Strategic Management Issues a Case Study of Carrefour Company

            Case Description

An international business operation is a subject of business ability to survive. The retailing sector has in the past decade emerged to be among the most profitable businesses that not only drive the economy but also play part in industrial growth. However, despite the retailing success, highly leveraged companies are centered on restructuring their strategic operations for higher gains as they are faced with unending market challenges. Strategic management can best be described as the process of objectives and policies development while allocating the existing resources to better meet the set plans (Rothaermel, 2015). In UAE similar to other areas, rapid industrial changes are forcing most businesses to evaluate their strategic investments to enhance their performance in the local and international sector (Bourke, 2015). For the last couple of years, Carrefour has been expanding globally and performing quite desirably in reference to profit generation, growth as well as sustainability. The company is boasting of its consistent growth and competitive positioning that has placed it on top of most established retailers. However, in responding to the issues of competition and the need to attain sustainability the company is focused on market expansion.

Carrefour which was established in 1959 in France is considered to be the second leading retailer globally in terms of revenue and market share and the leading retailer in the European region. With its presence in more than 32 countries (Yoder, Visich and Rustambekov, 2016). In the last few years, UAE has experienced a number of differing retailing trends that incorporates the rising and demand of small and convenient market stores. Carrefour occupies 24 percent market share in UAE which has mainly been derived from its aggressive expansion of creating more branches aiming at 10 at the end of the year from the existing three. Based on its dominance on the global sector the company has acquired such a positioning based on its ability to provide products variety to the UAE market. In addition, its resources and having a reliable supply system plays part in its efficiency in general and the fact that it has positioned itself as a reliable and convenient brand. The business world is today experiencing major changes like increased competition, technology advancement, and globalization. These trends have in turn offered market opportunities to different business companies and thus fueled them to expand internationally (Gollnhofer and Turkina, 2015). In the last year’s most companies have shifted their focus from the local to the international ventures while utilizing ranging techniques to get reach of the market fully.

Within the Middle Eastern region, Carrefour has more than 175 stores in about 15 countries while serving more than two hundred thousand customers daily (Yoder, Visich and Rustambekov, 2016). Carrefour mainly operates distinct hypermarket and supermarket retailing stores in the quest of meeting the increasing needs from its diversified consumer market. The company mainly targets different consumers from low to upper-class settings. In 2011 the company acquired a financial revenue of more than 22 billion within the first year quarter (Yoder, Visich and Rustambekov, 2016). Along with its determination to the guarding its brand by offering the largest range of products quality and monetary value, the company also provides unmatched options with over 100,000 products incorporating of foods, households and other products. The company is also committed to compensating its consumers by offering unique and differentiated retailing experience based on its focus on quality and safety.

Carrefour is guided by money value concept boasting of having the most extensive product range base. The company being an international retailer has created a wide presence in different regions which is linked with immense success and thus it gathers and attracts consumers within UAE because its brand is strongly linked with middle-earning consumers from the Asian and Middle Eastern regions. Currently, Carrefour is focusing on is a multi-branded strategy which seeks to expand its operations to convenience and supermarket stores. Of all the company’s revenue, 90 percent is accounted to the greater presence of hypermarkets in the shopping facilities such as malls (Gollnhofer and Turkina, 2015). The company’s global operations also facilitate the company in accessing an extensive supplier network thus offering its products at favorable prices.

Unlike the leading retailers in the industry such as Walmart whose operating generic strategy is the cost leadership one, Carrefour is dependent on differentiation. The primary objective in regard to differentiation is creating the impression that the offered products are different from what all other competitors provide (Mahfooz, 2014). The primary advantage based on this move is that the company has been able to overcome competition challenges as presented by the cost leaders based on the notion that they are not able to match the differentiation. The major aspect that has assisted the company in supporting its strategy is the fact that it has an extensive range of resources. Carrefour is focused on differentiation on the ground that it is able to provide quality, safe, convenient and diverse products to its consumers at all times (Mahfooz, 2014). Such values are not met by the competitors thus placing the corporation at the advantage.

Figure 1: Global retailers with respect to revenue generation

In UAE the major retailing competitors for Carrefour are Lulu, and Choithrams Lulu enjoys the largest market share of about 32% followed by Carrefour with 24%. This dominance of Lulu is mainly attributed to the fact that it is a local corporation and thus loyalty to the consumers play a part. Carrefour is objected at becoming the retailing leader in UAE and globally by ensuring that it consistently expand its presence while meeting the changing consumer needs. In that its strategic objectives include growth, reducing cost, increasing profit, expansion, increasing value for its online business. This comes with the need to maximize its stakeholder’s earning, transform shopping experience for all its retailers and upgrade its market base for high sales and revenue gains. Due to the increasing competition in the industry the company is focused on gaining sustainability which can best be achieved by constant expansion while adhering to the differentiation strategy (Gollnhofer and Turkina, 2015).

