2011 Global business environment lecture MMUI

1. GLOBAL BUSINESS ENVIRONMENT
MMUI 2010
Facing Diversity
Case Study of Carrefour in
Emerging Asia
China – India – Indonesia
As of 2010, Carrefour S.A. was the largest global retailer in Europe and the second
largest of the world in terms of revenue1. Carrefour develops with a multiformat
approach ranging from its core hypermarket chains to supermarkets, convenience
and hard discount stores. For professionals, Carrefour is also developing the cash &
carry format. At year-end 2009, Carrefour had over 15,600 stores in 34 countries.
1
http://www.stores.org/2010/Top-250-List
Bernardus Erry Nugroho (1006793113) John Anthonius (1006793706)
Fanny Siskarina (1006793441) Luciana (1006793800)

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Figure 1: Carrefour’s Store Network, taken from Carrefour’s 2009 Annual Activity and Sustainability Report

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As hypermarkets chain, Carrefour combines a supermarket and a department store with
an expansive retail facilities carrying a wide and attractive range of products under one
roof, including full groceries lines and general merchandise.
In order to realize its vision to become the preferred retailer wherever it operates and to
ensure sustainable and profitable growth, Carrefour is currently focusing its global
business activities in Europe, Latin America, and Asia. Carrefour’s objective is to be the
strong leader in key markets and be able to perform improvement in the organization
and operating model.
Taking chance in the rapid growth in emerging markets especially in Asia and Latin
America represents the Carrefour group’s third priority. In order to improve
competitiveness and optimize its knowledge of customers, the Group will focus most of
its development resources on countries with stronger growth potential; this includes
China, India, and Indonesia which we will discuss in this paper.
As of 2009, Carrefour invested a total amount of $ 21.6 billion on tangible assets,
increased $ 337 million compared to in 2008. The huge amount of investment mainly
included sales area operated by the Group. A breakdown of the investment on each
Point of Sales (PoS) in China and Indonesia in 2009 is presented below.
CHINA Hypermarkets Supermarkets Hard discount store
Number of store 156 268
Sales area (thousand sq.m) 1,230 61
Sales area 1 store (sq.m) 7,885 228
Investment 1 store (EUR) 3,172,748 91,590
Investment 1 store (USD) 4,550,355 131,359
Investment 1 store (IDR) 42,961,572,823 1,240,208,491
INDONESIA Hypermarkets Supermarkets Hard discount stores
Number of store 61 15
Sales area (thousand sq.m) 382 23
Sales area 1 store (sq.m) 6,262 1,533
Investment 1 store (EUR) 2,519,930 617,009
Investment 1 store (USD) 3,614,084 884,914
Investment 1 store (IDR) 34,121,898,543 8,354,803,430
Table 1 & 2: Calculation on Carrefour’s Investment, data taken from Carrefour’s 2009 Financial Report
Reviewing the scale of investment and the magnitude of the risk inherent in
hypermarket format as its core business, Carrefour’s investment strategy is very much
different compared to the scale of investment and risk of smaller modern retailers with
supermarket and convenience format.
The large difference in the characteristics of a hypermarket with a supermarket or
convenience store is reflected on the large scale of investment needed. Based on
analysis of Carrefour’s 2009 financial report, the initial investment of a hypermarket
reached more than thirty-five times the investment needed to build a hard discount store

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in China and four times the investment needed for development of a supermarket in
Indonesia.
INVESTMENT
PER POINT OF SALES
$5,000,000 $4,550,355
$4,500,000
$4,000,000 $3,614,084
Investment
$3,500,000 35x
$3,000,000 4x
$2,500,000
$2,000,000
$1,500,000
$884,914
$1,000,000
$500,000 $131,359
$-
China Indonesia
Store Format
Hypermarkets Supermarkets Hard discount stores
Chart 1: Investment per Point of Sales in China and Indonesia, taken from Carrefour’s 2009 Financial Report
nvestment Indonesia, R
Considering the high investment and risks for construction of a hypermarket, it is
mandatory that the Group take careful consideration of all aspects that will affect the
success and sustainability of the business The Group as a highly capital-intensive
business. high
company needs to avoid any business failure because it will have major impact on the
overall Group’s performance
performance.
Careful planning by including all aspect of business environment that far from the
aspects
impression of trial and error is absolutely necessary to ensure business success and
sustainability of the Group’s growth.
’s
This paper aims to analyze the challenging business environment faced by Carrefour in
its business activities in Asia As a region, Asia is very different from other areas such
Asia.
as in Europe mainly due to its high diversity that may not be obtained elsewhere.
The discussion will focus on exposure diversity aspects that affect the business
significantly. Focus of analysis is the country China, India and Indonesia, which
represent countries with high economic growth and high heterogeinity.
heterogeinity

