Internationalization in french business model

Introduction

Cultures are considered to be the whole system existing practices such as values, norms, attitudes, perceptive, language, and behaviors. Those practices are learned, shared and dynamic, and they define the frame of reference and the way of doing things among the people involved in that business culture. These commonalities define the identity and specifics of national, professional and organizational cultures associated with the interaction with each other and with international organizations. It is fact that cultural barriers to firms internationalization might be more important than technical obstacles.

Dupuis, M. and N. Prime (1996) 'Business distance and global retailing: a model for the analysis of key success/failure factors', International Journal of Retail and Distribution, Management, 24 (11), 30-8

France Business Environment

France is the fifth largest economy in the world, in terms of Gross Domestic Product (GDP). The leading industrial sectors in France are telecommunications, aerospace and defense, ship building (naval and specialist ships), pharmaceuticals, construction and civil engineering, chemicals, and automobile production. With at least 75 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism. http://www.eucommerz.com/business/france

There is strong competition for market share in all French industrial and service sectors. American exporters to France generally face more competition from European companies than from Asian ones. Positioned at the heart of the world's largest market, France offers a favorable economic environment to potential exporters.

Doing Business in Franc

France is at the top of the list of countries receiving foreign investments, currently #3 according to the CIA World FactBook. Foreign investors like France and generally acknowledge the skilled manpower, high level of education and research, excellent infrastructures, central location in Europe and quality of life.

Newcomers to the French business environment should carefully study the cultural differences to ensure the success of their business. There are some elements that characterize the French business culture; following are some of these characteristics that would guide the new investors and foreign managers of French employees:

Characteristics of French business environment

For French culture, there is a particular factor that plays a great role in creating an affinity of thinking across the senior echelons of French business society, that is the influence of the French education system, which pushes the brightest pupils through a system of elite schools known as the Grandes Ecoles. Graduates of the Grandes Ecoles tend to occupy very high position in major French companies.

French Management style

The elite schools of France produce a highly educated management population, which approaches management with an unusual degree of academic precision. Thus, management is an intellectual task to be mastered and thought about in terms of detailed analysis, the complete mastery of complex concepts and information and the eventual application of rational decisions. More pragmatic issues of buy-in, motivating staff etc. are not as prominent in French management thinking.

Decision Making

It is important to know that hierarchy is part of the French business culture. For the French, the Boss is the Boss and management is very authoritarian. Rank has its privilege, often both literally and figuratively. Decision making is done at the highest levels, often without consultation with subordinates.

However, sometimes meetings are organized, not to reach a decision, but to exchange information,

then the person in charge takes the decision. Decisions, once taken at senior levels, will be passed down the chain to lower management for implementation.

Meetings and Schedules

France is a controlled-time culture, and adherence to schedules is important and expected. In France missing a deadline is a sign of poor management and inefficiency, and will shake people's confidence. People in controlled-time cultures tend to have their time highly scheduled

Appointments are necessary and should be made at least 2 weeks in advance. Appointments may be made in writing or by telephone and, depending upon the level of the person you are meeting, are often handled by the secretary. It is not recommended to schedule meetings during July or August, as this is a common vacation period. Most importantly, meetings are to discuss issues, not to make decisions. Avoid exaggerated claims, as the French do not appreciate hyperbole.

Negotiation style

French business emphasizes courtesy and a fair degree of formality. They also have strict adherence to protocol, as they carefully analyze every detail of a contract or proposal, regardless of how minute, which makes business conducted slowly.

The French are often impressed with good debating skills that demonstrate an intellectual grasp of the situation and all the ramifications. Also, maintaining eye contacts while speaking is essential. Discussions may be heated and intense. High-pressure sales tactics should be avoided. The French are more receptive to a low-key, logical presentation that explains the advantages of a proposal in full.

Only written commitments are serious, nothing oral is really binding, thus, French insist that agreements are formalized in an extremely comprehensive, precisely worded contract.

