MANDATORY FRONT PAGE

Company: Metro Cash & Carry

Group Number: 12

Group Members:

Student Name: Ilja Stolzenbach Student Number: 2626341

Student Name: Berker Ildokuz Student Number: 2643074
Student Name: Jannik Graschus Student Number: 2644553
Student Name: Alexander Moissidis Student Number: 2523045
Table of contents
EXECUTIVE SUMMARY ..................................................................................................................................... 2
HISTORY METRO CASH & CARRY ...................................................................................................................... 3
WHY METRO CASH & CARRY ............................................................................................................................ 3
COMPANY STRUCTURE..................................................................................................................................... 4
EXPANDING INTERNATIONALLY SINCE THE ‘60S ............................................................................................... 5
ADOPTING A NEW BUSINESS MODEL ............................................................................................................... 7
A NEW BRANCH OF BUSINESS .......................................................................................................................... 8
FROM ARBITRAGE TO ADAPTATION, AGGREGATION, AND ARBITRAGE (AAA) ................................................. 9
FURTHER EXPANSION ..................................................................................................................................... 10
SWOT ANALYSIS .................................................................................................................................................. 10
Strengths ..................................................................................................................................................... 10
Weaknesses ................................................................................................................................................. 11
Opportunities .............................................................................................................................................. 11
Threats ........................................................................................................................................................ 11
Analysis ....................................................................................................................................................... 12
COUNTRY PORTFOLIO ANALYSIS .............................................................................................................................. 12
CULTURAL ADMINISTRATIVE GEOGRAPHIC ECONOMIC DISTANCE FRAMEWORK................................................................ 13
United Kingdom .......................................................................................................................................... 14
Myanmar ..................................................................................................................................................... 15
South Korea (Republic of Korea)................................................................................................................. 15
BUSINESS OPPORTUNITIES ............................................................................................................................. 16
RECOMMENDATION FOR EXPANSION TO SOUTH KOREA ............................................................................... 17
ENTERING AS A WHOLLY OWNED SUBSIDIARY ............................................................................................... 17
IMPLICATIONS FOR THE STAKEHOLDERS ........................................................................................................ 18
REFERENCES ................................................................................................................................................... 20
ATTACHMENT 1 CAGE ANALYSIS .................................................................................................................... 23

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Executive Summary

Metro Cash & Carry is a business–to–business working wholesale retailer company which
aims to serve its professional customers and retailers with high quality products amongst with
favourable prices. While doing that, the company also aims to maintain a leadership position
especially in Europe and Asia. This paper aims to determine their current international
strategy and by applying some analysis and tests to select a new expansion opportunity and
find a related entry mode.
In 1968, Metro Cash & Carry decided to expand internationally and according to that
the company started their internationalization process by opening a Makro store in the
Nederlands. Sequentially Metro opened stores in more than 20 different countries. After
several business model adaptations and strategy changes related with AAA Framework,
Metro decided to focus on delivery instead of focusing on physical expansion. So, the main
goal in this report is to decide on the best country to expand following the chosen strategy. By
using the SWOT analysis, opportunities are identified, and possible threats are taking into
consideration by deciding the entry mode.
Therefore, considering the fact that Metro wants to focus on Europe and Asia, we
analysed three different countries to find the best country which fits into Metro’s international
strategy. Those countries were United Kingdom, South Korea and Myanmar. After applying
the Country Portfolio Analysis and CAGE framework (Cultural, Administrative, Geographic
and Economic distances) in combination with the business opportunities that are present in
each, South Korea is the best fit country for Metro to expand to. In South Korea, Metro Cash
& Carry would have the opportunity to focus on online sales and delivery systems especially
with using the advantage of Classic Fine Foods acquisition. Moreover, by expanding to South
Korea with the company’s acquired knowledge on food delivery expertise, Metro has a great
potential to leverage their current assets. On the other hand, regarding to our analysis wholly
owned subsidiary is the entry model for Metro Cash & Carry to use. It suits Metro’s business
model and international strategy best.

