The economic globalisation


Executive Summary

The paper analyses the effects of globalisation on the distribution industry drawing on the example of the Metro group. The discussion departs from a general analysis of the effects of globalisation on suppliers: They have to adapt to new production and storage processes. In that, the relationship between customer and supplier has changed, which is widely due to the profusion of the internet. Clients' demands have been changing as a consequence of internationalisation. Integrating in a global network has become essential for suppliers to cope with increasing complexity. Drawing on these insights the paper analyses the strategy of the international Metro corporation regarding service orientation and product range. An analysis of turnover and ROI of the company allows some insights into its global competitiveness. All taken Metro proves to be a stable corporation growing moderately. Its performance is strongly correlated to the DAX.

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Economic globalisation is an ongoing process driven by states, international companies and technological progress (Bhagwati, 2004). It induces the removal of barriers of international development, production, trade and information exchange. (United Nations, 2002). The effects of economic globalisation are widely discussed:

Worldwide production markets have gained access to all kinds of foreign products, which has contributed to an increasing variety of goods offered in shopping malls worldwide. On the other hand international competition has become a threat to firms operating in traditional businesses.

Financial markets have become interconnected on a trans-national level. The European currency Union is only one positive effect of growing together on the financial sector. (Microsoft, 2009). Funding has become easier for companies due to the trans-national competition of banks and decreasing national governmental regulations. On the other hand due to the strong international interdependence of banks and financial suppliers economic crises tend to be exported world wide.

Globalisation equally affects service markets. Due to the immediacy of electronic media services can be supplied virtually everywhere in the world. Coding or construction for US firms can be done in India or China. The results can be transferred secure and just in time by electronic media.

Industry Analysis

The distribution industry is a branch, which so far has widely been neglected in the globalisation debate. (Dicken, 2003). One reason for this may be that acting globally is seen as a natural thing for suppliers. Nonetheless, the distribution sector is one of the branches affected most by globalisation: (Kummer/Schramm/Sudy, 2004)

Evolution of production and storage processes

The evolution of production methods has brought about increasing flexibility of disposition. Immobile storage capacities could be reduced. (lean warehousing) Transportation capacities serve as mobile stocking systems. A huger variety of products can be offered to be produced on demand. (Baudin, 2004) Suppliers have to adapt their catalogues to meet with that new variety.

In that, at all stages of the production chain logistic links have to be established between customer and supplier. (Dicken, 2003) This does not only refer to physical transportation of goods but mainly to the conveyance of information. The clients' need to make changes to an order at all stages of the production and delivery process can be met by an effective communication network, based on electronic media. (Goldsby, Martichenko, 2005)

Satisfying a global demand equally means overcoming physical obstacles. That is goods have to be handed over between different transport media. Time efficiency is the main setscrew as to transportation cost. To work efficiently logistic networks usually are organised in several tiers. (Dicken, 2003)

Political and bureaucratic obstacles have to be mastered: Routines of managing transnational customs and tax regulation have to be developed. Legal systems differ between the countries. Internationally accepted and enforceable regulations have to be worked out and implemented in general terms and conditions. Suppliers have to decide whether that increasingly complex logistic process can be integrated within their own structures or should rather be sourced out. (Harrison/Remko/Hoek, 2005)

The relationship between customer and supplier

The relationship between customers and suppliers has changed with the rise of electronic communication. Most products today are available on the internet. Buyers seek advice and order via electronic media. (Poirier/Bauer, 2000) Communication networks are applied on different levels: among businesses (B2B communication e.g. between producer and supplier), between firms and their clients (e.g. by electronic ordering systems) and between clients themselves (e.g. by auctions or discussion forums). This brings about new challenges to suppliers.

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On a B2B level suppliers have to implement efficient ordering and delivery systems in order to integrate into a global network of production and retailing. (Poirier/Bauer, 2000) The hardest challenge nonetheless is increasing flexibility of customers: In many cases orders can be placed directly with the producer. Suppliers as a consequence face the problem of keeping up their position in the supply chain, which can be achieved by different strategies. (Dicken, 2003). E-commerce sites can act as a direct and only link between customer and supplier or serve as a facultative and additional communication tool. Electronic servicing can be an integral part of the supply company or be an external function supplied by a service provider.

