The Internal Environment Of Metro Cash And Carry Management Essay

Analysis

TOWS Analysis:

In order to analyze the internal environment of Metro C&C (Cash & Carry), we used TWOS in China, Rassia and finally India.

1.1 Threat:

China:

Real estate price doubles and Increase in land prices.

Total difference in culture. No distinction is made between wholesale business and typical hypermarket’s retail sales.

Wide spread spirit entrepreneurship that effects the business of metro resulted in competition, intermediaries and supply chain.

Competition for locations locally and internationally ( Carrefour and Wal-Mart)

Restrictions on location by the government.

Russia:

Location of central hubs, the need for big logistic in Russia.

Unavailability of lands.

Forecast of decreasing population.

Russia eventual accession to the WTO will result in more competition.

India:

Political instability.

Poor infrastructure (cold storage and highway still not finished).

Difference in policies between the state and the central government brought out in bureaucracy and hinder the expansion of Metro C&C.

Party BJP opposes Metro C&C and was voted out in 2004.

Local community traders and association are against Metro C&C.

1.2 Opportunities:

China:

Joint venture may able them to penetrate the market trough the Chinese Jinjiang Group which has a an established relation with the government.

WTO accession in China allowed Metro C&C to increase its ownership stakes up to 90% and benefit from the protection of international regulations in case of conflicts with the government.

Poor distribution system in the country. Authorities recognize the potential improvement of the Chinese supply chain for perishable by Metro C&C.

Russia

No competition available currently in the market (short term).

The Ability for the company to recoup the investment within 2 years.

Local businesses are open in regular working hours. Metro opened for 16 hours, more flexibility for buyers.

Government wants to modernise the cities and create a more transparent distribution channels

India:

No international competition.

Substantial improvement in the living standards. 34% increase in consumer spending.

Forecast for the market to jump from 3 billion Euros to 6 billion Euros.

Highway development will connect Mumbai, Kolkata and Chennai.

The model law introduced by the government which encourages the participation of the private sector in the economy.

The second world populous country.

Rapid and strong economic growth 8.1%.

Continuous liberalizing economy, expected to reach 10%.

1.3 Weaknesses :

No advertisement is done by C&C.

Metro using non local managers in their international branches, thus the management does not understand the culture. Exhibit 5.

Cards to be only used by the customers or the authorised person. When they are busy, another member of staff in small shops is not allowed to use the card which may result in the small business buying from elsewhere.

Metro does not provide delivery service.

1.4 Strength:

Germany largest trade and retail group (Sales 55.7 billion Euros, 2005) operates 544 stores under C&C under macro brand.

Metro is the first player into new country market; adapt its stores and strategy to the local culture.

Brand image and large customer base wholesale and retail targeting different type of business.

Substantial growth thanks to international expansion and mergers.

Cash and carry expanded from retail trade to new costumers groups (demographic and culture), including caterers and convenient store

3 store models: classic, junior and ECO adapted to the need of customers and different cultures which allow the company to reduce cost for example: electricity, rent… etc.

Metro tailored each store assortment and source 90% of its stock locally

Multi step visibility analysis macro environment and micro before entering the market.

PESTEL analysis: India

To evaulate macro-environmental factors, we used PESTEL analysis for India;

Political

*Long procedures to make a govermental decision

*Political instability in Chennai

*Distinction between goverment and state legislation

*Multiparties in different states destroys the cordination

*Opposing Bhartiya Janata Party but voted off in 2004

*Swadeshi Jagran Manch opposed the company of selling lower prices.

Economic

*Consumer Spending increase(34% from 2001-05 )

*FDI Increase ( But just 1% GDP of China in 2005)

* Strong Economic Growth ( 8.1% in 2006 )

*Increased Land Prices.

*Market is inefficient so it decreases the competitiveness of the country

*Prices are 30-45% below the goverment prices

*Expected entrance of Wall-Mart and Tesco

Social

*Local Traders and associations are opposing Metro C&C

*Urban Immigration and Rising Living Standards

*Fear among local community resulted in protests.

Technology

*The company’s intend to organize farmer operating grading ,sorting and packaging center to enhance quality and shelf-life.

*No cold storage facilities

*Delays in infrastructure development

Environment

*The ineffiency of the Mandis brought out 40% of waste

Legal

*Amendments of a law cash&carry to sell fresh agricultural produces in its centres

*The Model Law introduced by the goverment which encourages liberalization and private sector.

