Walmart - Flying Geese Model Implications on Free Trade and Other Tools for Strategy Development - Case Study Example

International Business Going global is important for businesses that are ruling the roost in national markets. This is evident from the increasing number of companies who are planning international extensions of their existing operations. And why not? With a brand like Wal-Mart witnessing impressive sales statistics and brand recognition after it has gone global, it is only natural that businesses want to walk on the same path. Wal-Mart’s growth might have been phenomenal, after its initial dilemma as to which international market to target. Europe (Bandelj, 2011) had already a good retail industry in place and Canada was also going strong. Wal-Mart concentrated on Latin America (Leathley, 2007) to start out on FDI, and soon, it was on its way to capture more markets in China and parts of Europe. A journey that started in the early nineties, Wal-Mart’s growth has been re-charted by companies like Apple and Samsung. Therefore, every business that dominates within a country hopes to go for globalization. What are the main perks of going global? Alternatively, which are the main factors that compel businesses to try change over to the global model? Well, to begin with, turning global has a fixed set of advantages that most businesses wish to attain. Increased profits, better employee base, production efficiency and improvement, and faster iteration; all these are enlisted as the main gains that businesses experience when they go global (Bartels et al, 2009). And this happens not without much reason. These factors are in turn responsible for higher sales peaks in greater market fractions. Yes, India and China have 17% and 19% of the world’s population. Businesses in the US and the UK are targeting these developing economies to improve their sales graphs. Needless to say, launching their products in such huge markets, will lead to the brand reaching a larger customer base and recording extremely high sales. What Are The Fundamentals of a Successful Global Strategy? Developing a successful global strategy is the main key to making the transit from domestic to international markets easy for companies. What does an ideal global strategy look like? In his book, “Fundamentals of Global Strategy”, Kluyver suggests that every business must use a three stage framework to develop the global strategy that will be ideal for its case (De Kluyver, 2010). These stages or building blocks have the company’s core model of business development, a set of strategic decisions and changes that the firm will have to make in order to globalize its processes, and most importantly, the set of globalization strategies that the company will have to create and use in order to secure for itself a competitive advantage (Lessard et al, 2013). With this we come to the study of comparative and competitive advantages that companies hope to secure for itself in the global market. With the more referred to competitive advantage, businesses seek to outdo competition in the new markets, grab as much as possible of the market share that it can and have a wholesome amount of profits to claim and share with employees (Chen & Dhara, 2013). While this is a dream come true for most businesses, many uncompetitive looking businesses also manage to survive the rush (Cohn, 2013). They do so by building upon their comparative advantage that most companies concentrating on competitive advantage tend to miss out. Walmart faced this difficulty when it was approaching Latin American markets. While it was competitively safe, it still lacked a few resources and was not very sure of making it big in countries like Mexico and Brazil Under the comparative advantage the basic logic lies in optimizing upon the productivity levels and fighting scarce land and labor sources (OECD, 1995). Instead of going all out in trying to win the global market, such companies develop a strategy in which it develops those services or products in which it has an advantage over the stronger companies. The business may be weak in other respects to its direct competition but is able to produce superior quality products for a niche market and enters into a collaborative understanding with the production of goods with the better performing company in the market, wherein they both go for targeted productions and exchange their reaps. This is well defined in the HOS model of business development wherein developing comparative advantages helps two different countries benefit from free trade and keep the relative factor prices similar in all countries. Walmart achieved this in Mexico wherein it went into a 50-50 partnership with one of the leading retailers of the country, Cifra. The 50-50 partnership had such high yields that the company went on its own while launching in Argentina, while it went into a 60-40 partnership in Brazil with Lojas Americana. The Flying Geese Model and Its Implications On Free Trade: The Walmart Example Proposed by Akamatsu in 1930, the flying geese model indicates the tendency of developing economies to catch up with the existing successful economies in terms of inter-industry aspects (these include import, export, and production), intra-industry aspects (development of industries and goods up-gradation) and the international aspect (relocations of established businesses from developed to developing economies).The flying geese model was accepted in Japan and could give a bright scope for industries within the country that were lagging behind, especially because the political and economic thinkers of the country developed consequent strategies to implement the model, and this made Japan go up the ladder of leading economies of the world in a global perspective, very rapidly. Walmart realized the importance of this model and after the launch of its brand in Latin America, it swiftly shifted focus to the Asian continent and targeted emerging economies like China and India (Pan & Sen, 2007). Other Tools For Strategy Development In New Market Vernons IPLC: No theory outlines the journey of product launch and sales as well as Vernon’s International Product Life Cycle does. It helps outline the duration and requirements of the main three stages in a product’s life cycle in the international market. The three stages are the New Product phase, the Maturing Phase, and the Standardized Product phase. While this is applicable to the advanced countries, developing countries need