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History Metro Cash & Carry

The Metro Cash & Carry as we know it today, was founded 1964 in Mühlheim an der
Ruhr in Germany. The particular offer of self-service purchase (cash-and-carry concept)
combined with a large variety of food items was key of their early success. These new types
of supermarkets were taken over from the United States where they were first established in
the 1950ies. Other well-known competitions of that time were Karl and Theo Albrecht who
are the founders of the Aldi Group. During the next years Metro opened several stores in
Germany and already expanded to another country by 1968 in cooperation with a local
company in the Netherlands. In the early 1970ies Metro was active in most Mediterranean
countries and by 1980 they had over a hundred stores in Western Europe. To manage this
network of stores Metro established the most modern computerized inventory management
(Metro AG, 2018). A second wave of expansion took place during the 1990ies with the fall of
the iron curtain. New stores were opened in many east European countries. Metro also started
to operate outside Europe by opening stores in Turkey, Morocco, Russia and China, and
intensified their commitment in Asia with Japan, Vietnam and India. Today Metro operates
more than 764 stores in 25 countries [1] in Europe, Africa and Asia with over 150.000
employees and profits of almost 30 billion euros (Makro Nederland, 2018).

Why Metro Cash & Carry

The history of Metro Cash & Carry, coming from a ‘one size fits all’ concept that
deliberately spread across the world has a few aspects that make it interesting for further
expansion. First of all, the horeca sector and options for suppliers were very different than
nowadays. Where it used to be convenient to buy everything in one place, buying online from
multiple suppliers is just as easy these days. Also, Metro sells horeca products, which also
consists of a broad line of food products. Food differs greatly between different countries, and
even within countries. Operating worldwide could be quite a challenge because of this. The
ways in which such a big agglomerate as Metro is trying to cope with these issues show very
well how they could expand their business further. This will be shown by providing an
overview of the company and its path of internationalization. After, we will look into the
ways they coped with the challenges they have encountered while internationalizing and what
their current international strategy is. With this knowledge in mind we will apply some
models to select a new opportunity for expansion that is in line with their current international

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strategy and chose the corresponding entry mode. Last, the implications for the stakeholders
will be discussed.

Company structure
The Metro Cash & Carry is just one of Metro Group’s departments. The Metro Group
AG consists of a consumer electronics department (Mediamarkt, Saturn), and the wholesale
department Cash & Carry (see figure 1). It used to have a retail clothing branch too (Galeria
Kaufhof) but this one was sold to Hudson’s Bay in 2015 (Metro Group, 2015).

Figure 1 Overview entire Metro Group structure (Metro Group Results presentation Q1 2014/15)

There has actually been much criticism in the past years for the lack of focus and
fragmented nature of the Metro Group. To enable faster growth in specific merchandise areas
the company demerged CE Company (focusing on consumer electronics) (Yoni van
Looveren, 2017). This was to create two strong and focused companies (Metro AG, 2017).
Metro Group now consists of 4 different sales lines; Metro Cash & Carry (Metro C&C), Food
Delivery Specialists (such as Classic Fine Foods), Metro Accelerator (acquired tech start-ups)
and Real which is a hypermarket. An overview can be found in figure 2.
We want to focus special attention on Metro C&C and the Food Delivery Specialist (FDS).
Metro Group has acquired multiple FDS companies in order to increase their profits from
delivery services, and to focus on innovative online ordering (Metro Condensed Report,
2017).

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Figure 2 Overview Metro AG ( Metro AG , Clear Structure. Strong Profile, 2018)

Expanding internationally since the ‘60s

The Metro Cash & Carry (Metro C&C) started their expansion back in the 1960ies.
After being founded in 1964, Beisheim and his partners expanded cash and carry outlets
beyond German borders as Metro joined a Dutch conglomerate (Steenkolen
Handelsvereeniging) and established a company in Netherlands in 1968 under the name
MAKRO (Metro Cash & Carry, 2018).
They started out by targeting countries with comparable consumer bases and similar
distribution systems, such and as Belgium and France (Kaynak, Hee Lee & Dawson, 2004).
Step by step they made the geographical leap towards countries that are further away, in
kilometers as well culture. An overview of their international expansion is shown in figure 3
below.

