Market entry plan for Walmart - Essay Example

? MARKET ENTRY PLAN FOR WALMART March 18, I. INTRODUCTION By definition, a market expansion strategy is a growth strategy in which an organization targets existing products to a new market. This is what exactly Walmart aims to do with its market entry plans for Australia. Considered to be one of US’ greatest retail success stories, Walmart was founded in 1962 by Sam Walton. Over the years, it has expanded to become one the US’ largest chain of retail stores, growing into almost 300 stores by the end of the 1970s, and now with over 10,000 stores globally (Walmart Corporate 2012). Its first foray into the international market was in the early 90s, when it entered into a joint venture with Mexico’s largest retailer Cifra to operate Sam’s Club. This move was to be considered its most successful entry into foreign trade, having conquered the Mexican market and contributing approximately 30% of all food sales in the local market (Walmart in Mexico 2012). To date, it has not really matched its tremendous success in Mexico. Walmart now has global presence in Mexico, Germany, China and the United Kingdom, among others. It has 5,651 stores and approximately 780,000 associates in 26 countries outside the continental US (Walmart Corporate 2012). It has acquired stores, co-branded or actually brought the Walmart brands into these new locations. However, its market entry strategy has always been perceived as weak, primarily because the company has applied the same market entry strategies in majority of the locations it ventured into. Management failed to take into consider the idiosyncrasies of each country that the company has tried to penetrate, and understand the unique market needs within each culture and social setup per location (This is not America. Why Walmart left Germany 2012). In fact, Walmart was even described as among the several retailers that have “underestimated the role of conducting cultural due diligence prior to foreign market entry”, resulting to massive pullouts in strategic locations such as Germany and South Korea, and losing of billions of dollars in the process (Retail Internationalization 2012). Taking into consideration historical hits and misses in global market penetration, this paper aims to discuss and recommend appropriate market entry strategies to ensure that the company’s next international venture will promise more success than failure. II. MARKET ENTRY STRATEGY Australia is considered to be one of the strongest economies in the world. The country has been highly praised by various international organizations like the International Monetary Fund (IMF) for its ‘brilliant macroeconomic management and consistent economic reform’. The Australian government has created a stable and strong base for economic growth. Its current GDP growth rate is 3.8% with an inflation rate of 2.5%. It is considered to be the second easiest economy for new businessmen and the third easiest place to get credit for a business, and has few restrictions in the field of Trade and Investment (Australia Business and Economy 2012). Australia has a reliable banking system and has fast and friendly regulatory procedures. It is known for having little restriction of product markets. This country is best fit as venue for global expansion as far as Walmart is concerned. Walmart entered various locations through several entry strategies. The company entered the Mexican market through a 50-50 joint venture with Cifra, Mexico’s strongest retail company. It counted on home grown Cifra to provide operational expertise, something that is needed by Walmart considering the cultural difference between the two countries, and the economic and political situation of Mexico. This bold move to partner with a local company proved to be highly successful for Walmart considering that this is their most successful foreign partnership to date. In Canada, Walmart acquired local company Woolco to be able to penetrate the Canadian market. This decision is brought about by the fact that the Canadian market is not foreign to Walmart. Spending habits among Americans and Canadians are relatively similar, and the political situations are somewhat similar. Walmart does not need any new market orientation, nor did they find it necessary to impose their presence in the area considering that Canada is already saturated by several retail companies, each successful in their own rights. Walmart enforces a Joint Venture strategy in most territories, with variations on the percentage of ownership, a sample of which is its entry in Brazil, where it partnered 60-40 with a local company, with Walmart at majority stake. For other territories such as Argentina, the company entered in the form of a wholly owned subsidiary, basing from the fact that the market size is very limited compared to the other territories. (Taking Walmart Global 2012). By entering into wholly-owned subsidiary arrangement, it was able to create the handle operational challenges such that the subsidiary provided the necessary support prior to the launch (Wholly Owned Subsidiary Pros and Cons 2012). It opened its first store in Buenos Aires fighting protests of local suppliers against Walmart’s campaign for much lower prices. The market was not ready for such strategy at that time (Walmart Goes to Argentina 2012). It took a long time for the company to gain its footing. Each market entry strategy has its own pros and cons, and may be applicable only in certain locations. For the Australian market, the Walmart management is leaning towards another Joint Venture approach, looking at equal terms partnership with Australian brand Ritchies Supermarket, to introduce and pilot a Sam’s Club at Sydney. Taking off from its strategy that helped the company penetrate Mexico, being in partnership with a well-established company will help the Walmart Management in establishing its presence in the Australian Market. Ritchies Supermarket Inc is one of the largest supermarket chains in Australia, having been in the market for 150 years now. They operate 36 stores all over the country, and are also known for promoting value for money. Ritchies is 100% Australia owned and operated, and has the edge when it comes to market knowledge. Basing on their success, they can gauge which is applicable and unique to the Australian market. They can also position Sam’s Club in Australia without having to compromise their current market standing. Walmart can capitalize on this advantage. III. MARKETING MIX – ADAPTATION OR STANDARDISATION OF EACH ELEMENT Standardization takes place when a company offers a product which is undifferentiated between any of the markets to which it is being offered. However, Walmart must recognize that there