The Failure of Walmart in South Korea and Germany: A Cultural Analysis

According to McLaughlin et al. (2014), Walmart's failure in South Korea and Germany is attributed to its inability to adapt to local cultures and market preferences. The company's Western-oriented sales tactics and strategies were unsuccessful in these countries, leading to de-motivation, disillusionment, and distrust among employees. Similarly, the lack of understanding and knowledge about cultural variations has caused communication barriers in international business, which can impact negotiations and decision-making processes. The case study highlights the importance of considering cultural differences when conducting business internationally, as reflected in theories such as Hofstede's Five Dimensions and Hall's High context-low context approach.

Running head: WAL-MART FOREIGN EXPANSION
wal-mart foreign expansion

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................2
Question 1........................................................................................................................................3
Question 2........................................................................................................................................6
Question 3........................................................................................................................................8
Conclusions....................................................................................................................................10
REFERENCES..............................................................................................................................11

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Executive Summary
Walmart is known to be a leader of the retail sector in the world. From its incorporation till now,
this company has grown constantly and attained great success and excellence in revenue and
sales. In United States, Walmart keeps and maintains first position in terms of discounts in retail
sector. However, as the time is moving ahead, the US Retail industry is facing intensive
competition and pressure from the rivalry companies and maintaining a leading position has
become a high challenge for Walmart. Walmart must follow trend of globalization and make
strategies for expansion of their business like Asia, Europe and Latin America.
Introduction
The breadth and speed of globalization has strong impact on the multinational corporations
which motivate them for expanding the business in many overseas countries. Because of small
sized native supermarkets, The Asian and European market become a leader for the international
corporations like Walmart. Facts have proved that Walmart is always not successful in all the
markets where they have penetrated, for example they were not successful in South Korea and
Germany (Arli, et al., 2013). This report will analyze the case of expansion of Walmart in Global
Market. The causes which motivate the corporations to take part in globalized market will be
assessed, followed by the analysis of effective staffing approach of Walmart in Mexico.
Furthermore, the Company’s failure in Germany and South Korea will be analyzed I subsequent
paragraphs. This report will conclude with the significance of role of the culture in globalized
business market (Baron, et al., 2017).

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Question 1
Through the use of suitable business tools, conduct a foreign market analysis and evaluate
critically the strategic and environmental reasons of why Wal-Mart engaged in
internationalisation strategies.
Evaluation of environmental and strategic reasons for Walmart to be engaged in strategies for
internationalization.
In present world, the expansion of global retail sector has attracted various big companies like
Walmart. The context and meaning of internationalization and globalization of marketing is
changing rapidly. Adersen and Schroeder (2010) has defined globalization as an ongoing activity
which involves integration of regional economies, culture and societies through international
market. There are many reasons which give reasons and explanation for Walmart’s involvement
in global markets.
The first reason comes out from the condition of saturation of US retail Market. As per Fed D.
(2011), the saturation of domestic market and intensive competition has become the main root
cause for the companies to move towards internationalization of the business operation. Though,
Walmart is considered as the largest retailer all over the globe in their home market, many small
and medium sized retailers have appeared in the market because of liberal trade policies in US.
In United States, Approximately 81 big companies are there out of which many have retail chain
that are operated in their native country (Baron, et al., 2017). Walmart already has 4200 stores all
through the United States that are owned by it. Thus, it is mandatory for the company to have its
business expansion to other international markets I order to earn more profits as well as generate
more benefits.

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Additionally, the emerging markets like Latin America, Kore and China are becoming
prospective and potential market destination for the global companies in current years. Markets
of Latin America which include Argentina, Mexico and Brazil are situated very close to United
States and as the time is moving ahead, the shopping trends and habits of residents of these
regions are getting similar to United States. This can help to lower the risk as well as uncertainty
for Walmart (Bauner, et al., 2014). Also, the decision related to the selection of market depends
on target’s availability as well as condition of potential sellers as it develops the attractiveness of
the market to be chosen. For the retailers, the reduced cost labors and land are known to be
significant factors and elements. Therefore, the Asian Markets like South Korea d China are
considered s potential market destination for Walmart.
Lastly, the competitors move also encourage the Walmart to globalize. For example, as per
Montogomery and Liberman (2008), the chance to gain leading place in the emerging and
growing market are limited and late movers in this retail sector industry may find it tough for
surpassing the leader because the first mover benefit may include trust and scale. For example,
Carrefour has earned many advantages n being the first mover to grab the opportunity and
attaining the growing impact on middle class (Chekwa, 2014). Also, it is one of the reason for
acceleration of international expansion of Walmart because the company is expecting to intensify
and make denser the competition (Jennings, et al., 2014)). Apart from few of the advantages and
benefits which the internationalization strategies can provide to Walmart, still there are few of
the uncertainties which the company has to bear and cope with. Potential uncertainties that are
once entering any international country vary as per the concern of the country (Love, et al.,
2015). First risk, which the Walmart has to face is the economic or political risk which include
the civil and war unrest, change in the law or local policy etc. also, the fluctuations in exchange