Dress Etiquette

French are careful with Dress Etiquette and they appreciate the finer things in life. Business dress is understated and stylish. Men are expected to wear dark-colored, conservative business suits for the initial meeting. And women wear either business suits or elegant dresses in soft colors. How they dress later is largely dependent upon the personality of the company, although, French businessmen hardly lose their ties or take off their jackets in the office.

Managing French Employees

The business set up in France is democratic, it is important that managers treat each and every person with equal respect and deference, similarly the interaction between members of the organization usually formal and reserved in behavior. Communication may be both formal and informal, depending upon the relationship between the two persons.

Team Work

French like working in teams and collaborate quite well. The communication within a team is generally quite collegial, albeit somewhat direct and blunt. Role allocation within the team is generally quite clearly defined and people will take greater responsibility for their specific task than for the group as a whole.

Socializing with French

The French are much more sentimentally attached and faithful to their company, they like to put corporate relations on a personal basis. On the other hand, they are less constrained by company's social codes such as "you must play golf with your boss", or "each of us must give $5 for this charity" etc...And they rarely attempt establishing friendship relationship with their business associate. They generally compartmentalize their business and personal lives.

General Procedure

The French do not like clear procedures : they want to maintain some form of " grey zone " and do not believe that it is right to use always the same and only way to do the same things ; organizational charts and objectives are not clear... Michael Johnson writes "One quality the Mediteranean peoples have brought to the world is the ability to live confortably with inconsistency. The Greeks have it, the Italians have it and certainly the French do. To northern Europeans, this ability sometimes looks more like confusion, self-doubt or possibly mental illness.

French Women in Business

Women are gaining an increasingly prominent position in French business life - with particularly strong representation in retail and service industries. Once again, the prerequisite for success as a woman is to have achieved a suitable level of education.

Until recently, women were a minority in economics, scientific, technical, and other highly valued disciplines. Women account for 50% of the students in business schools.

Since 1981, the French ministry has supported women's entry into nontraditional jobs. Today, the majority of French women have full-time jobs, they state that they have come a long way in being treated equally in business.

The French have a system of subsidized creches, or day care systems, and nursery schools, which helps allow continuous full-time employment. The school schedule is synchronized with work schedules. There is a 2-hour lunch from 11:30-1:30 so that the child can lunch with the family, or lunch can be arranged at the childcare center. There is also an after- hour baby-sitting service. There are not enough daycare centers to provide services for all the working parents, so there is a parental leave of absence, which includes a choice of 2-year's leave or part-time work. Women are allowed 16-18 weeks of paid maternity leave with a guarantee of re-employment. An employer may not fire a woman on grounds of pregnancy.

Thus socialized medicine and protective company labor laws allow women to have children without loss of job seniority. For example, a company manager would get up to 2 years of fully paid leave following the birth of her baby, and she could go back to work part- time without loss of her job.

French Companies in Internationalization

Successful Internationalization

Global Markets provides an ultimate opportunity for companies to grow into new markets while at the same time boosting their competitiveness.

Companies that are new to the global context tend to prefer markets with short business distances,

which is the perceived gap between the domestic and host countries on core dimensions such as economic, political, legal, geographic, cultural and psychological. The larger the business distance is, the higher the international transaction costs,

Dupuis, M. and N. Prime (1996) 'Business distance and global retailing: a model for the analysis of key success/failure factors', International Journal of Retail and Distribution, Management, 24 (11), 30-8

The selection in the first stage is often more straightforward. For example a country is nearby e.g. Canada and the United States. Alternatively the export market is in the same trading zone e.g. the European Union.

However, to achieve success in global markets, companies must carefully study the potential markets to weigh which international market or markets offer the best opportunities for the products or services.

Studying potential markets include:

Weigh and rank potential markets based upon macro-economic factors such as currency stability, exchange rates, level of domestic consumption...etc.

Measure the reward for taking the risk of entering a country that experience political instability, and calculate the market entry costs, some countries such as China require that some fraction of the company entering the market is owned domestically.

