I. Problem identification phase
Introduction
Walmart is an American international retail company that is headquartered in Bentonville, Arkansas. The company began operations in 1962 after being founded by Sam Walton and incorporated in 1969. The present brand name—Walmart—came about in 2008 and before that it was referred to as Wal-Mart. The company is famous for operating chains of large discount departmental stores and warehouse stores. Presently, the company is the 18th public corporation in terms of size and the biggest in terms of revenue, private employment, and retailer (Walmart 2011 Annual report). Furthermore, the largest shareholders are the Walton’s with 48% shares; hence they control the company.
The company has approximately 9000 stores in over 15 countries all operating under different names. For instance, in Mexico it is called Walmex, in UK Asda, and in Japan Seiyu. This article analyses Walmart in Japan through three phases. The three phases are: problem identification, analysis, and solution phases.
Background
Walmart bought 6.2% of Seiyu in May 2002 (Holstein 73). The shares of the company increased over time and in 2005 December, Walmart was the majority shareholder of 50.9%. In 2008, Seiyu was entirely owned by Walmart whose headquarters are in Tokyo. The company has 419 retail units that are inclusive of: Seiyu Hypermarket, Seiyu Supermarket, Wakana, and Seiyu General Merchendise.
Setting operations in Japan was not an easy feat for Walmart because the country had a reputation of being harsh to foreign retailers. After the acquisition in 2002, the company recorded losses for seven consecutive years. However, in 2009 there were signs that the trend might shift after results in operation turned positive. This led to the first profit in 2010 where it even beat other retail stores in terms of store sales (Holstein 74).
Problems and Challenges of Walmart in Japan
Walmarts has a strategy that has helped it in international expansion without strong retail proposition. The plan is based on low price strategy, customer service, variety of goods, and community support (UPINewstrack 1). The company can sustain the low price strategy because of its high inventory turnover and competitive gross margins. On the other hand low costs are attained by purchasing power, close vendor relations, economies of scale, and efficient and effective supply chain logistics and information systems.
However, the same strategy has not worked in Japan through acquisition of Seiyu. The challenges and problems faced by Seiyu can be divided into two categories which are internal and external. External problems include: overlooking competitors, culture difference, house brand and price differentiate, and relationship with suppliers. The major internal problem stated in the case is the unique culture and concepts.
External problems
The first problem indicated in the case is that the company overlooked local competitors. They believed in its strength which is price and size. This was noticed when Walmart acquired Seiyu, the competitors in Japan were powerfully investing in store automation and reducing prices to match Walmart (Matusitz and Forrester 156). Second, is the opposition at the local level brought because of culture differentiation. The company was not able to identify the consumer tastes. For instance, in Japan consumers never have enough room to store big purchases, and require high value merchandises (Matusitz and Forrester 160). Third, the challenge of house brand and price differentiation is identified in the case where cheaper prices in the not so different; hence making locals prefer convenience, which is found in shops nearby. Furthermore, Seiyu sells most products from Walmart’s manufacturing goods (Matusitz and Forrester 160). The house brands find it hard to penetrate local market because they have English labels. The last challenge was the poor relationship with local suppliers. Local suppliers neither refuse to give special discounts nor to sell products to Seiyu. Furthermore, some refuse the delivery system of Seiyu that entailed sending goods to Walmart distribution centre (Matusitz and Forrester 160).
Internal problems
Unique cultures and concepts of Japan is a major challenge of Walmart. The company attempted to transport the company’s culture and retailing concept to Japan. The concept is called the supercentre concept, which has not been successful in Japan. Most Japanese live in small spaces because of high population density; hence have tiny storage (UPINewstrack 2). Less storage results in small scale purchases. Furthermore, the Japanese locals like brands that are locally made and representative of their culture. This goes against the company’s culture advocating for selling of goods manufactured by the company.
Problems implied in the case
The problems that are implied in the case, and which are not listed include: Joint venture and nationalism, and human resource management. In joint venture and nationalism, the main aim is for a foreign company to understand a new market. However, the joint venture between Seiyu and Walmart made the locals feel like they were occupied by foreigners. The mentality results in local companies and suppliers to act defensively towards Seiyu.
