I am presently in the Kingdom of Jordan. It’s a pleasant place. Developing quite rapidly. Friendly, welcoming people, although with a slight excessive tendency to charge foreigners more than they might charge locals for the same thing. That’s a sign of the stage of development the country presently occupies, however. Those higher prices are still cheap, by the standards most westerners are used to, and it is easy to get away with. Such are the joys of using an alphabet that westerners generally cannot read, too. (This sort of thing happens much more in Thailand than it does in Vietnam, for instance, as the Latin alphabet used by the Vietnamese makes it much harder to get away with. Despite the preponderance of alphabets used in India, it happens far less there, given that every establishment has an English language price list that is used by Indians far more than by westerners).
Amman is a city with quite a lot in common with somewhere like Bangkok, actually, although Bangkok is clearly more developed right now. A huge number of people have arrived in Amman from the countryside in recent decades, boosted by greater economic opportunities in the city than the desert as well as for political regions. Huge, relatively poor neighbourhoods have sprung up in East and South Amman. Crowded, sure. Desperate, not at all. In these neighbourhoods you find clusters of souks and markets and stores devoted to most imaginable products.
The new and rapidly growing middle classes are in West Amman. This is a mixture of highway flyovers, international restaurant and hotel chains (including many American restaurant chains not seen in Europe), shopping malls, and bad driving. It resembles Dubai in some ways, but is much less manic, much less the product of ruthless absolute monarchy and a viscous caste system (the Jordinian royal family being much more moderate) and contains many more pedestrians, even if the road infrastructure does not appear to have been invented with pedestrians in mind. There are various signs that money has entered Amman both from and via the UAE in various ways, but it doesn’t appear to be dominating the place. Plus, the weather is a good deal nicer, which helps a lot.
Go into the nicer shopping malls, and you find many of the expected international tenants that are generally to be found in middle class districts of rapidly developing cities with aspirational middle classes: Starbucks, Zara, etc. Anchoring each mall is a huge supermarket, selling vast amounts of food and non-food items at good prices – devoting roughly 50% of floor space to food and 50% to everything else, an outlet of the French chain Carrefour.
As I usually do in foreign countries like this, I devoted some time to wandering around the aisles of this supermarket. There is no section devoted to alcoholic drinks, this being an Arab country. Jordan is not an especially difficult place to find a beer. There are (fairly expensive due to high taxation) liquor stores throughout the country, mostly operated by members of the sizeable Christian minority, but drinking alcohol is something you separate from good wholesome activities like doing the regular shopping or having dinner in a public place, so there is no alcohol section and most restaurants do not serve alcoholic drinks. More entertaining is the section that would be devoted to things like ham, bacon, and salami in a European country. It is really amazing what you can do with turkey meat if you try, as anyone who has ever been served a halal English breakfast can vouch. And along with the Turkey salami there is the lamb salami beloved of Indian pizza aficionados. The regular meat section is full of lamb and beef, some of it imported from places like Brazil and Australia, and some of it sourced locally. The seafood section contains lots of fish that are described as coming from Dubai. An almost landlocked country is not going to be able to source most of its seafood locally (and, in the modern globalised world, who does, anyway?). The food section in general contains much catering to local tastes, and contains a very impressive mixture of local and imported.
Go into the non-food section and you find cheap TVs, computers, and other electrical appliances of all kinds. Cheap, but not too unsightly clothing in a mixture of western and local styles, kitchen utensils, tools and light kitchen, household and garden stuff. Toys. People familiar with the non-food section of a Carrefour or a Tesco anywhere else will be familiar with the contents here. A larger portion of this is imported, and needs to be less localised than the food, but where local sourcing and catering to local needs and taste is necessary, it is done.
Get a bus or taxi to the poorer neighbourhoods of Amman, and there are more downmarket malls in existence or under construction. These also have Carrefour outlets in them, possibly smaller ones. While Starbucks and Zara don’t necessarily travel all that far down from the upwardly mobile middle classes, supermarkets can. Everyone wants to buy good and inexpensive food, and cheap TVs and mobile phones appeal to all social classes as well. Carrefour have moved into the market by first providing cheap goods to relatively upmarket purchasing power by opening in malls that want them as tenants and with which signing contracts and negotiating bureaucracy is relatively easy, in so doing setting up supply chains and logistical systems in the country, and are now just starting to move out into the mass market.
Carrefour are, i think, the best in the world at general retail in middle income and developing countries. Their two most important competitors in this are Wal-Mart of the US and Tesco of the UK. Carrefour resembles Tesco more than it does Wal-Mart. Both Carrefour and Tesco began as food retailers, and as supply chain management became more and more important became better and better at it. Both were very good at negotiating the vagaries of their local planning laws and local labour laws, and expanded domestically to a huge extent as a consequence of this. Both added more and more non-food items as they opened larger and larger stores, to the extent that they became general retailers rather than simply food retailers. (The French use the word hypermarché or possibly the pseudo-Anglicism hypermarket to describe a large store that sells both food and non-food under the same roof. The English stick with supermarket regardless of how big it gets. As well as opening larger stores, they also opened smaller stores, becoming masters of everything from small convenience stores to giant mega markets (some of which do not even sell food). Using economies of scale to run both very small convenience stores and very large megamarkets at the same time was a relatively new thing, and both companies got this relatively early. Both took advantage of the new markets that opened up in Eastern Europe after 1989.