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rate and financial crisis threat the Walmart’s sustainability in various other markets. The
variation in the culture can also be considered as a challenge for company. These variations
range from preferences of the consumer to local habits of shopping of consumers. Many
researches have shown all these risk arising from failure of Walmart in South Korea and
Germany (Love, et al., 2015).
Staffing approach is defined as the policy which is implemented by the company in selection of
employees for the particular job responsibility and it acts like tool for selecting the individuals
who possess competitive skills and may help in developing and promoting the culture of the
company. As per a survey which was conducted in 13 countries, the capability of individual and
technical skills are considered to be the vital criteria for selecting an employee by the manager.
Therefore, attaining and achieving high performance has been set as significant goal of selection.
It was stated by Hill (2004) that there are mainly three kinds of approach for staffing: geocentric,
polycentric and ethnocentric approach. The companies implement the ethnocentric approach of
staffing who tend to distribute and allocate all their staff from native country in all the significant
positions. In the polycentric s/approach of staffing, the host country recruits all local people in
managing the key positions and subsidiaries of the company at headquarter that are occupied by
the nationals of home country.
In case of the Walmart situated in Mexico, Walmart hired a local manager who thoroughly
understood the culture of Mexico in controlling the strategy for merchandizing. This policy of
staffing play a significant role in contributing the Walmart’s success in Mexico (McLaughlin, et
al., 2014). With the experience and understanding of the local managers, the Walmart may make
the significant adjustment in their products and services for meeting the expectations and
demands of the Mexican customers. For instance, Walmart identified that people in Mexico are

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preferring fresh food products like Tortillas and meats and they purchase in small quantities
unlike United States. Thus, the company developed a system of large distribution all through the
Mexico’s small stores and supplied more of fresh produce. Also, the staff of Mexico are useful
channel for transferring the shopping culture of America to Mexico (Pagell, et al., 2017). At
present, Walmart has been able to position itself in Mexico as the largest retail company and is
also identified as most successful and excellent foreign undertaking (Case Study). The last
approach that is geocentric is irrespective of the staff’s nationality as the significant jobs are
allotted to best employee who possess all the required skill and expertise.
Question 2
Analyze the reasons why Wal-Mart failed in South Korea and Germany and the
differences between these countries and Mexico?
Clearly, the Walmart may not gain success always. The facts have proved that failure of largest
retailer in the world in Germany and South Korea. Walmart initiated its business operations in
South Korea in the year 1998 and in Germany in the year 1997. In both of these nations,
Walmart has used the strategy of acquisition to enter. In South Korea, the company acquired
approx. four stores and six underdeveloped sites and places as the initial step for penetrating the
Asian Market. AT that point of time, these sites were handled in the title of Makro which was a
chain of membership clubs based out in Netherlands (Sehgal, et al., 2014). Three sites were
situated in capital of Seoul and other one was situated in Taejon. Every store covered the space
of minimum 100000 square foot and still they were very new. At the other end, Walmart entered
the market of Germany through two acquisitions successively (Love, et al., 2015). The initial
move happened in 1997 with takeover of 21 Wertauf stores. It was followed by the contract with
Spar for approx. 74 hyper markets. Had the initial contract brought high benefits for Walmart,