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 Table 1 Overseas Market Entry and Expansion Phases of Metro C&C (Metro Geschaftsbericht (2003), p.14)

As of today, they have established themselves early on as a global player with more
than 764 stores spread over 25 countries (Metro Cash & Carry, 2018).
Between the years 1997 and 2001 the German retail market had showed to be very
competitive which led the company to focus more on foreign markets and they pursued their
growth further in Asia. After that, the international sales increased significantly, and 5 percent
of the group business jumped to 45 percent (Metro AG, 2018). So, the company became
Europe’s largest retail group around that year. Something interesting to see is that they started
opening stores in China in 1996 in between opening stores in Eastern Europe. Olaf Koch,
CEO of the Metro Group states this move was to be a pioneer among international retail
groups and enter because of the economic growth as well transformation of the distribution
and trade sector (Tuo Yannan, 2013). What could have made Metro more successful than
Carrefour and Walmart for example, is that they focus on business-to-business markets and

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not individual consumers.
However, the international expansion has not only consisted of successes. Markets and
customers changed, and competition grew. Also given the large and diverse customer base
worldwide the ‘one size fits all’ and standardized approach was not working anymore. Metro
is trying to cope with these challenges by 1) adopting a new business model (for more local
adaptation) 2) focus on innovation, more specifically tap into the market of Food Delivery
Services.

Adopting a new business model

Metro started out with a ‘one size fits all’ concept and everything was standardized,
from products to store formats. It used to be a single point of purchase and provide self-
service sourcing for businesses in the horeca industry (Kaynak, Hee Lee & Dawson, 2004).
Back in the days this was a new way to make sure your stock levels were optimized and that
transaction costs were lower as you could hop in, buy everything, and bring it to your
business directly (Kaynak et al., 2004). Also, during these times they were serving countries
with relatively similar characteristics and customer bases. A standardized approach could be
efficient in that case, but with further global expansion the business and operational model
became less and less relevant.
As Pieter Boone the COO of Metro has also pointed out another issue that pushed
them to change their business and operational model was that “the behaviour and expectations
of customers have changed dramatically over the last few years” (Handelsblatt, 2018). So,
changes in their ‘one size fits all’ business model have occurred. On their website they point
out 4 pillars of their new business model 1) customer orientation 2) a flexible store format 3)
focus on their own brands (including private labels) and last 4) social responsibility. Together
with a new campaign that carries the slogan “your business is our business” (Gondola, 2018)
the product-focused sales are exchanged for a new image “being a customer-and-service-
oriented system partner” (Metrogroup Condensed Report 2015/2016). From these pillars an
international strategy is implicitly shown: adapt to the local conditions and customer needs,
but also differentiating themselves more from competition by selling their own brands.
Flexible store formats give the opportunity to adapt to specific local conditions (target
groups, market opportunities etc.), which fits the adaptation strategy of Ghemawat (2007)
very well. An example is how they are opening up smaller sized stores in India to scale up
quicker by being more profitable. They are getting rid of the bigger stores and it seems to

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have paid off as Metro C&C India has reported an increase of 16% of their sales for the
financial year 2017 (Jain Varun, 2018). Another part of their adaptation strategy is to be fully
customer oriented. The goal is to compete by serving customers better in every way possible -
delivery, product range, and store experience and relevance. Where the central organization
used to outline plans and the country (and local) level executed, roles have now turned. This
shows how they try to balance adaptation with aggregation. As they provide a lot of freedom
to regional and country offices. Local divisions create their own Value Creation Plans which
give them the autonomy to adapt to local conditions (Metro Condensed report 2016/2017).
These forms of flexibility and decentralization of the organization are in order to make Metro
C&C cater its customers better (Forbes, 2016). In the same line Olaf Koch, CEO of Metro
AG, mentioned in an interview with KPMG that they want to give local teams the authority to
have tailored solutions for their customers (KPMG, 2017). Actually, all their pillars focus on
adaptation and aggregation. More relevance through development of their own brands,
freedom for local offices to create their own Value Plans and store formats, as well more
attention to local social responsibility (for employees as well the environment).

A new branch of business

An important aspect that Metro is trying to leverage is innovation. An important
aspect of the beforementioned Value Creation at local level is dependent on the right
distribution and delivery systems. Customers want to receive their orders fast, easy and
increasingly online. Response time need to be decreased and proximity to customers need to
increase, especially when Metro C&C (Supplychaindigital, 2018). It is worth looking at this
delivery systems expansion more closely as it is now also in the core strategy in all the
countries that Metro C&C operates in. Improving delivery systems has now even been more
of a focus than further international expansion (Handelsblatt, 2018). Metro has made a first
step into focusing on the business of Food Delivery Services (FDS) by carving out delivery
hubs in the bigger
stores and opening logistics hubs (Handelsblatt, 2018). As it seems they are looking for in-
place and topnotch systems as well know-how to improve their delivery systems.
Going back to the challenges they have encountered, it could be said that their ‘one
size fits all’ and overly standardized model made it difficult to 1) create local relevance and 2)
to adjust to changing customer demands. In the past years they realized that their business
model as it was, was not relevant anymore. They have adapted by putting more focus on

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leveraging (cross) national differences and delegating decision-making power to regional and
country offices to increase local relevance. They are transitioning from a product focused
company to a more consumer focused company. Also, they try to focus on a different branch
of business: delivery systems. The delivery business has shown to be profitable with their
sales in the financial year of 2016/2017 amounting almost 5 billion euros, accounting for 16%
of Metro C&C sales (Metro AG, 2017).