Figure 2: Market share in UAE retailing market

            While Lulu is the retailing leader in UAE and Walmart is ranked top on the global scale, Carrefour is quickly responding to the increasing market needs so that it can compete strategically. The company is focused on taking advantage of the already established industry by the leading giants in developing its own abilities and becoming the retailing leader on the global scale.

Strategic Management Question

1. With respect to strategic positioning, how has Carrefour developed a competitive advantage within the retailing industry?
2. Is market expansion the most suitable choice for Carrefour in achieving its strategic expansion objectives which are maximizing revenue gain, expanding its market share and sustainability and what factors should the company consider?

Teaching Notes

Question 1: With respect to strategic positioning, how has Carrefour developed a competitive advantage within the retailing industry?

With the stability of the retailing industry, both the market share and market expansion have decreased in the modern business setting. This is mainly because as the retailing business has been categorized as highly successful in terms of revenue generation more and more firms have ventured into the industry (Mahfooz, 2014). Thus, the retailing industry is recommending differentiated and discounted approaches in the quest of attracting more buyers into the industry to expand the market gains. It is rather apparent that the retailing industry is associated with the highest market share based on the fact that retail shopping is inevitable. However, with the saturation of the industry and the domination by some of the leading and well-established firms in the globe, companies are being pressured to adopt strategic moves in order to secure their positions and attain sustainability. Survival is the essential aspect of the international business which cannot be achieved without commitment. In 2016, the retailing industry experienced an economic drop based on the persisting financial challenges in UAE (Yoder, Visich and Rustambekov, 2016). Consumers retailing confidence remained uncertain based on the fact that shoppers grew less enthusiastic in regard to their financial spending. The retailing revenue in 2016 was 56.6 billion dollars with expected rise up to 71 billion dollars in the next four years which accounts to a 4.9% increase.

Figure 3: Retailing industry gains in UAE

It is evident that Carrefour’s main competitive strategies are grounded on differentiation and cost leadership. In that, the company has a reliable supply system which implies that its ability to provide products at the least prices is well supported. The company benefits from low-cost strategy from the scales economies, production efficiency, and low operating expenses. The company is able to maintain the strategy based on its ability to center its approaches on cost control. For the corporation operating under minimal expenses is its leading priority which helps in competing fully against all the other companies (Mahfooz, 2014). Despite the general application of these strategies, the company has not been able to emerge as the leader in the UAE as it suffers from a low market share.

Mahfooz, (2014) argues that differentiating a company’s products from those provided by the competitors is essential because competing on the ground of cost leadership is not enough. However, companies should try to generate profit and take advantage of the existing market changes and utilize them as investment opportunities thus reducing their operating threats. The Resource-Based View strategy (RBV) is essential in guarding the company’s competitive advantage. RBV is a management tool that is applied in the assessment of the existing strategic assets for the company (Kozlenkova, Samaha and Palmatier, 2014). Fundamentally, RBV is grounded on the notion that effective and efficient use of resources can assist a firm in determining its most appropriate competitive advantage. By creating more strategic ventures the company can gain full control of its operations that would not only seek to generate high value but lower the operating expenses thus generating a competitive advantage.

A company’s resources are the foundation of strategic management success. In that, the capability of the company is mainly determined by resources availability that leads to high-profit gains. In addition, sustainability and productivity are challenging to maintain without the availability of resources. In this context, companies are required to implement strategies that offer productivity, sustainability and differentiation benefits over the competitors. Carrefour has an extensive availability of resources which can be used in strategically positioning the company for higher gains.

Porter’s Generic strategy can be applied in exploring Carrefour’s strategic and competitive position in the retailing market. The most suitable approach based on the three generic methods being focus, cost leadership and differentiation is the differentiation strategy (Rothaermel, 2015). This is because Carrefour offers a wide variety of unique and accepted products within the broad segmentation. Carrefour’s operations as per the current can best be ranked within the differentiation leadership category which is within the broad segmentation. This approach best illustrates a corporation whose focus is on high-quality products ranging from food to households items that are charged at favorable prices. While using the differentiation focus approach the motive is to become differentiated within the retailing sector in the quest of offering goods that differ fully from those of the competitors (Nataraja et al, 2015). The important aspect in regard to the adoption of this strategy is the fact that consumers actually hold different wants and needs. This means that there is a valid basis for products and servicing differentiation on the needs that are not being met by competitors. Carrefour has not only differentiated its operations but its focus on low-cost charges and operations along with quality and safety adherence has resulted in unmatched levels which have for the longest period played part in sustaining the competitive positioning.

Figure 4: Expansion Strategies for Carrefour.

 

A number of strategies can best be applied in achieving differentiation. Superior quality, branding, and constant promotion can help in promoting market dominance. In that for the well-established companies that have dominated the market on the basis of their appealing brands such as Carrefour they benefit from scales economies thus there is no need to depend on cost leadership approach in competition (Rothaermel, 2015). This is because the businesses on their own and the associated brands are created on convincing consumers to becoming a loyal brand thus even with higher prices their sales and sustainability in the market is not affected in any way. In other words, Carrefour has attained its competitive advantage through its adherence to differentiation that is fully supported by the availability of resources. So that sustainability can be achieved there is a need to control the company’s operating expenses while seeking to fully differentiate both its goods and services from the competitors.

