Monday, May 1, 2006

The World According to 까르푸 (Carrefour)

Note to visitors from India (November 28, 2008):
Over the last week, I've been getting numerous hits from Bhubaneswar, Orissa, to this post. They started with someone Googling "what Koreans think of Carrefour." I guess there's a Carrefour going up (already up?) in that Indian city. If you have a specific question about Carrefour in Korea, please feel free to email me and ask.

ORIGINAL POST:
This is one of those stories that flies below the radar, but the closer you look, the weirder it gets.

Carrefour (pronounced ggarŭpu in Korean) is leaving Korea. Why? Because the number-four retailer has a policy of leaving a country if they are not number-three or better. In world rankings, they are number two, after WalMart. In fact, they are sometimes called the WalMart of Europe: all the surliness of the American WalMart, but without the uninsured staff.

So Carrefour announced it was leaving. Lotte, which had hopes to expand LotteMart, was one suitor. Samsung-Tesco, which runs Home Plus, was also hoping to buy out Carrefour's thirty-two stores and expand that way. But lo and behold, E-Land, famous for inexpensive, halfway decent clothing, has bought them out. For a cool 1.75 trillion won ($1.85 billion at current rates).

I feel for Carrefour and its struggle to do well in Korea's hyper-competitive discount retailing sector. With Shinsegae's E-Mart chain, LotteMart, Home Plus, and also-ran WalMart all vying for Korea's shoppers, it can be tough going.

But it's not as if this was a tough nut to crack and Carrefour wasn't up to the task. Have you ever walked into a Carrefour? They're crawling with people! Anytime of the day or night, they've got crowds.

So they didn't make it to the top-three...boo-hoo. Maybe Korea's market is different enough from that in Europe that a number-four showing—and massive expansion nonetheless—was good enough. Changing their name to CarreMart would have been a better move than jumping ship. And it's not like they are struggling just in Korea (if you can call it struggling), since they are also having "troubles" in Japan as well. Maybe they need a different way of thinking about how they approach affluent East Asian markets.

I'll be sad to see them go. I happen to like the place. In addition to the usual suspects—cheap stuff and lots of it—they often carried a lot of neato specialty items that the other chains didn't. The same is true of WalMart (or was true the last time I set foot in one), but WalMart in Korea always felt sort of icky. It's like they didn't care how the store came across.

Anyway, the story is getting even weirder, as I said. Now the ROK tax agency is
launching a probe into the deal. Apparently, a clause in the Korea-Netherlands tax treaty (but not in the Korea-France tax treaty) may allow Carrefour to escape taxes on profits from property sales.

So what does the tax agency do? Confiscate massive amounts of records. Records that, judging from the article, may seem to have little to do with the tax issue but lots to do with management and operations.

This is just my gut feeling, but this stinks of the far left's attitude that it is better to eat the rich than to be like the rich. It's some great sin to make money—even if it's done legally and ethically—and they will make sure all will be punished for making a buck.

UPDATE (October 2008):
Carrefour's move out of Korea and into China? A roaring success!

4 comments:

  1. Good post. My only quibble is with the "boo hoo". I think that's a false note. Carrefour has said nothing critical about barriers to success in Korea to explain its decision. Quite the contrary, they've essentially admitted that their strategy or its execution didn't work in Korea and that consequently they didn't reach their goals here. (In fact, it probably was a bit of both). Coupled with their assessment of the cut-throat nature of the competition, especially in the hypermart sector, and their perception of better opportunities in China, they appear to have made a pretty coldcut business decision to move on, using the proceeds of the sale of the Korean operation to fund their China initiative. In my experience, this is just the most visible tip of the iceberg. I've spoken with a significant number of large foreign investors who now regard Korea as a backwater, investing in which involves too much brain damage and potential collateral damage to one's reputation (because of the difficulty being connected, even if only tangentially, with corrupt local compradors). For them the risks just are no any longer justified by the potential outsized rewards that were avialble in the aftermath of the financial crisis. SO they are moving on to China, where the large and similar risks are perceived to be justified by the prospective rewards, and especially India, where the rewards are equally attractive, the risks are much lower and, becuase of the heritage of the Raj, there really is a functioning legal system of the sort that is absent in China and fatally compromised in Korea. Japan also still holds some interest, again not only because of the economic opportunities but also the (accurate) perception that one can make deals that the other side generally will live up to and, if things do go awry, dispute resolution is transparent, fair and effective.

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  2. So Carrefour didn't get a fair shake in Korea so they're moving onto India and China? Just like Kushibo said, boo hoo.

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  3. Kushibo:

    Isn't it Samsung-Tesco, not Samsung-Tedesco?

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  4. Sewing wrote:
    Isn't it Samsung-Tesco, not Samsung-Tedesco?

    You are correct, sir. I will correct this hastily written post posthaste! (see how I did that with hastily written post, turning it into posthaste...making it into a little pun? Just one example of the kind of humor you'll find here: dry wit, a good pun, loads of snarkiness and sarcasm, satire, and irony, though I'm not really sure what the difference is between the last two).

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