the success or failure of localization strategy of multinational retail enterprises-a comparison between Carrefour and Tesco in the Korean market

Abstract: This paper compares the different localization strategies of Carrefour and Tesco in the Korean market from four aspects: brand culture, operation mode, marketing technology and human resources and operation management, and analyzes the reasons for the success or failure of the two major enterprises, so as to meet the needs of ordinary consumers, pay attention to solving cultural conflicts, and occupy the international market by joint venture or cooperation.

Keywords: multinational retail enterprises; Localization strategy; South Korean market

I. Introduction

Since the 1991s, the international business strategy criterion of "thinking globally and acting locally" of multinational corporations has been a hot topic for entrepreneurs and scholars. The two seem contradictory, but in fact they complement each other. Especially the localization strategy, it is undoubtedly the most important thing to realize the transnational operation of enterprises.

The so-called "localization" refers to the localization strategy adopted by multinational enterprises in technology development, fund raising, human resources, operation management, marketing and other aspects in order to quickly adapt to the local economic, cultural and political environment and fully meet the needs of the local market during their overseas production and business activities, which can specifically include adapting to local culture, using local business talents and resources to organize the production, sales and provision of products and services adapted to a specific region, and so on.

the retail industry is a circulation industry that directly provides goods 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 set up branches in other countries, and the service target it faces is ordinary consumers deeply influenced by the domestic cultural environment; On the other hand, compared with other industries, the retail industry is often more restricted by the policies and regulations of the host country. Therefore, localization strategy is particularly important for multinational retail companies.

second, the comparison of localization strategies between Carrefour and Tesco in Korea

(1) case background.

Carrefour is the largest international retail enterprise in France and the second largest chain retailer in the world. In 2118, it was ranked 33rd among Fortune Global 511 enterprises. Tesco, on the other hand, is the largest retailer in Britain, ranking third in the world. The two major enterprises entered Korea in 1996 and 1999 respectively, but their fates were quite different. In 2116, the former issued a statement "Carrefour officially confirmed its withdrawal from South Korea", acknowledging the failure of its operation; At present, the latter has 66 hypermarkets and 72 fresh food stores in Korea. As of February 2118, it has achieved sales of about 2.7 billion pounds, making it the only large foreign retailer that has successfully operated in Korea. It is also a world-renowned retail enterprise with mature business philosophy and rich practical experience, but its operation in the Korean market is quite different. There are many reasons for this result, but by comparing the localization strategies of the two major retail enterprises in South Korea, it is not difficult to find that the success or failure of localization strategies is the biggest reason for the different fates of the two major enterprises.

(2) Comparative analysis.

Carrefour and Tesco are compared from four aspects: localization of brand culture, localization of operation mode, localization of marketing technology and localization of human resources and operation management.

first, the localization strategy of brand culture. In fact, Carrefour and Tesco invest in Korea in a completely different way. The former is an independent capital injection and directly enters the Korean market; The latter is a joint venture with the well-known Samsung Group in South Korea. Although Tesco already held 89% of the shares in the enterprise at the beginning of the cooperation, they still added "Samsung" before the brand name and named its store "Samsung-Tesco Home Plus". According to relevant research, the value of Samsung, the number one brand in South Korea, reached $5.2 billion in 2111. Tesco pays an extra $411 million to Samsung every year as a brand use fee. However, they have saved a lot of pre-promotion expenses and customer development costs, and quickly gained consumer resources. Facts have proved that this practice of Tesco has achieved great success. The popularity of "Samsung" in South Korea can not only offset people's dislike of Tesco as a foreign brand, but also quickly win the trust and favor of domestic consumers. In contrast, Carrefour is a leading brand in France and even in the world, but for Koreans with strong xenophobia, the degree and speed of accepting a foreign brand is far less than that of accepting a mixed brand like "Samsung-Tesco".

in fact, Tesco's choice of Samsung as its partner is the biggest factor for its success. Samsung's successful background in South Korea has not only brought Tesco brand effects, but also brought great convenience and benefits to its business activities. Tesco's way of making a joint venture with the retail enterprises in the host country, and then seeking the controlling stake in the joint venture to achieve the goal of fully entering the host country has proved to be a very effective and steady strategy.

