Running head: COMPARATIVE ANALYSIS OF CARREFOUR AND COSTCO

1Comparative Analysis of Carrefour and Costco on Their Entry into the Japanese Market

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I. Introduction
With improvements in transportation and communication technologies, volumeof global interactions increased while virtual distance of the world shrunk, making theworld an equal playing field in terms of economics (Friedman, 2007). It is no wonderthat as globalization progressed, international companies rose to new heights (Heinecke,2011). In other words, companies who seek to be successful in the current age must takeadvantage of globalization and work to be successful in not only their home markets but
also in others (Choi & Mukoyama, 2009). To do this, one will find it useful to compare
the case studies of Costco and Carrefour entering Japan since they were similar
supermarket chains with similar strategies yet one succeeded and one failed.
According to Heinecke (2011), multinational companies have three options intrying to make a profit at a foreign market: adaptation, aggregation, and arbitrage. What
gives many companies a hard time when entering a foreign market is adaption. It isespecially a problem for Western companies to adapt to Japan since they are
individualistic while the market is collectivist which will cause misunderstanding on
both sides unless extensive research and training is done (Brislin, 2008). Fromcomparing Costco and Carrefour who were very similar in time and industry, the reason
why Costco succeeded and Carrefour failed can easily be attributed to the fact that

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Costco was able to adapt its business policies and understand consumer demandcorrectly while Carrefour could not. This paper will discuss briefly on main elements
blocking entry of foreign capital in the Japanese market and continue on to introduce
how Carrefour and Costco entered Japan. It will then analyze three topics of theirbusiness to measure the two’s scope of adaption.
II. Barriers Blocking Entry into the Japanese Market
Like any market, the Japanese market has its own barriers preventing foreign
forces from stealing market shares that otherwise could be given to the homegrowncompanies (Choi & Mukoyama, 2009). Just carbon-copying the business and bringing it
to Japan will end up in disastrous results like how the founders of Japan’s Seven Eleven
realized at their training in Seven Eleven Training Center in California (Tanaka, 2012).
There are mainly the legal and cultural barriers that give foreign companies a hard time
adjusting to Japan.
Law
Although legal barriers are a formidable repellant, they are rational systems inthe sense that the problems can be solved by legal assistance or political lobbying. In
debating legal market barriers, there are laws enacted specifically to prevent foreign
capital and local regulations that eventually became structural barriers. The main law

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4concerning regulation on foreign capital comes from the Law Concerning Foreign
Exchange and Trade (外為法) which requires investors to report its intent to invest to
the Japanese government if its investment is to cover more than 10% of a corporation(Hirose, 2007). Also article 27 of this law allows the government to revoke an
investment if it believes it would harm national security (Hongo, 2011). Alongside thislaw, there are articles attached to industry specific laws that limit or forbid foreign
ownership of companies like airlines, broadcasting companies, and telecommunicationcompanies (Hirose, 2007).
On the other hand, industry regulations that eventually became structuralbarriers are hard to identify just by the name. For example, labor laws in Japan reflect
Japan’s belief in social responsibility, though to foreign businessmen, it’s yet anothertroublesome law making it difficult to cut labor costs when it’s not needed (“4.8Resignation,” 2013). On a specific note, Japan has many tough health laws restricting
carcinogens and other harmful substances due to a history of harmful products. These
regulations, though, can be problematic since the level of regulation in Japan on certain
substances are higher than that of other countries which made IKEA, the Swedish
furniture manufacture, suffer with heavier restrictions on formaldehyde (Dahlvig, 2012).
Laws in Japan are unique but correct legal advice is abundant, so most companies that at

