Walmart's Global Expansion Strategies

This assignment delves into Walmart's global expansion strategies, analyzing various aspects such as market entry methods, competitive landscape, ethical considerations, and the impact on local economies and communities. It draws upon a range of academic sources and case studies to provide a comprehensive understanding of Walmart's international business operations.

Walmart Expansion
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Table of Contents
INTRODUCTION...........................................................................................................................3
1. Foreign market analysis and environmental reasons for international expansion.......................3
2. Failure of Walmart in South Korea and Germany ......................................................................7
3. Importance of cross cultural understanding in international business .......................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Foreign expansion strategy includes expanding the business activities across several
regions of the world. International business can create lot of opportunities for a company and it
helps them to increase their revenues. But, it is essential for a business to carefully understand
and evaluate the culture and preferences of people in a particular region. It will benefit the
company in the long run as they can provide customized products to them. The present report is
based on foreign expansion strategy of Walmart Company. It is the world's largest retailer and it
has more than 11,527 stores in 28 countries (Walmart case study, 2015). They have earned more
than $91 million from their foreign business and it is expected to grow more in future as well.
Walmart Company has used many tools to conduct market analysis and cross culture
understanding. This has enabled them to create and implement their international strategies.
Apart from this, the reasons why Walmart failed in Mexico and Germany have also been
included in the report.
1. Foreign market analysis and environmental reasons for international expansion
Walmart has been the largest retailer in terms of revenue generation. They have expanded
their business to more than 28 countries which include UK, Canada, Brazil, Mexico and China. It
is essential for the company to analyse the foreign market in which they are planning to expand.
This will help them to grow their business and meet to the expectations of the customers. Market
analysis tools and techniques can be helpful for a business to analyse demand, supply, buying
habits, culture, technology and competition (Brea‐Solís, Casadesus‐Masanell and Grifell‐Tatjé,
2015). Walmart Company had to face an issue in Mexico. They soon discovered that buying
habits of the customers in Mexico are different from US customers. They have to change their
entire strategy to adapt the needs of the customers. Market analysis can be very useful in this
respect for the company. It helps them to formulate strategies and plans specifically to a
particular nation.
Macro analysis (PEST)
Foreign market analysis is incomplete without the use of PEST analysis. It can be used to
identify the influences of the business in a particular nation. Walmart Company has been
carrying out PEST analysis to understand the competition, resources and demand of people.
These factors are country specific so the company has to adapt to it.
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 Political and Legal: Political and legal structure of each country are different. Walmart
has to abide the rules, tax laws, employment policies, trade restrictions etc (Patel, Pieper
and Hair Jr, 2016). They have to take into account the political stability of the country
before growing their business in a particular nation.
 Environmental: Walmart has improved their operational efficiency and they have been
following all the rules and regulations of the government (Verbeke and Kano, 2016).
They have adopted standards of performance in order to comply with the business
sustainability trend.
 Social: Socio-cultural factors can affect the growth of a business. Walmart Company has
been successful in adapting to the changing needs of the population (Business analysis
for Walmart, 2015). They have made many changes in their products and services in
China and Mexico. This has given them a competitive edge in the market which has
helped them to expand their business easily.
 Technological: Technology has played a major part in changing the competitiveness of
the retail industry (Frynas and Mellahi, 2015). Walmart Company has availability of
advanced technology which has reduced their cost. They have started selling goods
online so as to meet the expectations of the customers.
Micro analysis
SWOT
Walmart Company has good brand image and they have all the resources to expand their
business across the geographical borders of a nation. SWOT analysis of the company shows their
potential to exceptionally do well in other regions as well.
Strengths Weaknesses
 Low cost advantage. They have
effective supply management which
helps them to keep the cost to minimal.
 Strong brand image and market
presence.
 Economies of scale in terms of
distribution, procurement and
 Competitors can copy the supply
management strategy of Walmart.