Obtain detailed information on the target market and study local conditions in relation to the marketing mix to define segmentation, targeting and positioning strategies i.e. product pricing, product distribution, communication with target segments, adaptation of product or service...etc. Also consider the value of the nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants.

Examine a match companies in the new market, close competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry.

Executive managers and marketing managers should travel to a particular country to experience the culture and business practices.

Discover in what ways the nation is similar or dissimilar to the home domestic market or the other markets in which the company already trades.

Market Entry Mode

After determining the best international markets for the products/services, companies need to evaluate the most profitable way to get the products/services to potential customers in these markets. The choice of method depends on a variety of factors including the nature of the product/service and the conditions for market penetration which exist in the foreign target market.

There are several methods of foreign market entry including:

Exporting: can be accomplished by selling the product/ service directly to a foreign firm, or indirectly, through the use of an export intermediary, such as a commissioned agent, an export management or trading company.

International joint ventures: can be a very effective means of market entry, often accomplished by licensing or off-shore production.

Licensing: involves a contractual agreement whereby the company assign the rights to distribute or manufacture the product/service to a foreign company.

Off-shore production: requires either setting up the companies' own facility or sub-contracting the manufacturing of the product to an assembly operator.

Case Study 1: Failure of French Hypermarket in USA

The internationalization of the French hypermarket concept achieved significant successes in Asia and South America. However, it was failure in the USA. During the 1985-1993 period the leading French hypermarket chains, Euromarch, Carrefour, Auchan and Leclerc tried to establish subsidiaries in the USA. One by one these companies have withdrawn from that strategic market.

The hypermarket concept in the in France:

The concept of the hypermarket was designed and launched in France in 1963 by Carrefour. That retail format played a major role in the French retail revolution. In 1987, the hypermarket was positioned as the number one perceived innovation of the previous 20 years, ahead of the pill and the high speed train!

The success of the concept was due to:

one-stop shopping; large car parking lots; and low prices.

long opening hours, consumer's information desks and private credit cards.

The channel mix

Decentralization of the management in order to be close to consumer requirements and to be more reactive to local competition. This option had consequences for logistics, in that many goods were delivered directly from the suppliers. In the initial concept, hiring, retail prices, and even assortment were widely decentralized at shop level.

There is continuous pressure on suppliers in order to obtain competitive prices especially by developing local "one shot promotions".

The retailers take advantage of the difference between two flows of money: on the one hand, they pay the supplier in 60 days; on the other hand, customers pay cash for the products they buy. The cash surplus can be invested in the existing network or in the development of new outlets.

Environmental context

The fast growing rate of car ownership and the development of highways had positive implications for this new industry.

Long opening hours, especially on Friday and Saturday, had a positive influence on the revenues.

The hypermarket concept in the US market

The hypermarket relative innovation in the French/Latin context was not so relevant in the US context.

US human resources management (HRM) is traditionally quite centralized, while French HRM is based more on local initiative.

The one-stop shopping concept was not adapted to American consumers, who usually purchase food and non-food goods in different places, often in the same shopping centre.

80% of the American consumers were purchasing at shopping centers built around two department stores as leading outlets.The hypermarket assortment was broad and shallow, while the US competitors were offering a wide range of products.

Large parking lots were not an innovation in the USA, neither were long opening hours. A majority of supermarkets and large-scale retailers already opened seven days a week.Price competition is more difficult in a segmented market such as in the USA.

On the one hand the "hard discounters", the warehouse clubs and the warehouse supermarkets are price-oriented; on the other hand the superstores and large scale specialists are more service-oriented.

The relatively low gross margin of the hypermarkets could have given some competitive advantage (the average gross margin/revenue was around 22 per cent at that time compared with 16 per cent for the French hypermarket), but they had to compete with powerful chains like Wal-Mart, with much better purchasing capabilities and strong local positions.

