Carrefour: organizational structure and business operations

Carrefour Expanding in China

China is now a full member of World Trade Organization which means that the country can no longer impose the same restrictions on foreign businesses as it once did. However free trade doesn't mean Asia is an easy place to enter or to expand into. Carrefour, the second retailer in the world, understood that well when it opened its first store in 1996. That has been the reason behind its success in China. However with competition from other foreign retailers especially American Wal-Mart, Carrefour must review its strategies and study the business environment in China well before they expand further.

First of all it's important to understand the tax system in different local areas in China and how that might affect Carrefour. Foreign retailers who have little or no approval from the state in which they wish to do business are excluded from state-instituted preferential treatments, but tax reforms in 2003 made it possible for local governments to offer their own incentive plans to attract foreign retailers. Before tax reform, all corporate tax went to the state government however with the new system in place; corporate taxes are now divided between both state and local governments, and the local governments are more in favor of waiving those taxes for foreign retailers. This information is important for Carrefour as it can help the company seek taxes reduction or exemption. Such taxes as the municipal development tax and education tax are often also waived, at least for the first few years of business operation.

These laws must be known and observed because Carrefour has once been admonished for flouting the state government laws regarding expansion in China. (China Economic Review March 2001). Even though Carrefour later negotiated and resumed its expansion plan, the company can get in trouble now with new competitors taking over retailing business in China.

Thus Carrefour must do the following:

Inform the local government if problems arise in running the business

Understand local government's incentives and also its limitations

In the media, Carrefour should never disclose the preferential treatment given to foreign retailers. This will embarrass the state and can cause problems for the government.

Carrefour should also support government's policy of join venture and include locals in the expansion plan. This will allow the retailer to learn more about the buying habits of Chinese people. When a big retailer enters a nation with considerable psychic differences, it's best to include the locals and this helps in understanding cultural views.