Wal-Mart's International Expansion - Case Study Example

TABLE OF CONTENTS Brief overview of the company 2. Major products and services………………………………………………………….2 3. The operations in different foreign markets………………………………………….3 4. The modes of entry in different foreign markets……………………………………..4 5. The global supply chain/logistics …………………………………………………....5 6. The challenges faced in international markets..……………………………………...6 7. The failure in different markets………………………………………………………7 8. Works Cited…………………………………………………………………………..8 Wal-Mart Stores Inc. and its International Expansion Brief overview of the company Wal-Mart Stores, Inc. (Wal-Mart) is a leading giant in the retail industry, operating worldwide. The first store was opened in 1962 by Sam Walton in the USA, Arkansas as a store offering the “Lowest Prices Anytime” (Corporate.walmart.com, n.p.). During the 40 years of its business activity Wal-Mart has grown internationally, having opened its stores in Canada, Brazil, Argentina, Costa Rica, Guatemala, China, Japan, the UK, India and Africa (Company Profile Wal-Mart Stores Inc, 3). The company employs more than 2.2 million associates in total in 27 different countries, and operates nearly 11,000 retail stores (Corporate.walmart.com). Major Products and Services There are three business segments through which Wal-Mart operates its business: Walmart US, Sam’s Club, and Walmart International. The retail stores have four different formats: discount centers, supercenters, neighborhood markets, and other small formats (Company Profile Wal-Mart Stores Inc, 4). The key products that are offered by Wal-Mart, Inc. include: food products, consumables, entertainment goods, apparel, and goods for home; major services are: pharmacy and optical services; money order services, check cashing, photo processing services, etc. (Company Profile Wal-Mart Stores Inc, 23-24). In addition to the retail units, Wal-Mart offers its products and services through the e-commerce websites available in 10 countries (Corporate.walmart.com). The Operations in Different Foreign Markets Wal-Mart launched its strategy of the international business expansion in 1991, by going to neighboring countries: Canada, Mexico, and some countries of the Latin America. The total number of Wal-Mart’s international locations exceeding the number of 6,100 enables the company to generate almost 30% of its revenue ($136, 318 mln in 2013) (Company Profile Wal-Mart Stores Inc, 26). Table 1 provides an overview of some of the key facts related to the Wal-Mart’s operations in different foreign markets. Country/ Region Year of entry Store formats # of retail units # of employees Entry Strategy Mexico 1991 Walmart Supercenters; Sam’s Club; Bodega Aurrera; Mi Bodega Aurrera; Bodega Aurrera Express; Superama; Suburbia; Farmacia Walmart 2207 209,878 Opening of Sams Club Canada 1994 Supercenters; Walmart discount stores 390 91477 Acquisition of the Woolco Canada chain Argentina 1995 Walmart Supercenters; Changomas; Changomas Express; Mi Changomas; Walmart Supermercado 105 12579 Opened a supercenter China 1995 Smart Choice, Trust-Mart; Neighborhood Market and Sams Club 402 107442 Opening of a supercenter and Sam’s Club Brazil 1995 Walmart Supercenters; Sams Clubs; Todo Dia; HyperMarkets; SuperMarkets 556 73881 Opened 2 supercenters and 3 Sam’s Clubs United Kingdom 1999 Supercentres; Asda Superstores; Asda Living; Asda Petrol Filling Station; Asda Supermarket 577 169,568 Acquisition of the UK retailer Asda Japan 2002 Seiyu Hypermarkets and Supermarkets; Wakana; Seiyu General Merchandise; Livin 439 37788 Acquisition of a 6.1% stake in Seiyu - one of the largest supermarket chains in Japan Central America 2005 Costa Rica; El Salvador, Guatemala, Honduras, Nicaragua 668 Walmart Mexico acquired Walmarts operations in Central America from Wal-Mart Stores, Inc Chili 2009 Hypermarkets, Supermarkets and Ekono convenience stores 386 46414 Acquired a majority in Distribución y Servicio D&S S.A., Chiles leading food retailer. India 2009 BestPrice Modern Wholesale 20 3954 Opened Walmart India Private Ltd Africa (Sub-Saharan region) 2011 Massdiscounters; Masswarehouse; Massbuild; Masscash 378 24114 Acquired a majority stake in Massmart Holdings Ltd. Table 1. Walmart’s International business (Corporate.walmart.com, n.p.). The Modes of Entry in Different Foreign Markets Wal-Mart has started its international expansion with opening its stores or by acquiring established local retailers in neighboring countries, such as Mexico, Canada, Brazil and Argentina. The company’s success in these countries has encouraged the management to go further and expand to China, the UK, Japan, Central America, India, and African continent. Wal-mart has opened its stores in few countries, including Mexico, Argentina, Brazil, China, and India. In order to enter all other countries, Wal-Mart has applied