From arbitrage to adaptation, aggregation, and arbitrage (AAA)

What we see is that Metro has actually expanded itself on the Adaptation,
Aggregation, and Arbitrage (AAA) spectrum. It started out as a company focused on
arbitrage, they had a centralized approach where the Dusseldorf headquarters told the regional
and country offices what activities to undertake and how to do this. It was a very standardized
and vertical approach. However, a change has been made and they have moved towards an
adaptation and aggregation strategy with their new business model. They want to focus on the
customer and adapt to local circumstances. Local offices get to create and execute their own
Value Creation Plans and look what store format, products and business would suit their local
conditions best. Also, aggregation is shown in how they have their own brands and line of
products that they try to sell in different countries by advertising it – the same goes for their
delivery services. Some signs of arbitrage are still in place as they focus on local sourcing to
be cost-efficient – but also to be locally relevant. They also use trading offices to bulk the
sourcing of specific products – Valencia has an office in charge of sourcing fruits and
vegetables when the Boston office is sourcing sea food (Metro C&C, 2018). Some examples
are the Polish market where they are closing stores and focusing on delivery systems as it was
more suitable for the market there. In India they got the freedom to open up smaller stores that
would suit
the urban areas better (Jain Varun, 2018) and they have used these methods to increase their
profits. In Spain for example, they opened up ‘City Centre’ stores of which the one in Madrid
has the second highest sales per square meter of the whole company worldwide (Retail
Analysis, 2016).
Metro is used to work with joint-ventures and partnerships to enter new markets, since
they already had experience with this in the Netherlands. Now they are trying to enter through
wholly owned subsidiaries and acquisition of companies that suit their innovation strategy
(Metro Condensed Report, 2017). This would allow for more flexibility to adjust to local

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conditions. This could also explain why they are acquiring Food Delivery Service companies,
as well other start-ups, instead of starting partnerships. Not only did they change their strategy
in the organizational structure, but also in the market strategy where they want to focus not
only on wholesale stores for business-2-business, but also to bolster the market for the
delivery of groceries (Florian Kolf, 2018). They have shifted from a focus on products to
customers and from a focus on expansion to a focus on delivery systems to keep up with
competitors.

Further expansion
To explore feasible options for expansion we will do a SWOT analysis. However,
above all, we want to provide an option that suits the Metro international strategy. As they
now want to focus more on the business of delivery systems, instead of ‘directionless’
expansion, we would look for markets that provide opportunities in such. Beside this we keep
in mind that they want to focus on their core markets, being Europe because of its roots and
proximity, and Asia for its growth potential. Within these parameters we are looking for
companies that are especially interesting for Food Delivery Services, but also keep the size of
the market (Country Portfolio Analysis) and proximity of the market (Cultural,
Administrative, Geographical, Economic) into consideration.

SWOT analysis

An effective method to structure the current situation of a company or a sector in

terms of internal and external critical elements is a SWOT Analysis. SWOT stands for
Strengths, Weaknesses, Opportunities and Threats. It can be used as instrument to identify
potential areas, by looking at their current position in the market, develop strategies, and
make decisions. This analysis can provide a good framework to identify the right
opportunities, in this case for expansion, for the company.

Strengths
Metro Group’s first strength is their leading positioning from other competitors due to
the fact that they are one of the top eight retail chain in the world and one of the county’s
leader in the hypermarket business (Metro Group, 2018). A second strength of the Metro
Group is their adaptation strategy that are manifest in flexible store formats, customer focus,
decision-making power at regional and country level, and local Value Creation Plans (Metro

10
Group, 2015). Another strength is their expertise and network in Food Delivery Services by
acquiring some top-notch Food Delivery Service companies. One that is interesting in
particular is the Classic Fine Foods Company that has an established network in Asia and has
experience in delivering high-end foods there. Another strength is how they try to focus more
on online shopping and delivery as not everyone has the time anymore to go to the stores, do
the purchases and drive it back to their business.

