Wal-Mart's International Expansion: Management Challenges Report

This report provides an in-depth analysis of Wal-Mart's international management strategies, focusing on the challenges encountered during its global expansion, particularly in the German market. It explores the concepts of ethnocentric, polycentric, and geocentric approaches to management, evaluating their impact on international managers and organizational performance. The report delves into the complexities of cross-cultural communication, staffing policies, and the importance of adapting to local market conditions. It examines Wal-Mart's failures in Germany, attributing them to factors like cultural misunderstandings, staffing issues, and the inability to effectively implement its strategies in a new environment. Furthermore, the report discusses the importance of change management, diversity, and team management across borders, offering recommendations to mitigate organizational issues in a global context. It also highlights the role of human resource management in fostering employee satisfaction, organizational commitment, and overall performance in international operations. The report concludes by emphasizing the need for organizations to adapt their management approaches to effectively navigate the complexities of the global market.

Managing Across Border

Running Head: Report
Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................2
Background to the Company.......................................................................................................................3
Understanding the concept of an ‘Ethnocentric’ versus ‘Polycentric’ and ’Geocentric’ approach to
management................................................................................................................................................5
Impact on the international manager’s ability..............................................................................................8
Change Management.................................................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................14
Appendix...................................................................................................................................................15
1

Running Head: Report
Executive Summary
This report is about understanding the management of Wal-Mart (retail market based in the US)
in the international market like Germany. This report discerns the challenges the company has
faced due to national culture and staffing issues through the brief understanding of ethnocentric,
polycentric and geocentric approach. The globalization Strategies and the staffing and training
process for global operations is also included in this report so that the Wal-Mart can maintain the
employment relationships in the context of international human resource management. This
report also includes the recommendations on managing diversity and teams across borders and
how to mitigate the organizational issues in global context.
Introduction
The customer expectations and the market competition are intensifying the competitive pressures
on the organizations. In response to this, the organizations are progressively looking for the
efficient ways to meet the demands of the customers for the stipulation of customized and
responsive services and products that meet their requirements. Negligence to efficiently and
effectively meeting the requirements of the customer can ensue in a loss of a customer to the
competitors in the same market. The organizations are nowadays increasingly taking advantage
of the globalization in locations with the most strategic advantage to locate the value chain
activities. This includes establishing the company in different geographical locations. However,
it is not necessarily the fact that the company or same retail market in different geographical
location will adopt similar HRM practices, even if the retail market are located in liberal market
economically. The human resource practices like other companies matter in the performance and
effectiveness of the retail market. The organizations in the liberal market economy are having
2

Running Head: Report
more liberty than those in various different economics to adjust from different HRM practices as
long as the company is following the political and legal framework of the nation involved.
However, the selection of such practices can be influenced through the differences in the cultural
environment of different market economics following legal framework. The prominence of the
organization's human resource management practices remain in their capacity to impact different
work practices that affect the satisfaction of the employees, organizational citizenship, and
commitment, the performance of the employee. That is, culture is a not easy to deal with in order
to understand the word and to define it. The Hofstede defines culture as the process or action of
the mind which differentiate the people of one category or group of people from another.
Hofstede also argues that the value is considered as an inner segment of any culture which
prefers certain states of affairs over others. Hofstede has defined the national culture in 5
dimensions known as power distance, masculinity vs. feminity, uncertainty avoidance,
individualism vs. collectivism, and the short term and long term orientation. This primary aim of
writing this report is to understand the concept of ethnocentric vs. polycentric and geocentric
approach to management in the Wal-Mart organization. This report also includes the impact on
the manager’s ability in international terms and the how the Wal-Mart must change its
management approach to work effectively across national cultures and different values(Nazarian,
et al., 2013).
Background to the Company
Wal-Mart is very successful in the United States and is a chain of retail stores and supermarket.
Wal-Mart is successful in many different nations and in July 2006, the Wal-Mart decided to sell
3

