International Business Strategy of Wal-Mart - Case Study Example

Table of Contents INTRODUCTION: 2 INTRODUCTION TO COMPANY: 2 INTERNATIONAL MARKET ENTRY STRATEGIES: 3 INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: 4 CRITICAL ANALYSIS OF THE INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: 6 STRENGTHS AND WEAKNESSES OF INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: 6 PESTLE ANALYSIS: 8 RISK ANALYSIS: 11 CONCLUSION: 12 Reference 15 INTRODUCTION: In this modern world, the markets are transforming into global markets and the competition is getting intense. This forces the firms to dramatically change the ways of doing business and adopt new perspectives to develop international marketing strategy in a rapidly globalizing, technologically complicated, and highly competitive environment. In this report an attempt has been made to analyze the international market strategy of Wal-Mart. INTRODUCTION TO COMPANY: Wal-Mart Stores, Inc is an American multinational retail corporation, established in 1962 by Sam Walton in Rogers. The company runs a series of retail and consumer stores which offers a variety of quality products under one roof. Wal-Mart ranked as the world’s second largest public corporation, stated by Fortune Global 500 list in 2013. By using low-cost strategy, it generates huge profits across the world. In the beginning, it was lacking in managerial, organizational and financial resources. For this reason, Wal-Mart started its operations from the culturally and geographically most known place, i.e. America. Further, it expanded and began its operations internationally, where it aimed to capture the developing markets and seized the market share of existing competitors. Large and populous countries like, Mexico, Argentina, Brazil, China, Canada and European countries were aimed to enter and play internationally. INTERNATIONAL MARKET ENTRY STRATEGIES: Ghoshal & Nitin (1993) proposed a four strategy matrix, to foster the international businesses to enter into the new markets successfully. This matrix is based on the pressure for global integration and pressure for local responsiveness. (Ghoshal & Nitin, 1993) International strategy of Wal-Mart can be regarded as the mix of transnational and multi-domestic strategy. Transnational business strategy supports the global business structure where the international operations of the company are synchronized through interdependence and cooperation between the headquarters, regional offices, subsidiaries and retail outlets located in other countries across the world. However, this strategy incorporates the centralization benefits as well as the quick responsiveness to local market. Transnational strategy together with the multi-domestic strategy can be the suitable match for an international organization to grow the business into the new market successfully by understanding the cultures of the local market. When a business is intended to expand internationally, a careful research must be conducted keeping in mind all the factors that can dynamically affect the business’ operations. Entering into an entirely new market would challenge the business with the different demographics, competition and market conditions. The company must assess the internal and external forces of the environment, cultural values, and people preferences, intensity of the competition, technological advancement, legal concerns, stake holders’ issues and political stability of the host country. When businesses internationally expand, they face the challenges as the hindrances to develop the business because targeting different customers at new locations will require the new market strategies to enter and grow efficiently. Supervise the results and adapt to changes quickly. In time, you will identify your new customers and new market as well as your new competitors. INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: Wal-Mart has been able to create and manage an image of large international brand and globalized business because of its effective and efficient international marketing strategy. The company has been considerate enough to incorporate different values and cultures according to the local environment. The basic strategy used by the company is multinational business strategy. Wal-Mart takes into consideration the local consumer preferences and associated environment while entering into any new international market. This in turn allows the company to cater different needs of different people all over the globe (Wei, Wang, Zhang, Ao, n.d.). The company used different modes to enter in diverse markets and started its operations internationally. Joint venture, acquisition or partnership was the most common approaches that the company used and resulted in successful expansion. In Mexico, CIFRA was the largest retailer, with which Wal-Mart formed a 50-50 joint venture to expand its business. As CIFRA was already an established business, it provided the firm with the operational expertise in the Mexican market. This helped the Wal-Mart to spend less time in the process of understanding the markets and thus grow faster in the market. From the joint venture experience in Mexico, company then decided to further expand its business in Brazil and Argentina. The entry into Brazil was also established through a 60-40 joint venture with Lojas Americana where it had the major control over company’s operations and administration. The