Weaknesses
Metro Cash & Carry does not deliver the lowest prices for most goods, because of the
high operating costs they have. All stores across 25 countries, and in a lot of different cities,
which require stores, distribution and the right levels of stock to operate. Low wages of the
operating personnel could cause a low motivation in the shops and result in a decrease of job
performances. Metro C&C is a large company that has many levels of management and
operates in different markets. They try to adapt more to local markets which could increase
costs as less can be done from a centralized and more arbitrage related strategy. Change might
be slow, and operating costs might be high.

Opportunities
“Opportunities are advantages current or future conditions, which support the demand
for company’s products or services and contribute the increase of organization’s competitive
position” (Fleisher & Bensoussan, 2015). These opportunities must be identified in order to
choose the right market to expand to. As Metro is focusing more on delivery systems and
acquiring companies in that branch they are gathering a lot of expertise as well networks.
Going to markets where there are opportunities in the Food Delivery Services could be very
beneficial. A way to innovative their services, can also be the presence of an online shop.
People can order online, and you can leverage your delivery systems to, for example, provide
same day delivery services. Even if the price is not the lowest, the service might still be very
appealing to the customers.

Threats
Threats are obstacles arising from the external evolution and negatively influence of
factors, representing situations or events which may affect adversely, in significant measure,
field capacity to fully achieve the targets set, resulting in reduced performances (Hill &
Westbrook, 1997). One very big threat could be the fact that Metro is not necessarily the

11
cheapest and very large and thus rigid in change. It is not that much more difficult for horeca
businesses these days to order from ten different suppliers. A need for a one stop shop such as
Metro, which might even be more expensive and of less quality than other suppliers, would
cease to exist.

Analysis
From the SWOT analysis an opportunity in Food Delivery Services would be the best
case for expansion. It would strengthen their position in this branch of business as their
current stores might not be relevant anymore in the future. However, ordering online and
delivery is increasingly popular and has potential. With their recent acquisitions of Food
Delivery Specialists, it would also be good to leverage this expertise and network. When they
focus on selling online and delivering, costs are also kept low and less personnel is needed as
a warehouse with their products would do (instead of stores that customers visit). This,
together with the fact that Metro wants to focus on Europe and Asia, led us to look for
business opportunities in countries in these continents.
The result is the United Kingdom, South Korea, and Myanmar. We will first elaborate on
CPA and CAGE analysis and then also take the business opportunities into account in order to
decide for expansion based on both aspects.

Country Portfolio Analysis

The Country Portfolio Analysis is a technique that can be used to determine where a
company should compete based on the largest potential for sales (Ghemawat, 2001). It is
based on 1) national GDP, 2) levels of consumer wealth and 3) people’s consumption
(Ghemawat, 2001). From this analysis a clear ranking can be made in a preference for the
United Kingdom, followed by South Korea and Myanmar. This model does have some
limitations, namely that the percentage of the budget that Koreans spend on food is almost
50% (Hankyoreh, 17 December 2015) and the fact that the actual buying power in Myanmar
is mostly done by tourists (not locals) that consume in the horeca sector.

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Cultural Administrative Geographic Economic distance framework

The CAGE distance framework consists of four different aspects, Cultural,

Administrative, Geographical and Economic (Ghemawat, 2001). It can be used as an
analytical tool for managers to make decisions and can be complementary to the Country
Portfolio Analysis (CPA). Where the CPA only focuses on potential for sales, the CAGE
focuses on costs and risks of expanding to a new market (Ghemawat, 2001). These costs and
risks are related to the idea of distance, the further away the potential market is from the
domestic market, the higher the costs and risks (Ghemawat, 2001).
In the CAGE analysis multiple indices are used to measure the distances on the four
dimensions. We use multiple, highly established indices to quantify our results in each of the
dimensions. These can be found in the table 2 below. In order to show the distances with
Germany as the benchmark, the three potential countries are scored on each dimension and
index from 1 to 3. By summing up the results the country that is closest (highest score) and
that is farthest away (lowest score) can be determined. Two notes about this table; 1) the
‘distance to existing markets’ is ‘1’ for all as Metro is already operating extensively in both
continents, and 2) property rights for Myanmar is scored 0 as the information about Myanmar
was not available in the index. The index with actual ratings can be found in attachment 1.

