Foreign Giants’ Leadership Changes Refresh Their Profiles in China

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Recently, foreign retail giant Wal-Mart announced that Greg Foran, senior vice president of Wal-Mart International, will become the CEO and president of Wal-Mart china on March 1. He is responsible for the retail business of Wal-Mart in China. Meanwhile, it is said that Greg Foran’s predecessor Ed Chan was recruited by Lotus as the new CEO of this Thailand-based company in China.

At the same time, Carrefour, the second largest retailer after Wal-Mart, announced the new presidency. Georges Plassat will take the place of Lars Olofsson as the president of CEO of this French company. Thierry Garnier replaced Eric Legros as the president of Carrefour Greater China as of April 1.

The analysts pointed out that the leadership changes of the two giants in China imply their expectations of business improvement. They also hope that the new leaders and their new measures will leave a good impression for the Chinese consumers C previously, the fake green pork, price fraud and other scandals have already downgraded the two companies’ images in China.

In recent two years, many international retail giants met numerous setbacks in China. Wal-Mart, Carrefour, Tesco and Best Buy all had a tough time in China. Last year, Wal-Mart was reported to be involved in the scandals of fake green pork and price fraud. Carrefour was not only involved in the price fraud, it was also reported to have a worsening relation with its suppliers thanks to its high distribution charges. Some Chinese local suppliers, like Master Kang and China National Cereals, Oils and Foodstuffs Corporation, had already cut their supplies to Carrefour. People widely believed that foreign retail giants’ “grace” in China had gradually faded away.

As described in PricewaterhouseCoopers’ 2012 Outlook for the Retail and Consumer Products Sector in Asia, China’s retail amount has the fastest growth in Asia. This report also stated that the annual retail amount in China will have continuous increase in the next three years and exceed 5.5 trillion U.S. dollars in 2015. Therefore, WalMart and Carrefour and other foreign retail giants are not going to give up this market despite the current setbacks. When the global economy is still under depression, Wal-Mart and Carrefour will continue to consider China as one of their most important markets.

The foreign brands are dealing with unprecedented difficulties in China. Best Buy completely lost to local companies in the market of retailing home appliances. It has not made up its mind about when to come back to China after its leaving last February. Sharp, Sony and other famous home appliance manufacturers all suffered historical loss in China. Therefore, when many foreign brands were frustrated at present, it is an important matter whether Carrefour and Wal-Mart could hold their previous position in China’s retail market.

Turn Around the Situation

Greg Foran is said to be a veteran in the retail market with 30 years’ experiences. Before joining in Wal-Mart, he had abundant experiences in operation, purchasing, market and replenishment. Georges Plassat was considered to be an “expert” troubleshooter for Carrefour by foreign media due to his rich experiences with large retail companies and French local markets, which are very important for Carrefour to address current issues.

Natalie Berg, Global Research Director at Planet Retail, said that Plassat was a skillful retail director and his experiences in the non-food field is what Carrefour needs most. Retail analyst Christian Devismes from France-based CM-CIC Securities said: “Plassat’s appointment is a positive signal for Carrefour’s employees, suppliers and investors.”

For long, foreign retail companies’inflexibility in HR structure reform caused by their huge size troubled the future performance of them. “Actually, Carrefour and Wal-Mart are always hesitating between concentrating the operation rights and decentralizing them,”said a former senior executive of WalMart China. Ed Chan once realized the fast growth of Wal-Mart in China by decentralizing the operation rights to directors of different supermarkets. In comparison, Greg Foran is not going to open new supermarkets at an amazing pace according the Wal-Mart’s plan of opening 10 supermarkets in China this year. Instead, he may set up new departments after taking back the operation rights from single supermarket directors in order to retrieve Wal-Mart’s images for Chinese consumers. Difficulties and obstacles are anticipated during that course.

For Carrefour, some analysts thought the new boss’s unfamiliarity with Chinese market will hinder its development in China C Best Buy’s unfortunate fate in China tells us that foreign retailers have to know and adapt themselves to China.

It is known that Greg Foran, who previously worked in Australia, did not know China either. Most of his experiences are related with western countries, far different from the local situations in China. The Wall Street Journal published a comment, saying, “Greg Foran is different from his predecessor. He has no working experience in China. When he was given this job, the compa- ny was dealing some challenges peculiar to China.”

Lai Yang, secretary-general of the Beijing Academy of Commercial Economics, thought that the retail market in the major cities of China has been saturated. In the second- and third-tier cities of China, good supermarkets have growing appeal for consumers.

“Presently, most foreign retailers cannot earn profits immediately after their entry in the second- and third-tier cities, and local consumers will not accept them soon because local supermarkets are not ignorable,” Lai Yang said.

Diversified to Save the Market

Apart from traditional supermarkets, foreign retail giants are also hoping to take the market through diversification. Ecommerce is what the have great expectations for.

According to Wal-Mart’s financial data, the online store contributes 65% of the company’s sales in the U.S. market. It hopes to copy this pattern in China. For this goal, Wal-Mart began to invest in ecommerce in China.

In May 2011, Wal-Mart acquired part of the stake of Chinese ecommerce website Yihaodian and launched strategic cooperation with this Chinese online retailer. In June, Wal-Mart signed the Memorandum of Cooperative Framework on Wal-Mart’s Promotion of Ecommerce in Shanghai with the Shanghai Municipal Commercial Commission, after which it declared the official establishment of Wal-Mart’s global ecommerce headquarters in Shanghai.

Meanwhile, Wal-Mart increased the investment in logistics system. It is known that Yihaodian presently has five storage centers in Beijing, Shanghai, Wuhan, Guangzhou and Chengdu, as well as 130 delivery hubs in 34 cities all around China. It plans to extend its delivery team to hundreds of cities in 2012.

Carrefour began to get involved in ecommerce in 2006. It is known that a lot of products could be bought on the official website of Carrefour. According to Liao Yan, PR director of Carrefour China, the company is planning to launch Online Shopping Mall too.

However, Natalie Berg said that Eric Legros’ measures of lowering prices and reshaping supermarkets did not win enough customers. “Compared with the capricious restructuring, it is better to invest the money in increasing the exposure and having more channels by establishing the online business,”Natalie Berg said.

In addition, Chinese local ecommerce dealers must try to “circle and suppress” foreign retail giants’ effors in ecommerce. In January 2011, China’s Taobao launched its online supermarket, allowing local residents to buy daily commodities without leaving home. This business is identical to Yihaodian that Wal-Mart acquired. Tencet also invested 500 million yuan in marketing for its online retail website to support and establish high-quality retailers.

When Suning and Gome are engaged in ecommerce one by one, Besy Buy, which met setbacks in the development of tangible stores, was rather conservative. Wang Jian, vice president of Best Buy China, said that Best Buy would focus on tangible stores even ecommerce is an integrated part of its plan.

In addition, analysts pointed out that foreign retail giants need to bypass the tests of “Chinese-style ecommerce”, which need to implement localization strategy with the real situation in China. Looking back at Wal-Mart’s successful management pattern with which it developed the overseas market, we found it necessary to combine its global management system and localized operation system.

It is widely held that foreign companies’ engagement would stir up a new wave of competition whether they carry out their localization strategies well.