This essay aims to initially introduce the reader to the French international hypermarket retailer Carrefour and explain the creation and effects of the global market crisis. This will be achieved by critically evaluating relevant literature, articles and graphs and by explaining the sub-prime crisis’ effect on the Greek economy. To achieve this, an appropriate strategic analysis of the Greek business environment will be performed through a Market and P. E. S. T. L. E. analysis.
In addition, we will also evaluate the company’s strategic capabilities and resources for competitive advantage through various strategic tools, such as Porter’s 5 Forces, S. W. O. T. analysis, Porter’s Value Chain, as well as Bowman’s Strategic Clock analysis. Carrefour is an international company and, among other things, a hypermarket-, supermarket- and convenience store-retailer, with its main headquarters based in France, and with main activities such as retail distribution of household products and provisions.
It is also one of the few retailers (including Tesco and WalMart) that have been able to sustain its global network of outlets successfully. Figure 1 below illustrates the countries where Carrefour Group is operating in the supermarket industry. According to the company’s latest annual report (2007) and Figure 1, the firm operates in more than 30 countries under the names of Carrefour, Champion, Dia, and Reflets De France.
As we can see from the figure above Carrefour Group operates in most of the South American market, North Africa, Spain, France, Germany, the Balkans, as well as most of the south east and north east of the Asian market. The firm is also the second most profitable retailer in the supermarket industry, with Walmart (formerly Wal-Mart) being in first place. In essence, the company became successful globally mostly after its merger with Promodi?? s, formerly known as Continent. Under the name of Continent, Promodi??
s was the most successful and nation-wide known retailer in Greece for more than 15 years. Although both the name and parent company of the brand changed in 1999, the hyperstores and superstores did not affect the customers’ loyalty towards them. After its continuous success in Greece, the company made a joint venture with Marinopoulos (a Greek supermarket retailer) in 2000 (online, 2002). The company did not change the name of the outlets since it wanted to make use of the domestic brand, but on the other hand used its own suppliers for their distributed products.
As mentioned in the introduction of this essay, Greece has been affected by the global market crisis. Before starting Greece’s market environment analysis it is vital that we explain how the American sub-prime crisis resulted to the Credit Crunch and therefore the global market crisis. In 2003 the global housing market was exposed to a great jolt because of the United States’ (US) sub-prime crisis. The Bank of America had more than $15 billion in net exposure to Collateralised Debt Obligations (CDOs) of which $12 billion were supported by sub prime mortgages.
According to Hamish McRae (2007, online) 85% of the US housing market belonged to second-hand house sales and the US had a current account deficit of $649. 698 million which was 6% of its Gross Domestic Product (GDP) which was $10,828. 3 billion. Since 2003 the sub prime crisis has raised uncertainty about the global economy, creating even more worries about further oil price shocks as well as shocks about growth and inflation. ‘Sub-prime’ stands for the low prices in mortgages and loans in the US in 2003 due to the low interest rates which were at the time 1%.
In 2003 American banks also started granting loans to almost anybody and especially to people with low wages who used their homes as collateral, including giving mortgages to people living in Florida’s poorest areas and trailer parks. The fall of the interest rates in at the time also resulted in very low house prices making it easier for people to afford mortgages that could not be afforded before, helping them to buy mortgages at much lower prices. As a result of latter interest rates which reached 5. 25% (2006, online), there was a huge number of repossessions as well as a lowering of the country’s Withdrawals and Injections.
The other reason that the global economy was stricken by this crisis was that most US banks sold these CDOs to the global market. According to John Spence (2006, online) CDOs are corporate bonds, mortgages, high interest loans and derivatives that are packed together and sold by the banks through the global market to large investors and other banks. The main reason that CDOs are considered smart investments is very simple and is also the reason that made the entire economy suffer. CDOs have an AAA-credit rating in the stock market.
This means that by investing in AAA funds such as CDOs, one can have more chance of generating more money than in investing in a small independent company or stock. As we can see, due to the CDOs’ AAA-credit rating, it was only reasonable for British and European banks to buy most of the funds thinking of them as less risky investments. They were buying large pieces of land at low cost or investing in funds that are capital protected or investing in large funds with low possibilities of failing. The banks were unaware that they would actually end up owning some of the poorest areas in the US.