 Failure of Walmart in some regions like
Germany and South Korea.
 Slow expansion in metropolitan areas.
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 Automated technology.
Opportunities Threats
 Good expansion opportunities.
 Potential to acquire small domestic
retail chains.
 Expansion through joint ventures and
alliances with other firms.
 Backward integration.
 Resistance in entry.
 Pressure from labour unions.
 Increasing competition.
Porter's five forces
Walmart has faced tough competition due to its expansion strategy. The major
competitors of the company are Target, ShopKo, Kmart etc. They have been focussing on the
development of their niche market (Brea‐Solís, Casadesus‐Masanell and Grifell‐Tatjé, 2015).
Walmart has been able to compete with them due to its large scale of operations and effective
supply chain management. They have employed local managers in many regions who are
responsible for merchandise strategy in that area.
 Threats of substitute products: There are many small and big retail stores across many
countries which are giving stiff competition to Walmart. But, they are only specialised in
one product or service (Ravi, 2015). On the other hand, Walmart Company provides
multiple products and they have also started selling goods online.
 Threats of new entrants: There is no restriction for a new entrant to start their own retail
store. Walmart has been in the industry since a long time now. They have been benefited
from their vertical structure of chain stores and centralized purchasing of goods.
 Competitive rivalry: Walmart has many competitors and they have to change their
strategy constantly to remain competitive in the market. They have been able to reduce
their cost and it has helped them to sell goods at a lower price as compared to their
competitors (Pickles, Barrientos and Knorringa, 2016).
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 Bargaining power of customers: In context of retail stores, customers have high
bargaining power. But low priced products and effective supply chain management have
allowed the company to attract more customers.
 Bargaining power of suppliers: The suppliers of Walmart have low bargaining power
because the company is not entirely dependent on any single supplier for the products.
Most of the suppliers accept the contracts of Walmart because majority of their income is
dependent on it.
Walmart has engaged in international strategies because it has allowed them low cost
leadership in the market. They have collaborated with many domestic companies. They open up
stores in a particular area and then gradually spread their business to new territories (Osiyevskyy
and Zargarzadeh, 2015). They spend long time with domestic companies to achieve their
objective of 'remain local'. The main reasons for adopting international strategies by Walmart are
as follows:
 The domestic markets have reached to its saturation point
 US has only 4% of the world's population and the company is not looking to miss 96 %
of the market.
 Emerging markets with lower disposable income have given them opportunities of
discount retailing.
 Reduction in trade barriers, cultural homogenization and information technology
 Improvement in knowledge, merchandising skills and logistics
 Availability of low cost labour, energy, production and resources.
 Less concentration of income in a particular region.
 Chances to increase revenues and profitability
Walmart has given importance to foreign market analysis in order to grow their business.
Management of the company takes into consideration all the factors which can affect their
business in a long run (Joseph and Kuby, 2015). They have realised the fact that profit generation
in a foreign market is entirely dependent on the effective management of environmental factors.
They have changed their marketing mix such as product, place, price and promotion according to
the needs and expectations of the consumers.
2. Failure of Walmart in South Korea and Germany
Failure in Germany
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In 2006, Walmart decided to withdraw its business from Germany due to loss of $1
billion (£530). They found difficult to compete with the over flooded German retail outlets.
There were also many cultural issues which were faced by the company in Germany. The people
are price conscious and they want products of high quality. They were not attracted to the price
discounts and product range of Walmart (Brea‐Solís, Casadesus‐Masanell and Grifell‐Tatjé,
2015). Aldi Company was able to sell goods according to the expectations of the customers.