Mergers & Acquisition strategy, buying out either whole leading retailing companies operating locally or some stake of it with further acquisition of majority interest (for example, Japanese Seiyu) (Corporate.walmart.com, n.p.). More details on Wal-Marts’ acquisitions are provided in Table 1. Wal-Mart has chosen acquisition as an entry mode strategy in Japan, the UK, and Africa because of the number of strategic advantages. The company has acquired the retailers – leaders on the local market with established reputation, supply chain system, and understanding of the local tastes and preferences. Thus, Wal-Mart has managed not only to avoid fierce competition on behalf of the local retailer but also to avoid the major problems with supply chain and logistics issues. In addition to these opportunities, Wal-Mart had time and capability to better understand the culture of every nation and thus to adjust its global strategy to the local market. The Global Supply Chain/Logistics The international growth of the American based retailer has been driven by the following key strategies: low prices, company cost controls, advanced technology, and expanding into new retail sectors (Marketline 3). Effective supply chain was crucial to the overall Wal-Mart’s strategy to offer “Everyday Low Prices” (Corporate.walmart.com, n.p.). In order to offer the lowest prices to its customer, Wal-Mart has developed a strategy of working with suppliers and manufacturers directly avoiding middlemen” (Corporate.walmart.com, n.p.). Also, the company has adopted a bar code system and used the generated information to better manage and improve its operations. Use of the IT system named Retail Link enables the company to track continuously shelves of the stores, and simultaneously trigger a reordering inventory, scheduling, and delivery (Marketline 3). With a help of back-office scanners the company is keeping track of inventory shipment (Marketline 3). By investing to advanced IT systems, Wal-mart keeps a competitive advantage of keeping minimum inventory ensuring on-time filling of shelves (Marketline 3). The Challenges faced in International Markets While expanding to international markets, Wal-Mart has faced with a set of different challenges: cultural, regulatory, procurement and distribution. Cultural challenges China was one of the first foreign markets with specific culture, very different to the American culture where Wal-Mart headed to expand its business. Lack of experience and understanding of the local culture made Wal-Mart to study the consumer behavior and the Chinese market. Thus, the company had to adapt its management style to the local favor, and to tune its business to the local needs: sell fresh foods and add to the food assortment frogs and snakes, to extend time frame for returning goods, etc. (Bhaskaran 29). Low pricing strategy and store’s locations in outskirts also have challenged Wal-Mart’s success in Germany where both aspects were confronting with German mentality and culture. American style of business was not perceived well by Germans. By expanding to Japanese market, Wal-Mart also has faced survival problems related to its low-price strategy. Japanese consumers viewed it as signal of low quality and were not seeking for low-costs retail stores (Bhaskaran 30). Regulatory challenges While establishing business in China, Wal-Mart has faced a significant challenge on the regulatory basis. Prior to 1999, there was a government restriction on the number of stores that could be operated by the foreign investors (Bhaskaran 29). In Germany, government also imposed restrictions on retailers and selling products below cost on permanent basis was not allowed. In Japan, Wal-Mart has faced with a problem in procuring goods at low cost because of local restrictions. Traditional distribution system did not allow foreign operators to become its members in order not by goods at high pricess being nonmember (Bhaskaran 30). Failure in different markets Wal-Mart has entered the German market during the late 1990s and failed to succeed there. Combination of cultural and regulatory challenges mentioned above in relation to Germany made Wal-Mart’s business strategy not viable on this market. The company exited German market in 2006 as it failed to learn the consumer behavior and market trends (Bhaskaran 30). Works Cited: Bhaskaran S. “Walmart’s Expansion in Africa: A new Exploration Strategy”. AMITY Research Centers Headquarters Bangalore, pp.28-29. Company Profile Wal-Mart Stores Inc. 1st ed. Marketline, 2014. Corporate.walmart.com,. Walmart Corporate - Experience Walmarts History. N. p., 2014. Web. 5 Jun. 2014. Corporate.walmart.com,. Walmart Corporate - Walmart Corporate: Our Business. N. p., 2014. Web. 5 Jun. 2014. Marketline. “Wal-Mart Stores, Inc.: Growth of the world’s largest retailer”, p.3, Dec. 2013. Read More