Running Head: Report
its Holdings in Germany. Wal-Mart had incurred a loss in the German market in establishing
itself. Wal-Mart every year has been losing approximately $ 199 million. Wal-Mart represent the
best practice in supply chain management is among the worlds largest firms which. The Wal-
Mart has an excellent candidate which has been effective in moving into the market outside of
the domestic nation. The Wal-Mart accomplishment of the aim in the Mexican, Canadian, and
US markets has been ascribed to its early promotion, but the exit of the Wal-Mart from the
German market is of interest because it contributes to extending literature on the ‘failure’ in the
investment in international market despite the reach of its supply chain and company size in the
global market. The Wal-Mart comprises approximately 1.2 million resources in their US
headquarter and is largest in the nation. Wal-Mart has expanded by developing the new stores in
suburban and rural locations. Since 1990, the Wal-Mart has been entered into the urban market
using its control over suppliers and logistic system to maintain cost leadership strategy. As a
result, the Wal-Mart capability to succeed and expansion outside the nation that is the USA has
become even more prominent with the profits of the company. In the end of the year 1990’s,
Wal-Mart has expanded in the market of the German as a phase of its International expansion
strategy. The third largest retail market in the world is German accounting for 15% of Europe,
after Japan and USA. The Wal-Mart has used the same strategies to influence the market in its
International expansion. However, the Wal-Mart has identified that it faces some barriers to
entering the German market. The Wal-Mart has begun from a relatively weak position in the
German market by making an alliance with two relatively weak chains known as Wertkauf and
Interspar. To alter the existing distribution system, the Wal-Mart is not having the market power
and thus Wal-Mart took on the extra cost related to the inventory and wholesaling that the
company is able to achieve in the United States. Wal-Mart has hoped to use the strategy of price
4

Running Head: Report
based competition to conquer the German market(Christopherson, 2007). The most significant
problem faced by the Wal-Mart, however, rose from within its structure of corporate governance
that of international trade companies which are owned by the shareholders such as pension funds
with short term objectives. The continuous and significant losses of the Wal-Mart and the
continued aggressive attitude of the competition were responsible to halt the expansion of the
Wal-Mart in Germany. The lack of success of the Wal-Mart in the Germany was associated with
the employees that Wal-Mart has hired to expand into the German market and its inability to
identify the advantages of those employees which is very distinct from the context of the USA.
Understanding the concept of an ‘Ethnocentric’ versus ‘Polycentric’ and ’Geocentric’
approach to management
Small and large scale businesses like the Wal-Mart retail business expands in the global market
due to increasing globalization and improvement in technology. This expansion comprises of
sales offices and setting up production facilities in different nations. The types of staffing policy
or the approaches the companies implement in international human resource management are
ethnocentric staffing, geocentric staffing and polycentric staffing. (MacDonald, 2017).
The company may be enticed to adjust ethnocentric approach to HR practices to eliminate the
identified risk in new ventures. The ethnocentric firms like Wal-Mart hire the expatriates to
enforce the practices and rules in different nation same as to their domestic country. The
5

Running Head: Report
ethnocentric approach is best suited when the employees from the domestic country are sent to
the new geographical location to assist and direct the employees in another country due to their
experience. The ethnocentric approach is considered as a staffing policy that is used by the
organization that has primary strategic orientation related to the international market(Zikargae,
2013). The ethnocentric approach is generally adopted by the company headquarters by sending
the resources from the parent or home country to the host country. The main benefit of
ethnocentric approach is that it ensures that the resources at the top level are professional and
skilled enough in the retail market. This is best suited in providing the inline example of the
expansion of Wal-Mart in Germany, where Germany does not have enough professional and
skilled employees for staffing top positions of Wal-Mart. This policy also ensures that the
unified culture is followed by the firm instead of diversified culture. The disadvantage of the
ethnocentric approach is that it does not provide the assistance to transfer local knowledge to the
firm. This approach may also create an obstacle in the domestic market from promoting in the
company. (Minor, 2012).
A polycentric approach to the management of the international market is the policy which is
involved in promoting and hiring the resources who are the citizens of the international country
in which the company want to operate. The policy and the approach are best suited to maintain
the lowest cost. The companies may run smoothly and communication is easier due to the fact
that the resources are all associated with their geographic location. The polycentric approach is
responsible for maintaining the resources from the same geographical location. The polycentric
approach main advantage is that helps in the learning of the organization in the domestic market.
This policy also stipulates the opportunities for domestic resources to ameliorate their careers
6

Running Head: Report
through promotion. However, this does not include the corporate or central positions and is
limited to key positions. The main disadvantage of the polycentric staffing policy approach is
that it could build gap between the managers in the domestic country and the managers in the
international market due to the skills and knowledge. (Whitehead, 2017).
The geocentric approach is used by the companies like the Walmart when they need to
implement a transnational orientation. In the geocentric approach, the resources are selected
regardless of their geographical location rather than maintaining the group of people or
transferring the people from the parent country of the host country. In this approach, the best
employees are selected while developing a strong unifying network management. The retail
market like the Wal-Mart should take into this consideration and must follow the immigration
policy to recruit the employees from certain countries. In the geocentric approach, the laws and
locations are the key aspectsin the approach to International expansion(CRAM, 2013). The
geocentric approach helps in assigning the job positions to the resource which is best matched
for the hiring designation regardless of the background of the personnel country or culture or the
origin. The primary benefit of the geocentric approach is its flexibility. It helps in increasing the
cultural knowledge of the organization about the different countries and the market. The main
drawback of geocentric policy is that it could be complex to implement. The diversity
management, cost of a worker, education and immigration policies may create pressure on the
human resource management.
7