Walmart has a management practice in which employees have to chant the name of the company
every morning. It did not work out in Germany and they felt annoyed. Furthermore, ethical
practices were also different as compared to US. The managers never listened to the opinions of
their employees and subordinates. The main problem in Walmart was their business style and
products (Yoder, Visich and Rustambekov, 2016). They kept their discounted products either on
the top or bottom shelves which irritated the German customers. The company forgot to take into
account the habits of the customers. In Germany, people tend to spend less time in shopping. But
Walmart wanted their customers to spend more time in the store and for this, they kept the size
of the store large. Apart from this, the brand name was unknown in Germany. This also
contributed to the decline of their sales. The store used plastic bags and packaging which was
against the 'greenness' movement of the country (Pickles, Barrientos and Knorringa, 2016). As a
result, poor management and lack of foreign market analysis impacted the business of the
company. The business entity experienced frustration from both the customers as well as
employees.
Failure in South Korea
South Korea faced the similar problem like Germany which affected their business.
Walmart came in the country in 1998 and it was considered as a big competition for the domestic
companies. But it failed to perform and had a net loss of about 9.9 billion. The company was
expected to provide low cost products to the consumers after the economic crisis on South Korea
(Joseph and Kuby, 2015). Walmart showed signs of lack of foreign market analysis in the
country. South Korea was underdeveloped on the basis of gross disposable income. Unlike US,
shelves and product range had to be smaller. The company was unaware about the culture and
norms of the nation. They never analysed the basic habits and aspirations of Korean moms which
affected the sale of baby products. The company never adjusted shelving plan which was
designed according to the Americans. They used to sell packaged fish and meat items but Korean
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people liked fresh products. They were not able to meet the habits and preferences of the people.
It is for the same reason that Walmart has been failing in Asian countries (Elder and Dauvergne,
2015). They are not completely aware about the traditions and food habits of the people in those
regions. Koreans were not satisfied with the low priced policy of the company. They wanted to
buy fresh and good quality products. Walmart opened 16 stores but none of them could meet up
to the expectations of the company. They had lots of problems like logistics, less suppliers, low
priced products and lack of foreign market analysis. Apart from that, unlike Americans, South
Korean people don't buy goods at discount. Walmart kept offering discounting goods but failed
to perform constantly (Osiyevskyy and Zargarzadeh, 2015). This led to the downfall of the
company and they had to stop their business.
Difference in Mexico market
Walmart realised that a similar strategy in all the nations is not successful for the
business. The company invested huge funds in Mexico and bought the largest retail chain, Cifra.
This helped them to establish their business and adapt to the Mexican culture. This allowed them
to change the buying habits of the customers (Wilson, 2016). People in Germany and Korea
wanted fresh and high quality food products. But Mexican people were price conscious and they
found discounting strategy of the company very appealing. Apart from this, there was no local
companies who could satisfy the needs of the consumers. While Germany and Korea already had
many retail stores which were fulfilling their demands. Mexico is an underdeveloped country and
it had no large retail company which can compete against Walmart. Furthermore, culture of
Mexico is also different from Germany and South Korea (Hughes, 2015). Now, the company has
become the largest private employer and biggest retailer. Walmart used the similar strategy as it
was using in the United States. It was the first company to provide efficiency, customer services
and customer oriented products. No other supermarket provided all such facilities. On the other
hand, Germany and South Korea already had supermarkets which were providing all the
facilities to their customers. Walmart gave nothing new to the people of these nation. They had
similar problems in Japan, China and UK (Walmart in Mexico, 2007). Walmart has been using
same model of expansion which has not been successful in many countries. Despite their large
scale business and economies of scale, Mexico remained their sole international success. The
company also targeted middle and upper middle class in Mexico. It distinguished them from the
other retailers already present in the country. But when the company began to expand their
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business to work on poor people, it stared facing many problems (Wood, Coe and Wrigley,
2016).
3. Importance of cross cultural understanding in international business
Understanding of cross culture is very important for the success of an international
business. It helps them to identify the needs and preferences of the people. It can be used to
formulate the strategies and plans for the future in a country (Morschett, Schramm-Klein and
Zentes, 2015). Walmart had the similar problem because they were not able to understand the
demand of the people in Germany and South Korea. They should not adopt a similar strategy for
all the people because it has not been successful for them. Some of the problems which were
faced by Walmart in their business are:
 Not able to adapt to the cultural expectations of the people (Leguizamon, Selva and
Santos, 2016). Lack of proactive decision making.