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the latter was referred as wrong advised or wrong informed act. Many reasons are there which
may give the explanation for failure of the Walmart (McLaughlin, et al., 2014). To start with, it
was the clash and hubris culture style of management that is known to be the core cause. In
actual, there are various international companies who while participating in the foreign market
are expected to make them positioned like global players which has presented a lot of companies
from adapting as well as understanding the special event to operate in any other country and
cause lack of competence and intercultural management. It is also true in the case of those
companies who enter the new markets via acquisitions and mergers (Pagell, et al., 2017). The
tough task of any mergers or acquisitions is to develop the cooperation and harmony among
consultancies, managers, staff and leaders. The inability for completing this task may cause the
de-motivation, disillusionment and distrust in the company that may impact adversely the
effectiveness and efficiency of performance, the value of shareholder and the profits. This is
similar to the situation and condition of Walmart South Korea and Walmart Germany. As
opposed to Mexico where the Walmart had appointed the people of Mexico in managerial
positions, many of the significant positions are held by UK or US managers who are no able to
speak German language and also are not willing to learn it. Resultantly, English got started to be
considered as official language for all the managerial level positons. The similar situation took
place in South Korea (Sehgal, et al., 2014). The Walmart brought its tactics of western sales and
culture of the company to Asian countries. In place of offering the items that satisfy the needs of
local people, the company is expected to alter the habits of shopping of Korean people as they
did with Mexican people. Thus, they implemented the strategies of western markets that focused
mainly on dry goods, electronics and clothing. Walmart stores in both Korea and Germany was
launched on the basis of preference of United States Customer in spite of the fact that various

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culture developed various preferences. Furthermore, the variation in preference of customer also
made contribution in the failure of operation of South Korea and Germany. People of these two
nations have this notion that the world’s biggest retailer was not able to understand the
preference of the people (Arli, et al., 2013). The strategies on the basis of ow price offering was
insufficient in Germany and south Korea as Germans and Koreans were disinterested in similar
products like that of Americans. For instance, the people of South Korea prefer fresh food over
dry food products whereas people of Germany prefer merchandise of high quality instead of
discount that is provided by Walmart (Baron, et al., 2017). Also, the Germany and South Korean
culture are completely involved in the local market. Consequently the foreign business such as
Walmart may seem less attractive. Another mistake which is made by Walmart is the selection of
the site. As Walmart followed the strategy of low prices, they opened their stores at lower cost.
Thus the stores can be located in the suburban area.
Question 3
Using appropriate theories, analyze the role of culture in International Business. Support your
answer by quoting relevant examples from the case study
In international business, a number of theories are there which refer to significant role of culture
while conducting the business in international markets (Bauner, et al., 2014). Few of the theories
may be listed which include Hofstede’s Five Dimensions, cultural cluster approach and Hall’s
High context-low context approach. The role play of the culture in overseas business which are
reflected in these theories include:
International Communication:
In the business, communication is considered as the significant concern. The Hofstede’s model
provides an insight in the country’s culture where the country executes in. in reality, the

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international communication needs the understanding and knowledge of cultural variations for
realizing what all is natural and acceptable in the nation (Chekwa, et al., 2014). All the level in
communication are impacted by dimensions of culture which consist of non-verbal and verbal
and do’s and don’ts of etiquette. An example regarding cross culture in the internal
communication is at the time when the Walmart does expansion of its business in South Korea
and Germany. The lack of the mutual harmony and understanding because of variations has
caused failure of retailers in the market.
International Negotiations:
Various culture may result in variations in style of communication, issue ranking, expectations a
goals. The knowledge of the culture may enhance the ability for succeeding in the negotiation
process. It may also lower the conflicts and frustration (Arli, et al., 2013). For example, as per
the Hall’s High context and Low context approach, the nations such as China and South Korea is
high context culture where the words are used for speaking and cultural clues play significant
role to understand the communication. In opposite to that, the German, U.S. and UK are known
to be the low context cultural countries (Baron, et al., 2017).
International Management
Culture is important to manage the business in all other nations. Usually, the process of decision
making is on the basis of the values and customs of the country. While working in the overseas
environment, the manager must mandatorily provide the training to the employees to make them
adapt the differences in culture (Chekwa, et al., 2014).

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Conclusions
It has been observed that the decision of Walmart to participate in the overseas market is correct
because the retail sector in United states has been saturated and the emerging markets like Latin
America, Korea and China has become the Prospective and potential destination for the
Corporation. However, though Walmart Company has gained huge success in Argentina, Brazil
and Mexico, the company has issues in South Korean and Germany market. The significant
cause of this failure is due to the inappropriate strategies that are implemented in these nations.
The case study of expansion of Walmart in the global market has been thoroughly analyzed. It
also signifies the important role of the culture in the international business.

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