Expanding Through Uncertainty, the Carrefour Way
Any good strategy is based on a risk-reward
analysis but what happens when the environment is particularly uncertain and
the threats difficult to understand?
Throughout this period the regulatory and
economic environment was very fluid and Asian consumer behaviour alien to
Western companies. With consultants unable to provide their usual crisp market
studies, retailers had to figure out the new environment on their own. Three
lessons learned in this process are still very relevant today.
Identify specific objectives
First, reducing uncertainty regarding objectives
is crucial to reducing the uncertainty of the outcomes. For example, when
Carrefour entered Taiwan, it had a very clear objective: offer a unique value
proposition by becoming the place of reference for a specific type of product.
Naturally, this objective did not come cheap. In contrast, The Casino Group did
not have this clarity from the onset, hesitating between becoming a product
leader and protecting its profitability. Unable to resolve this ambiguity, it
pulled out of the country in 2006 while Carrefour still remains a major player
in Taiwan.
The lesson being, in an uncertain and far-flung
environment, strategy should not be executed through a “command-and-control”
approach. Rather the execution should be delegated to people closer to the
action. If the objectives are not clear to all, the uncertainty will be
compounded by the distance.
Become intimate with your market
Second, establishing context immensely reduces
strategic uncertainty. As the traditional means of market intelligence were not
an option, Carrefour decided to become directly intimate with the local market
and culture. Its key executive spent the first 6 months taking public
transportation, sampling food on the street and visiting people in their homes.
This very hands-on approach allowed him to observe what local consumers stocked
in their fridges and what cooking methods they used. With a few freezers and no
microwave oven, Taiwanese shoppers much preferred freshness. Going to the local
street markets brought home a point that had previously escaped the company.
The very careful way women shopped, their delicate picking of items one by one,
their utmost attention to product quality became very salient in the mind of
Carrefour executives.
Those lengthy observations proved to be
invaluable to defining Carrefour’s overall strategy: freshness and quality
would be more important than price. Hence, anything that would jeopardise
product freshness would be a threat to the strategy execution and would
exacerbate strategic uncertainty.
Keep flexible
Third, creativity in implementation is central
to address operational threats in an uncertain environment. For example,
Carrefour developed a very innovative approach based on the “fuzzy integration”
of its supply chain. Traditionally, retailers either directly control their
suppliers or maintain an arm’s length relationship. Carrefour took a different
approach as operations were both neither fully integrated nor fully
independent. The idea was to find the optimal tradeoff between information
acquisition and control.
For example, it organised a special programme of
cooperation with the Farmer’s Association of Malaysia. Traditionally, the
vegetable distribution system was an opaque network riddled with
intermediaries. A “collector” would buy fresh produce from local farmers, then
resell it to a bigger collector until they finally reach a wholesale market.
Each layer would charge a 20% premium and increase inefficiencies. The
Malaysian state gave Carrefour tracks of land to grow fruits and vegetables and
encouraged some farmers to join the project. In return, the company agreed to
make an agronomist available to farmers and to guarantee a transparent pricing
system. Carrefour would offer a purchase price which would be higher than the
price paid by collectors to farmers but lower than the wholesale market price.
The company also provided trucks and drivers, advised on packaging and built
washing stations for farmers. Vegetables would be washed and packed at the farm
in plastic crates which would be displayed in stores.
This cut the traditional handling process by
more than half. It also led to fresher products, increased shelf life and,
importantly for Carrefour, provided a better control over the value chain
without integrating suppliers.
Fuzzy integration
“Fuzzy integration” became a competitive
advantage in dealing with the vagaries of production. It solidified the
collaboration with the Malaysian state. When Carrefour founder Jacques Defforey
visited the head of the Malaysian Farmer’s Association, he found a programme
that offered his company a platform to grow in Malaysia and elsewhere in the
region. Today, the company realises some €1.5bn sales in Asia. Naturally, as
the model became successful, it inspired many other retailers, from Walmart in
China to Tesco Lotus in Thailand. It is now deployed by retailers in countries
where it could have a huge social impact such as Sri Lanka.
Today, 30 percent of Indian crops are rotting on the field. “Fuzzy
integration” could alleviate this problem.
Gilles Hilary, INSEAD Professor of Accounting and Control and Dominique Lecossois, Distinguished Fellow, INSEAD Emerging Market Institute
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