Human resource is a problem faced by the company where the labour market does not have managers who would enable the company wade through the problems it faces. Managers in the Japanese culture are thought to stay for long with one employer and so finding one is a hard task (Datamonitor 2). Furthermore, employees are also hard to find as more are not able to adjust to the foreign culture that Walmart advocates.
Categorization of the problems
The listed problems above can be categorized in terms of the duration in which they can be solved. Meaning they can either be short or long term. Short term problems are tactical in nature but can be solved easily through changing of rules and regulations of operation (Datamonitor 2). The identified short term problems in the case are overlooking competitors and relationship with suppliers. On the other hand, problems can be long term and require certain strategies that take a long time for positive results to be achieved (Datamonitor 2). The long term problems include: brand and product differentiation, human resource, and culture differences.
II. Analysis phase
The tools that can be used to analyse the firm are: the firm’s human resource policies, its financial performance, and SWOT analysis.
Human Resource policies
The human resource policies at the company are guided by 3 basic beliefs fronted by the founder—Sam Walton. The rules are: Sam’s rules, the sundown, and 10-foot rules. The rules have made the company the best place to work in USA, but in other cultures a negative effect can be achieved (‘Seiyu turnaround takes hold’ 2).
The company also advocates for non-unionization unlike other retailers in the market. In return, Walmart offers an open door policy aimed at encouraging workers to front their grievances beyond management (‘Seiyu turnaround takes hold’ 2). The fear is that the policy does little to assist workers, providing the company with leverage to dismiss unwanted employees. Holsten notes that employees without unions start off at lower wages compared to their counterparts protected by unions; hence recorded high rates of quitting within the first year (71).
The company has a policy of low wages amongst its workers. The average Walmart employee is paid between $12000 and $17000 annually. This figures suggest that the company cares about maintaining the prices of its product low compared to improving employees welfare (Holsten 72). Other human resource policies such centralized workplace policies and unsupervised local managerial discretion have been known to advocate for gender bias. The gender that suffers discrimination in the company is women who make up 72% of the workforce in the company yet only a few are managers or supervisors (Holsten 72).
Financial Analysis
The three segments that the company operates in are: Walmart US (61%); Walmart international (27%); and Sam’s club (12%) (see figure 1). The profits that each segment brings back are 74% from Walmart US, 20% from international companies, and 6% from Sam’s club (Gurugocus, n.d). This proves that approximately 27% of sales come from abroad. This means that there is a need for the company to increase sales in foreign companies since the performance is not good. The valuation of the company is as shown in table 1. From the valuation it is evident that all pricing measures decreased over the last decade.
Furthermore, the price to earnings ratio slipped by 67%, price to book ratio by 63%, price to cash flow by 68%, and price to sales ratio fell by 58% over the last decade (Gurufocus, n.d). The measures resulted into the company having a strong track record that has been doubling over the last past decade (See table 2). Therefore, the results in Japan throughout 2002 have been showing negative results compared to other markets. This proves that there is a problem that should be addressed; either strategic or tactical problems.
SWOT Analysis
Walmart in Japan operates by the trade name Seiyu. However, despite the success of Walmart in many countries, the same is not achieved in Japan. The SWOT analysis of the company is as shown below.
Strength
Strong financial stability which enables the company to benefit from economies of scale
Strong brand recognition where products sold have value for money and are conveniently located
They offer a wide selection of goods at a very competitive price hence can get large discounts from suppliers resulting to higher revenues
Weaknesses
Low prices often make customers question the quality of the products
Suppliers are often under pressure to supply when required hence some of them do not want to supply Seiyu.
Declining profits from 2002 the year of inception. This was seen in the financial year of 2007 where the decline was the most at 86% compared to the 2006 financial year (Walmart Annual report 2011).
Opportunities
Improved supply chain management where there would be improved delivery and reduced storage costs
Creation of convenient stores to reduce travelling costs and competition from local convenient stores
Online shopping can be used to improve revenue streams.
Threats
Declining Japanese retail market due to consumers spending less on food, clothes, and appliances. The decline would result in reduced revenues.
Intense competitive environment with companies such as AEON, seven-eleven Japan, and UNY, which have larger scale of operations and financial bases.
