Carrefour's Exit from South Korea
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Case Code: BSTR241 Case Length: 19 Pages Period: 1995-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Carrefour Industry: Retail Countries: South Korea Themes: International Business Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The withdrawal of Carrefour from South Korea is mainly explained by a strategic decision by headquarters, especially because of the difficulty in acquiring a leading position in the near future."
- Philippe Broianigo, CEO, Carrefour Korea, 2006.
"They (Carrefour and Wal-Mart) have struggled to find the economies of scale and to compete with groups like E-Mart, and they've struggled just as much with the back-of-house business as much as the front-of-house."
- Morgan Parker, President, Taubman Asia, 2006.
"Wal-Mart and Carrefour were not aggressive enough in expanding their networks in South Korea, once they lost the race, they could never catch up."
- Koo Chang Gun, Retail Analyst, Korea Investment and Securities, 2006.
Carrefour Bids Adieu to South Korea
On April 28, 2006, France based Carrefour SA (Carrefour), the second largest retailer in the world, sold its 32 hypermarkets in South Korea to E.Land Corporation (E.Land) for 1.75 trillion Won. The sale marked the exit of Carrefour from the South Korean organized retail market.
At the time of exit, Carrefour was the fourth largest retailer in the country. Carrefour had entered South Korea in the year 1996. The company had invested more than 1.5 trillion Won in the country till mid-2006, making Carrefour's foreign direct investment (FDI) the single largest in the Korean market. (Refer Exhibit I for the details of other leading retailers in South Korea).
According to Carrefour's top management, the exit from South Korea was a part of the company's plans to focus only on those markets where Carrefour was among the three leading retail chains. As a part of the plan, Carrefour exited several markets including Japan, Mexico, Czech Republic and Slovakia and began concentrating on the markets where it had a strong position including Brazil, Poland, Turkey and China. On withdrawing from South Korea, Carrefour announced, "The divestment of Carrefour Korea is part of a wider effort to withdraw from insufficiently profitable or non-core activities." In September 2006, E.Land signed a formal agreement to acquire Carrefour's South Korean operations for 1.48 trillion Won, a price lower than the initially agreed price.
According to the President of E.Land, Kwon Moon-soon, "After a close inspection of the discount store chain, the final purchase price has significantly gone down." E.Land announced that instead of taking the competitors head on, it would concentrate on modifying the existing hypermarkets into a specialized chain of outlets, with a focus on fashion items.
Analysts opined that E.Land had a tough task ahead - that of integrating its operations with those of Carrefour. According to Park Jong-Ryul of Kyobo Securities10, "E.Land has a big burden. Including renovation costs, E.Land will have to invest almost 2 trillion won, very high in relation to the asset value of Carrefour."
In a span of one decade, Carrefour's South Korean operations recorded growth in revenues (Refer Table I for Carrefour's revenues in South Korea between 2000 and 2005). However, this was not sufficient to meet the expectations of the company's headquarters. On the departure of Carrefour (and the subsequent departure of Wal-Mart) from Korea, the South Korean media reported that 'Native Korean retailers won a battle with the world's retail Goliaths.'...
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