The success and failure of the localization strategy of multinational retail companies - a comparison of Carrefour and Tesco's operations in the Korean market

Abstract: This article discusses brand culture, operating models, marketing technology and human resources. This paper compares the different localization strategies of Carrefour and Tesco in the Korean market from four aspects including operation and management, analyzes the reasons for the success or failure of the two companies, and thus obtains the results of meeting the needs of ordinary consumers, focusing on resolving cultural conflicts, joint ventures or A series of experiences and inspirations worth learning from Chinese retail companies such as the way of cooperation to occupy the international market.

Keywords: multinational retail enterprises; localization strategy; Korean market

1. Introduction

Since the 1990s, multinational companies have "thought globally" The international business strategy principle of "localization, localization of actions" has always been a hot topic among entrepreneurs and scholars. The two seem to be contradictory, but in fact they complement each other. In particular, the localization strategy is undoubtedly the top priority for enterprises to achieve multinational operations.

The so-called "localization" refers to the process in which multinational enterprises engage in production and business activities overseas in order to quickly adapt to the local economic, cultural, and political environment and fully meet the needs of the local market. Implement localization strategies in terms of fund raising, human resources, operations management, marketing, etc. This may include adapting to local culture, using local business talents and resources to organize production, sales and provision of products and services adapted to specific regions, etc.

The retail industry is a circulation industry that provides goods directly to consumers, and its production and operation activities are to meet the needs of consumers. If the retail industry wants to achieve international expansion, on the one hand, it must do so by setting up branches in other countries, and its service targets are ordinary consumers who are deeply affected by the domestic cultural environment; on the other hand, compared with other industries, , the retail industry tends to be more restricted by host country policies and regulations. Therefore, localization strategy is particularly important for multinational retail companies.

2. Comparison of Carrefour and Tesco’s localization strategies in South Korea

(1) Case background.

Carrefour is the largest international retail company in France and the second largest chain retailer in the world. In 2008, it was ranked 33rd among the Fortune 500 companies in the world. Tesco is the largest retailer in the UK and the third largest in the world. The two major companies entered South Korea in 1996 and 1999 respectively, but their respective destinies were completely different. The former issued a statement "Carrefour officially confirmed its withdrawal from South Korea" in 2006, admitting its business failure; while the latter currently has 66 hypermarkets and 72 fresh food stores in South Korea. As of February 2008, the sales achieved were approximately 2.7 billion pounds, it is the only large foreign retailer successfully operating in South Korea. It is also a world-renowned retail company with mature business concepts and rich practical experience, but its operations in the Korean market are quite different. There are various reasons for this result, but by comparing the localization strategies of the two major retail companies in South Korea, it is not difficult to find that the success or failure of the localization strategy is the biggest reason for the different fates of the two major companies.

(2) Comparative analysis.

The following compares Carrefour and Tesco from four aspects: brand culture localization, operating model localization, marketing technology localization, and human resources and operations management localization.

First, the localization strategy of brand culture. In fact, Carrefour and Tesco's investment methods in South Korea are completely different. The former is an independent capital injection and directly enters the Korean market; while the latter cooperates with the well-known Samsung Group in South Korea and enters through a joint venture. Although Tesco already held 89% of the company's shares at the beginning of the cooperation, they still added "Samsung" in front of the brand name and named their stores "Samsung-Tesco Home Plus". According to relevant surveys and studies, the value of South Korea's number one "Samsung" brand reached US$5.2 billion in 2000. Tesco pays an additional US$400 million to Samsung Group as brand royalties every year. However, they have saved a lot of upfront promotion costs and customer development costs, and quickly gained consumer resources.

Facts have proved that Tesco's approach has been a great success. The popularity of "Samsung" in South Korea can not only offset people's aversion to Tesco, a foreign brand, but also quickly win the trust and favor of domestic consumers. In comparison, although Carrefour is the leading brand in France and even around the world, for Koreans with strong xenophobia, the degree and speed of accepting a foreign brand is far less than that of "Samsung-Tesco". A hybrid brand.