On a strategic level it is important for the supplier to establish the own firm in a focal point of the network and thus avoid sidestepping by manufacturers or clients. This is a potential problem of the "Dell" model (Dicken, 2003), for instance. Dells business concept is receiving orders for specific PC-products from the customer and communicating them to the manufacturer. The sale then is carried out by Dell themselves. The customer here could easily sidestep that process and claim Dell's margin for himself by contacting manufacturing firms directly via internet and buying an adequately designed computer from the producer. The supplier (Dell) could fend off that threat by supplying additional service to consumers, like advising the client as to the optimal solution for his needs, and thus act as a communicative bridge between manufacturer an client. (Kotler/Armstrong/Saunders, 2008)

Another promising strategy is Amazon's concept of acting as a virtual marketplace. Amazon thus embraces competition, instead of fighting them: Amazon started off selling books to individual customers by means of a website, but now is offering its marketplace to anybody, other suppliers and private vendors on commission basis. In the course of this Amazon has equally widened its product range to virtually anything. The basis for the success of this decentralized and global business concept is Amazon's popularity and perfect linkage in the www. (Ander/Stern, 2004) The reputation is to some extent based on the securities Amazon offers to buyers by warranties and individual advice.

To sum it up, the supplier's strategy is to meet the service demand of the customer and has to meet with changing customer needs.

The evolution of demand

Changing consumer preferences demand new product portfolios combined with new communicative procedures.

While the typical client in the 1930s sought personal advice in a corner shop disposing of a limited range of products, the today's consumers prefer the freedom of choice between a huge variety of comparable products. (Ander/Stern, 2004) A client interested in buying a coffee machine today does not only want to satisfy his basic need of grinding coffee but equally wants to choose between different brands and be informed on the durability and ecological acceptability of the product.

The range of products in demand has increased and changed at a time. Industry offers more complex and diversified products than twenty years ago. This is among others due to technological progress and the globalisation of cultural influences. While our mothers bought a classical perambulator for their babies, today we have got the choice between a buggy, a jogger, a stroller, a baby sling and bike trailers convertible into joggers. With respect to that increasing variety suppliers on the one hand face the challenge of amplifying their offers and providing competent advice on all product types, which leads to heightened cost for stock keeping and qualified staff. On the other hand suppliers may profit from this development, because increasing variety of products induces a greater variety of needs, which increases buyers' readiness to consume. (E.g. they might buy a stroller and a baby sling.)

Diversified product needs go along with changing concepts of advisory services. On the one hand younger customers enjoy an anonymous, electronic shopping site, as offered by the internet. On the other hand increasing product variety brings about the need for qualified, personal advice. These at first sight contradictory desires can be satisfied by convenient internet marketplaces furnished with 24 h-hotline, chat and e-mail link. Service concepts have to be adjusted to the evolution of products and demand. (Spector/McCarthy, 2005)

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Electronic globalisation via internet brings about increasing information efficiency. This puts pressure on suppliers to remain competitive on an international level as to products and service offered. Operating on the www customers can compare worldwide offers for a product and find out not only about the price and quality of the item itself at different retailers but equally about the perceived quality of the supplier's service: Web portals present firm appraisals and chat rooms enable customers to exchange individual experiences. (Pal/Pantaleo, 2005)

To sum it up: The "globalized" customer wants to choose from a wider and more variable range of products, asks qualified and immediate advice and disposes of a worldwide, informational overview.

International cross-linking

With global industries growing together individual suppliers can only remain competitive by integrating into that worldwide network. Business connections on the supply side and new customer groups are increasingly opened up by networking. (Poirier/Bauer, 2005) Suppliers of different but interconnected products are cross linking their websites, to profit from additional demand. Voucher connections are wooing for customers who have bought from one supplier by offering discount prices at another site.