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Cultural Hofstede (see result
in attachment 1)
UK 3
South-Korea 2
Myanmar Not available*

Administrative Ease of Doing Corruption Perception Market Access

Business Index (CPI)
UK Rank 7/190 82/100 1 - Brexit
South-Korea Rank 4/190 54/100 3 - EU- SK trade
agreement
Myanmar Rank 171/190 30/100 2 - opened up borders

Geographical Distance to Markets Logistics Performance Infrastructure Dimension

Index (LPI) LPI
UK 1 (active in EU) 3.99 4.03
South-Korea 1 (active in Asia) 2.30 1.99
Myanmar 1 (active in Asia) 3.61 3.73

Economic GDP/capita GDP annual growth % International Property Economic

Rights Index (IPR) Freedom
Index
UK $44,306 1.8 8.141 78
South-Korea $27,105 3.1 6.447 73.8
Myanmar $1,139 6.4 Not available Not available
Table 2 Cultural, Administrative, Geographical, Economic framework of distance to Germany.

United Kingdom

The United Kingdom scores best on market size (CPA) as well distance to the
domestic market (CAGE). This means that the relative amount consumers can spend, and are
willing to spend, on consumption is the biggest compared to South Korea and Myanmar. And
that the risks and costs are the lowest. On the Cultural aspect the biggest difference between
Germany and UK is Uncertainty Avoidance which is 35 in the UK and 65 in Germany
(Compare countries - Hofstede insights, 2018). Less uncertainty avoidance means that people
are not hesitating to try new products or brands and it decreases the risk for the company that
will make the international expansion. The Administrative dimension is also rather favorable
as corruption is low in the UK and Freedom (democracy) high – similar to Germany. Both
also decrease the risks and costs for expansion to the UK. However, something to keep in
mind is the result of the Brexit referendum in 2016 in which the UK is in negotiation and
awaiting exit of the European Union. Since the country is surrounded by the ocean, the
transportation is not an issue and the country has a great location advantage. Based on market
exchange rates, economy of the UK is fifth largest economy in the world and the second
largest in Europe after Germany (Statista, n.d.). This creates a stable country to invest in.
The economic growth of the United Kingdom has been around 1.8% in 2018 (World Bank

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Open Data, 2018).

Myanmar

According to the CPA and CAGE Myanmar has the smallest market size and is the
one that is most distant to the domestic market. Especially the CAGE model shows some
important aspects that could heavily complicate doing business in Myanmar. Culturally they
are very distant, however with a strategy of hiring local managers and the freedom to adapt
the Metro concept to local circumstances this is not even the biggest issue. One very risky
part could be the administrative part – it high on corruption (ranked 130 from 180 on
Transparency International 2017) which creates a difficult business environment. Interesting
enough when looking at every country ranked lower than Myanmar, Metro is not doing
business in any of those countries. Another worrisome aspect is that Myanmar is not even in
the list of the International Property Rights Index (2018) which is another indicator for a
difficult administrative environment. Also, the civil war in Myanmar does not seem to have
an end in sight (John Zaw, 21 May 2018).

South Korea (Republic of Korea)

Culturally South Korea and Germany have many differences, however South Korea is
a very modern East Asian country and scores quite similar to Germany according to
Hofstede’s Insights (2018). The biggest difference is on Individualism where Germany scores
a lot higher than South Korea (67 to 18). Where South Korea still shows some hints of a more
historically focus on collectivism traits which are common in countries which are influenced
by Buddism. When we look at administrative barriers, these are relatively low. The European
Union – South Korea Free Trade agreement eliminates a lot of duties and creates
opportunities for market access (European Commission, 16 April 2018). Interesting enough,
South Korea is scoring even higher on the Ease of Doing Business Index (2018) than the UK
– which could exemplify a longstanding history of international trade. Last, South Korea is
one of the most developed countries in East Asia, making with a GDP per capita of $27,105
compared to $44,306 in the UK and $1,139 in Myanmar. Also, the amount South Koreans
spend on eating out is roughly half of their budget (Hankyoreh, 17 December 2015) with a
steadily growth in the past years of more than 3 %.