Wal-Mart on the other hand came from general non-food retail and added food later. A very large Tesco or Carrefour is not dramatically different as a store from a regular sized Wal-Mart, of course, so to some extent the three retailers ended up at the same place. However, despite their masteries of supply chain management, Wal-Mart have not managed to expand into foreign countries (or at least out of the Americas) as well as the other two. I think some of this is due to the fact that it is not quite as good at adapting to local tastes to the extent that the other two companies are. Coming from food requires you to adapt to local tastes and develop local supply chains in a way that non-food does not. These gain you advantages in places other than just food. Wal-Mart’s lack of expertise in smaller stores has made it harder to be all things to all people, and to gain the economies of scale that the other two have from all this. And whereas Carrefour are masters of adapting to planning and labour laws and dealing with bureaucracy, Wal-Mart are not. Wal-Mart have trouble enough opening stores in New York and San Francisco, let alone in Germany.
There is an art to succeeding in such environments which involves patience and negotiation, maybe a little corruption here and there but hopefully not too much, but never ever going over the line into really unpleasant places, in which corruption means not only that bribes are required but that it will likely to be impossible to get either your money or your profits out. Wal-Mart have a history of either failing in highly regulated but not corrupt places (Germany), or getting into heinous corruption scandals through not really knowing the right way to play it (Mexico). (As an aside, German retailers such as Metro AG seem willing to tread in places that nowhere else does. They have large operations in Ukraine, Russia, and the rest of the Soviet Union, amongst other places, but are not much to be seen in middle sized growth markets, although they do have a substantial operation in China). I can imagine how they got to these places but cannot imagine it will end well. Carrefour opened a couple of stores in Moscow and exited the market a month after they entered it. That tells you plenty about Carrefour and plenty about Russia. Or possibly it is just that Wal-Mart’s home market is so huge that it makes you less hungry elsewhere.
To be fair to Wal-Mart, they are getting better at all this. They are opening smaller stores successfully, they are moving into more regulated markets, they are getting better at food, they are localising better. Their Chinese stores are clearly being run by some of their best people, and these stores are selling lots of locally sourced foodstuffs aimed at local tastes. (If I said that the non-food items are also made locally in China, I suppose that would be making a joke). Wal-Mart’s Chinese stores are full of customers buying stuff, but whether they are profitable, I am not sure. Whether the profits are mainly accruing to Wal-Mart’s Chinese “partners” rather than the parent company and any of them will ever be seen by Wal-Mart’s shareholders, I don’t know that either
In any event, one encounters Carrefour stores more than Wal-Mart in Chinese cities. They are at least equally full of people buying stuff. They tend to have more interesting imported foods along with the local stuff. (Supply chains working the other way). Tesco are present in China, but not to anything like the same extent. Whether any of these companies will ever get any of their profits out, that is another thing I do not know.
Tesco are present in Turkey, but not in the Middle east more generally as is Carrefour. (Everyone is present in Turkey including the Germans – family connections between the two countries possibly giving them an advantage). Tesco are strong in South East Asia, to be fair. However, they are not quite as good as Carrefour in those “middle markets”, between rich and poor, between free and unfree. This is where the growth is to occur, this is where the profits are to be made, and, more importantly, these are places from where the profits can be taken home. (Tesco have also recently had a change in management and appear to have taken their eyes off the ball in supply chain management, too). Vastly belatedly, the Indian market is in the process of finally being opened to foreign supermarkets. This is huge, huge, opportunity. Lots of bureaucracy, but a relatively fair legal system and the rule of law. A huge, growing population with a substantial middle class. Watch Carrefour (and the others) dive in.
What is it that makes a French company so successful here? Is it the fact that France is a highly technologically sophisticated country with a highly numerate and professorial professional class that is very good at things like logistics and supply chain management. Is it that French planning laws and French labour laws are so baroque (without being necessarily very corrupt) that if you can negotiate them, you can negotiate anything? Is it that France has a history as a trading nation?
It could just be that I have chosen one company that has been well managed, but I doubt it. I could have written a similar piece about their hotel chain Accor, which is similarly good at negotiating bureaucracy and labour laws and gaining economies of scale through being all things to all people. (Give me a list of all the Accor hotel brands present in a particular country – Everything from “Sofitel” at the very high end to “Etap” and “Formule 1″ at the low end, and I will give you a potted summary of the country’s economy that is likely to be accurate).
Of course, both those companies do have very good management, but that is not it. Or not just it. Both companies have long been extremely open to management expertise and ideas from abroad, particularly from the United States. (Both companies were influenced by the ideas of American supply chain guru Bernardo Trujillo). This openness to international ideas is something Americans are less good at. In this instance their own ideas have generally been good, but the openness is the point as much as the ideas.
In essence, the truth is this, though. France is a country that has produced some very good companies run by highly skilled people who are amongst the best people in the world at benefiting and enriching France through free trade and globalisation. Or to perhaps put it a better way, French companies are extremely good at taking advantage of those bits of freedom present in semi-free markets and running with it. France is a country that as at least one of its characteristics contains many fine, upstanding, skilled, competent people doing economically highly productive things. The more globalised the part of the economy we are talking about, the better the French are at it and the more they benefit from it, as far as I can tell.
France has a presidential election tomorrow. Sadly, France also has the worst political class of any major democracy, sad to say. Tomorrow they will likely elect an old style protectionist who is in hock to organised labour and is actively hostile to capitalism and trade. His opponent the incumbent is barely better. The sorts of things I have written about up until now have not been discussed in the campaign. A really bold politician would actually advance the argument that a great deal of France’s prosperity comes from the fact that France is really good at globalisation, not recoil from the very word on the basis that globalisation and trade is scary and American, rather than endorsing protection from it. But conventional wisdom is that this would be electoral suicide.
Of course, diving deeper into the morass of the status quo is a different kind of suicide and Lord oh Lord this is depressing.