In the past few months both Carrefour and Wal-Mart have abandoned the Korean retail market, selling up their remaining stores in the country. The tactical retreat of the world’s top-two retailers from South Korea demonstrates the difficulties faced by international corporations when entering regional markets. Joe Ayling reports on the lessons to be learnt from the Korean example.
First it was Carrefour, who sold 32 hypermarkets and 24 shopping malls attached to these hypermarkets to Korean fashion retail group E-Land on 28 April. Then it was Wal-Mart, who left the Korean market on 22 May to “focus on international expansion in other areas”, selling its 16 stores to the Shinsegae Co. But why did the two biggest retailers in the world make such hasty exits from the Korean retail market?
Carrefour said that it was withdrawing from Korea to focus on its core French market, while Wal-Mart’s decision to opt out was made because it would be difficult to reach the scale it desired in the Korean market, Bill Wertz, of Wal-Mart international corporate affairs, told just-food. When questioned about what areas Wal-Mart will now focus on, the company insisted this was yet to be determined.
Josef Mueller, senior executive of market research group Accenture’s Asia Pacific Retail Industry, told just-food that the country’s competitive market is one of the reasons for the exodus of the world’s top two food retailers. He said: “Korea, while still an emerging market, is maturing very rapidly and is one of the most mature in Asia.”
Samsung Tesco, on the other hand, has succeeded in Korea and is generally viewed as meeting the needs and expectations of the Korean consumers. This suggests that cooperation with local contact, Samsung, is instrumental for an international retailer, the UK’s Tesco, to gain a footing.
Crucially, neither Wal-Mart nor Carrefour achieved sufficient growth to reach the number one or two positions in Korea.
Accenture’s Mueller pointed out that failing to penetrate a new market could be due to a number of reasons besides its highly competitive nature.
For example, understanding the local consumer, having the right economic model in terms of local human resources and supplier and distribution relationships, balancing of local autonomy with global controls and having a good relationship with government and regulatory bodies, were all sited as important building blocks for the successful penetration of Asian retail markets.
Indeed, shortly before its departure from the Korean retail scene, Carrefour also decided to abandon its efforts to establish itself in Japan. While Wal-Mart and Carrefour have been highly successful in Western countries, the retailers have been less adept at meeting the needs of Asian consumers who reject the warehouse style shopping experience offered and prise fresh produce highly.
The lesson from Korea is that as the likes of Wal-Mart and Carrefour reap what they have sewn around the world, they will need to finely tailor their formats and image to each specific country if they are to maximise growth in emerging markets.