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least set foot on Japanese soil pass this barrier. Cultural problems, however, are not like
this.
CultureMany individuals find understanding Japanese culture, including its cultural
meaning behind silence and its unique directness (Brislin, 2008), a difficult task whichmakes the task of understanding local taste and tailoring regional strategies a daunting
mission. On the consumer side, companies are shocked to learn the high demands of theJapanese consumers. To the Japanese, it is how much quality can be gained from thesame price rather than how low the price can go with service playing a big role inestablishing its brand and getting loyal customers (Dahlvig, 2012). In essence, Japan has
not been a market where the cheapest goods were the most popular goods (Yamakawa,
2005). Alongside high demands, consumers are quick to judge companies by theirnames, so fulfilling their stereotype is crucial for success. This can be a problem at firstfor foreign companies that get labeled wrong, but it can also be a benefit since themarketing is already almost done. IKEA, for example, is a general furniture store, but
the Japanese consumers had an impression that they sold Swedish furniture. IKEA
realized this trend quickly and shifted its marketing strategy to always include a
Swedish image even though some products had no relation to its home country (Dahlvig,

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2012).
On the supplier side, the Japanese distributors and suppliers have many
unspoken rules and social etiquette which are typical to collective societies like Japan(Brislin, 2008). The Japanese distributor system is infamous for its solidarity. In theJapanese distributor system, the manufacturer, as a way to maintain its retail price, will
designate distributors and sell its products at special wholesale prices or give rebates tothem on the promise that distributors will maintain the retail price set by the
manufacturer. The distributors will then sell those products to retailers at a higher
wholesale price with the same promise of keeping the retail price at a certain standard.
When there are belligerents that break the harmony of this process, distributors andmanufacturers will be ready to enforce strong economic sanctions in the form of higher
wholesale prices and segregation (Seo, 2001). Trust and loyalty plays a factor in eachlevel of transaction where more positive means more discounts (Choi & Mukoyama,2009). When dealing with commodities, it is critical not to anger the people in thesystem or potential foreign retailers would be faced with every Japanese distributor.
This delicate issue of culture can only be understood and controlled by consulting withprofessionals on that matter. Unfortunately, though, advices by these professionals
might not always be correct which characterizes the difficulty of culture.

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III. The Case Examples
In this section, the paper will look at Carrefour and Costco’s entry to theJapanese market. In a scientific method where comparisons must have as little variables
as possible to figure out the reasons for certain phenomenon, it is imperative to compare
examples that are as similar as possible when proving a point in business. These two
examples are excellent in that both are multinational supermarket chains that entered theJapanese market roughly around the same period (Nemoto & Tamehiro, 2001) and had asimilar retail strategy of selling cheap goods.
CarrefourAs the second largest consumer market, the Japanese market was always a very
lucrative market for large-scale retailers if there were no strict laws regulating the
opening of super-sized stores (Yamakawa, 2005). It was great news for Carrefour when
they heard the news that Japan was discontinuing its Large-scale Retailer Act in the late
1990s (Seo, 2000), though they would painfully find out that despite lower legal barriers,
Japan was still a tough market to tackle.
Opening its doors in 1960 in France (Choi & Mukoyama, 2009), Carrefour was
the second largest general merchandise retailer in the world behind Walmart with 596
stores in 26 countries when they entered Japan in 2000 (Seo 2000). Its history of

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8international expansion is long with its first international store opening in Belgium in1969 mainly because of local French regulation that strictly regulated the opening ofsuper-sized stores that Carrefour used to generate a majority of its revenue from (Choi& Mukoyama, 2009). Interestingly enough, the way Carrefour entered those 26
countries differed from region where there were some that were operated under joint
ventures with local companies and others that were operated under a complete local
subsidiary (Seo, 2000). Despite the variety, all were under the controls of Carrefour
headquarters in Paris and took, to borrow Heinecke’s (2011) words, an administrative
centralization in operating their global outposts.
Carrefour opened its first store in Makuhari, a city in the greater Tokyo region,
su on December 8, 2000 (Seo, 2001). The first day was popular but also a disaster as alack of cashiers brought long lines and the lack of preparedness resulted in many key
items to sell out and not be replenished (Kojima, 2001), foreshadowing Carrefour’sdemise in Japan. Within a month, Carrefour opened two stores in Minami-Machida, acharacteristic suburb of Tokyo, and Koumyouike, a suburb of Osaka (Nemoto &Tamehiro, 2001). Carrefour grew to have eight stores, but with struggles in sales andpoor performance in France, they decided to sell off all its stores and retreat from Japan
in 2005 (Choi & Mukoyama, 2009).