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Business opportunities
The CAGE and CPA models show fairly clear preference for the United Kingdom –
they have the most to spend and the distance to the domestic market is the smallest. However,
business is not only about quantifiable numbers and indices. When we look closer into the
United Kingdom it is already a very saturated market. There are probably many delivery
service companies who have similar knowledge to that of Metro. Also, it is not an unknown
thing that the United Kingdom – especially urban areas with high population density such as
London are very expensive. The costs compared to the possible attainable market share
doesn’t seem to be worth expanding to the United Kingdom.
When we look at Myanmar and South Korea we are looking at two East Asian
countries which are nevertheless highly different on multiple aspects. South Korea is very
modern in Asian terms and Myanmar has only made their first steps out of a closed border,
communist regime. Something that could make Myanmar very attractive is the unique event
that the borders and markets have opened since a few years and the borders with India very
recently (Rupakjyoti Borah, 13 August 2018). This could mean more tourism and more trade
between these countries. In population size they are both around 50 million, but South Korea
has the advantage of being very densely populated in and around Seoul. More than 20% of
South Koreans are living in this area which provides a good ratio of population per square
kilometer (World Population Review, 2018).

Figure 3 Population density South Korea 2018 (World Population Review, 2018).

When we compare the opportunities, they are two very different ones, in Myanmar
most people still pay with cash (Weston, 19 February 2015) while e-commerce is the largest

16
retail channel in South Korea (Santander Trade Portal, 2018). No wonder because South
Korea is one of the most connected countries worldwide (Santander Trade Portal, 2018).
Moreover, retail sales in the food sector in Korea is prognosed to grow with 8.1% in 2012 –
an increase of almost 23.5 billion USD (Santander Trade Portal, 2018). This shows how big
the potential is in the food sector, but more specifically if you can combine it with online
shopping and a good food delivery system.

Recommendation for expansion to South Korea

When weighing the opportunities and risks from expanding to Myanmar and South
Korea, the preference goes to South Korea. It is a developed country with a big food retail
market that is only prognosed to grow. More than 70 % of South Koreans are using online
deliveries at least once a month (Harris 2017, 1). The fact that online shopping is growing
means that comprehensive delivery systems are needed which provides ample opportunities
for Metro. Especially with their acquisition of Classic Fine Foods which has an already
established name, network and experience with food delivery in Asia. Also, the fact that
everyone is already used to online shopping would mean that operating online and
distributing from a warehouse would be ideal and keep the operating costs low. When we take
the CPA and CAGE into account, South Korea shows the largest market of these two and is
‘easier’ to do business in. Going back to the strategy of Metro they want to focus on
becoming more competitive in their current activities instead of ‘directionless’ expansion. In
South Korea they are a good fit for the opportunity as they want to focus on online sales and
delivery systems. Myanmar could also be an opportunity to establish yourself as a big player
in food delivery, however it would require much more effort and the chances of failing in the
current environment there seems higher, especially with the unpredictable and highly unstable
political situation.

Entering as a wholly owned subsidiary

If Metro expands to South Korea with their recently acquired food delivery expertise
and network, they could leverage their current assets. This would be in line with their
adaptation strategy as they want to operate with activities that are locally relevant. This would
mean opening warehouses in South Korea and leveraging their food delivery expertise and
network. This keeps the operation costs low and fits very well with the way Koreans are used
to shop. An entry mode that would suit this endeavor is a wholly owned subsidiary. Also,

17
because they want to focus on acquisition of top-notch Food Delivery Specialist companies
(Metro Condensed Report, 2017). This entry mode gives the flexibility to adjust to local
differences and to really get to understand the local market and its business owners, which is
exactly in line with Metro’s business model and international strategy. The well-established
reputation, the wholly owned subsidiary has, of having high quality food will contribute to the
success of entering South-Korea, as an unknown company. As the AAA triangle means trade-
offs between the different strategies (Ghemawat, 2001) – entering as a wholly owned
subsidiary would mean an increase in the adaptation strategy, but also a decrease in the
aggregation strategy. Arbitrage could be combined relatively well as they can still leverage
their bulk sourcing offices (mentioned before e.g. how the Boston office focuses on sourcing
seafood) and keep production of their non-food items in low labor costs countries such as
China. If anything, this is a benefit as South Korea is located close to China.