are barriers to this standardization. For example, product offerings are determined by tastes and habits that differ between markets (Marketing Theory 2012). One product may not be as marketable in one place compared to another. Cultural differences affect consumer decisions and reactions towards new product offerings. What clicked in the US may not be as marketable in Australia. Price-wise, consumers across various locations belong to different income brackets. On a larger scale, economies greatly vary and the spending power of a particular group is not applicable across all countries. Even the market profile and economic structure vary in each country. To address this challenge, Walmart should review existing brands and see if they are applicable to the new market. Management must also undertake market research to identify which product is the Australian’s top of mind, to determine how to make them switch to new introductions, if any. As far as distribution is concerned, there are various channels and methods to be considered. For retail companies, establishing the most appropriate distribution strategies is a major key to success. More exclusive and higher service distribution will generally entail less intensity and lesser reach. Considerations between costs and speed of delivery and intensity must also be considered (Channels of Distribution 2012). These factors affect the choice of channel that Walmart will implement in Australia. Retailing, being its main business will still be top of mind. But along the way, other channels will be distributed to ensure market saturation. Promotions-wise, it is to be considered that consumers’ media habits vary as well. Upon Walmart’s entry to the Australian market, it should understand the effectiveness of various media channels available. The Australian market may not be as tri media heavy as the US, and as such, other advertising medium is recommended. With Walmart’s recent move to reevaluate its advertising strategies in order to get the customers purchase merchandise other than food, media efforts specific to Australia must also be aligned (Walmart reviews advertising strategy 2012). While the main product offering are fast moving consumer goods, other product lines such as apparels must also get a considerable share in the company’s advertising efforts. There also has to be adequate attention given to private labeling. For example, Walmart has always highlighted what they call the World Table Line, an upscale line of snacks and meals that have some sort of a “foreign” or global focus (What’s in store this week 2012). In the US, the Walmart branding is discretely located at the back of the packaging. This strategy might also work in Australia, so as not to alienate other local brands in the shelves. Every culture is identified in terms of language, being a vehicle of culture. These languages affect consumer behavior. To make consumer accept particular products, language is used to communicate the benefits of the product. Advertising, personal selling, sales promotion and publicity are implemented and conveyed by the use of language, and it is important to be able to communicate in the language that the market knows. Such language mastery applies to marketing and advertising strategies to be implemented in the new location. And this is one of the essential considerations for marketing strategies to succeed. IV. SUGGESTED ORGANIZATIONAL STRUCTURE FOR MANAGING THE INTERNATIONAL OPERATIONS Organizational structure is the fundamental design of a company. A company's structure establishes lines of authority and decision making while describing where employees from different functional groups are located within the company. Organizational structure takes on an added level of complexity in international businesses, as employees from vastly different cultures, performing completely different tasks, are all part of the same organization (Variables to consider when designing an organizational structure for an international organization 2012). Several factors have to be considered, but what is important is that it should be able to address location and proximity issues to ensure that operations are being implemented smoothly. Despite being a worldwide brand, Walmart has employed various entry strategies in local markets, and has since adapted various operational models in the interest of business. For its Australian operations, Walmart shall be lead by a Country Head whose task is to oversee the company’s operations in Australia and is responsible for every business decision, including marketing and distribution strategies, partner and supplier alliances, administrative operations and human resource management. He reports to Walmart’s CEO and will be stationed at the Australian Headquarters. He is expected to carry out the role as the main guardian of Walmart’s Australian arm, and to bring the mandated sales volume to the company. There will be division heads with each having particular functions and roles: 1. The Business Development Head is responsible for the acquisition and expansion of sales channels, including new locations and partnerships, dealership and sub retailerships if any. He will negotiate for new locations in other areas of Australia and ensure that the roll out of branches is in synchrony with other pertinent offices both in the local and head office. Under this team are category managers ensuring the availability of the best and most in demand products in the market. These managers work with manufacturers and distributors in coming up with appropriate marketing and sales programs, product sampling and promotions to achieve the sales targets. 2. The Marketing Head is responsible for conceptualizing and implementing marketing programs to enable the stores to meet their targets. He will deal with local media partners; tie up with suppliers and manufacturers for promotional activities that aim to boost sales. He will also coordinate with local ad agencies and ensure that all advertising efforts are in well synchronized with head office mandates and guidelines. 3. The Purchasing Head is the one who touches base with local vendors, suppliers and distributors. He ensures that the supply chain is managed very well, and that the company gets the best deals from manufacturers and producers. He also monitors the inventory levels of the retail stores, ensuring zero wastage and efficient inventory monitoring system is in place. Inventory plays a vital role in the retail business because it also determines good cash flow and availability of goods in the shelves. 4. The Logistics Head is in tandem with the Operations head in the planning and execution of all logistic plans and movements within the retail stores. He monitors deliveries, manages the transportation systems of the company. 