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Carrefour Business Failure in the Japanese Markets Essay

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Updated: Jul 3rd, 2020

Introduction

Venturing into new markets, especially in foreign nations, requires organisations to exercise due caution to ensure success. While organisations can develop strategies to cope with bazaar entry changes that relate to their internal structures, dealing with macro-environmental factors in a foreign nation is incredibly problematic. This situation underlines the importance of developing an appropriate entry strategy that can ensure that an organisation makes use of the existing knowledge and experience in its operations in foreign nations. Such strategies include opting for franchising and licensing before focusing on full ownership arrangements. As Holt and Quelch assert, “all businesses operate within an environment, which directly or indirectly affects how they function” (69). This claim implies that successful colonisation of new markets in Asia calls for Carrefour to enact entry strategies that minimise possibilities of failure. However, in the Japanese market, this was not the case. This paper discusses the failure of the Carrefour business in the Japanese markets. It also recommends strategies that would have prevented the failure.

Statement of Problem

New markets present challenges in terms of aligning an organisation’s business model with the local business model of foreign nations. Factors such as consumer purchasing behaviour, the most important brand elements, and loyalty of the local people in a given foreign nation may determine the success or failure of an organisation (Hill and Ettenson 87). Carrefour did not adopt the best strategies and hence the reason why it failed. What should have Carrefour have done to avoid the failure? Did it generalise its analysis on Asian markets such as China to the entire Asian continent? Was its entry strategy to the Japanese market misplaced and misaligned with the business microenvironment of the nation?

Issues/Problem Identification and Analysis

From the case study, several issues emerge concerning Carrefour’s entry strategy into the Japanese market. First, it did not screen the new market appropriately. Indeed, it assumed that the purchasing behaviour of the Japanese people was similar to the situation in other Asian nations. Mikkilineni confirms, “Asians are more concerned about price than the product and they purchase products more hastily and at varied points of time” (5). This observation suggests that Carrefour could have successfully ventured into the Asian markets by offering its products at low prices. After making the products easily attractive to people who purchase in a hurry, Carrefour included value additions for its products in a bid to build customer patronage. While it succeeded in other Asian markets in creating customer patronage, the Japanese market posed immense challenges.

Secondly, the failure to screen the environment properly led to poor planning of an appropriate new market entry strategy. New markets often present challenges in terms of aligning organisations’ culture to the local people’s tastes and preferences, attitudes, and beliefs (Kotler, Adam, and Denize 49). For this reason, various options for entry modes in the Japanese market were worth considering. Possible entry modes that may have worked in the markets include franchising, exporting, and joint ventures such as mergers and acquisitions. Nevertheless, each of these modes is suitable to different extents and depending on different situations. Unfortunately, Carrefour did not consider this factor. It presumed that success in other Asian markets could be duplicated in the Japanese markets.

In the process of marketing planning, a myriad of issues is considered, including decisions on products that are offered in the market for trade, the place where they are to be sold, pricing, and even their promotion techniques. These issues require a heavy data input of consumption patterns in a given market. Carrefour never acquired this data. It only focused on introducing its products in the Japanese market with the mentality that they would appeal to it just like in China, Malaysia, or any other Asian nation. Consequently, it experienced significant failures in studying and analysing consumer behaviour.

From the above-identified issues, some of Carrefour’s failures could also be related to negligence and wrongful generalisation of market characteristics. From the case study, negligence is evident as Carrefour failed to deploy its iterative methodology for analysing the appropriateness of market before committing its resources to invest in the market (Mikkilineni 6). Indeed, the Japanese market did not meet any of its criteria for market analysis, yet Carrefour made a go-ahead to invest.

While it was the norm for Carrefour to ensure that a potential new market did not have advanced retail small-scale firms, the Japanese market already had an immense number of small-scale outlets that offered products at discounted rates (Mikkilineni 6). However, the timing of opening stores in the Japanese market was excellent. Organisations need to analyse the legal environment while making decisions of venturing into different markets. An organisation needs to ensure that the legal environment supports its business models and cultures. Carrefour ventured into the Japanese market after Japan had permitted foreign investors to open large stores in the nation upon its abolishment of the famous “large store law” (Mikkilineni 5). Therefore, it was sure it would not encounter any unfavourable legal climate.