benefits that the company gained through joint venture concept helped them to understand the cultural differences among countries. Thus, with this learning experience, company decided to expand its business in Argentina through a wholly owned subsidiary. The fact that there were only two markets in Argentina of considerable size strengthened this decision. As Canadian market is a mature market with huge number of local competitors, Wal-Mart felt unnecessary to develop the strategic alliance to enter the market. However, Wal-Mart did not need to learn new practices as income trends or cultural values of Canada are quite similar to that of United States. In this case, Wal-Mart opted to acquire a feeble retailer in the Canadian markets. According to this strategy, Wal-Mart acquired the business of Woolco. With this acquisition, existing Woolco buildings got into the possession of Wal-Mart. China, the world’s most populous country was then targeted to enter by using the acquisition strategy along with the offshore sourcing strategy which reduced the costs in finding new positions. However, this international competition laid up the performance of local firms, their government constrained the functions of overseas retailers, due to which foreign retailers became legally responsible to limit the number and location of stores and fulfill the requirements of government-backed partners (Yazdanifard, R., Mun, L., n.d.) These different strategies were proved to be the best set of choices to enter the diverse new markets and helped Wal-Mart to develop a strong market base worldwide. However, the regulations of foreign markets and the power of market competition are increasing that needs to be considered by Wal-Mart (Govindarajan and Gupta, n.d). CRITICAL ANALYSIS OF THE INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: Wal-Mart has been entering into different international markets with localized strategies. The main focus of the company has been on the joint venture with the local retail companies. Joint venture has its own sets of advantages and disadvantage. However, it is important for Wal-Mart to understand the implications of this strategy on the internal business and cultural environment of the company. STRENGTHS AND WEAKNESSES OF INTERNATIONAL MARKET ENTRY STRATEGY OF WAL-MART: As mentioned above, each international market entry strategy has some advantages and disadvantages. It is on the company to exploit the advantages of the selected market entry strategy and avoid the pitfalls. For Wal-Mart, it is important to make sure that the market entry strategy employed is able to complement the strengths of the company and overshadow the weaknesses of the company. Critical analysis of the international market entry strategy of Wal- Mart in terms of its strengths and weaknesses is presented below: Strengths 1. A well-recognized brand name: Wal-Mart is one of the most familiar brand names. It is a well-known chain of stores with its 3000 outlets in 14 countries. Providing the true value for money, this network of stores offers a wide range of different products, all just in one place. The strategy of joint venture allows the company to carry the same brand image of offering quality products at low prices to all international locations. 2. Smart pricing and low cost: Wal-Mart benefits its customers by offering them reasonably priced products. This negotiable pricing policy places the company in a preferred list of the masses. The strategy of joint venture allows the company to provide the same cost benefits to the customers, as it shares the costs and risks with the other partner. 3. Reducing the barriers to entry and political risk: There are many social, political, legal and communal hindrances that the Wal-Mart faces when entering into a new market place. The strategy of joint venture allows the company to understand the local market by getting first-hand information from the local partner. Also, there is more political and legal acceptance of joint venture in many international countries. This in turn helps the company in reducing the barriers to entry. Weaknesses 1. Diverse cultures and management styles: Participating in joint venture directs some of the Wal-Mart’s resources to the new hands with completely different cultures and management styles. Difference in corporate cultures and backgrounds lead to poor co-operation and integration. However, a thorough analysis of a corporate culture of the host company helped the Wal-Mart to successfully operate in the cross-cultural environment. 2. Unequal shared resources: There is an imbalance of shared capital, investment, level of expertise, and other resources between the partners. This unequal sharing of assets brought into the venture by Wal-Mart and local firm causes the confrontation between the partners. 