Best Entry Mode/Strategies in South African Retail Industry: The Case of Carrefour

ESTABLISHING THE BEST ENTRY MODE/STRATEGIES INTO SOUTH AFRICAN RETAIL INDUSTRY: THE CASE OF CARREFOUR
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Establishing the Best Entry Mode/Strategies into South African Retail Industry: The Case of Carrefour
1 Executive Summary
Firms pursuing internationalization have to select suitable modes of entry into foreign markets. This report focuses on the suitable entry modes utilized by Carrefour to enter the South African retail industry. Thus, this report aims to establish the entry strategies into the South African retail industry: the case of Carrefour. Figures and facts are obtained from reliable sources such as company annual reports and Statista, among others.
Carrefour is a leading French multinational retailer that has been operational for 60 years. It has reinvented itself over the years and expanded beyond France to serve in over 30 countries. Its mission is to offer quality, accessible products and services to everyone. This makes expansion into foreign markets a core part of its strategy because it can reach everyone and enhance the accessibility of goods and services.
This report utilizes data obtained from Carrefour's annual reports, Statista, Trading Economic, and International Finance Corporation. These data sources are selected because of their reliability. In addition, they provide facts, figures, and information pertinent to Carrefour, South Africa, and the global retail industry. Further, Porter's five forces model is utilized as the theoretical framework because of its effectiveness in analyzing the industry-specific competition.
The findings of this report indicate that Carrefour is likely to face high competitive rivalry and the threat of substitution. The bargaining power of suppliers in the South African retail industry is low, while that of buyers and the threat of new entrants is moderate. The report also indicates that the South African retail market is mature.
This report recommends that Carrefour should utilize acquisitions and joint ventures as the mode of entry. This is because they offer Carrefour an opportunity to gain an already established market share in a mature industry.
Table of Contents 1.      Executive Summary. 2 2.      Scope, Aim, and Topic of the Report 5 2.1.      Scope. 5 2.2.      Aim.. 5 2.3.      Topic. 5 3.      Carrefour: Background. 6 4.      Data Collection Sources and Analytical Methods. 9 4.1.      Sources of Secondary Data. 9 4.2.      Analytical Technique: Porter’s Five Forces Model 10 5.      Findings. 11 5.1.      Threat of New Entrants: Low to Moderate. 11 5.2.      Threat of Substitute: High. 12 5.3.      Competitive Rivalry: High. 13 5.4.      Bargaining Power of Buyers: Moderate. 13 5.5.      Bargaining Power of Suppliers: Low.. 15 6.      Recommendations. 15 References. 18
2 Scope, Aim, and Topic of the Report
1 Scope
This report focuses on entry modes to a foreign country. Entry modes refer to a firm's method to penetrate a new, foreign market (Ofili 2016, p.209). There are many entry modes that firms can use. Still, they need to consider various factors such as the level of maturity of the industry in the new country, level of operational involvement, as well as the urgency by which it needs to enter the new market, among others, when selecting an entry mode. Specifically, this report will examine entry modes that Carrefour can use to penetrate the retail industry in South Africa. For the analysis, information will be acquired from reliable sources such as Statista, Trading Economics, and Carrefour annual reports.
2 Aim
To establish the best entry strategies into the South African retail industry: the case of Carrefour.
3 Topic
Establishing the best entry mode/strategies for Carrefour in the South African retail industry using Porter's five forces model. The retail industry plays an instrumental role in a country's economy, yet many countries that are home to some of the largest retailers have saturated markets. Such retailers need to understand the best mode of entry into new markets because their financial performance depends on these new markets, not the saturated markets in their home countries. Focusing on emerging economies in internationalization is especially important because they are expected to drive the global economy (Al-Mohamad et al., 2020).
3 Carrefour: Background
Carrefour is a French multinational retailer with its headquarters in Masse, France. It was established in 1959 through a partnership between Marcel Fournier, who owned a novelties shop, and the Badin-Defforey family, who owned a food wholesale business (Carrefour, n.d.). The two opened the first Carrefour supermarket in 1960. In 60 years, Carrefour has continued to reinvent itself to suit the changing needs of consumers and dominate the retail industry. In 2020, it was ranked as the seventh most international retailer by National Retail Federation (National Retail Federation, 2020). Over the years, Carrefour has gained immense success in European markets, and it continues to expand into other foreign markets to achieve its missions.