Generation of Solutions/Alternatives

Considering the different problems that Carrefour encountered in the Japanese market, several alternatives or solutions can be adopted. Firstly, it can exit the market by selling its stores to another local organisation or any other organisation that has Japanese shoppers’ loyalty. Secondly, it can enter into a joint partnership with another organisation by forming a merger. Carrefour can also change is operational strategies to meet the needs of the Japanese markets. For example, as Mikkilineni reveals, “Japanese consumers prefer frequent shopping and buy goods in small quantities every time they shop” (7). Carrefour deployed one-stop-shopping business model. Even though the company could have managed to change the shopping cultures of the Japanese people, it could not make people buy high volumes of stocks due to lack of space to keep them in their homes (Mikkilineni 7). Japanese people usually have small houses. The company cannot change this situation but can adopt measures to ensure that Japanese shoppers do not buy anymore from general stores within their neighbourhoods. For example, by adopting appropriate promotional strategies, the company could have presented shopping in big stores as a fashionable behaviour that matched with changes in one’s social-economic status.

Pricing of products in the Japanese market also encompasses an important issue that Carrefour can address to replicate its success in other markets in the Japanese souk. While shoppers in other Asian markets view low prices as an important factor in making a buying decision and in their selection of an organisation to buy from, Japanese shoppers value quality over prices. This assertion is supported by the fact, “they feel that a product sold at low prices will be of low/cheap quality” (Mikkilineni 7). However, their appreciation of fashion is important in establishing strategies for success in the Japanese markets. Considering the characteristics of the Japanese shoppers, price differentiation can help to boost Carrefour’s sales.

Recommendations

Although the suggested alternatives are important, they are currently not useful to Carrefour since its bad brand image has already been established. Without rebranding, it cannot erase the already existing brand image. Since this situation is an expensive adventure that has no guaranteed success, Carrefour should absorb losses in the Japanese market, sell its stores to other organisations as planned, and focus on building stronger brand loyalties in successful markets. It can also open other stores in different nations, but using its failures in the Japanese market as a benchmark for entry into such new markets.

Implementation Plan of Action

An action plan for success in a market works well before an organisation has opened its operations in the market. However, Carrefour has been operating in the Japanese market where it has faced a poor reception. Its brand image has been that of offering cheap poor quality products. While implementing the action plan for closing down its operations in Japan, Carrefour needs to value its assets, look for potential buyers, and negotiate the terms for acquiring them. After entering into a valid contract, subject to Japanese legal provisions, it can then cease its operations once the contract is fully honoured without frustrations. The money that is generated through this acquiring agreement should then be channelled into improving its brand image and loyalty in more successful markets together with researching other potential markets to avoid duplication of the failures in the Japanese souk.

Conclusion

Carrefour experienced a myriad of challenges in the Japanese market since it joined the market with customised success solutions. It failed in terms of joining the market with a partner who could have assisted it in developing a marketing model that met the tastes and preferences of the local Japanese shoppers. Its pricing strategy was wrong. This situation translated to building the wrong brand image. Currently, the company needs to close down its operations in Japan but look forward to strengthening its operations in more successful markets.

Works Cited

Barnett, William. “Four Steps to Forecast Total Market Demand.” Harvard Business Review 2.1(2008): 28–34. Print.

Hill, Stephen, and Tyson Ettenson. “Achieving the Ideal Brand Portfolio.” Sloan Management Review 2.1(2005): 85-90. Print.

Holt, Arthur, and Timpson Quelch. “How global brands compete.”Harvard Business Review 7.3(2009): 68-75. Print.

Keller, Lil. Strategy Brand Management: Building, Measuring, and Managing Brand Equity. New Jersey, NJ: Prentice Hall, 1998. Print.

Kotler, Peter, Smith Adam, and Stephens Denize. Principles of Marketing. Australia: Prentice Hall, 2009. Print.

Mikkilineni, Pushpanjali. Carrefour Exit from Japan. ICFAI: Centre for Management Research, 2006. Print.

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