Thesis on "Business International - Wal-Mart vs. Carrefour"

Thesis 8 pages (2461 words) Sources: 20 Style: Harvard

[EXCERPT] . . . .

Business International - Wal-Mart vs. Carrefour around the Globe

The forces of globalization and market liberalization have made it possible for organizations to spread their wings beyond territorial boundaries, allowing them to operate globally. But in this dynamic and highly competitive environment, the ultimate success depends on the abilities of the managerial teams in developing and implementing the most suitable strategies relative to customers, products and services, employees, the technologies employed, shareholders and a multitude of other forces. Two relevant examples of multinationals which triumphed in this context are offered by retail giants Wal-Mart and Carrefour. This paper aims to look at their global operations, while also offering information on the organizational background and the competition between the two forces. The problem identified is that of the failures registered by the number one American retailer in Europe. Recommendations will be offered on how Wal-Mart could address this issue. The paper will come to an end with a section on concluding remarks.

2. Background on the Companies

Wal-Mart

Wal-Mart is the retail leader in the United States; the company was founded in 1962 in Rogers, Arkansas by Sam Walton, who placed an increased focus on offering his consumers products at low prices. Much of his success has been due to his emphasis on establishing fruitful relations with the staff members. Several points on Walton's agenda are still recurrent in the strategic approach forwarded by today's managerial team.

The motto of the organization is that of saving people's money in order for them to live better. Wal-Mart operates in 13 countries and serves more than 176 million customers. Wal-Mart continues to thrive in these difficult times of financial challenges, despite the ongoing failures of other economic agents. This only goes to show once more the strong abilities of the managerial team, but also the independent features of the retail industry, which generates demand regardless of the cycle of the national and international economy. Wal-Mart ended fiscal year 2007 with revenues of $374.5 billion, setting a new record in the retail industry. Relative to fiscal year 2006, the revenue increase has been of 8.6% points (Wal-Mart 2008 Annual Report).

Wal-Mart is also the largest employer in the United States and Mexico, after the governments; it is also one of the largest employers in Canada. Additionally, the retail chain's investors have enjoyed an amazing return on their investments, proving once again that the corporation is worth its leading position in the Fortune 500. Their success has however attracted numerous enemies, the most prolific of them being represented by democratic politicians (mostly those who try to win electorate by enforcing unions), union leaders, "left-wing pundits; a handful of right-wing pundits, concerned for localism; and arbiters of taste" (Nordlinger, 2004).

Throughout its existence, Wal-Mart has been subjected to wide criticism for its policies in ensuring the lowest price. They have been accused of not covering the fringe benefits of their employees, requesting them to put in extra hours without additional pay, or offering among the lowest salaries in the market. The average Wal-Mart associate is paid $7.5 per hour, out of which the has to pay his own medical coverage; this is rather expensive and as a result, only 2 out of 5 employees have this coverage. Additionally, some criticism also raised in the treatment towards women, suggesting discriminatory practices (Featherstone, 2002).

Wal-Mart currently operates 3,600 stores worldwide and the wholly owned operations are encountered in Argentina, Brazil, Canada, Puerto Rico and England. The total number of worldwide employees raises up to 1.8 million, and the annual average of the income generated by these divisions is of an estimated $90 billion. In 2008, a strong 20.1% of the multinational's revenues were generated by the sales accomplished by the international divisions (Website of the Wal-Mart Stores, 2009). In 2009, the numbers are expected to grow to at least 25%. In choosing their locations, the Wal-Mart officials used two criteria - aiding the people in the region by helping them save money, and also, ensuring sufficient levels of profitability for the company (40-29 TvCom, 2009).

