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Carrefour's Misadventure in Russia

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by

Kevin Choo

on 15 September 2014

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Transcript of Carrefour's Misadventure in Russia

Carrefour's Misadventure in Russia
Background Assessment
of Carrefour
French Multinational Retailer founded in 1958.
It has grown to become one of the largest hypermarket chains in the world with 1452 stores worldwide.
Carrefour has branches located in Europe, Latin America, Middle East and Asia.
Executive Summary
Addresses the company's expansion into Russia, the issues it faced while in operation.
Analyzes reasons of Carrefour's exit from Russia and examines reasons for its failure in such a successful potential market.
Concludes by discussing if the Russian retail market is a potential choice for future foreign opportunities.
Population of 145 million. 2009, became Europe's fastest growing consumer economy, expecting to overtake UK and Germany by the end of 2012.
The retail market in Russia was expected to grow to $745billion in 2011.
Witnessed large growth in retail industry : exponential increase in disposable incomes as a result of oil wealth.

In 2001 per capital income was at US$1,185; by 2007 this had increased to US$4,803.
Russians spend 94% of their monthly earnings.
According to a leading global management consulting firm (AT Kearney’s Global Retail Development Index), Russia remains one of the most favored destinations for global retailers as a potential market.

Russia's growth in Retail has been mainly in areas such as Supermarkets, electrical stores and fashion retailers; Carrefour's product range.
WHY
RUSSIA?
"What were the factors that led to Carrefour's sudden exit from the Russian retail market?"
QUESTION 1
Weak sales figures and recent shareholder and management upheaval
Corruption issues (Ikea in Russia)
Long-term potential but short-term difficulties.
Does not see growth opportunities in Russia
The crisis had not changed its long-term vision of the market
Carrefour was a relative late-comer to the Russian market compared with German retailer Metro which opened a store there in 2001, followed by French rival, Auchan in 2002
The crisis had not changed its long-term vision of the market
QUESTION 2
According to Jamie-Vazquez, analyst at JP Morgan Chase & Company in London, “Stores in emerging markets are the only ones doing well and offering good growth prospects, so selling them makes no sense other than making short-term financial gain .” Do you agree with this statement? Take a stand and justify it.

This statement can be agreed with for various reasons which are:
Analysts claim that reasons given by Carrefour are not valid
Evaluate future possibilities
Russia is now the second largest retail market after France
Experts claim it took retailers several years to establish themselves in new markets

Carrefour had spent more than three years studying and understanding the market

Carrefour should not be expecting results in such a short time

Failure to attain leadership position in other countries they are operating and giving other retailers opportunity since there is less competition


i) Critically analyze the Russian retail market in light of Porters‘ five forces model.

In 2008, Russia’s retailing industry valued US-$ 480 billion
Food retailing accounted for almost ½ (45.3% - 217.44 US-$ billion)
2009 fastest growing consumer economy
Population of 143 million
Russia’s two largest cities: Moscow & St. Petersburg
QUESTION 3
Critically analyze the Russian retail market in light of Porter's five forces model. Do you think the market is lucrative enough to attract more foreign players? Explain.
Most concentrated retail activities
Highly saturated market:
Scientists > Management > Graduates
High degree of Bureaucracy (Red tape & complicated legislatives)
Unpredictability & -reliability (Tax Authorities & Judiciary)
Corruption & Uncertainty
Difficult operating environment
SOLUTION:

Security firm
Partner local company
Sell as Franchise
ii) Is the market lucrative enough to attract more foreign players?

Certainly, it is lucrative enough
BUT:
High level of local competitors
Poor levels of government legal control
Difficult to acquire a local player/partner
Reconsider investing in Russia
High degree of bureaucracy
Difficult framework of legislative
2012: continuing high inflation
2013: Industrial output decline
High competition
Unreliable acquisition
Highly indebted local retailers
Slowing in economic growth
High population
Growth in consumer economy
Low unemployment
Growing wages
High consumption
High Availability of resources
High current account – low public debt

References
French Retailer to Close Its Russia Stores
http://www.nytimes.com/2009/10/17/business/global/17carrefour.html?_r=0
Russia's Retail Revolution
http://www.managementtoday.co.uk/news/812968/russias-retail-revolution/
Carrefour beats hasty Russian retreat
http://www.ft.com/cms/s/0/97c7805a-b9c2-11de-a747-00144feab49a.html#axzz3DGydUz2a
Carrefour to exit Russia, hit by challenging markets
http://www.reuters.com/article/2009/10/15/carrefour-idUSLF66210620091015
Carrefour says looking at acquisitions in Russia
http://www.reuters.com/article/2009/09/10/carrefour-russia-idUKLA72629520090910
Mapped : Where Russia Stashes Its Cash
http://www.thedailybeast.com/articles/2014/03/19/mapped-where-russia-stashes-its-cash.html




Out of the trillions of $'s in investments held by Russians abroad, roughly 2/3 is held in accounts in : i) Cyprus, ii) Netherlands iii) British Virgin Islands.
Popular tax havens for Russian wealth since a surge in capital flight began in the 2000s.
Oligarchs and other wealthy Russians parked their wealth in “safety nests” abroad; “Russian state support is weak for small and medium-sized investors,”.
TATENDA | KEVIN | CHRISTOPHER | TANIA
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