III. Solution Phase
The problems stated in phase I fall under strategic and tactic problems. Tactic problems are short term and include overlooking competitors and relationship with suppliers. Therefore, according to Matusitz and Forrester (165) these problems can be solved through solutions such as: carrying out a feasibility study of the Japanese market to understand buying trends and consumer tastes; tailoring the supply chain to suit the local suppliers so that they can be comfortable supplying the stocks. Other solutions to the tactic problems listed, which can be used include: using dedicated and experienced marketing teams to promote products and research on customer attitudes; online commerce to enable suppliers get paid before supplying; and running retail stores through joint ventures as opposed to fully owned by foreign companies
However, strategic problems that include brand and product differentiation, human resource, and culture differences are all as a result of globalization and require glocalization strategies to solve them. The solutions posited by Matusitz and Forrester (168) include:
Cultural adjustment to local style stores where international companies aggressively get involved in product development, media advertising and many more so that they resemble any local retail store.
Cultural adjustment to locals consumer habits where strategies are put to ensure that tastes are satisfied
Adjustment to merchandising and operational systems suiting the locals
Adjustment to work and employee practices that suit the local’s culture.
Therefore, from the listed solutions the best solutions that suit the strategic problem Walmart is facing in Japan are adjustments to local consumer habits and merchandising and operational systems that can increase the revenue of the company and satisfy the needs of consumers.
Recommendations
Walmart in Japan has been recording losses for seven years since 2002 and all stem from the fact that they did not research the market comprehensively and cultural hurdles. Therefore, to reduce the effects of the problems it is recommended that:
The company sets up a team that would research the market to analyse consumer tastes and competition.
Implement Japanese culture into the work setting to attract qualified labour that might be conserved.
Implement online commerce systems that would facilitate timely delivery that is convenience.
Pay suppliers for merchandise before delivery, either full or a deposit to motivate them.
Plan of Action
Walmart in Japan despite its acquisition of Seiyu has been recording losses in sales and revenue since 2002. Despite, the trend looking to change in 2010 there is need for an action plan to be implemented for successful transition into profits. The first thing would be to conduct a feasibility study of the market tastes and culture of the locals. This would take a period of a month and the people who would carry out the exercise would be market representatives. The report from the market representatives should be debated upon by the management within a week. The recommendations should be forwarded to managers and supervisors at the supply chains, and market centres for implementation. Recommendations should be given a month for full implementation. During debating of the market findings, the finance manager would also be asked to air his/her views on whether there is enough money to carry out the plan. If a middle ground is reached on the way forward, then the action plan should be proposed and implemented within two to four months.
Conclusion
Walmart in Japan has been operating under the trade name of Seiyu since 2002. However, despite recording profits in other countries and in the home country USA, the opposite has been happening in Japan. Decreased sales and revenues have been recorded and lately in 2010 the trend looked to change. The problems identified are grouped under tactical which are short term and include overlooking competitors and poor relationship with suppliers, and strategic—long term—are: brand and product differentiation, human resource, and culture differences. The solutions for tactic problems are carrying out a feasibility study and changing supply operations. Strategic problems can be solved by glocalization strategies.
Works Cited
Gurufocus (n.d.). Long term financial analysis of Walmart. Available at:
http://www.gurufocus.com/news/131937/longterm-financial-analysis-of-walmart-wmt
Holstein, William J. "Why Wal-Mart Can't Find Happiness In Japan." Fortune 156.3 (2007): 73-78. Business Source Complete. Web. 18 Mar. 2012.
Matusitz, Jonathan, and Maya Forrester. "Successful Glocalization Practices: The Case Of Seiyu In Japan." Journal Of Transnational Management 14.2 (2009): 155-176. Hospitality & Tourism Complete. Web. 18 Mar. 2012.
"Seiyu Turnaround Takes Hold." Mmr 28.19 (2011): 67. Business Source Complete. Web. 18 Mar. 2012.
"Seiyu: striving for profit under Wal-Mart; Wal-Mart has offered up to JPY100 billion to take full control of troubled Japanese arm Seiyu."Datamonitor 23 Oct. 2007: NewsBank. Web. 18 Mar. 2012.
"Walmart seeking to expand in Japan." UPI NewsTrack 13 Nov. 2010: NewsBank. Web. 18 Mar. 2012.
Walmart 2011 Annual Report. Available at:
http://walmartstores.com/sites/annualreport/2011/financials.aspx
