Market Entry: The City And State Where It Is Located (Essay Sample)

MARKET ENTRY
By name
The Name of the Class (Course)
Professor (Tutor)
The Name of the School (University)
The City and State where it is located
The Date
Introduction
The environment of business in the world today is facing such primary changes as increasing globalization, advancements in the use of technology as well as increased competition. Such developments ensure the creation of opportunities in the market to established companies influencing them to expand their operations internationally (Dunning, 2014). In the recent years, firms have been shifting their orientation from local to international and are utilizing global techniques for marketing to enable them to access the international markets (Hamilton and Webster, 2015). The success of a company in the foreign market largely depends on its core competencies and values, its foreign market direction and ambitions, and the adopted strategies when entering the international markets (Brouthers, 2013). The essay presents a detailed analysis of Carrefour in its expansion into the Saudi Arabian retail markets.
Background of Carrefour
Carrefour is a French multinational retail chain with its stores found all over the world in such places as the United Kingdom, United Arab Emirates, Argentina, Brazil, and Saudi Arabia. The company adopted a multi-channel approach that enables its online and physical stores interaction with the customers when meeting their various demands and needs. Carrefour believes in supplying its esteemed clients with quality products at reasonable prices and ensures that they get exposed to a variety of high-quality and fresh produce in all its stores. The company is instrumental in ensuring the protection of the local expertise as well as the growth of the local economy while at the same time supplying its customers with high-quality products at affordable prices.
Reasons for going international
Many reasons exist explaining why businesses decide to expand their operations into the international markets. Johanson and Mattsson (2015) highlighted some significant reasons that make companies push for the idea of expanding their operations to the global markets. First, most of the firms want to generate more revenue by reaching out to many new customers. The second reason is the need to lower cost and improve the company’s market competitive position. Similarly, the firms also seek to capitalize on their core competencies and organizational capabilities by expanding to the international markets (Johanson and Mattsson, 2015). According to Hohenthal et al. (2014), the desire of a company to get access to more efficient resources than those found in the local market may also motivate it to embrace globalization.
In particular, the very growing economy of Saudi Arabia made it an attractive destination for Carrefour’s retail expansion objective. The steady growth of the economy resulted in less unemployment in the Kingdom, hence improved average individual’s income. Better living conditions, as well as increasing disposable income, favors the country’s retail industry as many of the Saudi Arabia citizens were willing to spend more when it comes to fulfilling their needs and wants (Alam et al. 2014). That notwithstanding, the country’s retail industry also benefited a lot from the growing population as the increased living standard and purchasing power enabled individuals to continue spending on the acquisition of luxury products. The products they earlier considered nonessential were becoming popular as most people continued to acquire them (Al-Otaibi and Yasmeen, 2014). All these reasons were the main factors that made the country and attractive market for the giant retailer, Carrefour.
Retail market analysis of Saudi Arabia
Despite having a small retail market, Saudi Arabia has a very substantial per capita income. Currently, the two countries considered to be having the most attractive and the largest total expenditure markets are the United Arab Emirates and Saudi Arabia. According to Randheer and Al-Aali (2015), the region continues to experience a more stable political environment, increasing population and Gross Domestic Product, strong market presence as well as enhanced spending by the government. The strategic location of Saudi Arabia enables it to receive commodities from Europe, Asia, and other countries, thus making it the most attractive market for international retailers willing to establish their presence in the region. In the recent years, many international retail stores like Starbucks and Debenhams are all found in Saudi Arabia.
Research has it that the most eager consumers all over the world are those coming from Saudi Arabia. Approximately eighty-one percent of the country’s population is economically stable, and the figure will increase by two percent come 2018 (Randheer and Al-Aali, 2015). The Saudi Arabian population has high exposure to international brands as well as foreign commodities thus making global firms to take their operations in the country. Similarly, global brands’ demands are becoming in the country, hence promoting high demand for German, Canadian, and French products. The shift in consumers’ taste motivates international retailers to spread into the nation’s markets.
When Carrefour entered the Saudi Arabian market, it faced serious competition from the already established companies in the region. Such existing retail firms encompassed EMKE Group, Lulu Hypermarket, Fathima as well as the Lifco Group of Companies. The most popular retail outlet in Saudi Arabia, among the natives, is Lulu having over eighty stores distributed across the nation. Market leaders like Fathima group and EMKE group are expanding the retail sector to include other brands than groceries, domestic products, drinks, and food (Rahman, 2014). The Fathima group, in particular, operates through commercial and distribution centers, restaurants, retail outlets, hypermarkets, restaurants, cold stores, and supermarkets.
Challenges to entry in Saudi Arabia
Carrefour faced many challenges in its efforts to establish its operations in Saudi Arabia. Other than stiff competition from the already established companies in the nation, other problems included the requirement of the company to meet local culture and health standards to get licensing for its products (Shulyn and Yazdanifard, 2015). Similarly, the company also experienced hardships in locating local players who had the ability to share the burden encountered when navigating not only through pre-operational regulations but also the complex local statutes. Moreover, infrastructure and establishment costs were very high as it required significant capital for setting up facilities in a foreign land (Chinomona and Sibanda, 2013). Lastly, the other entry hurdles for the company in the country were persistent inflation and political risks from such countries as Iran and Iraq as well as terrorism.
Nonetheless, the company was diligent enough and employed some strategies that enabled it to overcome the challenges listed above. For instance, to overcome the change of competition from other competing retailers in the Saudi Arabian market, Carrefour had to set very competitive prices for its products compromising with its levels of profits. Similarly, the company, instead of going for a solo venture, saw it good to give its franchise to a well-established market player, Majid Al Futtaim. Such strategic decision enabled the firm to penetrate deep into the Saudi Arabia’s retail market. Today, the company is ranked third after Wal-Mart and Tesco in profit generation, providing its esteemed customers with varied formats of stores, including hypermarket as well as convenience stores that support people’s daily shopping (Burton, 2016). It has grown and outdone its major competitors that almost killed it in its initial stages. The company currently has twelve operating franchises in the country with Riyadh hosting five of them.
Carrefour’s mode of entry into Saudi Arabia
In the business world today, there are many ways of entry that a firm may utilize when entering a foreign market. The most common strategies for entry employed by many companies include exporting, joint venture, a wholly-owned subsidiary, franchising, and licensing (Laufs and Schwens, 2014). A company also has to analyze all the relating external and internal factors before entering any retail market. The factors for examination include home country factors, the company size, and the required resources, foreign country’s business environment characteristics, risk attitude of the management, market growth rate as well as barriers to entry. A careful consideration of these elements promotes the success of the company in a foreign market (Fong, Lee and Du, 2014).
Concerning our present study, Carrefour, in general, practices sole venture and franchising. The company favors franchise because by using the entry mode, the business has no obligation to enforce any form of equity. Similarly, franchising will enable Carrefour to benefit from royalties from its partner for the use of the company’s brand name. That notwithstanding, there is also no need for the company to invest in management and infrastructure as the partners develop and maintain the whole project. Sometimes, Carrefour works through its well-established cash and carry ventures which only the managers of the company establish and control if it does not franchise. Carrefour uses this model in places where local and potential players for the franchise do not exist. The two entry models assure Carrefour success during its entry into foreign markets.
The company entered the Saudi Arabian retail market through a partner, Majid Al Futtaim. The first time it got into the nation’s retail market the firm found Majid Al Futtaim, a ...