second, the localization strategy of operation mode. "Scientific site selection" is known as one of the six golden laws of Carrefour. According to the strategy of "the suburbs surround the city center", most of them set up their own stores in the suburbs where the unit rent is relatively cheap and the area is larger. It is one of the principles of their site selection that the bus ride is 8 kilometers and the psychological endurance is no more than 21 minutes. However, Korean consumers don't drive to the supermarket on weekends to purchase the goods they need for a week like European and American consumers. Koreans, especially a large number of housewives, pay great attention to freshness. If they want to buy food in the remote suburbs with inconvenient transportation every day, even if the price is cheap, they will not be attracted. Most of Samsung-Tesco's stores are located near the city center with convenient transportation, which is more in line with Korean shopping habits in location strategy. In addition, in peer competition, Korean local retail enterprises are the strongest competitors. Tesco chose to set up a store in a second-tier city outside Seoul first, and gained confidence and strength by winning the competition with weaker competitors, so as to fully occupy the Korean market.

in terms of business model, Tesco has put forward the concept of "multi-shopping". Its shopping malls are divided into multi-floors, and besides large supermarkets, there are also various restaurants, clothing stores, photo studios, flower shops, etc., which makes it have functions similar to department stores as a whole. In South Korea, people go shopping in shopping malls not only to purchase daily necessities, but also to get more entertainment and leisure there. This practice is exactly the same as the operation mode of local retail enterprises in Korea. Carrefour completely lacked this consideration at the beginning of its operation. Their stores are huge in scale, but they simply complete the function of a supermarket, ignoring the demand of Koreans for compound consumption.

in addition, the degree of cooperation with local suppliers determines the operating costs of multinational retail enterprises. Large retail enterprises such as Carrefour and Tesco mainly rely on low-price strategy to make profits. Therefore, cost control is a crucial step in operation. However, Korea is a special market, and its economy is mainly controlled by a few family groups, whose business scope is all-encompassing. There are a considerable number of such manufacturing enterprises under the Samsung Group alone. Because of its cooperation with Samsung Group, Tesco has quickly and conveniently established contact with local suppliers and has rich and low-cost commodity resources. In contrast, Carrefour, who fights alone, is naturally at a disadvantage. The failure to achieve low-cost control is undoubtedly fatal for Carrefour, which takes small profits but quick turnover as its strategic advantage. In addition, Carrefour's entrance fee from suppliers is a big 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 the expenses that are not directly related to suppliers when promoting the goods provided by suppliers." Therefore, Carrefour has suffered a loss of interest in disguise.

third, the localization strategy of marketing technology. Retail enterprises need to face consumers directly, and their service is mainly to provide goods for consumers to buy, so this requires retailers to meet the habits and requirements of local consumers as much as possible in terms of product structure and service. Generally speaking, Koreans will go to the supermarket every day to buy the food they need that day, so there must be plenty of fresh food in the goods. Tesco provides about 41% fresh food in its stores, while Carrefour only provides 31%. Although supermarkets in Korea are inferior to high-end department stores in decoration and commodity display, they provide the same quality of service. Compared with Samsung-Tesco, Carrefour seems to be more extensive in service, which invisibly narrows the distance with consumers. In addition, the height of merchandise display stands in Korea 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 generally feel unaccustomed. Similar details can easily reflect that Carrefour lacks the spirit of "do as the Romans do" in its business philosophy, which is a serious mistake.

fourthly, the localization strategy of human resources and operation management. Carrefour set up a branch in South Korea, but did not let go of using its own people to hold important positions. At the beginning, its general manager and store manager were all French. However, for the fast-running retail industry, the specific business must be negotiated with the head office, and the company's decision-making process is slow, which leads to low business efficiency. The general manager of Samsung-Tesco is a Korean who has been working for Samsung. Except for three people sent by the British head office, the rest are Korean locals. Tesco not only boldly employs local employees in manpower distribution, but also gives the management and decision-making power to the management team in South Korea by the British head office. In addition, the contradiction between Carrefour and ordinary employees is also prominent. According to the statistics of the Korean Labor Department, on July 1, 2114, 5,611 employees of Korean Carrefour went on strike due to salary issues, which led to the closure of all stores in Korean Carrefour for one day.