 Lack of understanding of hierarchy, formality and timing of the business.
 Business requires time to adapt different cultures and it should be properly planned.
 Understanding the beliefs, body language and habits of the people (Verbeke and Kano,
2016).
 Language barriers.
Walmart has been using English language to communicate with their employees in Japan.
But there are many people in the country who are unaware about English. In order to properly
understand the culture of a nation, Walmart can use cross cultural theories.
Hofstede's cultural dimension theory
It was developed by Geert Hofstede and it shows the effects of values and culture on the
members (Ravi, 2015). It was developed through an experiment which was carried on the
employees of IBM Company. The main dimensions of Hofstede's cultural dimension theory are
as follows:
Power distance index (PDI): High Power distance index indicates that the society has
clearly executed and established hierarchy (Shabbir, 2015). On the other hand, low Power
distance index shows a society where powers are distributed. Walmart was initially working in
US where people were allowed to put forth their opinions but it was different in Germany.
Individualism vs Collectivism (IDV): It measures the level of integration in the society.
Individualism society allows freedom to their members while in Collectivism, they are well
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integrated together. Walmart in US was successful as it had Individualistic society (Frynas and
Mellahi, 2015).
Uncertainty Avoidance Index (UAI): Uncertainty Avoidance Index calculates tolerance
level of the society (Castleman, 2016). High degree of index indicates that society has rules,
guidelines etc. of behaviour. South Korea is high on the index and they have similar thoughts as
well as ideas.
Masculinity vs femininity (MAS): Masculine societies are based on heroism,
achievement and material reward for success. On the other hand, feminine societies are based on
cooperation, caring for weak and quality of life (Alcácer, Dezső and Zhao, 2015). It can help
Walmart to design the business structure according to the needs of the people. Germans prefer
high quality products but Walmart offered low prices and discounted products to them.
Long term v short term orientation (LTO): Some societies are long term oriented
while others are short term. Most of the poor countries are short term oriented and they are
planning to meet the present demands of the nation. Walmart was successful in Mexico because
it had lack of resources and facilities.
Indulgence v restraint (IND): It helps in finding out the nature of the society. Indulgent
societies are in control of themselves while restraint societies have certain restrictions on them.
Cross culture can be very essential for the growth of the business internationally. No
business can survive without adapting to the changing needs and demands of the customers.
Walmart had many problems in Japan, Germany and South Korea because they used a similar
strategy in all the nations. Cross culture can allow a company to provide customized products to
the people (Osiyevskyy and Zargarzadeh, 2015). For example, McDonald changed their menu
when they started their business in India. Similarly, Walmart has to change their strategy and
products. They reduced the size of the store in Mexico because people were not buying goods in
bulk like in US. This helped them to increase their sales. They have to analyse the change and
incorporate it in their business. They can appoint a local manager who can help them in this
issue. Unlike US, many countries prefer unpackaged and fresh fish as well as meat products
(Pickles, Barrientos and Knorringa, 2016). Walmart took this thing into account and began
selling fresh products in Japan. They also provided live turtles which could be caught by the
customers himself or herself.
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CONCLUSION
It can be concluded from the report that Walmart has huge potential to grow their
business internationally. They have started to expand their business in many countries. It is
essential for them to analyse the micro and macro environmental factors before expansion. It will
allow them to formulate strategies according to the needs of the customers. Walmart had many
problems in South Korea and Germany where the company made huge losses. It was found that
the organization was using similar strategy for all the nations which never complied with the
needs of the customers. It is important for the company to analyse the cross culture requirements
through foreign market analysis and various other tools.
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REFERENCES
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