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Retail Business Environment
Strategy &
Rivalry
Input Goal &
Demand
Carrefour Strategy
Conditions Conditions
Related &
Supporting ISSUE
Industries
The business environment can be understood in terms of four factors: Factor (Input)
Conditions, Context for Firm Strategy and Rivalry, Demand Conditions, and Related &
Supporting Industries.
Factor (Input) Condition: presence of high quality, specialized inputs available to firms,
for e.g.: human resources, capital resources, physical infrastructure, administrative
infrastructure, information infrastructure, scientific and technological infrastructure,
natural resources.
Context for Firm Strategy and Rivalry Context: a local context and rules that encourage
investment and sustained upgrading–e.g., intellectual property protection, meritocratic
incentive system across institutions, open and vigorous competition among locally
based rivals.
Demand Conditions: sophisticated and demanding local customer(s), local customer
needs that anticipate that elsewhere, unusual local demand in specialized segments
that can be served regionally and globally.
Related and Supporting Industries: access to capable, locally based suppliers and firms
in related fields, presence of clusters instead of isolated industries.
In order to show better the different environment between Asia and other regions, we
will take France into our comparison with the three Asian countries China, India, and
Indonesia.

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BUSINESS ENVIRONEMENT CHINA INDIA INDONESIA FRANCE
Key Indicators, 2009
Population (millions) 1,345.80 1,198.00 230 62.3
GDP (US$ billions) 4,909.00 1,236.00 539.4 2,675.90
GDP per capita (US$) 3,678 1,031 2,329 42,747
GDP (PPP) as share (%) of world total 12.52 5.06 1.38 3.03
Factor (Input) Condition, 2009
Infrastructure (rank 1 = best condition) 50 86 82 4
Venture capital availability (rank 1 = very easy) 27 31 9 32
Technological readiness (rank 1 = most ready) 78 86 91 12
Context for Firm Strategy and Rivalry, 2009
Market Size (rank 1 = largest market) 2 4 15 7
Intensity of local competition (rank 1 = intense) 19 30 54 17
Extent of market dominance (rank 1 = spread) 23 26 42 22
Demand Conditions, 2009
Buyer sophistication (rank 1 = based on 7 43 35
performance attributes) 26
Related and Supporting Industries, 2009
Local supplier quantity (rank 1 = very numerous) 19 7 43 17
Local supplier quality (rank 1 = very good) 54 60 61 10
Table 3: Data & rank are based on Global Competitiveness Report 2010-2011 by World Economic Forum
Two most important input conditions with biggest impacts to Carrefour’s business
strategy in emerging Asia are economical and sociocultural business environments.
Without intention to minimize the influence of other business environment factors such
as politics, technology, legal and ecology aspects, economical and sociocultural
business environments relates more directly to the potential for business growth and
consumer behavior as the main object of the retail business.
Economical
Business
Environment
Preferred
Carrefour
retailer
Sociocultural
Business
Environment

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Economical Business Environment
During the past 30 years China's economy has changed from a centrally planned
system that was largely closed to international trade to a more market-oriented that has
a rapidly growing private sector. A major component supporting China's rapid economic
growth has been exports growth.
India's diverse economy encompasses traditional village farming, modern agriculture,
handicrafts, a wide range of modern industries, and a multitude of services. The
economy has posted an average growth rate of more than 7% in the decade since
1997, reducing poverty by about 10 percentage points.
Indonesia is the largest national economy in Southeast Asia. It has a market-based
economy in which the government plays a significant role by owning more than 164
state-owned enterprises.
GDP Growth
Chart 2: GDP Growth Rate 2007-2011, taken from http://www.tradingeconomics.com
During 2007–Q1 2011, GDP growth in China varied between 6.2%-13%, in India
between 5.8%-9.6%, and in Indonesia between 4.08%-6.9%. Compared to that of
France which varied between -1.6%-0.8%, the average standard of living in those three
Asian countries is steadily increasing.
Distribution of Revenue
Household final consumption expenditure is the market value of all goods and services,
including durable products (such as cars, washing machines, and home computers),
purchased by households. It excludes purchases of dwellings but includes imputed rent
for owner-occupied dwellings.