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CostcoDespite having a very tough reputation on retailers (Nakamoto, 2012), Japan’s
markets awarded Costco with the fruit of success. Costco, the American hyper-market
retailer, was no different in category than Carrefour, but they conquered the adaption
portion of Heinecke’s (2011) requirements for a successful international business.
Costco started business in the United States as a wholesale retailer in 1983
when this category was in its infant stages (Nemoto & Tamehiro, 2001). Many newcompetitors arose in this field, but by the end of the 1990s, the market saturated with
Costco and Sam’s Club, a Walmart subsidiary, which pushed Costco to international
markets like Japan (Seo, 2001). Wholesale was a new form of retailing where it only
accepted cash as payment. Its target was small business owners as well as consumers
who were willing to buy a lot to reap the benefits of the economy of scale (Sato, 2012).
This unique mix between retailer and distributor was brought to Japan when
Costco opened its first store in Fukuoka after establishing its Japanese subsidiary in1999 (Seo, 2001). Although they had issues to solve after opening its first store (Kojima,
2001), they opened its second store in Makuhari, the place where Carrefour opened its
first store, a year later (Seo, 2001). In 2002, Costco opened its third store in Machida,
called the Tama-Sakai warehouse, on the other side of town from Carrefour’s Machida

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store. From this, Costco has grown to 18 stores as of 2013 (Locations, 2013).
IV. Analysis
Although Carrefour failed and Costco succeeded, it would be wrong to say
everything Carrefour did was wrong and Costco did was right. As a matter of fact,
Carrefour did have some good policies and Costco bad (Kojima, 2001) that potentiallycould have changed the outcome to the opposite. This section will focus on what thetwo companies did in the next three topics in Japan to evaluate how well Costco adaptedand how Carrefour did not.
Marketing
The way the two companies viewed their business was perhaps the biggest
reason why Costco succeeded while Carrefour did not. Costco built its business model
above the assumption that customers will arrive in cars occasionally and stockpile
everyday goods bought from its stores (Seo, 2001) while Carrefour viewed its stores as
a complete mall with a high variety of merchandise that people would use every day(Kojima, 2001).
Carrefour made a critical mistake in its model here because they did not realizethat their stores were relatively hard to access due to distance (Kojima, 2001). Many
consumers only came once in a while and expected Carrefour to offer the atmosphere

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and products specific to a French market (Yamakawa, 2005). Contrary to the
expectations, Carrefour pursued a complete adaptation by selling more Japanese
products which lost clienteles and made it hard for Carrefour to differentiate from othersupermarkets local to Japan (Choi & Mukoyama, 2009). Unlike the success story ofToys R Us in Japan, the level of competition of supermarkets was high so Carrefour not
differentiating but rather joining the competition only spelled disaster for the French
company (Nemoto & Tamehiro, 2001).
Costco, on the other hand, was clever to base its business on less frequency andstockpiling which allowed it to differentiate from other supermarkets at the time (Seo,2001). Because the stores were quite far and buying bulk meant descent cargo capacity,
targeting its consumers with cars reflected reality very well. Contrary to supermarkets
trying to provide as much variety as possible, Costco tried to differentiate itself by only
providing 4000 products which maintained the quality of each (Sato, 2012). Initially,both Carrefour and Costco ignored the importance of import goods, but from experiencefrom their first store, Costco decided to make 30%-40% of their offerings to be imports(Kojima, 2001). Costco adapted well by listening to consumer demand and answering it
while Carrefour ignored it and changed its own strategy for the worse.
Location

