Lost Frenchmen

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The Frenchmen are famous for their creativity and adoring for romance and beauty. They have Van Gogh; they have Louvre Museum; they have the Eiffel Tower. Many famous literalists and novelists speak and write in French. The French music is also widely spread in the world.

So do their companies. The number of multinationals born or headquartered in France is much larger than in any other European country. They not only have Louis Vuitton, Chanel, Dior and Givenchy, but also found the multinationals like Total, Carrefour, Danone, Peugeot and so on.

The boom of French companies doesn’t mean that they can get success in China. The Frenchmen, featuring stubbornness and inflexibility, added the difficulty of managing companies. Their fascination for romance and freedom will result in less precise management and reckless randomness. Therefore, we can see the cases of French companies’ failures in localizing themselves in China. The out-of-control management was reflected in Carrefour’s separation of rights. The truth that Peugeot was stagnant in China and most Chinese don’t favor Alcatel-Lucent can not be denied. Actually, most of the French companies can not extend their strength and advantages in China except the ones involving luxury products.

Well, the coin has two sides. A few French companies are flexible enough to see success in China Violea nearly monopolizes the water disposal business in China. Some companies, however, are too flexible. Etam completely changed its style so much to cater for the favor of Chinese that people forget its French identity.

The French companies seem to be equipped with natural-born mystery. During the globalization, they need to reshape their individuality, which is painful and short of criterion. One thing is true: consumers need what they want. They can not single buy for French culture.

The following three articles tell the cases of French companies’ failure in China:

Operation Rights Puzzle Carrefour

The first case is about Carrefour. There have been many articles talking about the French retailers’ glory and suffering in China. But one thing is true Carrefour was greeted by a hard period in the year of 2010.

At the beginning of this year, the Chinese Association of Chain Retailing published a report, showing that RT Mart from Taiwan replaced Carrefour as the champion of sales of a single store and the nationwide total sales. In 2010, a Carrefour supermarket in Xi’an was closed, which was the first time for Carrefour. Globally, Carrefour had to face the dropping business all around the world and the mass withdrawal from the Asian market.

Actually, Carrefour’s advantages are as easy to see as its defects. It used to be a dark horse in China. When it began to develop in China, it was famous for its ability of meeting the demand in different countries and the high profitability of a single store. Compared with Wal-Mart, which entered China at the same time with Carrefour and followed the rules rigidly, Carrefour got an unparalleled success and established its leading place soon. In addition, it trained a lot of people with the talents of retailing. Its development in China completely changes Chinese consumers’ habit and Chinese retailing business.

“We found that Chinese people love snacks so we display more snacks on the shelves, including the flood with local flavors. Numerous free tasting campaigns were held for sales promotion, spreading the brand awareness among the consumers. There are quite a few servicemen in Carrefour’s shopping malls in Europe. But things are different in China because the Chinese like talking with many people,” said Chen Bo, PR director of Carrefour China. Many foreign retailers followed suit and had to admire Carrefour’s ability of knowing consumers’ minds.

This was mostly attributed to Carrefour’s decentralization of management rights. If a case had no significant influence over Carrefour, the decision for a case could be made if the upper and lower management levels reached an agreement. The decision-making rights are even decentralized to the grass-root management level. The head of a supermarket has the right of placing orders, setting price, holding sales promotion campaigns and employing staff. Every supermarket has its own purchasing team, which could choose products based on their own statues quo. The supermarket head can adjust prices according to the competition situation. Because the supermarket head was usually a local people with profound understanding of the market here, he/she could respond quickly to any changes. This decentralization also attracts a lot of retailing talents.

With this pattern Carrefour kept its leading place till 2005, after which the situation made a downturn. The previous advantage became an impediment. As the number of supermarkets in China increased to 160, it was more and more difficult for the headquarters to control these stores. If the previous pattern featuring autonomy of different single stores was held, the situation might go out of control. In addition, this pattern set limitations for Carrefour to develop economy of scale. When Wal-Mart caught up with centralized management, Carrefour felt anxious ton change its pattern. “We want to open environment-friendly supermarket and get supplies directly from farmers, which need centralized management and unified purchasing to improve efficiency and lower cost,” said Chen Bo.