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Chart 3: Household Final Consumption Expenditure 1967-2009, taken from http://www.tradingeconomics.com
Overall, the annual percentage growth of consumption was increasing in China and
India before declining after 2008 (along with that of France) due to 2008 global financial
crisis. Indonesia seemed not much affected by the crisis as the annual percentage
growth remained stable. The percentage of consumption per GDP of China was only
35% which was the lowest compared with other three countries. Meanwhile, the growth
rate of consumption of China was 9.7% as of Q1 2011 which was the highest in the
world. China still has extensive room for market growth.
Consumer Confidence
According to Wikipedia, consumer confidence is the degree of optimism that consumers
feel about the overall state of the economy and their personal financial situation.
Measures of average consumer confidence can be useful indicators of how much
consumers are likely to spend. In essence, if consumer confidence is higher, consumers
are making more purchases, boosting the economic expansion. On the other hand, if

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confidence is lower, consumers tend to save more than they spend, prompting the
contraction of the economy.
Chart 4: Consumer Confidence 2000-2011, taken from http://www.tradingeconomics.com
China’s consumer confidence was decreasing during 2010 but returned to increase due
to slowing inflation in December. India’s consumer confidence was steadily increasing
while Indonesia’s was declining, compared to decreasing in France.
Inflation
Chart 5: Inflation 2008-2011, taken from http://www.tradingeconomics.com
Inflation rate in China was steadily increasing while India was declining. Indonesia’s
inflation rate was also declining after increasing in 2010. France’s inflation rate
remained stable. Moderate inflation results in higher goods prices and will directly drive
up the sales amount of retail enterprises, thus, helps retail sales growth.

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Credit
Public credit registry coverage reports the number of individuals and firms listed in a
public credit registry with current information on repayment history, unpaid debts, or
credit outstanding. The number is expressed as a percentage of the adult population.
Chart 6: Public Credit Registry Coverage (% of Adults) 2006-2010, taken from http://www.tradingeconomics.com
As seen in above chart, percentage of adults that have credit was increasing in China
and India while declining in Indonesia, compared to increasing in France. This means
more people use credit as a method of payment excluding in Indonesia.
Chart 7: Domestic Credit to Private Sector (% of GDP), taken from http://www.tradingeconomics.com
During Q1 2011, inflation rates in China, India and Indonesia varied between 5%-9%,
compared to 2% of France. Due to inflation, level of prices was increasing which could
lead to decreasing purchase power. In order to cope with inflation, people could either
increase their credit as an alternative to afford product expense or decrease their
spending. It’s a good option that Carrefour consider credit sales to sustain sales.

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During 2009 in India, inflation rate and credit went linear, for exception in 2008.
Meaning, when inflation increases, credit also increases. In China, the pattern reversed.
Inflation increases, the credit declines. While in Indonesia, between inflation and credit
does not have a constant pattern.
Minimum Turnover of One PoS & Number of Target Market
Turnover, 2009 CHINA INDONESIA
Net Sales 2009 (in millions of euros) 3,473 812
Net Sales 2009 (in millions of USD) 4,981 1,165
Total sales area (thousand sq.m) 1,291 405
Sales area 1 hypermarket (sq.m) 7,885 6,262
Net Sales per hypermarket (USD) 30,420,670 18,007,120
GDP per capita (USD) per year 3,678 2,329
Final consumption expenditure 34% 61%
Distribution of revenue (USD) per year 1,251 1,421
No of ppl req for 1 hypmrkt (BEP 1 yr) 24,326 12,675
Population (millions) 1,346 230
Middle Class 23% 36%
Middle class population 309,534,000
Middle up class population 21,600,000
Number of possible hypermarkets 12,724 1,704
Tabel 2: data taken from Carrefour’s financial report & Global Competitiveness Report 2010-2011 by WEF
By considering number of middle class population around 309.5 million people in China
and 21.6 million people in Indonesia, there were about 12,724 potential market in China
and 1,704 potential market in Indonesia in 2009.
Sociocultural Environment
Products People Buy in Hypermarket
Product categories in the three Asian countries vary across regions and are highly
diversified. Localization is key and including local products in the product assortment is
highly important. The ranges of private label are mostly economy products due to low
acceptance among consumers. In east coast China consumers prefer fresh food, while
western and middle China prefer frozen fish. India consumers in urban areas prefer
food & apparel while those in rural areas buy more seeds, urea, FMCG goods and farm
produce. Indonesia consumers buy FMCG, electronics, instant noodles and fresh food.
Chart 8: Traditional Grocery Trade 2009 vs 2000, taken from Retail & Shopper Trends Asia Pacific 2010 by ielsen