3. Shared operational controls: Another challenging process that Wal-Mart came across within the joint venture is to make effective collaborated decisions. The control of business is divided between two authorities who may have different opinions on every issue. Thus this requires the high level of alliance in order to make effective decisions and management control (Stewart and Maughn, n.d). PESTLE ANALYSIS: Wal-Mart has to face different political, economic, social, technological, legal, and environmental challenges while entering into new international markets. For this reason it is important for the company to carefully analyze and evaluate these factors. The more thoroughly Wal-Mart assesses its current environmental conditions and potential changes, more effectively it can respond to these changes than its competitors. Some of these challenges are discussed below: Political: As Wal-Mart is running its business in many politically diverse countries, it encounters many assorted political conditions like political instability, currency regulation, taxation system, economic condition, intellectual property rights, trade restrictions etc. Also, Wal-Mart’s has helped many host countries to amend their trade policies and regulations by initiating its business internationally, for instance, to foster the foreign investment, Indian government allows the international companies to acquire their local firms. Recently, the leading Telecommunication firm, Bharati Airtel has been acquired by Wal-Mart, after which it developed its business by opening their new retail stores. Economic: A country’s economic growth portrays the buying and purchasing pattern of the people. Since the Wal-Mart earns profits through volumes and with low-cost strategy, the company is very responsive to economic condition of any country constantly so as to adjust its sales model. During recession times, Wal-Mart couldn’t help to achieve high volume of sales, whereas with the flourishing economy, Wal-Mart encountered less price-sensitive customers. Wal-Mart low price strategy would be of less importance to customers. As a result of the previously mentioned points, Wal-Mart should conduct a thorough study before entering an unbalanced economy. Economic condition of host countries has greater impact on any business firm. Social International joint ventures are always challenging in the sense that it engages two partners from the variant cultures. Society’s attitudes and traditional values influence the social-cultural segment. As people’s preferences and behaviors differed with the cultural values, it became difficult for Wal-Mart to manage international joint ventures. Wal-Mart’s operations were significantly affected by the different cultural backgrounds of the partners. However, it managed to make the joint venture successful by clearly understanding the cross-cultural environment and creating a compliance with the traditional values of the host country to receive the acceptance from the local people. Wal-Mart sustained its growth by introducing new products for the customers by considering the basic needs and preferences of the local people. Technology Wal-Mart is a leader in the use of technology to maximize operational efficiency. But when it formed a joint venture with the less technologically-aware countries, Wal-Mart faced the challenging situations to efficiently expand its business globally. Different countries had various hi-tech competencies or even some countries had no technological know-how. This technological difference had critical impacts on the operations of the company which resulted in unproductive outcomes. However in early days, Wal-Mart determined the importance of practical investment in technology sector and installed a confidential satellite network that managed its international logistics system through a central hub. Legal In cross-border joint venture, both the partners are surrounded with countless laws and regulations like taxation laws, labor law, competition laws and many more. Wal-Mart realized the unfavorable impacts on the operations and profitability of the company in international joint ventures. To improve the performance, Wal-Mart carefully analyzed the business-related polices and altered them as according to the law system of the host country. Wal-Mart has been legitimately charged to violate labor laws with respect to gender based employees’ discrimination. This harmful status could threaten its competitive advantages, profits, and its worldwide reputation (Miller, Glen, Jaspersen, Karmokolias, 1997). Environmental As the joint venture bring together the two partners from the different environmental setups to foster the business operations, the major issue arises regarding the environmental concern is that whether the company is showing responsible attitude towards environmental sustainability programs by operating in environmental friendly manner. For Wal-Mart, it has been the major concern, when working within joint ventures, to offer environmental friendly products and develop its brand image internationally. (Sunita, 2011) RISK ANALYSIS: Corporate cultural risk: Cultural values of every country vary from each other, and these values shape the corporate environment. In joint venture, two companies work together with the entirely different cultures, behavior patterns, opinions and management styles. This may resulted into conflicts in decision making process regarding to management control, employee empowerment, overall organization structure and operational activities. Employee’s issues: Protecting the reliability of the labor force of both the companies is the major concern of the joint ventures. The fact that two companies work together in a joint venture questions the matter of termination of employees. Technological integration: When a joint venture is formed, two partners with different technological expertise work together. The technology gap between two countries affects the operations of the company and hence reduces its outcomes and