Carrefour made up its mind to seek balance between decentralization and centralization of rights in China. For the directors of different single supermarkets, this campaign meant that their rights and interests would be greatly shrunk. In 2006, Carrefour appointed Eric Legros as CEO of its China branch. This Frenchman was also a number of the managing committee of Carrefour Group. This appointment shows Carrefour’s care for the Chinese market.

Pei Liang, secretary-general of the Chinese Association of Chain Retailing, said that centralized operation was a must according to the rule of retailing industry. Eric Legro was an open-minded man and willing to accept the challenges of reforms. However, it is still a difficult task for him to complete this mission without slowing the development of Carrefour in China.

Soon after taking his position, Eric Legros actively promoted the construction of urban purchasing center, which is responsible for negotiating purchasing contract, setting price, arranging display pattern and placing orders for important goods.

But the workers in the urban purchasing center didn’t have the frontline working experience. Staying in the office, they can’t get information in time; therefore it is hard for them to work out precise purchasing plans. Moreover, there are great disparities for different supermarkets, so the purchasing plan made by the urban purchasing center cannot attend to every supermarket at the same time. This could affect the sales of a single supermarket and weakened the enthusiasm of the directors. Therefore, Carrefour’s development gradually slowed down.

Legros recognized the importance of this matter. In 2008, he launched the pattern of “piloting supermarket heads” each city had several piloting heads, each of who were responsible for certain kinds of products. Each week they had meetings with the other supermarkets’ heads in the same city and talked about the sales situation of these stores. Then they sent the information to the urban purchasing center and worked out suggestions about purchasing.

“The advantage of this is to establish the influential power of these “piloting heads” in the urban purchasing center. On one hand it can fill the gap between urban purchasing center and market; on the other hand the supermarket heads get some of the purchasing rights back,” said Chen Bo. However, some people thought that this pattern had the defect of “slow decision and chaotic management”. Meanwhile, they can not provide solutions to the problem of “illegal trade” in the supply chain. Some workers in the urban purchasing center were arrested because of accepting bribes from the urban purchasing center.

Though some supermarket heads were not satisfied with their rights being taken away, they could not stop Carrefour from carrying out this measure. “If they fail to get used to the change, they can choose to leave,” Chen Bo said. Many new policies were carried out in a mandatory way without any flexibility. Therefore, some supermarkets’ directors chose to leave.

Carrefour also took measures for the retailer-supplier relationship which was frequently scolded. For example: they had the Day of Partners, on which they provided the suppliers with training courses, market information and favorable policies. Carrefour thought that it should not be blamed by the suppliers. “Our deeds conformed to the Retailer-Supplier Fair Trade Act issued in 2006. No matter Carrefour or the suppliers should put the consumers’ demand into consideration. Customers are the essence for the existence of both suppliers and retailers,” said Chen Bo.

Presently, Carrefour is still haunted by the aforementioned problems, but Legros is confidence to increase the development pace of Carrefour in China from 2010. In the next four year, China will have 300 Carrefour supermarkets located in China. In July 2001, Carrefour founded a joint venture with a Chinese local retailer Hebei Baolongcang Co., Ltd. In addition, Carrefour is looking for a new partner for the will of solving the problems.

Carrefour’s problems in China can be seen in the other countries. The French company is thinking of selling its branches in Malaysia, Singapore and Thailand. The balance between centralizing and decentralizing management rights is a global problem for Carrefour, which could affect Carrefour’s competitive power in developed areas.

Trouble Finds Danone

Danone seemed to make close friends with trouble in China since it got into this country 23 years ago. Disputes never left this French company with the opponents’ names changing from Robust and Bright to Wahaha, Monmilk and Huiyuan. Danone once thought that it could gradually control these leading enterprises step by step and finally built an empire in China. But the truth was: Danone nearly lost all the battles in China.