The channel effect

Relationships between headquarters and the store network are based on two key factors of success: trust and commitment. In an international environment the "pilot team" may be in a difficult position, having to transfer the company's corporate culture and the store concept to a different context.

Logistics and purchasing crises were mainly subcontracted and the pilot did not reach the critical purchase size. At the same time, its main competitors like Wal-Mart did have centralized logistics and a very strong purchase capability. Supplier credit terms were much shorter in the USA than in France.

Public opinion

The local climate (unions, consumer associations) exerted a negative influence in some locations. There were "Buy American" campaigns in Cincinnati against Biggs and consumers' complaints about hypermarkets and the environment in Philadelphia.

The French retailers had no difficulty in finding appropriate locations for their stores as a relative liberalism prevails in the USA in this matter.

Case Summary

In short, The competitive advantages of the French hypermarket concept have been reduced or neutralized in the US competition and consumption context.

The channel effect did not work well for at least two of the four French tests in the USA. The weakness of logistics and purchasing of the pilots has weakened their competitive level.

Despite the location opportunities offered by the US legal and regulatory context, the relations between the stores and public opinion and local authorities have had a negative influence on the stores' performance.

Dupuis, M. and N. Prime (1996) 'Business distance and global retailing: a model for the analysis of key success/failure factors', International Journal of Retail and Distribution, Management, 24 (11), 30-8

Case Study 2: Successful Globalization of Lafarge

Lafarge History of Growth

Lafarge Group, incorporated in 1833, is currently the world leader in cement and building materials. Lafarge started in France as a local cement company. The company undertook its first international business in 1864 by delivering lime to help construct the Suez Canal.

In 1908, Lafarge developed Ciment Fondu, a rapidly hardening and weather resistant cement.

In 1914-1955, Lafarge became the leading cement producer in Algeria, Morocco and Tunisia.

In 1939, Lafarge became the leading cement producer in France.

In 1960s, Lafarge Canada had become the third largest cement producer in the country

In 1980, Acquisitions in the United States and Canada established Lafarge Coppe which became the number one cement producer in North America.

In 1997, Lafarge acquired Redland of the UK, positioning itself strongly in Aggregates and Concrete and gaining entry into the Roofing market.

In 2000, Lafarge became one of the leading aggregate producers in North America through acquisition of Warren in Canada.

In 2000, Lafarge divested its speciality products businesses, which became Materis, to fund its grand growth plan of acquiring Blue Circle.

In 2001, following the acquisition of Blue Circle, Lafarge became the world's leading cement producer and undisputed leader in the business of building materials.

In 2001, Lafarge was listed on the New York Stock Exchange (NYSE). Today Lafarge, operates in 75 countries with 77,547 employees, 178,000 shareholders and 14.610 billion of annual sales through its four divisions.

International Competition

Competition in the cement industry initially occurs at the local level due to high transportation costs. Competition cannot be based on price as price cuts are easily spotted because of the nature of the product, which is undifferentiated. Competition is hence based on head to head market confrontation focused on price rebates and sales volume, in order to expand market share. Any substantial price cut by a competitor results in a price war. Rivalry also occurs when firms want to enhance their respective competitive advantages on the basis of improved product quality or reduced production costs.

Due to high barriers of entry and high consolidation in the industry, competition occurs at multi-point and multi-market level. Historically, cement firms entered different local markets as a business expansion strategy, to take advantage of growing markets, and to hedge against local economic fluctuations. At the regional and national level, this has led to greater concentration and head to head confrontation between a reduced number of large multi-plant firms. Concentration in the cement industry has frequently resulted in a small number of cement groups such as Lafarge, Holceim, Cemex, Heidelberger and Italcementi dominating their domestic markets, and then entering foreign markets where they compete with other local firms.

High transportation costs make location an important factor in the pricing policy. The best location combines three advantages: (a) the plant is set up in a quarry with large quantities of high quality and easily workable limestone (b) the plant is close to large urban areas (c) the plant is near a railway line or a river network allowing cement to be delivered to far away places. A cement plant located inland rarely sells outside 300 km radius, and would normally sell the bulk of its production within 150 to 200 km.