Implications for the stakeholders

The expansion into South Korea is consistent with the strategy of Metro. Substantial
adaptions are not necessary, which allows to use existing capabilities. Due to the recent
strategic decision following the last two decades, Metro developed and obtained an extensive
network in Asia, including major markets like China, Russia and India. The inclusion of the
South Korean market would be an enriching piece to leverage further growth in the region.
Similarly, to Chinese food trends, western food products are regarded as high qualitative,
especially concerning issues about food safety (Hong Kong Trade Development Council
2017, 10; USDA Korea 2017, 5). Metro can utilize the positive connotation by introducing
their existing brand variety to South Korea. The credit of trust reduces the need for intensive
and expensive marketing in the new market and simplifies the communication of the inherent
values, regarding qualitative food products and food safety, of Metro. Despite aspects of
quality, food habits are changing in South Korea (Neszmélyi 2016, 41). The assimilation of
western food trends and the partial renunciation of traditional food are further reasons for a
positive market environment for Metro. This trend is reflected in the rising share of imports
and an increasing trade deficit in food product. Food import cover almost 50% on total
spending (AgriFood Canada 2017, 2). Furthermore, convenience food and food delivery
services are additional major trends which are in favor of Metro and its B2B customers
(Market Opportunity Report 2014, 5). The conflation of supply streams of the Chinese and
South Korean market with western products can reduce the costs of logistics for both markets

18
significantly. The acquisition of “Classic Fine Foods” 2016 is a perfect internal regional
partner, with its experience and networks in many Asian countries. Therefore, CFF can not
only play a major role for the company in the premium segment, but also footstep into the
mass market.
The focus on the B2B market and specialization on food logistics and delivery goes
hand in hand with developments in other markets of Metro and is part of the targeted future
growth path. The innovative and demanding market in South Korea is a perfect fit to elaborate
further with this path, as well as having new insights in new developments of the digital e-
commerce market in South Korea.
These insights offer better knowledge and understanding of the future structure of the food
markets in general and is therefore possible essential for other markets of Metro likewise.
Metro has the opportunity to enter a prosper environment, effectively utilize existing
networks and insights into a vibrant and innovative market.
For the country itself the entrance of Metro into South Korea would be beneficial. Metro is a
potential reliable partner for the many ambitious start-ups and established companies in the
food service sector, which often lack a sufficient and efficient partner for their supply chain.
More than 90% of food business are still run by small and medium sized companies,
which don’t have to capabilities for extensive supply chain management. Therefore, the
system relies on multiple layers of small-scale middlemen (USDA Korea 2017, 21). This
leads to high consumer prices, as well as reduced competitivities of SMU against big
companies in the food service industry. Metro offers an efficient supply with high quality
products for these service companies with lower prices. The end consumer and the clients can
benefit fincancially and with a greater variety of food. Therefore, Metro can support further
growth in the food business which creates new opportunities and jobs. Metro itself will also
offer numerous job perspectives in management and logistics. The existing supply networks
will benefit from higher occupancy rates and new bookings of orders.
With its commitment to high ethical and environmental standards, Metro will play its
role in South Korea in the ongoing challenge to reduce environmental damage and to combine
economic growth and sustainable development.

19
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Indices (CAGE / CPA)

https://www.heritage.org/index/ranking - Economic Freedom Index
https://freedomhouse.org/report/freedom-world/2018/united-kingdom - GDP/capita
http://www.doingbusiness.org/en/rankings?region=oecd-high-income – Easy of doing
business

https://www.internationalpropertyrightsindex.org/compare/country?id=27,10 – International
property Rights Index

https://www.transparency.org/news/feature/corruption_perceptions_index_2017 – Corruption
Perception Index

https://lpi.worldbank.org/international/global?sort=asc&order=LPI%20Rank#datatable –
Logistic Performance Index

https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=GB-MM-KR – GDP
growth rate % 2017

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Attachment 1 CAGE analysis
Cultural Hofstede (see result
below table)
UK 3
South-Korea 2
Myanmar Not available*

Administrative Ease of doing Corruption Perception Marketaccess

business Index
UK Rank 7/190 82/100 1 - Brexit
South-Korea Rank 4/190 54/100 3 - EU- SK trade
agreement
Myanmar Rank 171/190 30/100 2 - opened up borders

Geographical Distance to markets Logistics Performance Infrastructure dimension

Index LPI
UK 1 (active in EU) 3.99 4.03
South-Korea 1 (active in Asia) 2.30 1.99
Myanmar 1 (active in Asia) 3.61 3.73

Economic GDP/capita GDP annual growth % Property rights Economic

Freedom
Index
UK $44,306 1.8 8.141 78
South-Korea $27,105 3.1 6.447 73.8
Myanmar $1,139 6.4 Not available Not available
*Myanmar was not available in the Hofstede Insights in the result China is added as closest best replacement

23