In fact, Tesco’s choice of Samsung as a partner is the biggest factor in its success. Samsung's successful background in South Korea has not only brought Tesco a brand effect, but also brought huge convenience and benefits to its business activities. Tesco's method of first establishing a joint venture with a retail company in the investment host country, and then seeking a controlling stake in the joint venture to achieve the goal of fully entering the investment host country has proven to be a very effective and sound strategy.

Second, the localization strategy of the operating model. "Scientific site selection" is known as one of Carrefour's six golden laws. According to the strategy of "suburbs surrounding the city center", they mostly set up their own stores in suburbs where unit rents are relatively cheap and the area is larger. The 8-kilometer drive by bus or car and the psychological endurance of no more than 20 minutes is their choice. One of the principles of address. However, unlike European and American consumers, Korean consumers do not drive to the supermarket on weekends to purchase the goods they need for the week at once. Koreans, especially the large number of housewives, are very particular about freshness. If they have to go to remote suburbs with inconvenient transportation to buy food every day, even cheap prices will not attract them. Samsung-Tesco stores are mostly located in areas close to the city center and with convenient transportation. The location strategy is more in line with the shopping habits of Koreans. In addition, in the competition among peers, local Korean retail companies are the strongest competitors. Tesco chose to first set up stores in secondary cities outside of Seoul. It won the competition with weaker opponents and gained confidence and strength, and then fully occupied the Korean market.

In terms of business model, Tesco has launched the concept of "multi-shopping". Its shopping mall is divided into multiple floors. In addition to large supermarkets, it also opens various restaurants, clothing stores, photo malls and shopping malls. Museum, flower shop, etc., making it have functions similar to department stores as a whole. In South Korea, people go shopping in stores not only to purchase daily necessities, but they also hope to get more entertainment and leisure there. This approach is exactly the same as the operating model of local Korean retail companies. Carrefour completely lacked this consideration at the beginning of its operations. Their stores are huge in scale, but they simply fulfill the functions of a supermarket and ignore the needs of Koreans for compound consumption.

In addition, the degree of cooperation with local suppliers determines the operating costs of multinational retail companies. Large retail companies like Carrefour and Tesco mainly rely on low-price strategies to gain profits. Therefore, controlling costs is a crucial step in operations. However, South Korea is a rather special market. The South Korean economy is mainly controlled by a small number of family groups, and the business scope of these enterprises can be described as all-encompassing. Samsung Group alone has a considerable number of such manufacturing companies. Because of its cooperation with Samsung Group, Tesco has quickly and conveniently established connections with local suppliers, and has rich and low-cost commodity resources. In contrast, Carrefour, who works alone, is naturally at a disadvantage. The inability to achieve low-cost control is undoubtedly fatal to Carrefour, which takes small profits but quick turnover as its strategic advantage. In addition, Carrefour charges suppliers entry fees which is a major source of its profits. However, this is not feasible in Korea. Because Korean law stipulates that "large-scale sales enterprises shall not require suppliers to bear expenses that are not directly related to suppliers when promoting goods provided by suppliers." Therefore, Carrefour suffered in disguised form. loss of profits.

Third, the localization strategy of marketing technology. Retail enterprises need to face consumers directly, and their services are mainly to provide goods for consumers to purchase, so this requires retailers to meet the habits and requirements of local consumers as much as possible in terms of product structure and services.

Generally speaking, Koreans go to the supermarket every day to buy the food they need that day, so there must be enough fresh food in the products. The proportion of fresh food provided by Tesco in stores is about 40%, while Carrefour only provides 30%. Although Korean supermarkets are inferior to high-end department stores in terms of decoration and merchandise display, they provide the same quality of services. Compared with Samsung-Tesco, Carrefour seems to be more extensive in terms of services, which invisibly distances itself from consumers. In addition, the height of domestic product display stands is generally 1.6 to 1.8 meters, while the height of Carrefour display stands is 2.2 meters, which is in line with the height of Europeans. Koreans are generally not used to it. Details like this easily reflect Carrefour's lack of "as the locals do as the Romans do" spirit in his business philosophy, which cannot but be said to be a serious mistake.