Emerging Industry Structure

In most mature markets, the surplus cash flow from established cement operations cannot be reinvested in cement in the same markets. The mature markets still offer growth potential in terms of volume and prices and the competitors generally seek to increase cement production capacity in each market. This generates significant cash flows, and is the main source for financing other activities. For example, Lafarge reinforces and diversifies its market share in other businesses. The acquisition of Redland of the UK in 1997 is an illustration of such a strategy. This move added new products (concrete and baked clay tiles) to the range offered in the building materials and enhanced its market share in concrete and aggregates.

Lafarge, uses its acquisitions depending on the level of economic development of the country in question, as a bridgehead to introduce the group's product such as aggregates, gypsum and roofing tiles, with the aim to create a building materials division in each country.

Lafarge's strategy of acquisition in emerging countries is to acquire local cement manufacturers at moderate prices of less than US$ 100/ton. After investing in modernization, it then boosts operating margins on the acquired assets by about 10% to nearly 20% within four years, which translates to a return on capital of about 11%, or nearly 4 points more than the cost of capital. Operating margins are increased by efficiently integrating the acquired company, sharing the technical global know how, transferring of best practices, internal and external benchmarking and by putting in place an efficient IT system.

Lafarge and Globalization

The cement industry has been witnessing major diversification, takeovers, joint ventures, mergers, integration and formation of global conglomerates, and other alternative activities in order to protect itself from the adverse consequences of business cycles. Lafarge, over the last decade, has invested heavily in newly industrialized countries offering considerable medium to long-term growth potential, such as Turkey, Morocco, Eastern Europe, Brazil, Venezuela, China and India. For Lafarge, globalization means to be present in every strategic market by acquiring one or more of the local cement producers. The global competitors operates in a similar fashion. Thus buyer bargaining power, secret rebates, price cutting, price discrimination and competition on service quality have become the norm in the global cement industry.

In that sense, markets have become global. Yet in the building materials business, markets are inherently local: consumer tastes are diverse; business strategies of firms result in the fragmentation of markets on the basis of product lines, location; trade and competition policies vary from country to country. Two factors - high transportation costs and low inventories - together mean that there is no such thing as a worldwide, market-clearing price, as distinct from a global average price. In this sense, cement is a commodity but not a commodity, like grain or oil. It is not possible to build sustainable, worldwide competitive advantage by locating production in any one country. Supply and demand are matched on a local basis. At cyclical peaks and troughs the boundaries may become regional, but never global.

Lafarge has yet to explore the full implications of its goal of globalization. Five of the key issues it will need to address in exploring globalization are:

continuing development of its growth strategy

further realization of the benefits from its restructuring program

fast integration of the acquired companies to create synergy and hence value

internationalization of its work force and to develop managers willing to be mobile and able to operate successfully in a wide variety of markets and people with diverse cultural background

managing its human resources which has doubled in the last five years.

Strategy of Lafarge

The Cement Divisions' strategic intent was to "keep growing and growing profitably". The three main goals followed by the cement division of Lafarge were: (a) doubling sales within 10 years (1997 to 2007) by growth in emerging markets and acquisitions in mature markets (b) growing rapidly than its competitors with an objective to increase capacity of 60-80 Mt between 2001 and 2005 (c) integrating acquired units as quickly as possible.

But Lafarge did not just focus on emerging markets as some of the other global players. In February 2000, it mounted a hostile bid for Britain's Blue Circle, the sixth-largest cement producer and in January 2001, it bought Blue Circle at a price of 3.8 billion. With this acquisition, Lafarge became the global leader in the construction business, with one-tenth of the world market. Motives of this acquisition included achieving a certain size in order to remain visible and attractive to investors, expanding cashflow, geographic presence and, probably, dislodging Holceim from the top spot in the global cement industry.

