Institutional Challenges of Carrefour for Asia

Institutional Challenges of Carrefour in AsiaIntroduction: the impact of formal institutions on business expansionThe primary purpose of this paper is to analyze the challenges presented by formal institutions for Carrefour’s expansion to Asia. Carrefour, one of the largest hypermarket chains in the world and the second largest retail group in the world, is a French retailer founded in 1958. The company operates 9,771 stores in 33 countries of the world and employs 412,433 people. While the majority of the company’s business is focused on Europe (29.2% of net sales are generated by European retail stores), during the crisis years sales of the company were primarily driven by exceptional performance in emerging markets. Prior to analyzing institutional challenges for Carrefour’s Asian expansion, it is important to define institutions and assess the impact they produce on multinational companies’ expansion strategies. Formal institutions are believed to have a decisive impact on the shaping of multinational expansion strategies. Institutions are commonly referred to as “rules of the game in the society” (Beyer and Fening, 2012). Another definition of institutions used by World Bank is “sets of formal and informal rules governing the actions of individuals and organizations, as well as the interaction of participants in the development process” (Beyer and Fening, 2012). Another definition focuses on the formality of institutions and underlines their legal manifestation: institutions are defined as “written or formally accepted rules and regulations which have been implemented to make up the economic and legal set-up of a given country” (Beyer and Fening, 2012). Thus, formal institutions that are comprised of laws, regulations and requirements administer company behavior in a given country. This paper’s primary focus would be on the impact of formal institutions on Carrefour’s Asian expansion. Carrefour in AsiaIn 2003, Carrefour was present in eight Asian markets with the Asian zone representing 13% of the company’s total hypermarket sales and 4.7% of the total sales (Hitt et al., 2009). Currently, the company’s presence in Asia became broader; however, the region constitutes 9% of the company’s net sales (Carrefour, 2012). Carrefour chose countries to expand based on the assumption that those countries have already reached the level of personal income “to make the transition to mass consumption” (Hitt et al., 2009). The company entered Asian markets earlier than its primary competitors, and primarily formed partnerships with local businesses to compensate for lack of knowledge of the market. The company later avoided this model, having to turn to joint ventures only when legal requirements made it necessary (in China, Thailand, Malaysia, and Indonesia). In Indonesia, Carrefour operates 70 hypermarkets and 14 supermarkets. In China, the company has 203 hypermarkets. In Malaysia, Carrefour operates 26 hypermarkets. In Singapore Carrefour maintains 2 hypermarkets, while in Taiwan the company has 60 hypermarkets and 3 supermarkets. Additionally, the company operates 2 cash and carry stores in India. The company is said to be one of the first European retailers to expand to South-East Asia; however, according to The Economist (2010), in 2010 the company was facing …