Running Head: Report
Impact on the international manager’s ability
There are numerous cross cultural challenges in the business management. The major issue is the
ambiguity in which culture provides the resources with different ways of thinking like the ways
of listening, viewing and interpreting the world. Ambiguity generally enters the process of
communication when the resources do not fully comprehend the context of the culture of the host
country as well as the culture of the domestic country. This is caused due to the language
difference. The potential for misunderstanding increases. Thus, the resources may tend to assume
different things due to unawareness of difference in the cultural values and the communication
style and they don't take cognizance of the principles and standard system of the other cultures.
This miscommunication may result in a situation where the resource not only fail some segment
of the communication, but may also build a perspective on the information that needs to be
delivered.
The other major issue in the cross cultural communication when some resources enter a different
cultural context is the inflexible attitude in order to experience and neglect the exposure. This
resulted in the mindset and introvert behavior which leads to the impression that the host country
resources may not be accepting of the Wal-Mart. This leads to missing out adapting the new
cultures and experiences to learn about the new culture. Such behavior may detoriate the
business relationship and dampens the teams unconsciously or consciously. Thus, the resources
need to be aware of the cultural basis of their values, perception, beliefs, and behavior, to allow
them to check any converse from the cultural perspective.
8

Running Head: Report
The ethnocentrism is the other major issue in the cross cultural communication. The
ethnocentrism is the assumption that the other cultures are inferior and the culture of the
domestic country is right and rational. Since ethnocentrism is also considered as unconscious
behavior, it is complex to avoid in advance. When the ethnocentrism is confronted and
challenged with a distinct culture, the resources try to judge it with reference to their own values
and do not try to evaluate the innovative culture from the host country view Point. The specific
area of the resources is also exemplified by value, judgment selective listening, which impact the
quality of the communication.(Lee & Kang, 2016).
The different culture includes different perspective on prominent workplace issues like
teamwork, respect for authority, responsibility and time management. The other issues are the
methods of communication, conflicting ethics, interpretation of transparency, and reluctance to
receive and give feedback. When the resources work on the diverse belief system along with
conflicting attitude, the obstacles are created. These obstacles need to be divided in order to run
theorganization harmoniously and effectively. The goal of addressing the issues is to make each
resource valued(AMA, 2018).
Thus, to make the managers work effectively with the resources who are different in culture, the
managers need to be aware of their own culture and how the cultural impact on other resources.
The managers need to understand the communication style, the cultural values as per the
Hofstede dimension in which the management interacts with society, including family, politics,
beliefs, religions, etc. The manager also needs to develop right competencies with a tolerance
9

Running Head: Report
for ambiguity, cultural flexibility, and reduced ethnocentrism by enabling the active feedback
and gaining the exposure to international culture which is crucial to develop the aforementioned
competencies(Malik, 2015).
10

Running Head: Report
Change Management
To work effectively across different national cultures and values, the management needs to
change their strategies. The Wal-Mart need to change their management as one of the notable
reasons behind the incompetency of Wal-Mart in the Germany is the United States top
managerial behavior with expatriate associated to the replacement of the managers and the force
full implementation of values on both the expatriate managers and the host country(Peterson,
2015). These implementations resulted in the processes of the legal actions in German courts due
to the violation of human freedom right. The failure of the Wal-Mart in the German market was
invertible and was the outcome of ignorance and cross cultural management of the Wal-Mart.
Thus, the Wal-Mart needs to implement the innovative business strategies and restructure the
German competitive market. As the Wal-Mart faces the failure in Germany due to the
institutional differences and certain cultural differences which are external in Germany and the
US, the hr managers had not considered the cultural values and setup of adoption of the local
employees and had tried to implement the remote practices in Germany. In order to eliminate
such failures in the future, the higher authorities of the Wal-Mart should go for careful
investigation of the market in the Germany and modify the practices of the organization
according to the environment of global nation. Although the company and corporate culture are
almost similar, but even the Wal-Mart can have the impact of national culture like US culture at
Wal-Mart so that there should have transformed culture related with the attributes of German
culture. The Other prominent factor is the unionization of the organization in the German market
so it should not have neglected the employees of the German who are represented as collectivist
society should be permitted for the process of unionization and promotion to avoid the legal
process (Heller, 2014). The human freedom should be given up the importance along with the
11

