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Metro Cash And Carry International Market Economics Essay

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Published: Mon, 5 Dec 2016

– Metro Cash & Carry, part of Germany’s largest trade and retail group, had a rich experience of over 50 years in catering the needs of specific business customers, experience in organic growth, international expansion & mergers. Metro’s record over last 10 years (1996 to 2005) shows that their success in new market entry and managing the sustainable growth over a period of time.

Metro Cash & Carry expanded its horizon in the international market over a period of time. Rapid growth during 1996 to 2005 shows the company’s capability to establish in the various international markets. Exhibit -1

When we evaluate the institutional and market infrastructure in the emerging markets, Russia, China & India, we can notice that there are lot of difference in the existing market structure, political situation, consumer spending, GDP per capita, urbanisation, and its openness towards the foreign outlets.

Metro’s main sources of competitive advantages

A first mover advantage in many countries and an informed adaptation of the basic Metro C& C model to local market conditions has been its formula for success.

Strong Research and Development corporate team conducts an extensive country screenings and feasibility studies at both macro and micro level prior to opening in emerging markets. Quick alternate solutions to entry barriers in new market and business development solutions like investing logistics, improving distribution system, customising products/packaging to cater the special requirements of local community/customers are adapted.

Metro uses local expertise along with its international managers and closely liaisons with its offices globally. A hands-on managerial staff and multi ethnic human resource helps to comprehend local culture sensitivities and adapt to market conditions. “Customer consultants” teams regularly survey and update client needs.

Metro operates with customised store format for each location (Classic- Junior- ECO) based on the country / locality.

Centralised procurement through its metro buying group (MBG) helps metro to take the advantages in price negotiation worldwide.

Majority (around 90 %) of the stocks are procured locally to meet customer’s special local needs/taste/interest.

Flexible timings with extended working hours and different quantity packs according to customer needs.

Sustainability of Metro’s strategy in future

Strong market-entry skills set which metro proved in various countries and it’s extremely fast set up skills helps Metro to gain the market share quickly in the new markets. Once it gains market entry, a quick break even, subsequent growth and consolidation of market share along with strategic local presence with offices in key areas has helped and would continue to be of help in defending its presence in emerging markets. Besides it chalks out a city-by-city investment plan in a cluster approach or in a cluster approach to maintain synergies in buying, logistics and relationships.

Metros mode of centralized sourcing as well as wholly owned subsidiaries in neighbouring markets in Asia and Europe; and the cost advantage that comes from bridging supplier markets with direct sourcing would continue to give Metro an advantageous position in emerging markets. Metro’s experience and expertise in processing, distributing and logistics has proved advantageous in quickly modernising processing/ distribution. By investing in cold storages , Metro ensures the longevity and freshness of food, reduce wastage, and ensure quality of the products in emerging markets where some of these issues were poorly handled.

Decisions like setting up a regional structure to bring management closer to business in different countries, is very helpful in further expansion. A continuous monitoring of buyer power, supplier power, rivalry from competitors, threat of its main products substitute and potential threat from strong new entrants would ensure Metros successful presence in emerging markets. Metros quick adaptation to cultural and market sensitivities means, it can very well defend its competitive advantages in the emerging market.

Lessons Learned from Russia and China

One of the biggest lessons learnt in Russia and China was that a strong market-entry skill set definitely helps. Rigorous country screening, multi-step feasibility studies of micro and macro level factors and a city-by-city investment plan strongly aids in consolidating market share and expansion within the countries. In both countries, they managed to open new outlets every year since its first entry. Political situation, timing of the entry are key factors deciding the success in a new market entry.

Russia

Relative cultural proximity, despite the actual cultural differences between Germany and Russia, aided in quicker mutual learning in comparison to culturally distant places like China and India.

Strong political support and pro-active policies guaranteed smoother operations.

Quick pace and predictability of decision making made entry ensures smooth entry

Competitive pricing at entry, decision to initially open in major cities and subsequently in smaller cities helped in expansion and quick break even. Metro adopted a spiral model of expansion of business units and smaller stores all the while building a smooth distribution and supply chain.

First mover advantage helped Metro to gain the market share. Good relation with Government also helped Metro to get the leased land for its Moscow operations. Metro’s entry in Russia can be treated as a good example for a give and take policy between Russian authorities and Metro C & C. Metro identified the absence of modern distribution system and growth potential where government realised an efficient distribution system will bring the commerce into mainstream economy, by reducing the black market activities and lifting logistics standards.

Another lesson that was emphasized is the need for smoother infrastructure and continued investments in streamlining of logistics across time zones in a vast country like Russia which would greatly benefit Metro.

China

China presented a huge opportunity to Metro. It had a huge population, and at the time of entry the idea of centralized warehousing for easily stored processed food and non-foods were just increasing. Imported food was a luxury and restriction in interprovincial trades made movement of such good difficult in interiors. There were problems in transportation, logistics and China was only beginning to open up to foreign companies. China being culturally distinct posed a huge challenge till these factors were better understood.

Metro worked with the Chinese government legislation and made an entry into the market with a local joint-venture partner, a state-owned enterprise with good ties to central government. This business model ensured a culturally experienced partner, broad geographic access & political backing to run the business smoothly, especially in a country where local authorisation and support became as integral to business as that of the central government’s.

Gaining trust was the most important thing to build business in China..

The Chinese spirit of entrepreneurship meant everyone considered themselves as businessmen instead of specialized professionals. So Customer education became a key focus. Metro set up 25 people per store to continuously educate customers on the Metro values and business philosophy.

Learned to manoeuvre the political and economic networks in each urban market by demonstrating the benefits it would bring to a local area with its presence.