The cost is high. In the past 23 years, Danone wasted too much time and money in dealing with disputes and lawsuits and gradually lost its advantages in competition. It failed to build a brilliant brand image; instead, it was considered as a “national enemy trying to devour the Chinese leading enterprises”. In addition to the weakened competitive power of the enterprises it acquired, Danone’s annual sales amount in China was only 600 million euros, not matching its global second largest food company.

It is time for Danone to review its strategy in China.

In truth, mergers and acquisitions are a part of Danone’s nature. Even the company’s name Danone came from the company it bought. Originally the French company is called BSN, which got engaged in glass products. Then it turned to food and drinks and then acquired Danone, Kronenbourg Beer and Evian. It also changed its name to Danone. In many places of the world, Danone had cooperation with many local enterprises.

Danone had no problem in its eyesight. Most of the enterprises it targeted were good ones with leading strength and specialization. After acquiring Robust in 2000, Danone’s global strategy began to focus on China. It sold its beer and condiment business and concentrated on biscuit, water and dairy products. Danone was good at these fields and it could attach great importance to China. In 2007, Emmanuel Faber, then president of Danone Asia, said: “None of the European companies in China could attach so much importance to China as Danone. China has become the largest overseas market for Danone.”

Thus, what is the problem?

Danone craved for development in China through cooperation. But the said cooperation means that Danone had the dominant place. The partners are usually the competitors in the same field. Unfortunately, most of them didn’t want to be controlled by Danone, which led to the divorce.

The best example is that Danone spent 15 years conquering Bright Dairy in vain. Now Bright Food is filled with complaints about the cooperation with Danone. “It only focused on its own interests instead of the win-win strategy.” Wang Jiafen, board chairman of Bright Dairy, recorded the conflicts with Danone in her notebook. When she noticed the true intension of Danone, she tried her best to avoid cooperating with Danone.

When Danone was busy “chasing” Bright Dairy, it also eyed on another Chinese diary company Monmilk. Soon after the invalid cooperation with Bright Dairy, Danone had a “marriage” with Monmilk, which only lasted a short while. Danone’s greed also instigated Wahaha, with whom Danone cooperated in 1996. Danone acquired Robust one of Wahaha’s rivals in 2000 and then launched the cooperation with Bright Dairy, Monmilk and Huiyuan. It made Wahaha, which had been engaged in many fields, very unhappy and bring an action against Danone.

Danone was also too optimistic for its ability of controlling the situation. “We like the best enterprises and enjoy cooperating with the entrepreneurs having individuality and ideas,” said an insider from Danone China. “Danone always wants to control others, which are tigers not sheep. It is rather difficult.”

After acquiring Robust, He Boquan, then head of Robust, left with the elite management team. From then on, Robust gradually lost its grace. Besides, Shenzhen Yili, Zhengguanghe and some other enterprises didn’t boom after being acquired by Danone.

When Danone expressed its desire to cooperate with Bright Dairy on its yoghurt business, Wang Jiafen refused this proposal. She thought that Danone could not help develop yoghurt business because its own yoghurt didn’t see boom in China.

“Danone wanted to boost the development, but it overestimated its ability. The companies it controlled all suffered failure. For some other companies, it didn’t take the operation rights but bought some shares,” said Zhu Xinli, board chairman of Huiyuan. Danone also had problems in choosing partners. “Having not much knowledge about China’s dairy industry and efficient communication with partners and government, how can it earn a lot of from such a small investment?”

Apart from the problems in strategy, Danone also met a lot of substantial problems during the cooperation. This is related with the nature of French companies.

Bright Dairy, Wahaha and Huiyuan blamed Danone for its insufficient support. “We feel that Danone came to share our wealth instead of helping us,” said an insider. Zong Qinghou, board chairman of Wahaha, stressed that Feichang Cola and Nutrient Express were very popular products developed by Wahaha itself, not Danone. Zhu Xinli said that Danone was a good company but its role in the cooperation was far behind the expectation.