Its mission is to "provide our customers with quality services, products and food that are accessible across all the distribution channels. Through the expertise of our employees, a responsible and multicultural approach, our broad territorial presence and our ability to adapt to production and consumption modes, our ambition is to be the leader of the food transition for everyone (Carrefour, n.d.)." The company focuses on serving everyone, which is why internationalization is a big part of its agenda. Currently, it operates in more than 30 countries and has opened over 12 000 stores worldwide (Carrefour, n.d.). In addition, it serves over 100 million households across the globe and continues to strive to provide accessible and affordable products to everyone across the globe.
Carrefour focuses on five main retail formats: hypermarkets, convenience stores, supermarkets, cash and carry, and e-commerce (Carrefour, n.d.). While it has always focused more on physical stores, it is working towards establishing a strong e-commerce global presence. With the help of Google, the company has started combining its physical stores with an online website that will facilitate online shopping in each country (Carrefour, n.d.). This will increase its competitive advantage in the retail industry. As shown in figure1, Carrefour competes with some of the largest e-commerce retailers such as Alibaba and Amazon and other hypermarket retailers such as Wal-Mart. By combining brick and mortar with click and mortar, Carrefour will participate in the retail industry more competitively.
Carrefour was selected for this specific report because of its already established success in foreign markets. As indicated in figure 2, over half of its revenue (53.2%) is derived from its foreign market. Therefore, to continue creating value for its shareholders, Carrefour needs to continue establishing its presence in foreign markets. Also, as indicated in a report released by Deloitte (2018), Carrefour is one of the only four global retailers that have retained a spot in the top ten global retailers for over 15 years. Thus, examining this company and how it can continue penetrating foreign markets can be helpful to other global retailers and new entrants in the retail industry.
The retail industry is essential for the economic success of any country. It connects producers and consumers of goods. According to the International Finance Corporation (IFC) (n.d.), the retail industry also ensures that consumers can access goods at competitive and fair prices. The global retail industry, in specific, has contributed immensely to the economic growth of countries, more so emerging economies. It has created jobs and ensured that foods and other essential products are delivered to consumers at fair prices (IFC, n.d.). Being an emerging economy, South Africa has benefited from the global retail industry because retailers, such as Wal-Mart, have penetrated the South African market.
South Africa also makes for a good case study for this report because it is a member of BRICS. BRICS is an acronym for the five emerging economies: Brazil, Russia, India, China, and South Africa, which are expected to dominate the global economy by 2050. According to Al-Mohamad et al. (2020, p.2), BRICS countries account for over 46% of the global labor force and 40% of the world's population. Among these four countries, Carrefour only operates in Brazil (Carrefour, n.d.). In South Africa, hypermarkets have become trendy and a preference of many consumers. As Makhitha and Khumalo (2019, p.23) reveal, South Africans love a good bargain and prefer shopping in price-friendly and convenient outlets. Given that Carrefour prides itself in facilitating accessibility and affordability, there is a niche for a Carrefour hypermarket in South Africa. The retailer will also increase its market share because it will have more access to the 40% of the world’s population.
Figure 1: Top Ten Most International Retailers
Source: (National Retail Federation, 2020)
Figure 2: Retail Revenue of Top 10 Retailers
Source: (Deloitte, 2018)
4 Data Collection Sources and Analytical Methods
4 Sources of Secondary Data
Data Source
Justification
Carrefour Website and Annual Reports
Company websites provide pertinent information about a company, while annual reports provide figures and facts about a company's financial performance or status. In this report, these sources have been used to analyze the company's performance as well as the strategies it employs to expand its operations.
Statista
This is a good source of statistics about different companies, industries, markets, and countries. It provides insights through market research in over 150 countries and 170 industries (Statista, n.d.), which makes it a reliable global source of data. This source was particularly useful in this report because it provided information about the retail industry globally and in South Africa.
Trading Economics
This is also a global source of data that provides information using economic indicators, commodity prices, and exchange rates, among others, from 196 countries (Trading Economics, n.d.). Moreover, information from this source is obtained from official sources such as company and /or government reports, making it a reliable source of facts and figures.
International Finance Corporation
This is an international financial organization affiliated with the World Bank. It focuses on...