As a long term goal the strategic intent was not only to defend and maintain profitability of operations by continuous improvement of performances, but also to achieve profitability for new operations. To do so, Lafarge restructured its portfolio by divesting 66.67% of its holding in Specialty Materials. It is now a partner company called Materis. Materis is composed of five businesses: admixtures, aluminates, mortars, paints and refractories.

In 2002, Lafarge's its annual turnover was 1.46 billion, more than 50% of which was earned outside of France. To raise funds to achieve its broader objectives Lafarge sold the Road Making Division of Europe. Currently Lafarge is trying to sell 700 million worth of assets to reduce its debt.

Restructuring for Internationalization

Lafarge initiated an organizational restructuring process with the help of McKinsey & Co. The implementation process began from 1999. The Group was divided into 4 divisions and a new organizational structure was drawn up to facilitate the change process. The clarification, simplification and formalization of Group policy in the areas of Finance, Human Resource, Research & Development, Corporate Communication, Environment, Information Systems, and Purchasing & Marketing have accompanied this decentralization. In addition, guidelines on the management style expected of all Lafarge managers have been set out as "The Lafarge Way". Notwithstanding criticisms, alternative and suggestions about the organizational structure, constant communication and top management's conviction in the structure has resulted in its successful implementation.

Principles of Restructuring

Restructuring was based on certain key issues: (a) to understand and implement procedures to integrate its worldwide operations (b) manage dispersed, locally responsive interdependent business units across the globe (c) reduce uncertainty within the group by introducing mechanisms which would globally co-ordinate the group's policies and (d) synergising the learning within the group by jointly developing knowledge, differentiated contributions and sharing it worldwide.

The key issues of differentiation, integration and uncertainty avoidance involved: (a) differentiation mechanisms - decentralization, changing of a hierarchical organizational structure to a flatter one, delegation of authority down the line and hiring, motivating and retaining specialized personnel (b) integration mechanism - long range planning, evolution of a shared culture within the group, formation of committees and cross-functional teams, proper information technology and control systems and constant internal and external communication within the group (c) uncertainty avoidance - gathering of market information, forecasting, monitoring of internal activities, actively participating in industry activities while informally interacting with politicians, traders, dealers and bureaucrats.

Managing Intercultural Business

The most important issues with Lafarge was how to sustain the internal change process. Lafarge's large-scale acquisitions in China, India, South Korea, Indonesia, Malaysia, Philippines and that of the Blue Circle brought to the fore concerns and difficulties of working across different cultures, languages and mind-sets. However optimism is not lacking, substantial steps in the transformation process like the use of dual language within the group are pointed out as steps in the right direction. The common background of engineering/technical education of most of the top-management team is in itself a language of sorts. Extensive internal and external communication within the group and above all Lafarge's policy of respect and care for its employees serves to manage the transition and transformation of Lafarge from a local French cement company to a global leader.

Case summary

Although Lafarge has grown at an alarming pace and achieved its vision of becoming the number one firm in the construction industry, senior management recognizes that there is still a long way to go in terms of managing the growth of a once upon a time French cement company which has transformed to a global leader. The integration of Blue Circle is still under process and full synergies are still to be attained after two years of acquisition. With recession in the mature markets, growth by acquisition can be sustainable only in emerging markets.

Conclusions

The internationalization of a company presupposes a prior know-how, and a realistic view of three key success factors:

  • Maintaining the innovativeness through either adaptation or globalization.
  • Creating harmonious relationships between the investor and the different actors in the channel.
  • Developing an adjustment capacity to different cultural environments.

Nevertheless, it must be emphasized that the different levels of analysis of the potential cultural prism effect (i.e. consumer, retail store, channel mix and environment) on both domestic and international competitive advantage of the retail format have to be taken into account prior to any internationalization decision.

Dupuis, M. and N. Prime (1996) 'Business distance and global retailing: a model for the analysis of key success/failure factors', International Journal of Retail and Distribution, Management, 24 (11), 30-8

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