to catch up as fast possible in being able to give a market that promises similar product life cycles to businesses planning to release its products in the economy. While Walmart did not have any products other than retail services to provide to the new markets it was entering, it was effective in applying the data that analysis on the basis of this theory could bring forth. Trade and FDI patterns: Migration has always been an inducer of better trade relations amongst nations of the world (Creanne & Miyagiwa, 2007). And the main reason that propels this is the ready financial and trade related information that flows from one country to another through the migrant populations. It has been seen that trade and FDI works best between economies which have seen high number of migrants in the recent past (Razin & Sadka, 2012, pg 132). This is a direct indicator of the fact that Walmart will be able to realize high popularity in Third World countries which have more number of migrants to the US. Dunnings Eclectic Paradigm (OLI ): This framework is known to be more descriptive as it assesses all the major factors within its paradigm. These include ownership advantages, location advantages and internalization advantages. Walmart had been lucky in all these three aspects in terms of its journey in the US. It’s success in Mexico further encouraged it to extend to Argentina without a partnership It is important to note here that while extending their business into new markets, companies have to be extra careful in understanding the political risk (Lizenziatenarbeit, 1994), foreign exchange risks and agency costs involved in the process. They should plan out a strategy wherein the competitive advantage is firm specific and sustainable, which is possible only if it takes into consideration all these country risks (Petrovich & Stankovich, 2009). Walmart did a good job in Latin America and should employ the same statistics in determining the best strategy in the rest of United States. This would include managing technology and human capital in the new country. The limitation that Walmart experiences in countries like India, wherein FDI is not permitted, is not present in the United States. Does FDI or Trade Have a Role to Play in International Culture? The main effect of globalization is in building economies through sustained development brought in by FDI. The international culture that globalization hopes to install in the world order is well supported by sustainable global strategies that companies like Walmart, Coca Cola, and Apple have been undertaking. Not only does it open new markets to different product lines (Rugman et al, 2006) of superior quality but also create the pathway for flow of new cultural practices into these nations. The release of local culture of these countries further acquaints the rest of the world about the salient features of the culture that is present in the country being entered and this further enriches the international culture. Food items, lifestyles, technological gadgets (Saggi, 1991) and art forms flow out into the international culture as local creativity reaches markets all over the world. Scope Of FDI or Trade Through International Joint Ventures While assessing political and foreign investment risks many companies find it difficult to develop a successful strategy (Manzella, 1996) without going into joint ventures with a company that is already operating within the country that the former wants to enter. It is in this context that Walmart has not been able to enter the Canadian market since the country has been amassing a great deal of wealth through FDI and joint acquisitions with companies abroad (World Bank, 2006). Walmart could create a similar scenario in the US. However, since it is an original from the US, the international joint venture should concentrate with a company from either Europe or the Asian countries, which will be able to help Walmart grow in the respective continent and still be able to sell in the United States through Walmart. FDI or Free Trade : Global Strategy and Structure for the Multinational Enterprise (MNE) Multinational enterprises have a good deal of benefits to harvest from the global strategy they develop to internationalize (Graham & Spaulding, 2005). FDI or free trade turns out to be a favorable global strategy for MNEs as they are able to hold shares in joint ventures, benefit from the existing operational networks of the partner and develop suitable liaison with related and supporting industries in the new country. Walmart showed the way in Mexico and Brazil. The highly optimized strategy gave them the scope to adapt the existing strategy, optimize upon it and then use it in Argentina, without any partnership required (Dixit, 2011). Rapidly Growing FDI or Free Trade Inflows In Emerging Markets Emerging markets (Donan, 2014) like India, China (Yan, 2009), Mexico, Brazil, Indonesia and Portugal are storehouses of promise for companies who want to go global, benefit from the advantages of using the existing framework in these countries and safeguard (Draper et al, 2009) their investments using trade credit insurance (CMCG, 2003). In this regard also, Walmart has succeeded in paving a path for companies other than those operating in retail. While it dominates the markets in some of these economies like Brazil and Mexico, it has not been able to gather much wealth through its joint venture with Bharti in India (Sauvant, 2008, pg 354). Yes, risk management has become easy with trade credit insurance (Green, 2014) and while Walmart does not need to use much of this service, all companies which produce goods built with imported raw materials benefit greatly when they have this coverage to pay their suppliers (Franck, 2007). Conclusion Although risks like foreign exchange (Glass & Saggi, 2001) and political risks (Haufler, 1997) are not taken care of under this coverage, it still offers wholesome compensation for trade risk and this is something most MNEs would like to have in their endeavor to go global. It was not a surprise that even before a minor turmoil, that was long anticipated, foreign direct investment stayed strong in emerging markets in 2013 (Cronin, 2013). References Bandelj, N. (2011). From Communists to Foreign Capitalists: The Social Foundations of Foreign Direct Investment in Postsocialist Europe, New Jersey: Princeton University Press, 324 pages. Bartels, F.L., Buckley, P., & Mariano, G. (2009). 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