had strong alliances suppliers and owned distribution networks. 2004 – Challenges arose when Chinese central government restricted further expansion. In conformance with the government requirement, it reduced the number of holding companies to one per partner and reduced its stake to 65%. Carrefour played a complex strategy relative to different level of government.
However as its non-conformance was flagged by the national government, it managed to technically comply with law, but was not aligned in spirit. 2005 – Even though the restriction on ownership was relaxed, it continued to work with JV. Its network within the local community, government and vendors, along with knowledge of good suppliers, distributors were valuable. 2006 – New regulations were introduced that would impede expansion plan of foreign players. Carrefour could no longer get support from the local government.
Acquisition of Trumart – Acquisition of Trumart, gave Wal-Mart a big market presence that reduced the gap and limited the potential for organically. It probably triggered Carrefour to consider acquisition (Child 2006). Acquisition has not been the natural style of Carrefour and its reluctance is evident. Today, while it has retained good partners Carrefour focuses on wholly owned outlets. It has grown organically while also being actively involved in acquisition. Carrefour China maintains a flexible management approach.
Operations are organised to exploit its firm specific advantage. Initially Carrefour relied heavily on the local partner’s knowledge of the culture, taste, preferences and its network of supplier and distributors (Child 2006). However, having drawn the sourcing and merchandising experience from its local partners, staffing from its own Taiwanese operations and Carrefour China Institute, and permissive government regulations, Carrefour went on to open wholly owned stores.
Carrefour’s primary concern with local responsiveness led to a localisation strategy with decentralised management system (Grace 2005). Currently the management structure has four levels, Chinese HQ, Greater regions, regions and stores. The regions are equivalent to independent country-level companies with dedicated functions; Human Resources, Financial affairs, operations and marketing. Each region acts as a stand-alone entity and the need for coordination between areas is minimal (Sinocast China Business Daily news 2005; 2007).
The operational decision-making is delegated to store level. This provides flexibility and quick responsiveness. However an increased level of organisation structure and resulting lack of coordination and communication is evident from their slow response to the Olympic boycott. There was delay in awareness amongst PR officers at the branches on the event and the activities happening at the Chinese HQ. It indicated inconsistency in communication and coordination that are hallmarks of a highly decentralised structure (China Business 2008; Hill 2009).
Carrefour started learning about Chinese consumer behaviour with main cities on the coast and expanded into the rest of the China (Child 2006). It moved from its hypermarket format in the big cities and became more local in its orientation, adapting its formats and products to different regions. Carrefour conducts detailed research on the local culture, customs, consumer preferences and purchasing power for a year before opening a new store (Grace 2005). It relied heavily on the knowledge of local managers and maintained a flexible approach in store management.
Each store was considered as a profit centre and decided its format, size, product offerings and purchases. This enabled Carrefour adapt to the taste and preferences of the local customer that varied significantly across regions (Qin 2004, Child 2006). However in a place like China where there are serious considerations on ethical practices, high levels of autonomy can lead to non-conformance with business objectives and code of conduct. Past cases of counterfeit products and recent bribery case that involved 8 purchase officers highlights this concern (Dyer 2007; Fong 2006).
Carrefour sources 90% of its products locally and adopts a combination of centralised and decentralised sourcing (Saravanan 2007). Initially, it empowered purchasing rights to four regional sourcing centres. This allowed Carrefour to cater to the needs of local customers while lowering the purchasing cost (www. supplierchainer. com). Although it has enabled it keep prices lower than Wal-mart (Li 2004), it does not assure product quality and delivery but saves cost and time.
However in 2001, Carrefour strengthened the authority of controlling logistics and purchase for some products into the Procurement Division of the Regional Headquarter in Shanghai, and implemented direct transactions and mass purchase from manufacturers so as to realize low-price strategies as well as to keep profitability. Carrefour demands various rebates, promotion fees, and cooperation money from manufacturers through direct transaction that allowed it to secure 20-30% gross margin of the sales trade from manufacturers before selling their products.
Moreover, it also used manufacturers to deliver those goods to each store (Huang 2003). Unlike Wal-mart, Carrefour believes that underdeveloped infrastructure in China makes an efficient central distribution unfeasible in design and cost (Child 2006). It relies on local distribution network that consist of 18 wheel trucks and 3 wheel bicycles (Lee 2006). This flexibility in management allows it to lower cost and cater to the different needs of the stores.