to sum up, it is not difficult to find that Carrefour still stubbornly follows its global unified model to carry out its business activities after entering the Korean market, especially ignoring the consumption habits and preferences of Koreans in its operation mode and marketing technology. Tesco cooperated with Samsung Group and adopted circuitous tactics, but achieved the ultimate success.

third, the enlightenment of the success or failure of the two major retail enterprises in South Korea

First, for multinational retail enterprises, the localization strategy should be based on meeting the needs of local consumers. It is not difficult to see the importance of localization strategy for multinational retail enterprises from the comparison of Carrefour and Tesco. In the final analysis, the localization of retail enterprises is to meet the needs of local consumers and thus occupy the consumer market of the host country. Carrefour and Tesco, as two international enterprises, have their own perfect business philosophy. However, Carrefour has been sticking to its global business model since it entered the Korean market, ignoring the needs of consumers in many details such as operation and marketing, which is the biggest reason for their failure. For multinational retail enterprises, if they don't understand the habits of consumers in the host country and cater to the preferences of local consumers, they will lose the possibility of successful development.

Secondly, the cultural conflicts in transnational operations are resolved through appropriate localization strategies. Culture deeply affects the operation of enterprises, especially in transnational operations, people from different ethnic backgrounds have different ways of thinking and behavior habits, and it is easy to form friction inside and outside enterprises, which is cultural conflict. How to resolve the conflicts brought by different cultures is a problem worthy of consideration for enterprises in the process of transnational operation. In the process of Carrefour's operation in South Korea, because the main management is French, a series of labor disputes are caused by the different cultural understanding between them and ordinary employees. In addition, Carrefour sticks to its own international business philosophy and ignores many details in the marketing process, such as shelf height, mall function, product structure and so on, which has lost the favor of local consumers. In fact, cultural conflicts can be resolved through some localized strategies. For example, enterprises evaluate the cultural environment of the host country before investing. A comprehensive understanding of the host country's environment, focusing on local customs, historical traditions, and religious beliefs, can make relevant plans according to local conditions. Another example is to pay attention to establishing a good image in the host country, assume certain social responsibilities, and deepen the good impression of customers, suppliers and some organizations such as the government in the external environment with a healthy and upward corporate image. In this way, we can solve the conflicts brought by different cultures to enterprises from both internal and external aspects.

Thirdly, in the process of international expansion, the way of curve entering the host market is an effective and steady way. Joint venture and cooperation is a shortcut for retail enterprises to realize transnational operation. Generally speaking, the biggest reason for Tesco's success in South Korea is that it chose the right partner. What Samsung Group brings to Tesco is a mature and resounding brand name, perfect and low-cost purchase channels. These two points alone are already huge benefits for a foreign retail enterprise. Although Tesco was the third largest retailer in the world before entering the Korean market, they showed good patience in the Korean market. In 1999, Tesco and Samsung Group jointly established the Samsung-Tesco Home Plus store. At that time, Tesco held 89% of the shares in the joint venture, and by July 2117, its share had risen to 99%. In contrast, Carrefour entered the Korean market earlier than Tesco, but it actually entered directly, showing a series of "acclimatization" and eventually withdrew from the Korean market. After cooperating with local retailers to pry open the hard Korean market, Tesco modestly gradually localized itself, changed itself to adapt to the market, and finally gained a place in the strong local retail industry. Its internationalization and localization business philosophy and attitude were recognized by Korean consumers. Tesco, a transnational operation mode, has also been successful in other Asian countries such as Thailand. With the continuous development and maturity of retail enterprises in China, more and more enterprises will go abroad in the future. The step-by-step operation strategy of joint venture and cooperation is a way worth learning from.

References:

[1] Cao Huiping, Meng Qingchao. Localization strategy of multinational corporations and its enlightenment to Chinese enterprises [J]. Heilongjiang Foreign Trade and Economic Cooperation, 21