revenues. Wal-Mart possessed the different technological skills, when formed a joint venture with the countries owned less technological skills, resulted into a poor union. When forming a joint venture, the above risk factors must be considered completely. To overcome or reduce the risk element in joint venture, Wal-Mart must study the environmental forces of the host country thoroughly, and analyze their major external environmental concerns to shape its operational strategies accordingly (Ovcina, 2010). CONCLUSION: Today, every workplace, store, newspaper, home, local shop or a multinational company indicates the importance of globalization and its effects on business operations. Globalization poses major challenges to Wal-Mart as of any other multinational. Initially, the biggest challenge is to build healthy relationship with suppliers of the country to which they are targeting. Additionally, adequate knowledge of the market trends and consumer preferences is necessary to expand the business in an unfamiliar environment. Cultural aspects vary from country to country and extensively influence the performance of the company. The language issues, pricing difficulties and cultural clash can impact Wal-Mart’s operations in that country. To overcome these issues while operating in diverse environment is the biggest challenge that the Wal-Mart faces. In this technological era, the retail industry is widely affected by the advancement of network technology. Following aspects reflect the major challenges: 1. Network technology break space and time barriers. Store’s location is no longer important. Traditionally, the location for retail store is critical, because it affects customer flow and sales directly. In the information age, network technology break through the geographical limitation, retailers nowadays can expand their market globally. Therefore, Wal-Mart cannot purely rely on the location anymore, but to focus on market-based management of innovation. 2. Selling methods change. Online shopping is the emerging trend these days where people can easily shop by using the technology without wasting a lot of time in travelling. Technology has changed customers’ shopping trend from “store shopping” to “home shopping”. For the retailers, it is a time to change their operational activities and introduce the concept of online store in their business model. This trend has led the international businesses to create their online stores which offer all the products that its physical store holds. In this technological phase, Wal-Mart counters the strong competitor like Amazon in the area of online shopping. In the joint venture strategy, Wal-Mart’s inactiveness in technological concerns serves as the barriers to quickly respond to these changes. 3. Growth of information technology also influences Wal-Mart’s employees. Developing or installing new technology could either replace some human resources or demand to train the employees to be competent enough. In both the cases, people will resist to technological change. Considering Wal-Mart’s situation, this technological change will be a challenge as it draws the attention towards investment in training and development of employees, or lay off could lead to some social issues such as unemployment. 4. Technology could lower Wal-Mart’s profit margin. Network has enabled people to find all the product information online, which mean searching for the best price become relatively easy. In addition, technology could also lower the competitors’ cost which includes communication costs, labor force costs, purchase costs, infrastructure cost and searching cost, so they could also provide the products with lower price. Therefore, the price war between retailers are fiercer, resulting in profits in retail industry be further reduced. Apply to Wal-Mart situation, because Wal-Mart’s core competitive advantage is low price, it will face more challenges in the future Hence it can be concluded that, Wal-Mart needs to come up with effective and efficient strategies to overcome all these challenges and to sustain its image of successful global business. Reference Ghoshal, S., & Nohria, N. (1993). Horses for courses: Organizational forms for multinational corporations. Sloan Management Review, vol. 34, pp. 23-23. Govindarajan, V., Gupta, A. (n.d.) 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[Online] Available at: http://www.slashdocs.com/rshrq/pestle-analysis-of-walmart-stores-inc.html [Accessed 9th April 2014] Stewart. M., and Maughn. R., (n.d.) International Joint Ventures, a practical approach. [online] Available at: http://www.dwt.com/files/Publication/1b841dbe-3453-4983-97cd-d6f5b44e5b2f/Presentation/PublicationAttachment/47d38fc0-1cc3-4c3e-b91f-d8aacd2ce6d1/International%20Joint%20Ventures%20Article_Stewart.pdf [Accessed 9th April 2014] Wei, L., Wang, S., Zhang, J., and Ao, Y., (n.d.) Strategic Analysis for Wal-Mart. Available at: http://www.sfu.ca/~sheppard/478/syn/1137/G_6_1137.pdf [Accessed 8th April 2014] Yazdanifard, R., and Mun, L. (n.d.) WALMART SUCCESS IN MEXICO, CANADA AND CHINA: GLOBAL EXPANSION, STRATEGIES, ENTRY MODES, THREATS AND OPPORTUNITIES. Multimedia University Cyberjaya: Malaysia. Available at: file:///C:/Users/pc/Downloads/WALMART%20SUCCESS%20IN%20MEXICO,%20CANADA%20AND%20CHINA%20GLOBAL%20EXPANSION,%20STRATEGIES,%20ENTRY%20MODES,%20THREATS%20AND%20OPPORTUNITIES%20[FINALIZED]%20(1).pdf [Accessed 9th April 2014] Read More