Walmarts Expansion in Africa - Research Paper Example

Walmart’s Expansion in Africa Walmart, the biggest US retailer has been successful through its global strategy of acquiring partners through subsidiaries in various countries like Mexico, China, Canada and Argentina. (Bhaskaran 27) Recently, Walmart acquired a majority stake in Massmart Holdings Ltd. in 2011. Massmart operates more than 350 stores in South Africa and 11 other sub-Saharan countries. Brands include: Game, Dion Wired, Makro, Kangela, Builders Warehouse, Builders Express, Builders Trade Depot, CBW, and Jumbo Cash and Carry. It had been effective in pulling in the purchasers on an expansive scale through its approach of Every Day Low Price (EDLP), (Bhaskaran 27) client driven methodology and support given to clients to furnish a proportional payback things in the event of any deformity in the items. The clients were additionally tempted to buy vast amounts as a result of the low valuing when contrasted and the contenders. Walmart likewise offered an extensive variety of items and foodstuffs which was an alternate appreciation for the clients to shop under a solitary top. Through their global operations in Japan and Germany, Walmart had additionally learnt lessons on distinctive shopper conduct. While Japanese buyers felt that a low cost was characteristic of low quality and did not belittle a large portion of Walmart stores, in Germany administrative confinements on low value method supported the nearby retailers prompting a disapproval of Walmart by the customers. South American experience and Chinese experience for Walmart had supported the worldwide income to an agreeable level because of the arrangement of EDLP and additionally receiving to nearby societies utilizing neighborhood individuals and acquiring significant stocks generally. Disregarding disappointments in a percentage of the nations, Walmart had a vast scale vicinity in 15 nations and anticipated income of $405 billion for 2010. In the scenery of this effective voyage, Walmart had wanted to enter the African landmass, where large portions of the nations had demonstrated sensibly great investment development and expanded levels of utilization, through securing of Massmart, a retail giant in South Africa having 288 stores. This joint venture would give open doors to Walmart to grow its foot shaped impression in African nations which were required to enroll a development of in excess of 5% in their GDP. The detailed analysis dissects the open doors and difficulties that anticipate Walmart in its African venture. Walmart began to put more stress on the worldwide markets to fuel its development as the open doors accessible in the residential business sector had dwindled since the fiscal emergency of 2008. Walmart began venturing into universal markets in 1991. Beforehand, it had confronted blended brings about worldwide markets. While it was profoundly effective in a few markets like Mexico, it additionally accomplished disappointments in business sectors like Germany and South Korea. Walmart began to concentrate on Africa as different markets which offered great development potential like India were still shut to outside players. A few nations in Africa offered great development open doors for huge MNCs like Wal-Mart notwithstanding the group of issues they confronted like political unsteadiness and poor monetary conditions. Wal-Mart chose to extend in Africa inorganically by getting a neighborhood retailer. Wal-Mart ran into inconvenience when some exchange unions and government divisions claimed that its entrance would prompt gigantic employment misfortunes and harm the provincial assembling segment of South Africa. Despite the fact that a few experts were hopeful that Wal-Marts plan of action may demonstrate fruitful in Africa excessively as a result of the more level pay levels of individuals in numerous African nations, others were still distrustful about Wal-Marts fortunes in Africa. Massmart began its operations in 1990 in South Africa. (Bhaskaran 26). Soon, it expanded to fourteen countries in the African region with nine wholesale and retail chains. (Bhaskaran 27). The four core operating chains of Massmart were Massdicounters, Masswarehouse, Masscash and Massbuild. (Bhaskaran). The business model of Massmart was built around economies of scale, which meant high volumes but low margins. Massmart’s operations relied heavily on the use of technology, which enabled it to accumulate net sales of R 47451 million in the year 2010. (Bhaskaran). The main strategy employed by Massmart was to ensure customers kept getting lower prices, which meant continued investments for Massmart. Massmart soon diversified in to other products such as pharmacy, furniture and clothing. (Bhaskaran 27) Walmart acquired Massmart to fulfill its plan of continued expansion into foreign markets. In the past, Walmart had identified key players in the retail sector of a country and acquired them. These players often bear similar strategies in operations to Walmart. Massmart too had the same strategy as Walmart, of keeping low prices for consumers. Hence, Massmart was one of the best choices available to Walmart for expansion in to Africa. Walmart decided to purchase Massmart for $ 4 billion, who had net sales of around $ 6.3 billion. Thus, Walmart got instant access to the Sub Saharan region. (Bhaskaran 29) Walmart acquired a 51 percent in Massmart for $ 2.32 billion. Massmart possesses, among other smaller operations, the well known brands of Game, Dionwired, Makro and Builders Warehouse. Walmart, having weighed up different alternatives, has singled it out as an alluring African buy. Walmart has offered to buy experience Massmart as Massmart offers a key section into the African market for the US-based retail giant as it tries to stretch its worldwide span. The success of Walmart in Africa will basically depend on well it can apply the lessons learnt in other international markets, especially after failures in Korea and Germany. Massmart’s strategies are a good fit for the existing strategies of Walmart. Hence, it is expected that the retail giant’s foray into Africa may start of smoothly. Massmart already has a good presence in Africa, which will help Walmart expand into Africa better. Moreover, Walmart has constantly employed local managers to handle clients. With Africa’s diversity, it seems a good option for the Retailer to continue on that path. The strategy of Walmarts Supply Chain Management has been an incredibly successful one in the past. It gives Walmart an edge over its competitors. It keeps product costs low, reduces inventory carrying costs and gives a Walmart a larger variety of products on the shelf. The pricing component will play probably the most important part in Walmarts success strategy. Walmart is renowned for keeping the cost of products down. Even Walmart’s tagline and mission statement talk about keeping prices affordable to the end user. In order to guarantee low prices, Walmart tries to purchase locally wherever it can, and rules our middlemen and deals directly with manufacturers/farmers to keep prices down. Walmart has enjoyed success foraying into different international markets such as China, Mexico etc. with the exception of Germany. Walmart has a history of gaining entry into an international market (outside the US) by taking over a national retailer. It is a strategy in three countries such as Canada, UK and Germany. Although the venture after acquiring Massmart provides a lot of opportunities for Walmart (as discussed earlier), it faces a few challenges as well. “Cultural and infrastructural barriers” can be expected to challenge Walmart, as it operates in one of the World’s poorest regions. (Bhaskaran 32). Moreover, the African countries generally have a weak security system as well as a lot of diversity which is challenging in its unique ways. However, Walmart is expected to bring its international experiences from countries such as Korea and India and implement them in Africa and overcome the hurdles. While many analysts fear that the pace of Walmart may be its failure, some analysts are more upbeat regarding the Retail giant’s foray into Africa. To conclude, I personally believe, after reviewing the case study in question that Walmart will be successful in its ventures in Africa. Massmart is strategically similar to Walmart in a lot of ways, especially its policy of keeping prices low for the customers, which fits in with Walmarts model of Every Day Low Prices (EDLP) (Bhaskaran 27). Walmart has past international experiences in various countries. Although they failed in Germany and Korea, I am sure with the vast resources at Walmart’s disposal I am sure they will successfully implement the lessons they have learnt from these debacles and move on to create a profitable venture in Africa, which will be mutually beneficial to all stakeholders of Walmart, Massmart, their employees as well as the African population in general, as Walmart has traditionally had a charitable mindset in its operating countries. Read More