Why Wal-Mart Engaged in Internationalisation Strategies - Case Study Example

Executive Summary

Globalisation is a trend in which the leading companies have incorporated into their business strategies. The report provides a critical analysis of Wal-Mart and international markets by using different tools such as SWOT and PESTEL to determine reasons Wal-Mart adopted internationalisation strategies in the market. The report will also explore the significance of a cross-cultural understanding for international businesses success. With the ever-present stiff competition and saturation of domestic markets, companies now focus on expanding beyond national borders by adapting internationalisation strategies to grow and tap into raw international markets with high potential for growth and expansion. Nevertheless, countries have a unique culture that differs in terms of religion, language, beliefs and opinions. Consequently, managers need to consider these cultural elements before taking their products to new markets to avoid chances of business failure. MNCs such as McDonalds, Disneyland, and Wal-Mart have encountered success and losses based on the way their managed global cultural diversity.

Wal-Mart Foreign Expansion Case Study

Introduction

Wal-Mart is a global multinational corporation operating in the retail industry in the fields of grocery stores, departmental stores and hypermarkets. It has its headquarters in the US where it was established. Wal-Mart, through globalisation, continues to dominate in the retail sector leading in sales revenues and earnings (Coe and Wrigley, 2009, p.53). The industry, particularly in the American market, has witnessed new entrants leading to cutthroat competition. As such, the retailer has strategised by embracing internationalisation by venturing into new foreign markets in Europe, Asia, and Latin America. Nonetheless, there are challenges that come with the strategy of going global. The report critically provides a critical analysis of Wal-Mart and the foreign market by highlighting environmental and strategic reasons that forced Wal-Mart to use internationalisation strategies in the market. The second part will analyse the significance of a cross-cultural understanding for international businesses success.

Foreign Market Analysis

The competition in the international market mandates any MNC to conduct the foreign market analysis using various tools such as PESTEL and SWOT analysis. The factors that are analysed in the case of Wal-Mart include the political, legal, economic, socio-cultural, legal and technological aspects. Huang and Sternquist (2007, p.615) noted that Wal-Mart endeavours to exploit its strength, minimise weaknesses, explore opportunities and counter the threats prior to internationalising.

SWOT Analysis

This tool is used by Wal-Mart to analyse the attractiveness of the foreign market and to determine its viability (Pahl and Richter, 2007, p.71). Since the retailer is already performing well in the domestic market, it is safe to infer that Wal-Mart has strengths regarding the internal operations and governance. As such, the opportunities and threats are the critical aspects that Walmart uses to determine whether to explore the global market or not. Threats that Walmart faces while expanding internationally include;

Supply Chain Management

Wal-Mart is one of the frontrunners in the adoption of processes and systems. It founded the information systems (IS) usage in business and has one of the most reliable IS. The company boasts one of the most efficient distribution networks in the world (Barney, 2012, p.4). However, in 1997, the retailer discovered that in countries such as South Korea, its supply chain management system was insufficient to satisfy the Korean market. South Korea lacked the infrastructure that was compatible to the supply chain system that could support technological integration in the Wal-Mart stores. Wal-Mart employed the strategy of creating a relation with supply-chain practitioners in South Korea.

Opportunities that are available include the availability of local alliances to cater for the global market. The international expansion of the retailer also creates an opportunity for Walmart to establish outlets at the different international locale.

PESTEL Analysis

This tool is used to analyse the national cultures and sub-cultures of the market to be entered. Cultural difference is evident across different countries. The decision to offer standardised products in the global market failed because of the diverse cultural needs. The Chinese market, for example, demands that customers need fresh food that is harvested while consumers witness. Malnight (2005, p.138) argues that Wal-Mart had to consider the different cultural needs. Global pricing is also a factor that is analysed where it is seen that different cultures require different pricing strategies. Most of the people from the German and English markets, for example, like purchasing products that have discounts. Wal-Mart used the low pricing strategy that is referred to as skimming so as to penetrate the market.

Strategic and Environmental Reasons of why Wal-Mart engaged in Internationalisation Strategies

Since it started expanding in 1991, the retailer has been aggressively pursuing internationalisation in its quest to remain a global leader in the retail business. After successfully establishing itself as the best retailer in America, Wal-Mart needed to grow so as to survive. This was one of the main strategic reasons why the retailer had to go beyond the national borders. Cuervo-Cazurra (2008, p.144) assert that a global frontier is the only avenue that remained untapped and had the potential to ensure Wal-Mart grew even further.

Growth was the main factor why the corporation engaged in internationalisation strategies. Growth was crucial because the firm had the need to increase the earnings and sale revenues so as to meet the expectations of the capital market. The firm also had to meet the expectation of its workers as it has a committed staff. The employees own the company through the share purchase plan. The other rationale was that Wal-Mart had already saturated a majority of the local market in the US. Moreover, the American population constituted only 4% of the global population meaning the retailer was missing on a huge chunk of the market and its prospective consumers.

The emergence of information technology and the ease of entry to new markets in alien countries meant that competitors in the retail sector ventured fiercely in these markets. To counter the effect of the rivals in the business, Wal-Mart had no option than join the wave of globalisation so as to remain competitive and relevant. Besides, internationalisation enabled the retailer to leverage two pivotal resources initially developed in the US due to its capacity. The strategic reason is that Wal-Mart could now utilise its remarkable purchasing power it had with leading local suppliers that include Nestle, Hallmark, Proctor & Gamble and Coke (Shabbir, 2016, p.12). This buying power could be used to their advantage while procuring goods outside the US stores.

