As Carrefour gets ready to sell a majority of its operations in China, lessons can be learned from the history of the French retail giant's choices over the years.
BEIJING — Carrefour, France's retailer giant, has announced that it will sell 80% of its Chinese operation, in a transaction worth 4.8 billion RMB (about $700 million), to Suning.com, one of China"s largest retailers. This is how a multinational retail giant puts a full stop to its adventure in China where it endeavored to succeed for more than 20 years.
Meanwhile, Suning — a purely local representative of Chinese retailers founded in 1990 — is going through a retail transformation as the deal is struck.
What we can't help asking, looking at Carrefour's decision, is what will it take for a foreign investor to win over Chinese consumers and be capable of sustaining success?
As a matter of fact, more and more foreign companies are finding the Chinese market very hard. Some struggle to survive, some quit. This is of course related to the Chinese economic downturn, but not only.
Carrefour introduced a brand new format of hypermarket into China as early as six years before China joined the World Trade Organization (WTO) in 2001. It started China's supermarket era.
Carrefour was once the beneficiary of China's opening process.
At one time, Carrefour was the inevitable rival of nearly all of its Chinese counterparts. It was also a well-respected mentor for them when, in 1995, Chinese supermarkets were yet to set off. Suning had only been founded five years earlier, and its sales were mainly air-conditioning equipments.
However, the subsequent growth of China's retailing sector has exceeded the imagination of all observers. This is particularly true since entering the internet and mobile e-commerce era. Combined with Chinese enterprises' innovative business models, the massive market scale, an ever-expanding middle class and fast-iterating and diversified consumption habits, the Chinese market went through a period of breaking up and restructuring at a gallop.
China's local retailing giants had not imagined this, but even operators like Carrefour were left behind in a passive role vis-à-vis the new model. Though Carrefour made efforts to transform by coming up with online shopping channels as well as small convenience stores, it failed to turn the situation around.
Beijing retail, large and small — Photo: Markus Winkler
Carrefour is the epitome of this era of changes. It witnessed the profound changes that the Chinese market went through and the successes and failures within it. When Chinese people started to pursue high quality development, upgrading and stratifying their consumption, they also affected the providers of goods and services. More than one billion consumers embraced internet with huge enthusiasm. The power that drives forward this market is bound to be different from that of 2001 when China had just joined the WTO, and very distinct from that after 2008, when China became the world's biggest internet market.
Carrefour was once the beneficiary of China's opening process. But when it failed to cope with competition in a more effective way, it was left behind by this same process.
Carrefour's case, however, doesn't constitute a footnote for those who believe that foreign investments in China are declining. The trend of foreign investment in China has not changed. According to the latest UN report, China still maintains the second position for global foreign capital inflows. And according to data from China's Ministry of Commerce, in the first five months of 2019, foreign investment in high-tech manufacturing and high-tech services has largely increased: the actual use of foreign capital in the high-tech industry has increased by 47.2% year-on-year.
China's new round of high-level opening to foreign companies has begun.
Thus, the real trend is that operations by multinationals in China are reshaping. This is the choice of the market and also the choice of consumers. China's new round of high-level opening to foreign companies has begun. Relevant policies in the fields of finance, automobiles, credit and medicine have been launched. Meanwhile a new revised list of foreign investment access will also be released.
The span and depth of China's opening-up will be expanded. Compared with the time when China had only just entered the WTO, this is a market with greater carrying capacity and potential. Nevertheless, for multinationals that wish to succeed in China, they ought to understand first how China's 40 years of reform and opening-up has changed its market and its consumers — before they step on the gas pedal.
It should be noted that it is precisely the area that first opened up to global competition that gave birth to the batch of Chinese companies that has finally taken the lead from the foreign ones. Chinese people should be grateful for all those years they were accompanied by Carrefour.
The history of business evolution in China carries the memories of all the companies that have worked and strived in China. Their names are part of the commercial glory, whether they are born locally or from overseas.