Five Forces (India):

3.1 Supplier power

Suppliers in India have no power on the company, because they sell their fresh produce goods in wet market and small shops, in addition to absence of international competitors where suppliers might sell their inputs. Therefore Metro C&C is a new source of revenue to the farmers .The inefficiency of the Mandi resulted in farmers loosing their lands and house holds were in debts thereby, the entry of Metro C&C represent an opportunity for the farmers to sell their inputs at a large scale, thus reduce waste and improve their livelihood. This evaluation is valid for the short term, whereas in the long term more competition will result in power of suppliers increasing (The entry of Tesco and Wall-Mart)

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3.2 Power of buyers

Analyzing the power of Buyers in India we found out that customers used to buy products of a low quality in addition to hygiene issues . When metro C&C opened stores, it offered very competitive (30 to 45 %) less than government prices in addition to products with a better quality, which give Metro C&C comparative advantage to local retailers. The lack of information can reduce the ‘buyers’ power when they do not make a distinction between the ranges of products available in the market; hence Metro C&C is advised to advertise more on its value proportion to the Indian costumers

3.3 Threat of substitutions

As the company is selling a wide variety food and vegetables (50 sections, 17,000 products) therefore, even a customer wants to substitute one product for another, the latter still available in the stores at a lower price in comparison to local competitors, and the company is making profits on that substituted product. It is in fact hard to substitute the products sold by metro Metro C&C as it offers quality, variety at low price. Which we believe are the main selection criteria for a customer. But this advantage might end by the entry of Wal-Mart and Tesco.

3.4 Threat of new entrants

After the amendment of the Indian legislation towards foreign direct investment (FDI) in the retail sector the Indian government allows FDI up to 51% in retail ventures .The government ease the rules to attract more FDI such as Tesco and Wal-Mart, which are direct competitors of Metro C&C .It took a longtime for Metro C&C to enter the market due to the protectionism. The reforms in the legislation seems to be more flexible with the entry of the new competitors therefore they can save time and cost accordingly, nevertheless metro C&C could benefit from this legislation to expand more and take over the best locations as it has already entered in the market and had acquired experience and knowledge.

Power of complementors

The power of complementors does not apply in this case because the company is mainly selling food and vegetables. From supplier to Metro C&C directly, this industry does not have complementors, people can buy for instance bread or rice and survive with.

Value chain:

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(Source Global strategic management , value chain Graph)

RACES frame work India

5.1 Resources

In India Metro C & C did not have adequate physical resources Land, Buildings and equipment to make agreements however metro had Financial Resource in the home country Germany, Metro C & C had to outsource most of their resources, or buy. Exiting staff working Metro C & C had to be trained to help improve their skills and knowledge. The benefit of entering into India is people had right level of education and right attitude, this meant workers could be easily trained. Metro C & C had capacity to learn and innovate to make agreement with Government in India especially due to Laws which did not allow Metro C & C to buy from framers until the Government Amended the Law. Metro C & C needed to implement resources quickly when they first arrived in India if not it could face competition from competitors. Convergence is the idea of focusing on resources on fewer rather than many objectives and focus itself prevents the dilution of resources.

5.2 Acceptable

Metro C & C move into India, decisions to go ahead has to be accepted by powerful internal and external stakeholders, firm’s owners or managers. Metro C & C to relocate to India it first has to comply with Government initiatives, Stakeholders where seeking annual returns on money invested in Metro C & C. The risk of India unstable economy was fear if they invested shares in Metro C & C in India. Metro C & C had to accept powers imposed Government in India to legally preclude farmers from buying from Metro C & C. Social responsibility imposed by India Government especially on externalities; Metro C & C had to accept these terms and conditions before moving into India. Metro C & C could also accept objections from stakeholders and these could help solve problems or conflicts among other stakeholders. This approach can also be seen as a shift in strategic and will cause some managers to fear losing power or status.

5.3 Effectiveness

Metro C & C sustainable it had to implement four strategic issues the first been Mergers and Acquisitions, when Metro moved into India it had to respond to awareness of climate change especially because India hot country. The strategic Option was to provide cold store to preserve food by doing so food life can be prolonged and serve longer on shelves of freezers. The effectiveness depends upon the rate at which high way develops because for delivery to arrive on time building highway earlier would result in less delays in distribution. For Metro C & C to become effective in India it had to acquire experience in other industries, Metro could generate ideas leading to cost saving. Effective strategies for Metro C & C can identify key issues especially if their decline growth due to Global Recession. Metro could counteract competition from Carrefour, Costco and Wal-Mart.

