Mini-Case Study
Why has Wal-Mart viewed international expansion as a critical part of its strategy? Wal-Mart has viewed international expansion as a critical part of its strategy because of a number of reasons. First, Wal-Mart saw the potential for increased profits and sales in new markets. “After rapid expansion during the 1980s and 1990s, Wal-Mart faces limits to growth in its home market and has been forced to look internationally for opportunities”(Ball, 2007).
Second, Wal-Mart saw the need “to protect their existing markets, profits, and sales”(Ball, 2007) from other international businesses. Finally, the third reason that Wal-Mart viewed international expansion as a critical part of its strategy was “to help satisfy management’s overall desire for growth”(Ball,2007). What did Wal-Mart do to enable the company to achieve success in Canada and Latin America? Why did Wal-Mart fail to achieve similar Success in Europe?
Wal-Mart achieved success in Canada and Latin America by two different modes of entry that were available. Wal-Mart chose to enter Canada ‘by acquiring 122 Woolco stores in 1994”(Ball, 2007). Woolco was a failing retail company in Canada so Wal-Mart restructured the operations using the practices and procedures that had been proven successful in the United States. Since the sociological differences between the United States and Canada were not that great this enabled Wal-Mart to be able to make their Canadian venture successful.
In Latin America Wal-Mart chose to use a different mode of entry to achieve success. Wal-Mart chose to enter Latin America in Mexico first with a 50-50 joint venture with Cifra so it could overcome “the substantial differences in culture and income between the United States and Mexico”. This venture gave Wal-Mart the experience with the Latin American culture and they were able to negotiate a 60-40 joint venture in Brazil and build on that knowledge to open a wholly owned business in Argentina.
Wal-Mart was able to succeed in Latin America because they chose to learn from an already successful domestic retailer so they could adapt their procedures and practices for the customers in these emerging markets. Wal-Mart did not achieve similar success in Europe for almost the same reasons that it did achieve success in Canada. Wal-Mart used the same mode of entry that they had used for Canada by acquiring other companies that were already doing well domestically in Germany. Wal-Mart then filled too many of the management positions with “U. S.
Expatriates, many of whom lacked German language skills”(Ball, 2007). Wal-Mart also lost the competencies of “information systems and inventory management”(Ball, 2007) because they could not effectively centralize their purchasing. Wal-Mart also was having troubles with the sociological strains of being in a different culture. The German government made them raise their prices because they were starting a pricing war. Then Wal-Mart started to open up their stores at seven in the morning because they could not stay open later than eight at night.
This caused their smaller competitors and the employees’ unions to be vehemently opposed to them. Wal-Mart consistently made the same mistake repeatedly. They did not account for the major differences in labor , political forces, and organizational structuring between the United States and Germany. What should Wal-Mart do- or not do- to help ensure that the company achieve success in China and India? Wal-Mart should start with joint ventures in both markets so they can learn more about the cultural, political, and organizational structuring of these emerging markets.
These first joint ventures will most likely be 50-50, but as the example from Latin America shows a company entering a new market will need the guidance from locals to succeed. Wal-Mart should not try to completely transfer the same practices and procedures that were used in the United States. These practices and procedures should be acclimated to the sociological, political, and organizational forces of the emerging market. References Ball, Donald (2007). International Business: the challenge of global competition. New York, NY, USA. McGraw-Hill/Irwin.