Fourth, the localization strategy of human resources and operations management. Carrefour set up a branch in South Korea, but did not let locals serve in key positions. In the early days, its general manager and store manager were both French. However, for the retail industry that operates at a faster speed, specific business must be negotiated with the head office, and the company's decision-making process is slow, resulting in low business efficiency. The general manager of Samsung-Tesco is a Korean who has been working for Samsung. Except for three people in its management team who were dispatched from the British head office, the rest are local Koreans. Tesco not only boldly employs local employees in manpower allocation, but the British head office also hands over full operation and decision-making power to the Korean management team. In addition, the conflicts between Carrefour and ordinary employees are also prominent. According to statistics from the Korean Ministry of Labor, on July 1, 2004, 5,600 Korean Carrefour employees went on strike due to wage issues, causing all Korean Carrefour stores to close for one day.

To sum up, it is not difficult to find that after Carrefour entered the Korean market, it still stubbornly followed its global unified model to carry out business activities, especially in terms of operating model and marketing technology, it ignored the Koreans. Consumption habits and preferences. Tesco cooperated with Samsung Group and adopted roundabout tactics, but achieved the ultimate success.

3. Enlightenments from the success or failure of the two major retail companies in South Korea

First of all, for multinational retail companies, the localization strategy should be based on meeting the needs of local consumers. From the comparison of the success and failure cases of Carrefour and Tesco, it is not difficult to see the importance of localization strategy for multinational retail companies. The localization of retail enterprises is ultimately to meet the needs of local consumers and thereby occupy the consumer market of the host country. As two major international companies, Carrefour and Tesco both have their own complete business concepts. However, after entering the Korean market, Carrefour has always adhered to its global business model and ignored the needs of consumers in many details such as operations and marketing. This was the biggest reason for their failure. For multinational retail companies, if they do not understand the habits of consumers in the host country and do not cater to the preferences of local consumers, they will lose the possibility of successful development.

Second, resolve cultural conflicts in transnational operations through appropriate localization strategies. Culture deeply affects the operation of an enterprise, especially in multinational operations. People from different ethnic backgrounds have different ways of thinking and behavioral habits, which can easily cause friction inside and outside the enterprise. This is called cultural conflict. How to resolve the conflicts caused by different cultures is a question worth considering for enterprises in the process of transnational operations. During Carrefour's operation in South Korea, because the main management was French, differences in cultural understanding between them and ordinary employees caused a series of labor disputes. In addition, Carrefour adhered to its international business philosophy and neglected to Many detailed factors - such as shelf height, shopping mall functions, product structure, etc. - have been lost and it has lost the favor of local consumers. In fact, cultural conflicts can be resolved through some localization strategies. For example, companies evaluate the cultural environment of the host country before investing. A multi-faceted and comprehensive understanding of the host country's environment, focusing on local customs, historical traditions, and religious beliefs, can be used to formulate relevant plans based on local conditions.

Another example is to pay attention to establishing a good image in the host country, assume certain social responsibilities, and use a healthy and upward corporate image to deepen the good impression of customers, suppliers, governments and other organizations in the external environment. In this way, conflicts caused by different cultures to the enterprise can be resolved from both internal and external aspects.

Again, in the process of international expansion, the curved approach to entering the host country market is an effective and robust way. Joint ventures and cooperation are a shortcut for retail companies to achieve multinational operations. In general, the biggest reason for Tesco's success in South Korea is that it has chosen the right partners. What Samsung Group brings to Tesco is a mature and resounding brand name, and complete and low-price purchase channels. These two points alone are already huge benefits for an outside retail company. Although Tesco was already the world's third largest retail company before entering the Korean market, they have shown good patience in the Korean market. In 1999, Tesco and Samsung Group jointly established the Samsung-Tesco Home Plus store. Tesco held 89% of the joint venture at that time, and by July 2007, the shareholding had increased to 99%. In contrast, Carrefour entered the Korean market earlier than Tesco, but in fact it adopted a direct entry method and showed a series of "acclimatization problems" and eventually withdrew from the Korean market. After Tesco pried open the hard Korean market by cooperating with local retailers, it also humbly gradually localized and changed itself to adapt to the market, and finally gained a place in the strong local retail industry. Its international and localized business philosophy and attitude recognized by Korean consumers. Tesco's transnational business model has also been successful in other Asian countries such as Thailand. As Chinese retail companies continue to develop and mature, more and more companies will go abroad in the future. A step-by-step operation strategy based on joint ventures and cooperation is a path worth learning from.

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