Supply Management comprises ever more elements, which are for instance: Providing information on the web and other globalized media (TV and print advertising), offering an increasingly wide range of products, advising consumers on that product universe, managing storage and transportation of products to customers through individualized transportation channels, organizing warranty claims and managing payments. Traditional, centralized companies in many cases find it hard to combine all those competences in-house. Networking with specialized service companies and outsourcing tasks to them may increase efficiency and allows for the concentration on core-competencies. (Harrison/Remko/van Hoek, 2008)

Particularly as to logistic systems decentralization can be an indispensable strategy: Distribution systems have to meet with increasing geographical complexity. While formerly clients accepted travelling to a central store and collecting products there, today there is widespread demand of home delivery. Thus on the one hand networks of branch offices can be reduced. Personnel expenditures and capital commitment for storage of products accordingly diminish as compared to a traditional warehouse structure. (Baudin, 2004)

On the other hand more effort has to be put on individualized shipment and support services. As Skjott-Larsen et al. (2001) explain an effective supply chain management implies the organisation of delivery in several tiers. A lead logistics provider may serve as a communicative agent for information services and transport companies. The possibility of return consignment and warranty claims brings about additional complexity as for the physical transportation problem and the flow of information.

Company Analysis - the Metro Group

In the following the evolution of the international Metro group in the process of globalisation is analysed with regard to these aspects:

  • Has there been an evolution of information flows and organisational parameters with regard to changing production and storage techniques?
  • How does Metro react to the changing relationship between supplier and customer?
  • Does Metro modify its product universe and customer service in response to changing structures of demand?
  • How are Metros worldwide networks structured as to outsourcing and decentralization?
The structure of Metro

Metro is a leading international retailing company. The Metro Group comprises four divisions supported by cross divisional service companies. Metro is a European firm without activity in the USA. Metro is listed as a DAX 30 company since 2002. (Metrogroup at a glance, 2009)

Metro AG represents the management holding of Metro Group and determines corporate policy, financial strategy and human resource management. Operative business activity is structured into four central branches, which are assisted by cross-divisional service companies providing purchase, logistics, information technology, advertisement, real estate management and accounting. In the following Metro's subdivisions will be discussed with respect to the above questions, in as far information has been available.

Metro Cash & Carry - the wholesale branch

Metro Cash & Carry with its brands Metro and Makro and over 110,000 employees is the world leader in wholesale cash & carry trade operating in 29 countries.

The division's target groups are hotels, restaurants, retailers and catering firms as well as hotels and institutions. (Metro business report, 2008). Opening hours of the store are adapted to the needs of these clients (up to 16 h per day.) The focus of the service concept is not so much on individual advice as on cost-leadership. Since 1996 the cash & carry profile is accomplished by the C&C Shaper concept which additionally provides a delivery service system for wholesale clients. This strategy does not account for a lot of dynamics, which may meet the demands of business-clients enjoying a stable profile clearly aiming at the cost issue. (Metro, 2009)

The assortment of Metro Cash & Carry has slightly been modified with the divisions growing international orientation. European quality standards have been implemented in 2006. (Metro,2009). Local specialities have been included in the product range of Metro cash&carry. All together the website's explanations on the product portfolio points to a rather constant even dull product policy.

Nationally diverse product assortments imply a highly diversified purchasing organisation. (Metro, 2009) since Metros main business region is Western Europe (55%, including 17% in Germany), followed by Eastern Europe (39%). Asia and Africa account for 6 % of the sales. National Cash & Carry companies therefore are operating on an individual basis. (Metro, 2009). The cooperation with trans-national cross divisional service companies demands a dense, internal electronic information network, which will have to be expanded along with further worldwide expansion of Metro Cash& Carry.

Real - the retail branch

Real is the retail branch of Metro and comprises 243 stores in Germany and 96 in Poland, Romania, Russia and Turkey. The German market accounts for 75 % of the sales of the Real division. Real has been struggling due to the hard competition on the retail market in Germany. (Metro, 2009) Main competitors are Penny, Lidl and Aldi. Additionally turn over on the German retail market has shrunk by 1,7% (taking inflation into account) between 2008 and 2009. (, 2009).

33 Real locations don't operate profitably in Germany and will be given up until 2010.

On the other hand Real has opened about 15 new hypermarkets in Eastern Europe in 2009. All taken Real's selling space has remained constant over the last three years, while the average store size has increased vom 2.999 m² to 3.723 m². (Metro, 2009)

Real's strategy thus has been shifting strongly over the recent years, which goes along with European integration. Real has changed its focus to the lower market segment and Eastern European Countries characterized by a lower income situation.

In Germany Real's new strategy emphasizes customer orientation, which has been achieved by a customer satisfaction analysis. Ten key customer groups have been worked out. Young families", "young and fast cooking" and "small budget" are among the focal clients of Real. Real's product assortment has been adopted to these target groups. The prices for products preferred by these groups have been lowered.