5.4 Coherence

In order for strategy to be effective in India, Metro C & C had to ensure their Value Chain, Culture and Architecture to deliver cost and differentiation advantage. Metro strategies have to work hand in hand with one another to deliver coherence results. Metro should consider the brand values and reputation of customers for example it would be difficult Metro C & C to increase food prices in India because in 1991 26% of rural households were in debt and it climbed to 50% and 80% farmers were in arenas. Also due to customer changing taste and preferences expensive goods can be substituted for cheaper ones. Metro could overcome this it can launch new brands at affordable price. Hofstede (1991) found a strong correlation between high power distance and collectivism and vice versa in countries within his IBM sample. Hofstede framework outlines India large power distance on the power index score and weak uncertainty avoidance (Family). Culture in India was different Metro C & C had to adapt to the type of food to sell as most population accounted vegetarians. Metro C & C had to be careful not alienate the consumer offering specific foods due to Religion and beliefs. Metro C & C should also be aware of not overloading its value chain or stretching it too many potentially conflicting ways. There has to be care consideration of implementing a new product by positioning, penetration price, skimming price.

5.5 Sustainability

Resource allocation should be sustainable in it should sub stain Metro C & C periods of time. Buying lots of quantity in bulk can be cost saving and this will ensure if prices go up, Metro is not affected until when stock is depleted. Strategies implemented by Metro C & C must be effective in resolving the issues it’s intended to address. Metro C & C had the capacity to learn or train their staff and by doing so the knowledge and skills obtained will be sustained to last with the company for some time but by making constant use of Training, staff are unlikely to forget their skills. To become sustainable Metro C & C has to implement strategies to keep itself viable

allowing longer time benefit especially because the environment of India was changing very Rapid Government kept changing Laws, it became easier for Metro C & C to become sustainable to environment.

International coordinator

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(Source : International business strategy :International coordinator graph )

Metro is an organization that adapts their business to the local conditions of the host country, realizing the importance of cultural and market conditions in different countries, and can thus be described as international coordinator, using mainly its logistical strengths to penetrate markets.

The International coordinator framework asserts that firms can transfer their Non-location bound firm-specific advantages (NLB FSA’s) to different countries to various degrees depending on the countries environmental context, so in other words NLB FSA are key assets or skills of the firm that they can move to any location). In India’s case, it seems that the actual amount of transferable firm specific advantage’s (FSA’s) that they can use is limited.

Host country A represents India, because India is the country in which Metro can transfer only a limited part of its non-location bound firm specific advantages, due to completely different cultural and legal frameworks. In fact, Metro have spent a lot of money transferring their human resources to India to help run Indian operations and transfer tactic knowledge, however, sending over a management team to India does not seem to be effective, as its very costly and the managers font fully understand the Indian system and culture, so they can’t make accurate decisions, For example managers don’t really understand the opposition to their organization and if they did they could use marketing in a way to help overcome the opposition and win the public over.

From an administrative point of view, Metro have little by way of transferable FSA’s as they have little power in governance related issues, due to their unfamiliarity with the system and their powerful global reputation and strong brand name are irrelevant in India, as they are treated with suspicion due to them being the first large foreign organization in India, and has led to boycotts, opposition and a legal ban on selling fresh produce direct from farmers, which meant that Metros special firm specific advantage of procurement was not used effectively in the Indian Market, and food items were not as fresh and high quality as they would be in the home country, as the Indian authorities only let them buy it from a government appointed third party, which does not have high quality standards. However, there are still areas that Metro can use their transferable FSA, as India does not have a proper distribution system or refrigeration system, and this is a transferable FSA that metro would need to recreate in India, which will be very costly and resource intensive.

Overall in the Indian market, there is a relatively limited level of transferable NLB FSA’s, as the market is very different and cannot draw on a lot of the advantages that the firm have to offer, thus it seems a very difficult market to enter, as Metro cannot not draw upon a lot of their own internal strengths to make this market a success, which means that a lot of new location and location based advantages will need to be created in situ which will require a lot of extra effort and resources from Metro to make it work, more so than in other countries, which makes international coordination with other countries difficult, as the pool of resources it uses is different.

China represents host country B- as its entry to China put less pressure on transferable FSAs as it used a joint venture partner to use their knowledge and strengths help make their market entry easier.

Russia is Host country C- as invested a lot of transferable FSA by way of massive investment in distribution, infrastructure and procurement to make it work successfully.

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Conclusion