"Food Retailers will need to go global to succeed." Terry Leahy, CEO, Tesco. Looking at Carrefour-Promodes and Wal-mart.

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International Retailing

“Food Retailers will need to go global to succeed.”  Terry Leahy, CEO, Tesco

Word Count: 3582

November 2002


In recent years, two major retailers have been in the headlines of the specialised press, namely Carrefour-Promodes and Wal-Mart.  According to the most recent rankings, they are, respectively, numbers one and two in terms of turnover and employment.

Global retailer ranking

                                                               Global Retail Index, 2002

Wal-Mart is by far the largest retailer in turnover size, but has not yet expanded as far internationally as Carrefour, which has a wider geographical presence and achieves a higher proportion of their turnover outside their home market.  

This report is split into three main sections.  Firstly we set out to compare and contrast the motives and internationalisation strategies of Wal-Mart and Carrefour.  Secondly we move on to discuss the problems that these retailers have had in establishing themselves in foreign markets.  Finally we discuss the statement “Food retailers will need to go global to succeed.”

Compare and Contrast the motives and internationalisation strategies of Wal-Mart and Carrefour-Promodes


Retailer motives for internationalisation can essentially be divided into two categories; push and pull factors (McGoldrick, 1995).  Over the course of expansion, both Wal-Mart and Carrefour experienced common and different factors, to varying degrees that motivated which countries were targeted.  

The initial moves abroad of the two companies were based on one distinguishing push factor, saturation in their respective domestic markets.  This factor encouraged internationalisation and made it imperative to expand if either of the companies were to sustain growth within the market and meet the demands of shareholders. (McGoldrick, 1995; Rocha & Dib, 2002).  However, the method with which this saturation occurred differs between the two.  For Wal-Mart, saturation in the US market was mainly due to the fact that they already served the most desirable areas of the market with 2000 plus units (Frazier, 1998).  Carrefour, on the other hand, was almost forced to seek other areas of territorial expansion because the French government imposed expansion limits on hypermarkets in an attempt to protect small businesses (Niehm, 1998). The imposition of the “Loi Royer” required that all projects with a selling space in excess of 3000 sq m be submitted to the committees (Kacker, 1985). This regulation was effectively an artificial level of saturation rather than an actual maturing of the market as opportunities became very limited (McGoldrick, 1995; Niehm, 1998). Furthermore, lack of shopping centres and high taxation in France (Levy and Weitz 2001) contributed to the impetus to internationalise.  Once the initial moves abroad was successful though, both companies took a very proactive approach actively seeking opportunities abroad, even when the current markets they were in had not matured, thus the pull factors came to the forefront.

The lowering of trade barriers in a number of countries provided the opportunity for entry for both companies and was a significant pull factor for countries like Mexico, China and the forming of the Single European Market (Dupuis & Prime, 1996; Arnold, 1999). Eastern Europe especially is becoming increasingly attractive as the food sector is still fairly immature and hypermarket development is moving ahead rapidly (Perkins, 2001).

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Carrefour’s hypermarket format is ideally suited for low-income high population countries (Niehm, 1998).  However, some interesting contrasts in motives can be highlighted. Firms tend to prefer markets with which the business distance – the economic, political, legal, geographic and cultural distances – is short (Dupuis, 1996).  This can be seen as Carrefour is in seven European countries and Wal-Mart is only in two (U.K and Germany), this is due to the fact that psychological distance (Williams, 1992) will be perceived to be lower in pan-European retailing.  An American retailer will have larger business distances when entering European countries, and Wal-Mart have chosen countries where the economical and cultural distances are more aligned to their own.  

Both companies entered the Mexican market in the early 1990s and this was also mainly due to the political barriers being lower than it had in previous years (Niehm, Frazier, 1998). In the case of Wal-Mart, the business distance from Mexico was short, further aided by its membership of NAFTA. However, in the case of Carrefour other factors played a significant role, even though the business distance was long they saw Mexico as a new and untapped market offering favourable costs in terms of rents, rates and labour (McGoldrick and Davies 1995). Indeed, the Latin American countries had a burgeoning economy, with an emerging middle class and a relatively limited retail structure in comparison to the citizens’ growing purchasing power (Frazier, 1998), which lowered the economic distance for both companies.

Dunning’s eclectic theory (McGoldrick and Davies 1995) explains why the firms were able to internationalise even though large business distances may have existed the companies had transferable firm specific advantages in the form of proprietary knowledge, and commodity distribution skills, therefore internalisation becomes more likely.


The following table highlights the strategies that were used by the two companies when entering new markets.

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(Niehm, Frazier, 1998-; Mintel; Rocha & Dib, 2002; Colla & Dupuis, 2002; Dupuis & Prime, 1996)

As demonstrated in the table, Wal-Mart tends to focus their strategy on joint ventures and more recently, acquisitions.  Joint ventures were preferred in Asia and Latin America due to the large business distance (economic, political, geographical and cultural).   This is because there were higher international transaction costs (Dupuis and Prime, 1996).  Another driving force behind initial joint ventures would be to exploit the proprietary knowledge of the partner in an unfamiliar market.  More recently, Bob Martin, International Head of Wal-Mart was quoted as ...

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