This goes along with the concern strategy of sharpening the profile of each of the four brands. With rising living standards in Western Europe Real, representing the lower market segment has to move eastward. The market position of existing shops in Germany has been strengthened by sharpening their profile as comprehensive suppliers, which correlates with growing shop size. Real's core strategy is offering its clients a comprehensive assortment of all retail products. In that Real differentiates from its competitor Aldi and Lidl.

With respect to Real's competitor's Aldi and Lidl Real's strategy of diversification appears problematic. Real may find it hard to compete on a pricing-level with those highly specialized firms, which may attain better purchasing conditions buying bigger amounts of only few products.

Media Markt and Saturn - the consumer electronics branch

Media Markt and Saturn are focussed on consumer electronics and comprise 768 stores all over Europe. Germany accounts for 46 % of the sales. Total selling space has been growing rapidly form 1,914,000 sqm in 2006 to 2,439,000 sqm in 2008 with shop sizes increasing slightly. Media Markt and Saturn are intended to represent a comprehensive assortment of diverse consumer electronics. The product strategy can rapidly be adopted to technological changes. The product profile of the division thus is clearly marked by technological change and the evolution towards an information society. This accounts for the success of the division.

Stores are subdivided in various experience universes, with large areas dedicated to individual renowned brands. Offering service and advice on technical questions is a focal strategy of the division. Employees are trained regularly to meet these requirements. Marketing campaigns are based on a large extent of brand awareness and point to the innovative and service-oriented image of the division. Media Markt/Saturn thus clearly differentiates from mainly internet-based suppliers for electronic consumer products. Personal advice as to technological questions is valued particularly by non expert customers. Service orientation allows the division to position itself in a higher price segment than web companies providing little assistance.

Individual responsibility is assigned to store managers as to the success of their shops. They may decide on the product range offered, pricing and staffing as well as marketing on their own. Decentralization is a central strategy of the branch. This strategy is essential for a multi-national business-concept. Technological needs differ among European countries. This diversity can only be met by self-governance of individual markets. (Metro,2009)

Galeria Kaufhof - the department store branch

Galeria Kaufhof represents the department store branch of Metro. It is characterised by a constant number and size of stores. Central area of activity is Germany (95 %). There are no shops in Eastern Europe. Kaufhof concentrates its activity on premium inner-city locations.

Kaufhof's strategy is clearly directed to an upper price segment. This becomes apparent in the product portfolio, which comprises mainly high-quality, international brands. The division operates in the mid to high price segment. In that Kaufhof clearly differentiates from the Real-branch. Kaufhof pursues a so called multi-specialist strategy, attempting to be a qualitative leader in many market segments. This strategy of course appears sort of contradictory. Kaufhof may find it hard to perform better than the huge amount of very specialised shops operating mainly through the internet.

Kaufhof meets this difficulty by clear service orientation. The stores are designed to present products in a harmonious atmosphere and include numerous brand- stores. Staff is trained to provide a high service level. Additional services for elder, handicapped and foreign persons are offered in the stores which implies orientation signs and personal assistance. In spite of these strategies Kaufhof in the future may find it hard to maintain its position regarding the evolution of barrier-free and service-oriented websites of specialized and equally comprehensive retail companies operating on the www. Web-based companies may operate more cost efficiently because they have to calculate little effort for stock-keeping and sales locations.(Metro,2009)

Data Analysis of the Metro Group Performance

The all over strategy of the Metro group shines up if we take a look at the four divisions:

Metro cash & Carry focuses on commercial clients offering a comprehensive portfolio. Real serves private customers and trusts in the same comprehensive strategy on the low price segment. Kaufhof Galeria does the same in the high/mid price category. Media Markt / Saturn is the most specialised division, but nonetheless intends to be comprehensive on a technological field. Overall all customer groups are meant to be served in all price segments with products of all classes.


Over the last ten years Metro's strategy of complete diversification in possibly many market segments has proven successful. If the group will remain a promising investment in the future if this strategy is pursued depends on the development of the internet as a market place for consumer products and Metro's reaction to it. To the present Metro has shown little sales activity on the web. Other firms might take the chance to trump Metro in that area. Due to Metro's immense market power in Europe this might be a long lasting process nonetheless.


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