Carrefour

Carrefour S.A. was founded in 1957 in Levallois-Perret, France. The company sells consumer goods through an extensive network spread throughout the entire world. In 2007, the organization employed an estimated 461,260 individuals, and registered a net profit of nearly $2 billion and a gross revenue of more than $82 billion. 54% of the entire revenues are generated by the stores outside France. Careffour is the largest retailer in Europe and the second largest retailer worldwide, with stores operating in no less than 30 countries, throughout Europe, Asia and America. Within Europe, Carrefour operates 624 hypermarkets, out of which 31 are franchises, and 2,459 supermarkets, out of which 898 are franchises. In Asia, the multinational organization runs 238 wholly owned hypermarkets. Finally, in America, the France-based multinational operates through 255 wholly owned hypermarkets and 141 wholly owned supermarkets. The total number of Carrefour stores worldwide reaches the astonishing 14,991 (Carrefour 2007 Annual Report). The organization has been operating globally for nearly four decades now (Incandela, Mclaughlin and Smith-Shi, 1999) and their plans for further development are still ongoing. In Egypt for instance, the company intends to open 15 new stores throughout the following 15 years (Owen, 2001).

Just like Wal-Mart, Carrefour is following a constantly ascendant trend, with sales increasing from one year to the next one. But just like its American competitor, the French retail giant has been subjected to intense criticism. A story which captured the attention of the local media for weeks has been that of a three-year-old Indonesian boy, who was instantly killed when a metal rack fell on him. The company was accused of being reckless and then not meeting the family to settle the case (Detik News). Other accusations revolved around the implementation of false advertising campaigns or the operating of sweatshops (Peuples Solidaires, 2005).

3. Face-to-Face

For 2008, Fortune 500 listed Wal-Mart as the number one company, stating that its efforts throughout the year had been focused on improving its relationship with the customers and the employees. This reveals that the managerial team has paid attention to the criticism made and is trying to improve its agenda. Carrefour was ranked number 33 in the same Fortune 500 list for 2008. While Wal-Mart maintained its leading position comparative to the previous year, Carrefour was downgraded two positions (CNN Money, 2009).

Each of the two companies competes against a wide number of retailers in both national and international contexts. The Hoover Website however notes that while Carrefour encounters the most competition from Auchan, Casino Guichard and E. Leclerc (all based in France), Wal-Mart's number one rival is in fact Carrefour, followed by United States-based Costco Wholesale and Target (Hoovers, 2009).

The retail industry in which the two giants operate depends directly on their ability to implement low prices and generate large volume sales, as well as their strength in developing strong distribution networks. Throughout the overall industry, 2008 ended with a 3% decrease in sales; 2009 is expected to generate a 2% reduction in sales, but numbers are expected to pick up starting with 2010, when sales will increase by 3%. By 2013, the growth is expected to reach 4% (Hoovers, 2009).

Wal-Mart first entered Europe in 1997, through the secret purchases of 21 warehouses from the retailer GermanWertkauf GmbH; the following year, it purchased an additional 74 warehouses from retailer Spar Handels. Its threat upon the European chains was not however taken seriously until its acquisition of British ASDA in 1999. At that time, Carrefour (fifth largest retailer in Europe) and its fierce rival Promodes (seventh largest retail chian in Europe), decided to take action. Carrefour bought Promodes and decided to become the second largest retailer in the world. The acquisition was investigated by the European Commission, who ruled in favour of it and the new Carrefour overthrew German Metro, becoming as such the largest chain in Europe. Despite the fact that Wal-Mart was used to dealing with strong competitors, they found Carrefour extremely nimble. One of Wal-Mart's retail executives who observed the actions of Carrefour stated that they were "just relentless, the toughest competitor I've ever seen anywhere" (Holtream and Devinney, 2000).

Carrefour has also recognized the power of the American competitor and implemented various strategies in response. They for instance remodelled their store design, even further reduced the already low prices, or relocated their stores. The strategies of international expansion were however different - while Wal-Mart was more cautious, Carrefour was more daring. By 1998, international sales for Wal-Mart accounted for only 9%, whereas Carrefour's international operations were generating 44% of its total sales (Holtream and Devinney, 2000).

4. The Problem

Despite its intense efforts and promising start, the operations in Europe do not generate the expected success for Wal-Mart. The company was even forced to close down its store in Germany. This quote from an article in the Business Week best reveals Wal-Mart's difficulties in Europe: "It's peak shopping time on a sunny Friday… READ MORE

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