Running Head: Report
local ethical values of German people. The different employment ways should be included to the
domestic nation in order to get the positive stance of the German people for substitution of the
nationals with expatriate who should be considered as prominent need(Alkhatib, 2017). The
Wal-Mart should not also underestimate or neglect the German country for another country or
host country by force while planning the international business and there should be given
consistently prominence to the domestic working exercises or activities in order to make the
business expansion in the new environment. Instead of the standardization of the activities and
exercises in the environment, the adoptions to the local setups are better option which is totally
distinct in domestic as well as host country. (Ijose & Iossifova, 2015).
Conclusion
This report scrutinizes that the national culture is a prominent aspect of the adoption and
conception of Human Resource Management practices. The Wal-Mart provided an appropriate
field to study the impact on organizational practices and cultural forces as the interaction
between employees and culture assist to comprehend the adoption of organizational practices.
The interaction between the organizational practices and cultural dimensions helps to understand
the role which the culture plays. It suggests that the adoption of the practices of the organization
entirely lacking of the effect of national culture and is not a unilateral top-down process. This
study also suggests that National culture plays a prominent function in comprehending the
adoption and diffusion of exercises of the organization that the Wal-Mart need to pay special
intentness to. It has been found in this report that the series of actions of successfully
implementing the practices of the organization should comprise the identification that resources
12

Running Head: Report
bring their norms and cultural ethics with them to the firm even in the particular function of
intense economics and political transformations. The indispensable or intrinsic nature of the
institutional reform does not make it easy for the Wal-Mart US based to transfer their practices to
the German subsidiary. It has also been found in the report that the culture may have an intense
effect on the practices of the organization than an economic system, political events,
organizational field and government institutions.
13

Running Head: Report
References
Alkhatib, B., 2017. Business Strategy of Walmart and change management, Available at:
http://www.academia.edu/10806496/Business_Strategy_of_Walmart_and_change_management
AMA, 2018. Managing Cultural Diversity, Available at:
http://www.amanet.org/training/articles/managing-cultural-diversity.aspx
Christopherson, S., 2007. Barriers to ‘US style’ lean retailing: the case of Wal-Mart’s failure in
Germany. Journal of Economic Geography, Volume 7, p. 451–469.
CRAM, 2013. Polycentric, Ethnocentric, and Geocentric Approach to International Management,
Available at: https://www.cram.com/essay/Polycentric-Ethnocentric-And-Geocentric-Approach-
To/PKBNH83XC
Heller, L., 2014. Change Comes To Walmart, Available at:
https://www.forbes.com/sites/lauraheller/2014/07/25/change-comes-to-walmart/#df82b8d96723
Ijose, O. & Iossifova, A., 2015. National culture and the adoption of organizational practices:
evidence from a global company’s call centers in two market economies. Journal of
International Business and Cultural Studies, pp. 1-11.
Lee, J. & Kang, N., 2016. A Study on The Moderating Effects of National Culture on
International Human Resource Management Strategy and Knowledge Transfer. Advanced
Science and Technology Letters, Volume 126, pp. 128-132, Available at:
http://onlinepresent.org/proceedings/vol126_2016/26.pdf
14

Running Head: Report
MacDonald, L., 2017. In What Ways Does an Ethnocentric Approach Affect HR?, Available at:
http://smallbusiness.chron.com/ways-ethnocentric-approach-affect-hr-66946.html
Malik, S., 2015. How to Overcome the Major Challenges in Cross Cultural Communication,
Available at: https://www.linkedin.com/pulse/how-overcome-major-challenges-cross-cultural-
iim-shillong-pgpex
Minor, M., 2012. The Ethnocentric or the Geocentric Global Corporation: The performance
question, Available at:
http://www.myucwest.ca/attachments/a.farrell/files/MBA522_Minor_Mike.pdf
Nazarian, A., Irani, Z. & Ali, M., 2013. The Relationship between National Culture and
Organisational Culture: The Case of Iranian Private Sector Organisations. Journal of Economics,
Business and Management, 1(1), pp. 1-5.
Peterson, H., 2015. Walmart is making 2 major changes to its stores, Available at:
https://www.businessinsider.in/Walmart-is-making-2-major-changes-to-its-stores/articleshow/
49544882.cms
Whitehead, S., 2017. Staffing Policy & HRM Issues in International Business, Available at:
http://panmore.com/staffing-policy-hrm-issues-in-international-business
Zikargae, M., 2013. The Impacts of Ethnocentrism and Stereotype on Inter-Cultural Relations of
Ethiopian Higher Education Students. Online Journal of Communication and Media
Technologies, 3(4), pp. 1-23.
15

Running Head: Report
Appendix
16

Running Head: Report
17

Running Head: Report
18

Running Head: Report
19

Running Head: Report
20