Wal-Mart is one of the biggest retail companies in world with international sales exceeding $ 450 billion in the year 2010 . Listed among the fortune 500 companies, Wal-Mart has grown from a small retail outlet established in 1962 to be a chain of super retail stores without any equal. The expansion of Wal-Mart was most phenomenal with a well execute strategy. Local growth in the United States was so rapid that by mid 1990s, local market seemed too small for the company. The company sought international expansion and thus headed for several nations in South America, Asia and Europe. This multinational expansion registered mixed result. While in other regions such as Latin America, the company reported good result, in other regions especially Europe the company did not do as well. This research paper reviews the globalization endeavors of Wal-Mart. Interest will be paid to the reasons and strategies that ensured the success of the expansion of the company into Canada and Latin America. The paper will further illustrate reasons as to why the European expansion failed. Finally, this report will provide guidelines and measures to ensure that expansion into the world most populous nations, India and China is success.
Why has Wal-Mart viewed international expansion as a critical part of its strategy?
The expansion of Wal-Mart into the international arena was viewed as inevitable as well as necessary. To begin with, the company had rapidly expanded in the United States to a point that no additional growth could be envisaged. To do this, the international expansion strategy that Wal-Mart would pursue would be very radical. At the time, it was traditional to expand business to either Europe, that enjoyed more developed infrastructure, or to expand to the Asian Market place due to the large population that had proved very luring. Thus the manner in which the company would pursue its global expansion strategy would prove to be central to its success.
Thus international expansion for Wal-Mart was deliberately and meticulously executed. Wal-Mart identified several countries in Latin America that would spearhead the globalization effort of the company. Wal-Mart, without much knowledge of the South America market opened up stores in South America and registered impeccable result. This allowed the company to move to other market such as Canada and Europe.
This massive expansionist strategy was vital for the growth of the company. Wal-Mart soon managed to become one of the leading retail chain stores in several nations around the world. In Mexico and Canada for instance Wal-Mart’s’ operation allowed its capital investment to grow and become one of leading companies in that economy. In other economies such as Brazil and Argentina, the company increased its capitalization and this international allowed the company to become what it is today.
What did Wal-Mart do to enable the company to achieve success in Canada and Latin America?
One of the greatest successes that Wal-Mart has enjoyed in its globalization efforts is the venture into Latin America and Canada. In Latin America, the first country that Wal-Mart investment in was Americas’ immediate neighbor, Mexico. Wal-Mart, without much knowledge about Mexico’s culture and consumer behavior, opted for a joint venture with a local retail conglomerate Cifra in 1991. This venture implied that Wal-Mart would understand Mexican culture and at the same time break the language barrier that normally plagues globalization of business. The venture partner allowed Wal-Mart employees and executives to learn the culture how retail business is run in the country.
Having much experience from the Mexican operation, Wal-Mart ventured into Brazil in 1996. The company did this with a superior venture of 60-40 with a local retail firm Lojas Americana. Entry into Brazil was not a smooth walk in the park. The company faced price wars from a French retail firm Carrefour which had long established relations with suppliers and consumers. Thus Wal-Mart adjusted its strategy from price wars to ultimate customer services provision. Additionally, the company used its regional influence to provide mixed merchandise for its customers at a subsidized price. The company also considered internal expansion and bought other smaller retail chains within the Brazilian economy. As of 2005, the company was the third largest retail firm in the country. Having managed such success, Wal-Mart would later venture into Argentina with a 100% ownership of the retail business and similarly managed huge success.
In Canada, the company employed a much different approach in its entry. The company bought Woolco Stores, a retail chain business that was facing difficult business circumstances. The company imported its successful practices in the American operation and also brought along expatriates to the new Canadian outfit. Over the next two years, the company would move its operation from loss reporting to profit making .
Why did Wal-Mart fail to achieve similar success in Europe?
After successful international expansion to Latin America and Canada, Wal-Mart would attempt to expand to Europe. However, its expansion into Europe and in particular Germany, Europe’s biggest economy, faced serious challenges. Wal-Mart acquired two leading German retail stores, that is, Wertkauf hypermarket and Interspar Stores . These two companies were based in different cities in the country and this presented a huge logistical challenge for the company. In addition, the company’s senior management at Germany was composed of Americans who could not speak the local language. This presented a major challenge for communication within the two companies.
Moreover, Wal-Mart intended to implement its information and inventory management systems that would leverage other management inadequacies. However, this would not be due to the fact that most of the suppliers were not familiar with the system in English language. In addition to these issues, the low pricing strategy that Wal-Mart had employed in other markets met fierce resistance from both the government and competitors. Working hours in Germany was also limited by law. These issues put the operation in Germany rather unsuccessful.
What should Wal-Mart door not do to help ensure that the company achieves success in China and India?
Today, China and India present the two largest growing economies in the world. The two nations are expanding at a mammoth scale and therefore every aspiring company must find room in china and India. However, china and India have a less structured form retail business based on road side tea stands and newspaper outlets. This implies that main stream retail stores only account for less than two thirds of the retail business . In addition to these issues, India and China have strong political protectionism for local businesses and thus Multinational Corporations rarely do well in these economies.
Thus, for Wal-Mart to register success, the company may need to employ the idea of joint ventures in their entry into these markets. This will imply that the company will have a local outfit that has political support. In addition to joint venture, the company must incorporate locals as employees and senior management in running business due to the language and cultural differences.
Conclusion
Wal-Mart is one of the largest companies in the world with huge capitalization and presence in several economies. The company has generally recorder success in most of its ventures. However, China and India will prove very challenging due to its competitive nature and unstructured forms of doing business.
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