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Based on survey by Nielsen (chart 8 & 9), proposition people buy grocery and FMCG
products in modern retail market is increasing compared to traditional market.
Chart 9: Total FMCG Growth in 2009, taken from Retail & Shopper Trends Asia Pacific 2010 by ielsen
The chart below shows that in each category of product, Indonesian consumers tend to
spend more than Chinese and Indian consumers. Consumer’s willingness in Indonesia
to buy meat is almost ten times higher than in China and India, and willingness to buy
bottled water is more than twice compared to China and India. This could lead to better
strategy of supply chain of products to make sure their availability in Carrefour
Indonesia.
Consumer's Willingness to Buy Products
70%
50%
30%
10%
-10% Dairy Feminine Bottled Carbonated Meat Mobile
Products Hygiene Water Drinks Phone
India Indonesia China

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Based on survey by Nielsen, Indonesia grocery food, personal care, home care, and
grocery,
pharmaceutical in 2009 increase by 5.9%, 5%, 8.5%, 6%, and 7.9% respectively
increased
compared to 2008. In addition electronic sales increased by 7.6%; while cell phone
addition,
delivery was 8 million, increased 48% compared to 2008, with 90% of the products sold
s
was under one million rupiah.
n
Chart 10: Indonesia Retail & Consumer Trend Oct 2009, by ielsen
: Trend-Oct
How People Do Shopping
In India and Indonesia, housewives make up more than 50% of all main grocery
shoppers compared to just 10% in China. This can indicate that in countries like India
dicate
and Indonesia purchase decision is driven by housewives which are more selective in
stocking their purchase basket. On the other hand, approximately 75% of shoppers in
mately
China are female maids which generally are more flexible and open to new products.
ible
Consumers in China and India are more focused on promotions compared to
Indonesian consumers. Thus, price cut or other promotion strategy can drive Chinese
and Indian consumers to purchase more
more.
Across the region shoppers tended to visit Hypermarkets less frequently during 2009 as
tended
they tried to limit their overall spending and use more convenient alternatives.
Chart 11: % of main shoppers 2009
: shoppers, Chart 12: % of shoppers focused on promotions, 2009
ocused promotions

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Chart 13: Frequency of visiting hypermarkets, 2009
Both in China and Indonesia, Carrefour targets on middle class people with
hypermarket format; while in India it targets on middle class professional, retailers, and
restaurants with cash-and-carry format.
In the three countries, location determines consumers’ willingness to visit the store.
Consumers prefer location within cities that close to where they live, have easy access,
and can be reached by foot, bike, or car. Nevertheless, typical Indian consumer does
not travel more than 6 km (3.75 miles) or 7 km to shop, and that few suburbanites own
cars.
Price and quality is an important factor for consumers in the three countries. Chinese
consumers perceive hypermarkets to offer better quality products than local player.
They spend more on luxury products, trade up across all product categories, will quickly
abandon products for newer alternatives, put more faith in brand names, and in the
same time they will always be smart shoppers regardless of price. Shopping for them is
fun rather than a task. Nevertheless, chinese consumers were fussier shoppers and
used multiple senses, especially chinese females which were more careful shoppers.
Chinese consumers usually visit hypermarket three times a week. Number of visitors
will increase during lunar new year (spring festival) with festive supplies and foods being
the popular categories.
Indian consumers perceive hypermarkets differently. Unlike western consumers, they
think that bigger store has higher prices; while smaller shops can offer lower prices
because their overheads are lower. In local markets, the dynamics of retail competition
exist everywhere. Indian consumers are highly diversified with variations in the
frequency with which people like to shop, variation in the kind of products that drive
people to the store, and variation in the importance of the retail assortment.
The Indian consumers are also noted for the high degree of value orientation (price
sensitive-right product pricing), family orientation, and values of nurturing, care and
affection. Even, luxury brands have to design a unique pricing strategy in order to get a
foothold in the Indian market.
Brand consciousness is increasing but varies across different product categories,
gender, etc. Brands with longer presence are more likely to be known and used, and
brands with identities that support family values tend to be popular and accepted easily
in the Indian market. In addition, product which communicate feelings and emotions gel
with the Indian consumers.