Question 2: Is market expansion the most suitable choice for Carrefour in achieving its strategic expansion objectives which are maximizing revenue gain, expanding its market share and sustainability and what factors should the company consider?

Based on the analysis above, it is obvious that Carrefour is one of the most established retailing companies in the UAE and the globe. However, despite the fact that the company has attained success in regard to attaining a substantial market share with significant revenue gains one of the major strategic management issues that have remained dominant is related to sustainability and strategic positioning (Maceda, 2018). The company is focused on expansion for the next five years in the quest of attaining a larger market share and its revenue gain. In achieving the market expansion objective for maximizing the company’s gains (Nataraja et al, 2015). It is suggested that VRIO framework and Pestle analysis are the essential tools for analyzing both the internal and external environment of the firm.

Kozlenkova, Samaha, and Palmatier, (2014) suggest that VRIO is a framework that is mainly utilized to access a company’s resources and competitive abilities. In that, it basis it analysis on value, rarity imitability, and organization. The value of the company’s resources is achieved at the point which it is fully able to deal with external forces. In that, the competitive benefits are best achieved at the point where quality adherence and innovative approaches are linked for strategic efficiency (Maceda, 2018). Value refers to the capability of the company to fully make use of the existing opportunities with the existing resources while on the other than the capabilities should be rare and not imitable for maximum gains. Market expansion is the most beneficial strategic approach that Carrefour can utilize currently in gaining her competitive gains. Market expansion rather than product development is the most appropriate strategy for the case given that the company is currently seeking to enhance its brand and consumer loyalty in UAE over Lulu supermarket which will facilitate its objective in regard to gaining an essential market share while utilizing the existing resources (Lulu, 2016). Carrefour has have reported on its intention of situating more stores and expanding within the Middle East more while differentiating fully.

This intention is supported by the company’s supply system which is not only reliable but also focused on offering diverse goods. The retailing market is one that is characterized by similar commodities and therefore the most suitable differentiation that can be applied lies on products quality and operations. However, the risk that is involved in implementing the strategy is high given that differentiation can hinder the company from fully controlling the associated operating expenses while meeting consumer’s demands (Lulu, 2016). The company has shown its commitment in research as well as products developed on the ground that this strategy will be useful in understanding market trends and making moves that are not only challenging for the competitors to imitate but those that add value to the firm. The risks presented by increased competition can never be ignored in relation to cost and losing a significant consumer base. It is, therefore, essential that the company invests inadequately in market research that seeks to acquire a detailed information with reference to consumer demands and market needs to provide products that best meet the increasing demands and lower the threats that are associated with preference changes. In order to establish the suitability of market expansion with UAE and the Middle East region, several macro factors must be considered using Pestle analysis (Bouyamourn and Scott, 2014).

With respect to the political factor, the environment is a stable one particularly considering that there are few firms that have established themselves as hypermarkets. The operation can thus be accounted as one that is associated with minimal competitive risks as most of the competitors are not able to match the diversity strategy. Taxation is also low with little to zero taxation for food products in UAE and thus the openness of the industry permits the company to set competitive strategies (Bouyamourn and Scott, 2014). On the other hand, the economy is favorable given that the company is creating increased growth based on the opening of more branches that seek to capture a large share of the retailing consumers. The middle-income segment is one that is growing rather rapidly in UAE because of economic stability as experienced in the recent years. The broader target within this segment is, therefore, a suitable one that is associated with high purchasing power. Socially, the company provides products for diverse ages which makes it even more favorable as its target demographic is wide. In addition, with a range of choices on every product, pricing is more strategic since the price differences accommodate consumers from different platforms. Its reliable and efficient supply has for the longest period supported the company’s strategic approaches mainly by providing technological and updates items prior to the competitors thus making it more favorable.

Global business necessitates operating within the legal provisions. Carrefour is well established in UAE due to its favorable legal settings that mainly encourage business investments both from the local and foreign investors (Bouyamourn and Scott, 2014). The company has proven to be environmentally responsible as time and again it has given back to the communities in which it operates and adhered to all the environmental measures (Maceda, 2018). More so, environmental conservation awareness and familiarity is on almost every market with investors being required to be at the forefront of guarding such programs. In other words, given that Carrefour is operating in a rather competitive industry that is characterized with increased change and demand differentiation and market expansion are the most effective approaches that it can apply in attaining sustainability and increasing productivity. Market expansion will not only seek to increase its market share but also play part in cost reduction, brand recognition, increased revenue gains and better online and physical retailing operations. The expansion is associated with more exploitation opportunities given that some markets have not been exploited fully which makes them favorable.

 

 

 

 

 

 

 

 

 

 

 

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