Walmart Expansion in Africa: a New Exploration Strategy - Coursework Example

Walmart’s Expansion in Africa: A New Exploration Strategy Detail the growth of Walmart and its international experience Walmart is the international retailed giant that was founded in the U.S. in 1962. After opening the first store, the network of the company has grown internationally in various regions of the world. However, before going globally, Walmart has ensured that its business model was viable not only on the American market but also on the foreign markets. The company’s strategy was to attract the consumers by offering them “Every Day Low Prices” and great customer experience (Bhaskaran 2011). Sam Walton, the founder of the company, put a lot of efforts to cultivate customer-centric corporate culture within the whole organization. Proper motivation of the employees and effective overall HR management strategy enable the company to become attractive for both customers and employees (Bhaskaran 2011). Another important aspect of the Walmart’s business model was its competitive advantage of working with manufacturers of the goods sold directly. Avoidance of different agents and resellers helped the company to keep the prices low, not undermining the quality of products (Bhaskaran 2011). Walmart was targeting many different groups of consumers and for this purpose there were presented different formats of the retail stores, including: Discount stores, Neighborhood Markets, Supercenters and Marketside (Bhaskaran 2011). Low pricing of the wide variety of products and goods encouraged American to make large purchases and thus enabled Walmart to build an efficient business model due to achieving of the economy of scales (Bhaskaran 2011). The first countries which Walmart targeted for international expansion were Canada, Mexico, Brazil and Argentina. Success in these countries was prominent, mainly due to the fact that retail management and customer’s behavior in these neighboring countries was not much different to the American (Bhaskaran 2011). Having gained some international experience on these markets, Walmart went to China for further business development opportunities. In order to enter this huge market, the company decided to form joint venture partnership with the local company (Bhaskaran 2011). Walamart has learned a lot of new lessons in China, and was forced to adjust its strategy to the local culture and Chinese management style in order to succeed. However, the company’s strategy did not succeed in Europe, mainly in Germany, and in Asia, in Korea. German and Korean consumer’s behavior was drastically different to the American and people were skeptically disposed to low pricing. In addition to the cultural barriers, Walmart has faced serious challenges related to the government regulation (Bhaskaran 2011). Business expansion to Japan in 2002 also turned to be less successful than it has been initially planned, as Walmart faced problems related to different consumer behavior and traditional distribution system (Bhaskaran 2011). In 2007 Wlamart went to India through the joint venture partnership with Bharti Group. The key problem in this location was impossibility to perform direct sales (Bhaskaran 2011). Through its international expansion Walmart has finished with obvious failures and learned valuable lessons that might be effectively used in its further business development activity in the African continent. Describe the growth strategies of Massmart in the African continent Massmart, the same as Walmart positioned itself on the market as a retailer of the general merchandise, however, operating on the African continent. The company was founded in 1990, by 2000 it became publicly listed company in the Johannesburg Stock Exchange, and by 2010 it was publicly recognized to be one of the leaders in the industry on the African continent. Such success was a result of effectively planned growth strategy rather than simple luck (Bhaskaran 2011). The same as Walmart, Massmart has developed and launched different business lines in order to target the different groups of customers and continuously increase their number. These four business lines or core operating groups included: 1. Massdisounters – offered general merchandise with discount pricing strategy 2. Masswarehouse – implied the concept of the warehouse clubs 3. Massbuild – offered building materials and other relevant equipment and supplies for home refurbishment 4. Masscash – implied the concept of wholesaler of food products (Bhaskaran 2011). The company followed diversification strategy (Moorad 2014) and was planning to expand its business by launching new lines. Massmart’s growth strategy was similar to the Walmart in terms of its pricing strategy, because both discounters have built their business models based on the following formula: “Low-cost distribution + low pricing strategy + low margin = high volume” (Bhaskaran 2011). It is necessary to note also that in addition to the low-cost distribution, the Massmart’s distribution system was decentralized, and this important feature allowed the company to be flexible within set corporate frames (Bhaskaran 2011). In this way, Massmart was enabled to respond quickly to operating needs of the stores, facilitate growth and to better satisfy the customer’s needs (Malone 2004). Combination of the decentralized decision making process with a strong and clearly set core corporate policy made a significant contribution to the Massmart’s growth. The same as Walmart, Massmart pursued excellent customer service and for achieving this objective company was continuously investing into technology (Bhaskaran 2011). Detail Walmart’s acquisition of Massmart and the expected strategic advantages The African continent was a very interesting market for Walmart mainly because of its economic growth and increase of population. Walmart’s core concept of Every Day Low Prices would be perfectly incorporated in this society, enabling the company to grow its international operations. As it has been discussed at the