Carrefour in Russia What Went Wrong

Topics: Retailing, Russia, Hypermarket Pages: 9 (3100 words) Published: January 6, 2013
The first part of this assignment based around the case study of Carrefour in Russia is to analyse the macro environment in Russia at the time of the case. Opportunities and challenges associated with that environment will also be considered. The best way to understand the macro environment in Russia is to carry out a PEST analysis. PEST stands for the political, economic, social and technological environments. This type of analysis can be considered an external appraisal of the business. The aim of this framework is to supply a reasonable overview of the different macro-environmental factors that affect a business’s strategy. Political

To begin with I will consider the political environment in Russia which affects Carrefour's decision making. This also involves legal issues regarding Carrefour in Russia. The political and legal systems in Russia are very different to those of central, mainland Europe with corruption being a big problem. In order to obtain a presence in Russia, Carrefour wanted to have an association with a local partner. To do this it planned to acquire local grocery chain Seventh Continent. However, an offer which was made was rejected by the shareholders of Seventh Continent. Although there were opportunities for high growth potential, there were also several obstacles which international retail companies had to face in the Russian retailing industry. These involved a complicated legislative framework, bureaucracy and corruption. This made it more expensive and difficult to set up operations in Russia. The operations of several companies in Russia were hampered due to these factors. For example, IKEA ran into legal issues while setting up operations there. An example which directly affected Carrefour was the bureaucratic hassles it faced in its first store in Moscow in which it couldn’t get a licence to sell alcohol. This lost Carrefour a lot of revenue. There was also legislation in Russia that aimed at increasing the competition in the country. Carrefour obviously didn't favour this legislation as it encouraged other businesses to compete with Carrefour for market share. Apart from all these negative political and legal factors, Carrefour did receive some support after they entered an MoU (Memorandum of Understanding) with a local government in South Russia to implement an investment project. The conditions were that Carrefour invests one hundred million US Dollars in the region over five years in return for support in terms of business development, finding suitable plots, infrastructure, etc. Economic

The economic conditions in the Russian market were extremely volatile and as a result of this, acquiring a Russian retailing company proved to be a tough task for Carrefour. Despite the global financial crisis, acquisitions were also priced very high. For example, X5 with a share of four percent in the food retail market in Russia was valued at seven billion US Dollars. Overall Russia had a dire macroeconomic environment and this coupled with the strength of domestic discounters at the time, made breaking into Russia organically a significant challenge. Furthermore, the difficulties in acquiring a local player and other market hindrances would have made Carrefour's quest to gain scale and leadership in the country a costly uphill struggle. As far as the Russian market was concerned, Carrefour soon realised that there were not enough opportunities for it to become the top player in the country. Social

I will now look at the social environment in Russia. Social factors relate to the patterns of behaviour, tastes and lifestyles of people within a certain culture. In Russia, one large social challenge Carrefour faced was that consumers still preferred to shop at outdoor markets, street stands, and unbranded shops. A major component of the social environment is a change in consumer behaviour resulting from changes in our lifestyles. This could be seen in Russia were there was a gradual shift...
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