In addition, Danone had problems in communicating with the partners. The first barricade was the language. When this problem was solved, the Chinese entrepreneurs found that Danone were more overpowering than they expected. Zhu Xinli said that Danone’s deeds were too dogmatic. Qin Peng, who was assigned to tackle the relationship with Chinese partners, had different understanding of market and product development with Zhu Xinli.

Worst of all, Danone underestimated the importance of these entrepreneurs, some of whom were the founders of their companies. Danone once thought that it was nothing of importance to change the general manager. But the influence could be fatal. An entrepreneur said: “If I were in charge of Danone, I would appoint Zong Qinghou general manager even though he had no shares. But Danone’s executives didn’t think so. Sometimes their deeds were not quite rational.”

From Danone, we can see the overpowering side of French companies, which leads to the assimilation of corporate culture with local culture. Nowadays, Danone’s products, Dumex milk powder excluded, are not sold well in China. Danone has to face the challenges of re-knowing the market, rebuilding the channels and redistributing brands.

Danone has yielded all partnership and decided to fight alone in China. How is its outlook in China, we wonder?

PSA Lost Its Way

As a French automaker having a big investment in China, PSA Peugeot Citroen still can not get rid of the shadow of failure shrouding it.

Guangzhou Peugeot was founded in 1985, from which PSA started its development in China. 12 years later, the joint venture came to a bad end after losing 2.7 billion yuan (USD 403.6 million). The worn-out PSA sold its shares of this joint to its Chinese partner Guangzhou Auto Group at only one franc.

The tragedy nearly repeated in the Shenlong Auto the second joint venture of PSA in China. Ten years after its establishment, a group of senior executives of Shenlong Auto, which was haunted by the lack of products, came to the headquarters of PSA in France, putting forward the requirements of improving the joint venture’s level and category of products. “If the negotiation doesn’t get satisfactory results, we will end this cooperation,” said a Chinese senior executive at that time?

Jean Martin Folz, then the CEO of PSA just finished his task of saving PSA’s global business. He soon realized the severity of the problem in China. He immediately took measures; however, as you can see, PSA’s market share in China was only 3.2% in 2009, half of the Chinese local automaker Chery.

“Get up early and catch one night seat”, this phrase vividly described PSA’s development in China. As a frontrunner exploring China’s auto market, this French company failed to taste the success.

Objectively, PSA’s global business was haunted by long-term losses. Each CEO of PSA played the role of firefighter to save PSA from the global losses. But it can be denied that PSA failed to see the long-term profits of the promising Chinese auto market. At that time, PSA’s senior executives would prefer earn francs with Completely Knocked Down (CKD) rather than promote the localization of their products like their German peers did.

Actually, PSA, then the second largest automaker in Europe, was not quite confident in China. In Guangzhou Peugeot and Shenlong Auto (a joint venture with Dongfeng Auto), PSA’s shareholding didn’t exceed 30% and failed to play an active role in the operation.

PSA has been in China for 25 years, during which its global CEO has seen four people’s resignation and appointment. It was not until Philippe Varin’s appointment in June 2009 that PSA was greeted by twilight in China.

In the 2010 Beijing Auto Forum, PSA put forward its staggered goals, aiming at increasing its market share in China to 8% in 2020. On May 4, Varin arrived in Chongqing and signed a letter of intent of founding a joint venture with Chang’an Auto. Two months later, the two parties signed a formal contract of joint venture, which gives PSA more chips to win the Chinese market.

Shenlong Auto which has been depressed for long also came back to the rise. On September 21, Shenlong Auto published the “5A Plan”, which will be finished in 2015. Shenlong Auto wants to return to the mainstream with that plan.

Has the French automaker found its way back to normal? This might be the most interesting topic in the auto industry in 2010.