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Running head: CARREFOURS AND BEST BUYS CHINESE ADVENTURE

Case 3: Carrefours and Best Buys Chinese Adventures


GRET 6334
University of Houston
Corrina Rodarte
Lauran Stout-Coats
Ankit Wadhaw

CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

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CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

Case Summary
To succeed in the Chinese retail market hasnt been an easy task for major
western retailers. Many have entered with high hopes and exited shortly after. Carrefour,
a French supermarket chain in China along with Wal-Mart, was charged with bait and
switch tactics. In 2011 Chinas National Development and Reform Commission accused
the two companies of false promotions and advertisement. Global Times quoted an
analyst as saying, The case may also indicate the level of competition in the booming
retail industry in China, where foreign competitors are pushed to such malpractices in
their bids to grab larger market shares (Shengxia 2011). The difficulty lies in the fact
that China has too many suppliers and not enough major retailers causing an imbalance of
power between the two. Some merchants were making between 10 and 20 percent of
sales commission when they shouldve only made 4 percent. China's consumer price
index, a key gauge of inflation, rose by 3.3 percent in 2010 from a year earlier, surpassing
the annual target of 3 percent, while food prices increased 7.2 percent over the same
period (Shengxia 2011). Many view the independence given to Chinese retail managers
as a partial cause in attracting cost-conscious customers in China. Carrefour, the secondlargest retailer by revenue in the world decided to reduce regional and individual store
manager power to aid in rebuilding trust while also closing numerous underperforming
stores.
In 2006 Best Buy bought a majority stake in Jiangsu Five Star Appliance, a local
retailer. The big-box retail store is the worlds largest consumer electronic retailer. Being
virtually unknown in China, using a U.S. based marketing strategy of high customer
service accompanied by higher price points didnt sit well with locals. Competitors such

CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

as Gome and Suning who are homegrown in China purchase consignment goods and pay
suppliers only after goods are sold to keep low prices. Different from the U.S. electronic
market, China has a large number of small electronic retailers. Store locations are
positioned so close to each other that as many as three competitors could be next-door
neighbors. This alone makes it hard to have a competitive advantage in the electronic
industry. A strategy used by Chinese retailers is to require their suppliers to provide sales
personnel for each location. According to Torsten Stocker, a retail analyst at Monitor
Group, "Best Buy believed it could grab market share in China by offering high-quality
service and a good shopping experience. But what determines Chinese consumers
purchasing decision is price, not service. Best Buys store strategy was also at odds with
local habits. Chinese retailers generally divide up electronics and other large-ticket items
by leading brands, rather than category, supported by sales staff working for the
manufacturers rather than for the retailer" (Riley 2013). Best Buy reconsidered its
international operations and closed all nine of its namesake locations in 2011.

Key Issues
Developing the right strategy to gain more market share of the retail industry in
China is the overall goal and major key issue discussed. Carrefour in the first nine months
of 2015 had a turnover of 5.7 percent; the company occupied 9.9 percent in 2014 of the
market. At the time of its exit, Best Buy had only 1.8 percent of the market share.
Decentralized Management

Carrefour gave their stores a lot of power; local store managers and department
heads were responsible for two main aspects. The management power of
commodity. This included product selection, pricing, promotions, negotiations,

CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

ordering, etc. The other aspect is the administrative power of personnel, which
includes staffing and transferring. With this type of control, managers were able to
mislead customers by falsifying price tags resulting in overcharging locals as well
as force suppliers to accept low prices due to bidding wars to stay afloat among
the stiff competition.
Competitive Advantage

Best Buys price competitive strategy was threatened by online retailing. Their
competitors who had little overhead had a large presence on and offline. Making
it difficult to compete off price alone. Best Buys non-commission strategy was
accompanied by a fixed-price policy. There was no opportunity for sales
associates to bargain products whereas Chinese retailers have a more adjustable
and aggressive bargaining strategy where they lowered prices if they could ensure
a sale. In regards to Carrefour, with the rise of online marketing and the
popularity of smaller store formats the hypermarket model no longer fits the
customers routine. E-commerce sites run by Jingdong, Alibaba and Tencent
now carry many of the same items as traditional hypermarkets but for far less.
What's more, most of those online names can often deliver goods on the same day,
and a few are even trailing services that deliver in two hours or less (Riley 2013).

Brand Image

One of the biggest challenges faced by Best buy was the fact that they lacked
brand equity. The dual brand strategy with Five Star didnt benefit them in the
end. Best Buy had very little brand recognition and also brand misconception. Not
changing the company name, but converting it to its phonetic equivalent:

CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

"baisimai", which means to "buy after thinking 100 times" gave Chinese
consumers a negative perception.
Standardized Market Strategy

Best Buy failed to inform their middle-class target market of the reason why their
products had premium pricing. As mentioned before, Best Buy decided to own
and manage the operations of every store instead of renting out locations from
manufacturers like most Chinese retailers. This makes manufacturers responsible
for inventory management and employee expenses. The U.S. store warranty
model was also used in China when customers were more familiar with
manufacturer warranties that cost less. Once changes were made to the sales
model to suit local conditions, then-Asia President David Deno said the retailer's
moves in China were stupid and arrogant According to Kal Patel, Deno's
successor, the store's intentions in replicating its U.S. model was to change the
industry in China. "What we learned, very crucially, is that in China you cannot
make revolutionary change. You have to work at the pace of the Chinese
consumer," he added later (Sharma 2015).

Supplier Relations

Operational disadvantages got the best of Best Buy. While local competitors were
charging rental fees from suppliers and received a percentage of sales, Best Buy
used its own capital to purchase from suppliers. Location played a major factor
also. Best Buy stores weren't located properly nor stocked to meet the needs of the
customers.

CARREFOURSS AND BEST BUYS CHINESE ADVENTURES

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