Walmart Expansion in Africa - Case Study Example

Walmart Expansion in Africa: A New Exploration Strategy Case Case Summary Walmart is a leading retail corporation that has gained international exposure through subsidiaries and joint ventures in many countries. The company has managed to acquire a large market share both locally and internationally through its marketing strategy, EDLP (Everyday Low Price). The company has been able to offer a variety of groceries and product under the same roof, which has become an attractive feature to its customer. Walmart first made their international operations in Korea, Japan, and Germany. Walmart later extended its operations to South America and China which boosted their total revenue to a considerable level. In countries such as Japan, the operations failed because of the different consumer’s behaviors which made Walmart seize the operations. Despite the failures the company encountered, Walmart managed to penetrate into fifteen countries and had revenue of 405 billion dollars in 2010. Walmart was interested in entering into the African market, as many African countries had shown a rational growth. Walmart acquires 51 percent of Massmart, which was a leading retail corporation in South Africa. Walmart international growth and experience Wal-Mart began to focus on Africa when other markets that provided good growth were still closed to foreign investors. Walmart is a retail giant in US, which has attained experience through subsidiaries and joint ventures in many nations such as China, Mexico, Canada and Argentina. Walmart has been successful in attracting consumers extensively through it policy “Everyday Low Price”. It has also been successful as it encourages its customer to return goods purchased but later they are found to be defective. Walmart can also be said to be flourishing, as its operations are customer oriented. Customers are persuaded to buy goods in bulk at a low price compared to the prices of their competitors. Walmart provided a wide range groceries and products, which attracted many customers as they shop under the same roof. Walmart has learned numerous customer behaviors through their trading in Germany and Japan. When they were trading in Japan, they discovered that the Japanese perceive goods with low prices as low-quality products. The Chinese and South America experiences boosted the international income to a healthy level due to the policy of everyday low price. Walmart was able to adapt to the local cultures, hiring local employees and acquiring most of its stock locally. Recently Walmart has shown some interest in entering the African continent, where there are many countries showing significant economic growth. Walmart have foreseen an increased level consumption through the acquirement of Massmart a leading retail in South Africa with 288 stores. The African economy has a growth rate of over five percent. Most of the African countries are rich in mineral resource and agricultural materials (Berg & Roberts, 2013). As Walmart continued in experimenting new marketing strategies to gain a significant market share overseas, it also continued with more business expansion. During the 1990s, Walmart had moved to Germany, UK and Korea to set up in new markets and attain a large market share. Walmart’s low price strategy was a success in UK but failed in Korea and Germany. The Germany and Korean markets were full of discounters, and people did not want to try the American business style. Customers refused to travel long distances to shop at the Walmart stores. Also, people from Korea and Germany were not satisfied with the America style of customer service. Walmart was not able to understand the consumer behavior in these markets and opted to withdraw from the two markets because of the enormous losses it incurred in 2006. In Japan, Walmart faced some survival challenges since it entered the market in 2002. The Japanese found the low price strategy unattractive as they linked it to low quality. With the continued challenges overseas, Walmart decided to enter the Indian market and had a joint venture with Bharti Company in the year 2007. However, Walmart faced some restrictions on foreign investment in a multi-branding trade. Wal-Mart’s growth in India was slow as it was unable to sell directly to consumers. Regardless of the slow progress and the failure in some markets, Wal-Mart’s international businesses were anticipated to generate a profit of approximately fourteen billion dollars with a sales turnover of $405 billion in 2010. It managed to have over 8500 outlets with fifty-five different names in fifteen nations (Berg & Roberts, 2013). The growth strategies of Massmart in the African continent Massmart is a prominent retailer of general merchandise, which was started in 1990. It main aim was to carry out wholesale and retail distribution of the consumer- branded goods in South Africa for cash. The group carried out its operations successfully, and it was quoted on the Johannesburg Stock Exchange. For some decades, with its well-established business strategies and models the group controlled nine retail and wholesale chains in fourteen countries in Africa. The main operating groups of Massmart were Mass warehouse, Mass Discounters, Mass cash, and Mass build. Mass build dealt with building materials and home renovating equipment while Mass cash was worked as a food wholesaler. Mass warehouse operated by warehouse clubs and Massdiscounters worked as general merchandise discounter. Massmart business model went on the low margin, high volume and low-cost distribution of consumer branded goods. The group successfully attained a third position in the distribution of consumer goods in Africa. Through its business approach, the group had sanctioned its extent to make decisions depending on their operating needs. Massmart ensured that its trade decisions were within the guidelines and policies set by the group. Decentralized decisions contributed to the business growth while the group’s primary policy was executed all over the network (Foscht, Morschett, & Klein, 2014). To increase its top class consumer service, Massmart consistently paid attention to improving their customer service through enhanced innovations in technology. The company operated in 288 nations across Africa, and it generated net sales of 47451 million Rands in 2010. The key sale drivers increased