1999-1990

"Interview with Gerd Becker, the former General Manager of METRO GROUP, about the expansion of METRO Cash & Carry in Asia."

"THE BETTER RESULTS ARE WHAT COUNT IN THE END"


Twenty-nine countries, more than 20 million customers, over 750 wholesale stores – METRO Cash & Carry has been a very international company for many years now. But just how did it gain this global presence? Interview with Gerd Becker, the former General Manager of METRO GROUP. 

Bespoke internationalisation

As the General Manager of METRO GROUP, Gerd Becker began in 2003 to set up the Corporate Development Department for METRO Cash & Carry. Given his international experience, he was predestined for this job. In the mid-1980s, he headed METRO's purchasing company, Gemex, in Hong Kong. And, in 1994, he directed the process in which the company weighed the opportunities and risks of entering the Chinese market. The following interview explores two different phases of the company's expansion and China's pragmatic approach to dealing with companies.  

Mr. Becker, what did internationalisation mean to the German company METRO Cash & Carry during its initial decades – aside from the early partnership with the Dutch Steenkolen Handelsvereeniging that also focused on international growth?

In the beginning, international growth meant organic growth for METRO Cash & Carry – the first expansion countries were Germany's neighbours: Austria, Italy and France. These activities were part of the initial phase of expansion in the 1970s. The focus of the 1980s generally involved diversification and the acquisition of individual sales lines as a way of buttressing the company's business. During this time, such companies as Kaufhof and Asko were acquired. Internationalisation was a lower priority. The second major phase of expansion launched by METRO Cash & Carry began in the 1990s. During this time, the company branched out into Eastern Europe and Asia. 

How was this done if there was no central authority directing the expansion?

Patron countries were defined for the expansion markets. They were selected on the basis of which ones had the greatest affinity to the new market. In the process, things like consumer behaviour or a country's culture played a role. The patron countries determined how much potential a new market possessed and had to be in a position from which they could help a new country organisation get set up. 

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Gerd Becker, the former General Manager of METRO GROUP
For the selection of the expansion markets the customer behaviour played an important role
In the 1990s, METRO Cash & Carry became the first wholesaler to head to Asia
A look at a METRO Cash & Carry wholesale store in China

Milestones in international expansion

Following these two phases of expansion, a new milestone was reached in 2003: the establishment of the Corporate Development Department...

We developed a structured process in order to analyse and rank potential markets. Everything that had been produced from organic growth was completed: Western Europe was covered. Eastern Europe was largely taken care of – but internationalisation was to continue. As a way of determining their potential and prioritising relevant countries, we developed a structured process – a three-step model: desk research, pre-feasibility study and full feasibility study.

How were these steps carried out?

The first job was to screen potential countries. We considered every imaginable country and evaluated it according to macroeconomic and METRO-specific criteria.

What were the METRO-specific criteria?

Consumer spending, business ratio, traffic density or agglomerations – what is the breakdown of urban and rural populations? Macroeconomic criteria include per-capita income, a country's natural resources and economic development. The social and legal stability of the political system was very important. If a totalitarian regime was in power, we simply wrote off the country. 

What did you do next?

The Management Board decided whether we should conduct a feasibility study on the basis of the results. This study was conducted in a more-detailed manner in the target country. It was done over a period of two months to four months and covered all functional areas: sales, purchasing, logistics, marketing, construction and equipment, staff. 

"I think it would be better for you to go to Shanghai"

In the mid-1990s, METRO Cash & Carry became one of the first retail companies to go to China. Were you involved in this work?

Yes. At the time, I was the head of imports at METRO International AG and oversaw all import organisations. As a result of this position and my knowledge of Asia – I had spent five years as CEO of the Gemex purchasing company in Hong Kong – I was tasked with conducting the feasibility study for China in 1994. This was an exciting story.

How so?

We spent the first two months in Beijing because we assumed that we would have to start in the capital each time we entered a new country. We had countless meetings at ministries. Then, one night we were having dinner with the minister of commerce. Between courses, he offered us some advice: "Mr Becker, I think it would be better for you to go to Shanghai."

Did he tell you why he suggested this?

No, he did not have to. I realised this right away. In 1994, China was just beginning to welcome foreign investors in particular commercial areas and accept joint ventures created for this purpose. But retail was not a priority industry for which China was interested in foreign investors. After all, the Chinese were trading long before we Europeans were. The minister urged us to go to Shanghai because it was one of the specially defined commercial zones where new concepts were being tested – far away from the power base in Beijing. Concepts that worked were introduced nationally. Those that failed could be quickly buried – without the political leadership in Beijing having to lose face. 

Chinese pragmatism in action

What other barriers did you also have to overcome?

At the time, foreign investors were banned from the wholesale business. Fortunately, our discussion partners on the political level were so excited about the cash & carry concept that they sent several delegations from Shanghai and Beijing to Germany so that they could get a first-hand look at our operations. The approach the Chinese took underscores their pragmatism: foreign investors were forbidden by law to conduct wholesale business. They then came up with a new word that meant "cash & carry". As a result, the law was followed and our concept became doable.

You just needed a joint-venture partner.


That's right – without a partner, we never would have been allowed to open a store in China. We had avoided taking this approach in other countries because we wanted to remain independent. But we were lucky. We found a business partner in the Jinjiang Group in Shanghai that had no goals of its own in retailing. It was primarily involved in the hotel business and tourism. For Jinjiang, the partnership with such a large international group like METRO primarily served to raise its political standing in its own country. Under the law, the Chinese partner would have had to hold a majority stake. We were the first retail joint venture in which we as the foreign investors held the majority stake.

The better results are what count in the end

What do you particularly respect about Chinese business partners?

I learned a lot from the Chinese. I learned, for example, that your own approach is not always the only right one. It pays to open yourself up to other ideas and ways of doing things. After all, the better results are what count in the end. In this regard, I was impressed by the pragmatism of the Chinese.

Where did you see this pragmatism in action?

As we were about to open our first store in Shanghai, we still did not have an access road to our site. We had built the store on a ring road – under an old METRO principle, we always build the first store on a ring road or a main radial road in the city. This offers our customers the best access to the store. The ring road in Shanghai was completed. The radial road had already been there for some time. But we still had no access road to our store two weeks before the scheduled opening. We then told the mayor that things were not looking too good because we would be unable to open on time. His reply: "Don't worry. You will be able to stay on schedule." Two days later, 1,000 soldiers showed up with shovels and picks and built the access road to the store. We opened the store on time.
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