Metro tackled huge land prices for large plots near urban markets by becoming more flexible and opening stores in the basement of large urban buildings.

Metro identified and strengthened Chinas perishable food items supply chain and directly began working with farmer aggregates avoiding certain middlemen layers

Metro took cluster approach in China with major business units around four major urban centers and building business around these centres.

Metro saw Chinese urban centres as different regions with specific political and economic intricacies. Hence bridging the cultural gap between Metro’s German model and its expectations with the realities of Chain and Chinese expectations became important. Metro realised that China is a continent where the taste across the units vastly differed and that it needed to cater the specific local needs. Timing of the market entry is also a very big deciding factor in the initial years in China, influencing Metros long term and strategic decisions. Metro’s China operation is a good example of selecting the right business model for the entry and keeping a close watch to the local requirement and provide a store-to-store strategy instead of a country level strategy. Its key success lay in recognising the cultural and economic complexities in each Chinese centre and successful building up of political support in the business which helped to run the business smoothly.

Metro’s approach to expansion and public relations in India: An Evaluation

India, as an emerging market, had its own advantages and disadvantages compared to Russia & China. Here, wholesale markets for agricultural produce operates as mandis, an inefficient infrastructure, a population structure with 3/4ths of them vegetarians, strong economic growth, urban migration, rising living standards, a quadrilateral national highway, and expected restaurants on these roads seems like good signs for metro’s future business expansion. However, the current strategy of entry and expansion needs to be evaluated in the view of challenges posed to Metro in the Indian environment.

To garner government support Metro clarified its business- to-business C&C concept, opened its first store in Bangalore and decided to wait for further revision of its permitted trade activities.

Here Metro could have benefited if it could have clearly demonstrated to the government the contributions that it would be bringing in the supply and distribution sector or even by proposing some sort of deal with government owned / state owned enterprises. (Exhibit 11- Reduction of wastage in Tomato distribution).

Once it opened its store Metro went to great lengths to defend its presence -from agreeing to not sell agricultural goods till permission from the government was granted to also imposing a minimum quantity purchase requirement which was completely different from its models elsewhere.

With a major section of its business caught under legal wraps the best mode of operating seemed junior type stores with an outpost approach to expansion.

Like in other places Metro offered locally produced goods and estimated growth to expand further when permission to merchandise fresh agricultural produce would be granted, Metro failed to foresee that given the political climate and the bureaucratic red-tapes involved this proposition would take a longer time than the initial estimation.

Despite the initial setbacks Metros non-food category sales have been good. With a competitive pricing that was 30-40 percent below MRP prices, it provided huge advantages to the Indian customer. Metro must concentrate on consolidating this market share as waiting for government permission would be slow, due to the political red tapes and change in government, distracting it from growth opportunities.

Despite belonging to one nation, the states in India are culturally distinct from one another with its own specific local practices. Metro could have benefited from the lessons learnt from China- to delve more deeply into culturally ingrained ideas in a predominantly agrarian society where the family is the central unit involved in production and consumption.

Metro did not foresee that government view or support could vary with the political party at power and the ideology they subscribed too. It could have evaluated this fact and opened its first store at a more politically and economically receptive state especially considering that Bangalore had been a scene for contention between anti-FDI protesters and KFC.

Getting support of business communities is vital along with public support in a country where governments are wary as to how issues could determine the next elections and their hold on power.

A thorough exploration of entrepreneurial mood, cultural expectations, political and economic climate as well as evaluation of urban demand could have helped in having a better PR strategy. This and a customer education programme through vernacular languages would have benefited in marketing Metro’s C&C model in the Indian environment.

It was definitely important to have PR relations that could bridge the gap between different linguistic communities in India as this is necessary to win the support of the common man and the farming community. Metro to an extent failed to put better PR in India. They could not estimate the power of local language news papers which can be used positively by spelling out the metro advantage that gives to the society.

Metro needs to move differently from its policy of not advertising in order to get to the local community in India. This is also necessary in the light of home grown competitors like Reliance who were setting up a local agricultural supply chains.

In India, Metro could have considered joint venture with leading business houses, who have the knowledge about the Indian market.. JV type of entry may also help to avoid the harsh protests from the anti FDI protestors. Strategic alliance may also help to get an added advantage to overcome the political uncertainty in a country like India.

They could have also open more units in different parts of country, with franchising options. This will help to reach more customers quickly in vast country like India. It should have made use of a combination of cluster and outpost approach -dealing with India in terms of zones like North zones, West zones, South zones and so on. It needs to innovate to reduce investment costs which can be done by opening in suburbs or satellite cities. Another strategy would be to continue to ensure competitive pricing below MRP till a loyal customer base is formed.

Metro can also try to target more customers from the nearest towns by offering the “Cash & Deliver” where small business customers get the products at their door step without travelling all the way to next town and get the goods. Instead of going to Metro store, they can get the products from cold storage facilitated delivery vehicle which deliver the goods to customers on a daily basis (“Metro on Wheels”) based on the prior/advance customner order. This could have lead to a huge success especially to deliver the customers in a single locality. This will also help to utilize junior type stores to the maximum and reduce operating costs by paying reduced rent for bigger storage facility in the outskirts of the city instead of paying higher rent for bigger city complex.

Metro could also take steps to communicating the benefits of effective and efficient distribution system, which help to reduce the wastage of agro products and ensure quality delivery to customers. Metro should implement a strategy to the large Indian market where it can expand rapidly with its market entry skills in different states and use its expertise in handling local political issues which varies from state to state.

Exhibit -1-


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