beginning, Walmart has faced many challenges and barriers while entering foreign markets and has learnt some valuable lessons on international business development. Obviously, taking all its experience and knowledge together, management has made a decision that the best way to enter the African continent would be through acquisition of the local retail giant – Massmart. By 2010, Massmart had a significant presence on the market – 288 stores in total, 263 in South Africa and 25 in other countries of the black continent (Bhaskaran 2011). These numbers indicated on the leading position of the Massmart, and Walmart expected to gain some strategic advantages out of the deal with Massmart. The case study revealed that the acquisition of Massmart would bring to Walmart a set of such strategic advantages, as: access to Sub-Saharan markets, conversion of the most serious competitor into partner, opportunity to enter the market more quickly and build on the existing business. First of all, acquisition of the Massmart allowed quicker and easier access to the Sub-Saharan markets, as Massmart already was effectively operating retail business and its stores were popular and recognized among the local population. By going its own way, Walmart would face fierce competition on the behalf of Massmart. In order to compete with it, Walmart would have to fight hard on both low-cost products and customer-centric service. By combining the resources and powers of both companies, Walmart might have expected guaranteed success of its international expansion strategy on the African continent. Analyse the challenges Walmart will have to face in the African continent Based on its international experience, Walmart would understand what challenges the company would have to face. However, every country is different and its business and social environment varies greatly. The African continent also created some serious challenges to the American company due to the variety of cultures in different countries. On the one hand, large concentration of different cultures provided the company an opportunity to increase its sales volumes through the diversification strategy; on the other hand, this diversity imposed challenge of adaptation to these cultures, compliance with local legislation and rules, etc. (Bhaskaran 2011). Some of the other challenges were common to many other countries with developing economies, and included the following: the opposition and concerns of the African government, labor unions, and Massmart shareholders (Bhaskaran 2011). While this challenge has been mitigated, the company was enforced to comply with certain limiting conditions that are briefly discussed in the following section. In addition to the government regulations and trade unions activities against Walmart, American retailer could have faced with the problem of weak security and poor legal systems (Bhaskaran 2011). These aspects are important during the assessment of external environment in foreign country and therefore could play negative role in the Walamart’s decision to enter the African market. Such challenges as lack of infrastructure and excessive bureaucracy also might have negatively resulted in the company’s business, especially it relates to the Walmart’s supply chain system and logistics (Moorad 2014). What happened to Walmart’s operations after taking a 51% share in Massmart in 2011? After the Walmart has acquired majority share of the Massmart in 2011, the company had to comply with a number of conditions, imposed as a result of deal. These conditions have significantly influenced on the Walmart’s operations in South Africa as implied a ban to lay-off staff during two years and enforce the company to create a 100m-rand fund to nurture local suppliers (Big boxes for Boks; Walmart in South Africa 2011). In addition to this, Walmart was not allowed to change the existing labour contracts and had to recognize the local South African Worker’s union as the main bargaining partner during 3 years after the acquisition (Big boxes for Boks; Walmart in South Africa 2011). Recently, the CEO of the Massmart, Grant Patisson, commented that after the acquisition “things went slower than expected in terms of their growth in South Africa and the rest of Africa” (Moorad 2014, n.p.). However, despite the above mentioned comment, Massmart has shown significant business growth during 2011-2014. Nowadays, Massmart’s presence is covered by 376 stores in 12 countries in Sub-Saharan region (Moorad 2014) comparing to 263 stores in 2011 (Bhaskaran 2011). The share of the Walmart’s international operations also has increased since 2011 from 25% to 30% of the revenue (Bhaskaran 2011; Walmart Annual Report 2013, 1). The company comments on these results as a consequence of being close to the customers and understanding their unique preferences (Walmart Annual Report 2013, 6). Mixture of locally tuned strategy and Walmart’s global sourcing capabilities is defined as a pillar of the company’s viability on the African continent. In result of the Massmart’s acquisition, retail giant has significantly improved purchasing practices, productivity in store operations, back office and logistics support functions (Walmart Annual Report 2013). References: Big boxes for Boks; Walmart in South Africa. (2011). The Economist, (8736). 75. Bhaskaran S. (2011). Case Study 7: Walmart’s Expansion in Africa: A new Exploration Strategy. AMITY, Research Centers Haedquarters, Bangalore, pp. 27-32. Malone, T. (2004). Making the Decision to Decentralize, Harvard Business School Press. Available at: http://hbswk.hbs.edu/archive/4020.html Moorad, R. (2014). Changing of the guard at retail giant Massmart. [online] Business Day Live. Available at: http://www.bdlive.co.za/business/retail/2014/04/14/changing-of-the-guard-at-retail-giant-massmart Walmart Annual Report (2013). Annual Report 2013. Available at: http://c46b2bcc0db5865f5a76-91c2ff8eba65983a1c33d367b8503d02.r78.cf2.rackcdn.com/88/2d/4fdf67184a359fdef07b1c3f4732/2013-annual-report-for-walmart-stores-inc_130221024708579502.pdf Read More