consumer confidence, disposable income, opening of more stores and product availability. The South African business amounted to 92 percent of the total sales. Massmart was confident that its business strategy of low prices was vital for its business. The company was focusing on lowering its operating cost. In a period of three years, the group had intended to develop their supply chain and open several classified products. It planned to append new format stores and increase their product variety in clothing, pharmacy, and furniture. The company believed that their continuous investments would ensure business growth in the future. Walmart acquisition of Massmart and the expected strategic advantages Walmart, the world’s biggest corporation, started attaining ground in the in foreign countries markets in early 21st century. Walmart started experiencing low sales in United States in 2009. In 2010, its sales in US were 258 million dollars that were 1 percent higher compared to the previous years. To keep its overall turnover high and sustained growth, Walmart decided to focus on a worldwide business expansion. Its international business operation generated reasonable profit although at a slow pace. However, the company operation failed in Korea and Germany as they had different consumer behavior. The company’s (Walmart) representative said the company’s international business amounted to about 25 percent of their total income. Developing economies such as China chose Walmart as the best option for its business strategy. Africa had started gaining the admiration of leading companies due to its high economic growth that was prevailing. The report showed that the African population was growing rapidly in 2009, and its average growth was approximately by 4.8 percent annually. The middle-income class was also rising, which is increased their purchasing power, and, therefore, increased demand for food and other products. Walmart chose Massmart, a retail giant in the African continent as a subsidiary. Walmart decided to acquire Massmart for a consideration of four billion dollars. Massmart proved to have 263 stores in South Africa and twenty-five stores in other African nations. Massmart had reported net sales 6.7 billion dollars from both the local sales and from other African countries. Walmart had believed that by acquiring Massmart, they would have access to sub-Saharan where there was increased rate of business expansion. Whereas Walmart’s deal with Massmart was a way towards growth, labor unions were afraid of losing jobs and their rights. They were afraid that the American trader would disrespect the labor unions in Africa. Walmart confirmed that they were ready to give due respect to the African contracts and labor unions. Shareholders were also worried about Massmart quotation on the Johannesburg Stock Exchange. Massmart and Walmart decided to finalize their deal for a consideration of 2.32 billion dollars for a shareholding of 51 percent. The deal did not influence the labor unions and shareholders. The agreement allowed Walmart to gain access to the African market as agreed. Walmart acquisition of Massmart pleased all the stakeholders- Walmart, Massmart shareholders, labor unions and Africa government (Bhaskaran, 2011). The challenges Walmart will have to face in the African continent The massive growth in African economy offered an opportunity to the retailers. Walmart success was dependent of the lessons learned from the overseas operations. Massmart had paid attention to efficient operations and low prices. This strategy well fitted in Wal-Mart’s business plan. Massmart technical expertise well favored Walmart in gaining suitable markets in Africa. Despite the many opportunities that Walmart was exposed to, it was faced with challenges of management. Walmart was likely to be faced with infrastructural and cultural barriers. African countries are known to have weak security and inadequate legal system. Since the continent is full of diverse cultures, laws, and regulation, Walmart growth might be slow. There was a spreading doubt whether Walmart was going to benefit from the deal as anticipated (Delloite, 2011). Walmart operations after taking a 51% share in Massmart in 2011 Since the acquisition of 51 percent in Massmart, Walmart has established new international suppliers where the company sources most of their products. The significant purchasing power of Walmart will probably increase, as they will purchase in discounts. After the acquisition, Walmart Company was able to introduce new products in South Africa, which increased the company’s revenue, However, the acquisition of Massmart company in South Africa posed some management challenges has the company had grown bigger. The follow of communication was challenging for the enterprise, hence more challenges. Conclusion In conclusion, Walmart is a retail giant in US, which has attained experience through subsidiaries and joint ventures in many nations such as China, Mexico, Canada and Argentina. The group carried out its operations successfully, and it was quoted on the Johannesburg Stock Exchange. Walmart provided a wide range groceries and products, which attracted many customers as they shop under the same roof. Massmart is a prominent retailer of general merchandise, which was started in 1990. It main aim was to carry out wholesale and retail distribution of the consumer- branded goods in South Africa for cash. Walmart, the world’s biggest corporation, started attaining ground in the in foreign countries markets in early 21st century. Massmart and Walmart decided to finalize their deal for a consideration of 2.32 billion dollars for a shareholding of 51 percent. Walmart Company was able to introduce new products in South Africa, which increased the company’s revenue, References Berg, N., & Roberts, B. (2013). Walmart: Key Insights and Practical Lessons from the World Largest Retailer. New York: Kogan Page Publishers. Bhaskaran, S. (2011). Walmarts Expansion In Africa: A New Exploration Strategy. New York: Amity Research Centre. Deloitte. (2011, Jully 11). Will Walmart acquisition of 51% of Massmart Benefit the Ordinary South Africans. Retrieved from Deloitte: https://deloittesa.files.wordpress.com/2011/07/bzi_gro_glb_ho_876_hi2.jpg Foscht, T., Morschett, D., & Klein, H. (2014). European Retail Research: 2013, Volume 27, Issue 2. New York: Springer. Read More