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One uniqueness of Indian consumers is they see traditional products along side modern
products. For example, hair oils and tooth powder existing with shampoos and
toothpaste.
Indonesian consumer is among the most optimistic in emerging markets. Indonesia’s
borrowing penetration is only 33%. This should drive demand further.
Despite Indonesia being a low-income country, foreign brands tend to be more popular,
especially for luxury products. There is a clear and consistent pattern in consumption of
branded goods as income levels improve. The lack of local expertise, unlike in the case
for China, may also put limited options for Indonesia’s consumers to choose. For luxury
items, such as auto, carbonated drinks and electronics, Indonesia is among the highest
in terms of preference towards foreign brands.
Interestingly, however, for personal care, the Indonesia consumers’ preference for
foreign brands was the lowest in the other emerging countries, which may suggest the
potential demand for local brands if Indonesia’s manufacturing sector is able to produce
domestically. Another evidence found is the low preference for foreign brands for
branded goods such as sport shoes and garments and watches.
Indonesia consumers usually visit hypermarket after working hour at weekdays and the
number of visitors doubles during weekend. They perceive hypermarket as a one stop
shopping and entertainment place to spend weekend with their family. During Idul Fitri
festive, sales usually doubles for food and clothes categories.
Engine of Development
Top five factors influencing Indian consumers to shop at hypermarkets are product
quality, assortment selection and newness, service, store ambience and convenience,
and price. Chinese consumers on the other hand are brand driven, but prefer middle
brand that offer low price and good quality. They also focus on promotions. Indonesian
consumers are also brand driven. They tend to see hypermarket as symbol of lifestyle.
CONCLUSION
Carrefour is the second largest global retailer worldwide. China, India, and Indonesia
are Asia’s growth engine which along with Latin America represent the Group’s third
priority after France, and other “G4” countries.
Considering the large scale of investment and the magnitude of risk inherent in
hypermarket format as its core business, it is mandatory that the Group take careful
consideration of all aspects that will affect the success and sustainability of the business
and avoid any business failure.
Due to high heterogeinity of Asian business environment that may not be obtained
elsewhere, the Group needs to focus its business activities on its key market (China,
India, and Indonesia) in order to optimize its knowledge of customers and avoid the
same mistake of its failure in some countries.

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REFERENCE
2010 Top 250 Global Retailers
http://www.stores.org/2010/Top-250-List
Carrefour’s 2009 Annual Activity and Sustainability Report
http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/RA/RA_Carrefour_PDF
_WEB_2009VE.pdf
Carrefour’s Strategic Orientations
http://www.carrefour.com/cdc/group/our-strategy/
Carrefour’s SG Premium Conference Dec 2010
http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Presentation_aux_anal
ystes/SGPREMIUM_3%20DEC_2010.pdf
Carrefour’s 2009 Financial Report
http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Assemblee_generale/R
FI_VGB_BAT_def_ve.pdf
Rotman’s Global Competitiveness
http://www.rotman.utoronto.ca/research/competitive.htm
WEF’s Global Competitiveness Report 2010-2011
http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf
Various economic indicators
http://www.tradingeconomics.com
Nielsen’s Retail and Shopper Trends Asia Pacific 2010
http://hk.nielsen.com/documents/APACRetailandShopperTrendsReport2010.pdf
Credit Suisse’s Emerging Consumer Survey 2011
https://www.credit-
suisse.com/news/doc/media_releases/consumer_survey_0701_small.pdf
Nielsen’s Indonesia Retail & Consumer Trend October 2009
Carrefour’s Shanghai Group
http://www.ln.edu.hk/mkt/staff/gcui/Carrefour.pdf
French retailer Carrefour opens first wholesale store in India
http://www.sify.com/finance/french-retailer-carrefour-opens-first-wholesale-store-in-india-
news-default-km4pasfgdig.html
Will Wal-Mart Succeed in India? Perhaps...But It Won't Be Easy
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4133
Consumer Behavior in India
http://www.google.co.id/url?sa=t&source=web&cd=2&ved=0CB8QFjAB&url=http%3A%2
F%2Fedms.matrade.gov.my%2Fdomdoc%2FReports.nsf%2F0%2F2F841B9F6D04D59
44825709000263441%2F%24File%2FPMSChennai05-
ConsumerBehavior_1.doc%3FOpenElement&ei=-O_PTfe-
C4aJrAfTjvjCCg&usg=AFQjCNFEiuzeyQLtDTmXTqRsCogn--jTYg
New Insights into Modern India Shopper Behavior and Implications for Global Retailers and
Local Policymakers
http://www.google.co.id/url?sa=t&source=web&cd=1&ved=0CBkQFjAA&url=http%3A%2
F%2Fwww.cci.som.yale.edu%2Fsites%2Fcci.som.yale.edu%2Ffiles%2FIndian%2520co
nsumer%2520survey%2520-
arpita_final%2520100702.ppt&ei=mvHPTZ_4BpCsrAeU3vnCCg&usg=AFQjCNGenR2C
Gb-Maree1DoVLerBtPf4TQ
Credit Suisse’s Indonesia Consumer Survey 2011
http://doc.research-and-
analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=8
68401141&serialid=bOXyWRGos2LStSMDEdWMyrGkXijx4xcRY2neqvmX7Ls%3D
Exchange rates http://www.exchange-rates.org/Rate/EUR/USD/12-31-2009