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12Interestingly enough, there were two cities where both Carrefour and Costco
opened its stores to. Makuhari and Machida, both suburbs of Tokyo, were the two cities
that had a Carrefour store as well as a Costco warehouse simultaneously (Seo, 2001).
The two supermarkets opened its door to the same customers yet Costco did not close
but Carrefour had to retreat. This had to do with how the two marketed its stores.
In the example of Machida, Machida and the outlying Tama regions are uniquein that it is home to a higher family income yet low purchasing power due to higher
expenses like mortgage payment and education for the children. It was natural for thisarea to be filled with supermarkets specialized in cheap goods (Seo, 2001). As
mentioned above, because Carrefour tried to directly compete with Japanesesupermarkets, it lost its uniqueness as a store (Kojima, 2001). When Carrefour opened
the Minami-Machida store, it had to compete with many other supermarkets in an
oversaturated area so it was natural for them to struggle (Seo, 2001). Costco did not
suffer from the oversaturation in the Tama region in its Tama-Sakae warehouse because
it marketed its stores, as mentioned already, as a low frequency, heavy shopping store
with a larger customer range than Carrefour (Sato, 2012).
The example of the Makuhari area is even simpler. Despite Carrefour having
better access to public transportation than Costco, there were many competing

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supermarkets in the area that had better access, so they again suffered in this area
(Kojima, 2001). Costco had issues with accessibility in its Makuhari warehouse, butsince it targeted customers by car, somewhat poor accessibility did the not affect its
competiveness as a retailer (Seo, 2001). Location significantly hurt Carrefour because
its marketing strategy was close to Japanese supermarkets, but it did not hurt Costco
because its differentiation made them avoid competition with local supermarkets.
Supplier Relations
The way the two companies dealt with suppliers also says something about
adaptation. Unlike Europe, Japan has a unique system of distributors and its networks(Seo, 2000). In a collectivist society like Japan, distributors and retailers maintainharmony by avoiding arguments, but that also can be implied that these types ofsocieties will try to destroy anyone that tries to break this harmony (Brislin, 2008).
Upon entry to Japan, both Carrefour (Seo, 2000) and Costco (Kojima, 2001) had apolicy of dealing with suppliers directly without using distributors to keep prices low.
When Carrefour brought that policy to its operations, the obvious reaction was suppliers
refusing to do business with them from pressures from other distributors (Choi &Mukoyama, 2009). Also, the assertive way Carrefour negotiated with manufacturers andsuppliers helped to segregate Carrefour even further (Seo, 2001). Costco initially gave

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up on the idea of dealing directly, but with fair agreements and strong commitments onorder according to sales gradually convinced suppliers to supply popular items andmanufacturers to contract directly (Sato, 2012). Although Carrefour and Costco initially
failed in trying to be supplied products from manufacturers directly, Carrefour could notbuild trust in business to bend the rules while Costco did with long transactions.
V. Conclusion
Many argue that more sectional barriers will be broken with time, and theworld will become, in Friedman’s (2007) words, a flat world. It is, then, vital forcompanies to make use of this trend for their success in this era. A start is to analyze
examples of companies entering foreign companies to which this paper discusses thecase of Costco and Carrefour adjusting to Japan. Carrefour could not dig a deep root in
the Japanese market because they simply could not adapt nor differentiate. Costco is, on
the other hand, a good example of effective adaptation and differentiation that allowed it
to even get citizenship in Japanese culture itself. These two examples empower the ideathat in order for foreign companies to succeed in Japan, they must not only adapt to theJapanese market both on the consumer as well as the supplier side, but also differentiate
so it will have an edge in competition with local businesses or none if the differentiation
can lead to a niche. The universal theme that can be deduced from this is that companies

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need to adapt on all levels when entering any foreign market and must be able execute
its aggregate global strategy (Heinecke, 2011) as a marketing tool to differentiate fromlocal competitors. It is then when companies can finally harvest the benefits ofglobalization and generate profits abroad.

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