The other strength that Wal-Mart had was that it had originally developed competencies and deep knowledge in the efficient use of technology in supply chain management, logistics, merchandising skills and effective store management. These competencies could easily be integrated and implemented in the global markets as it went global. Globalisation was also beneficial in that it enabled the firm to leverage cost-reduction or sale-generating ideas that it acquires from the international markets to the advantage of its domestic stores in the US (Brunn, 2006, p.87). The strategy is useful in knocking off competitors such as UK’s Tesco, France’s Carrefour SA and Netherland’s Ahold.

The main reason Wal-Mart went global is that it pursued growth, an objective that has been achieved. When it entered Mexico, Brazil and Canada, the retailer attained success. In Mexico, it has its largest international market with 2,225 stores. The success in Mexico is also attributed to the e-commerce advantage that Wal-Mart enjoyed. It remains that the global activity of the retailer is critical to its future growth. For instance, in the fiscal year ending 2013 January, the global market accounted to 29% of all its revenue (Iacovone et al., 2015, p.18). The revenues had notably increased by almost 42%.

The other reason why Wal-Mart went global is the fact that the retailer was offering goods at lower prices meaning that it could exploit the opportunity in the global market where consumers fancy lower and discounted prices (Bellman, 2009, p.26). Its brand was also a central reason to go global as it had already established the brand in the domestic market, hence making it easier to retain customers through customer loyalty. The strategy of product development instead of diversification was also important as it enabled the company to gain a competitive advantage because it differentiated itself and offered more superior goods as compared to competitors. The marketing strategy of the company has also helped it stay competitive. Its slogan, "everyday low prices" helps capture the attention of customers and persuade to purchase it goods. The human resource management is also a key propeller in globalisation as Wal-Mart created a dedicated staff that embraced high productivity and rewarded attractively.

The company pursued internationalisation strategies because of its need to assume global responsibility. As would any MNC, Corporate Social Responsibility is paramount as it creates a rapport with customers and also improves the public image of the business. Wal-Mart had the need to fight hunger, offer affordable and healthy food, preserve the environment, empower women and create job opportunities in the world. It ensures it recycles waste and that it provides packaging that is eco-friendly so as to minimise pollution.

The Importance of a Cross-Cultural Understanding for International Businesses Success

In recent research studies, the definition of culture has not yet been unanimous. For example, Ferraro and Brody (2015, p.16) argued that culture is a collection of beliefs, symbols, habits and behaviours that are passed in a line of generation. According to (Schein, 1992, p.7), defined culture as a phenomenon surrounding everybody at all times. Culture is an important facet in globalisation as the countries where a business ventures into may have a different culture as to that it comes from. The influence of the cross-culture is fundamental in developing successful international relations. Therefore, understanding a foreign culture is a long-term process of integration, comprehension and assimilation and is critical to the successful growth of the business in the international arena.

According to Prasad Kanungo (2006, p.25), cross-cultural differences in countries have an impact on the business strategies of a firm or business that is going global. For example, when Wal-Mart entered the Mexican market, the company experienced cultural difficulties. The retailer realised that the people there preferred purchasing fresh products in the groceries. The Mexicans also lacked motor vehicles that could be used to buy and transport large amounts of products as is in the case in the US. Hence, the difference in culture necessitated the change on business strategies. The retailer opted to hire local managers who had an understanding of the local culture. They also built small stores that offered fresh produce at cheap rates, a strategy that paid off. The shopping habits of the Mexicans changed, and Wal-Mart was consequently elevated to one of the largest retailing business in Mexico.

Cross-culture is an important element in international business since it helps corporations to determine entry strategies when entering new markets (Lenartowics and Roth, 2001, p.307). In China, Wal-Mart established before entering the country that the Chinese are bargain hunters and are inclined to low pricing strategies as well as like a wide range of products to choose from. As such, the retailer knew it could easily succeed in the Chinese market since it was already offering products at low prices and had an array of products to offer. Nevertheless, Wal-Mart had to adapt to the Chinese culture by altering its operation and merchandising strategies. The Chinese liked food stuff that was harvested while they were present such as fish. The retailer ceased selling dead fish but instead installed fish tanks to meet the demand of the Chinese culture.

The understanding of the cross-cultures in the world is also important in communication fields that include public relations and advertising. A simple misquote or language can be detrimental when promoting a product. Some cultures for example as witnessed in Germany and South Korea, need an advertising campaign that prioritises on the quality of a product over the price. In England too, the company failed to succeed because it encountered competitors who were already established and offered superior quality products than they did (Fernie and Arnold, 2002, p.91). The consumers in these three countries preferred products that have a higher quality.

Wal-Mart’s promotion focused on affordability and discount, a feature that led to its popularity in the US. It is, therefore, important to know the tastes and preferences of different cultures before embarking on a promotional campaign. Hiring, political relations, individualism versus collectivism are some of the dimensions of culture that are significant to consider in international business (Singh, Hansen and Blattberg, 2006, p.459). Countries that have many language-speaking groups have different cultures. Considering peoples attitude, religion, beliefs and value are paramount in international business, a factor highlighted by the success of Wal-Mart in China and its failure in Germany and South Korea.

Conclusion

It is evident companies that seek global dominance have over the years embraced foreign expansion as is in the case of Wal-Mart. They pursue globalisation because of strategic reasons such as growth and gaining a competitive advantage. The world population also houses the greatest market niche that is yet to be saturated. However, it is imperative to realise that the global marketplace consists of a different culture. Hence, before venturing into these markets, a company must conduct a foreign market analysis using various tools such as the PEST and SWOT Analyses. Further, an understanding of the cross-culture is important as the culture affects the taste and preferences of the consumer. Any firm, as Wal-Mart will find out that they have to understand the culture so as to avoid losses as it did in the German and English markets.

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