5. The Operations Head is in charge of the daily operations of the stores, ensuring that policies are being followed and implemented. He and his team take care of daily overall operations. 6. The Human Resources Head is responsible for getting the best manpower pool for the stores, and for the back office as well. He and his team will train the front liners and store personnel so that they will be able to internalize the company’s vision mission. Human Resource is essentially one of the best tools for a company to succeed. A reliable and hardworking team result to a successful business venture. 7. The Administrative and Treasury Head is primarily responsible in financial and administrative management, providing support in all aspects of the business when needed. He will oversee the financials of the company and manage cash flow and accounting entries as well. He and his team will also ensure that equipments are in their best condition, insurance coverage is updated and that all necessary items to support the stores’ operations are well taken cared of. Under each division is a team of well trained employees who will be tasked to collectively work to reach the company’s mission vision for this new location. The HR department is tasked to build up the corporate spirit to enhance employee performance. This management approach focuses on establishing a new communication system that features a high level of employee involvement. The organizational structure is very dynamic and flexible and will adapt to future industry changes. But the one thing constant is that designated leaders must have a shared vision and is capable of communicating with all members of the team their plans to reach this vision. International businesses must be organized so that they can cope with cultural and environmental differences. Instead of adapting the organizational structure of its mother location, international ventures must be organizes in such a way that it is ready to be responsive to foreign customers, employees and suppliers. Walmart has to undergo three major stages prior to the deployment of its operations in Australia: the Pre-International Stage, the International Division Stage and the Global Structure Stage. (Functions of the International Manager 2012). In each stage, management has to plan, build and develop the organization, slowly transforming the team from its pre deployment stage to the organization that is deemed to be adaptable to the global demands of the business. Essentially, throughout these stages, higher management should emphasize on the each team members’ importance in making the global entry successful. To complete the staffing requirements, the Human Resource team must make the best out of hiring local employees. Local hires are more cost efficient and their market knowledge level is essential for the business. V. LOGISTICS AND SUPPLY CHAIN Global Supply Chain Management is essentially managing the logistical aspects of the business to ensure continuity and inventory level efficiency. Business owners and managers spend considerable time on the concept because it provides a competitive edge in a business (Handbook of Global Supply Management 2012). On top of product or service strength, companies now compete in terms of industrial advancements reflected in efficient handling of inventory and logistics management. For retailers, this is actually the very essence to their operations. A supply chain is essentially made up of several elements that are co dependent with each other. The six main areas for consideration are as follows: customer, planning, purchasing, inventory, production and transportation (Introduction to Supply Chain Management 2012). Customer requirements and demands are what triggers supply chain management. Without the customer, there will no reason to operate. He starts the chain of events by deciding to purchase a product being offered by the supermarket. Product and inventory planning comes next when the retail management sources supplies for the products in demand. He determines the best quality at the best price, delivery and logistical considerations compared to the total income to be derived from the process. Once he decides on this, he proceeds to purchase the supplies from the chosen provider. Inventory management comes in as the company has to ensure sufficiency in the warehouse. The inventory manager shall ensure zero spoilage and spillage in the areas, and thus levels must be determined in all aspects. Potential company losses may be incurred if inventory levels are not managed. Production and Transportation are two other factors to be considered. Walmart’s decades of successful operations and expansion are the biggest proof of its ability to implement an efficient Logistics and Supply Management Chain. Their supply chain was closely integrated with its retail and information systems strategies and has been developed incrementally over the last decades (Supply Chain Management at Walmart 2012). In fact, this is the very same factor that created the brand and propelled the business into success. Walmart’s supply chain model is one of the most copied in the world, not just among supermarket retailers but among manufacturers as well. The current setup is that Walmart purchases approximately 80% of its supplies from manufacturers, and the rest from distributors and 3rd party providers. There are four global merchandising centers that are overseeing the purchasing processes for Walmart stores in 15 countries; resulting to consolidation of sourcing across boundaries (Walmart squeezes costs from Supply Chain 2012). This multi-layered distribution system is considered to be Walmart’s expertise. The effect of this strategy is a decrease in logistics costs, especially in their overseas and offshore locations. According to Walmart, logistics improvements helped boost its gross profit 25.2% in the third quarter of 2010. Being the company’s obvious strength, this logistics and supply management system shall be adapted in Australia as well. Most of its offerings are to be sourced from local manufacturers and distributorship, also in order to show support to local trade and commerce. The management will acquire warehouses in places strategic to current and future locations, and will outsource a logistics management company to handle freight forwarding and deliveries to the locations. Inventory levels are monitored per category, with a dedicated category manager to ensure sufficient stocks on hand. Category managers are assigned to micro manage the products. Efficiency in carefully stocking the storage areas, capped with strong distributor relations and product knowledge, will be Walmart’s key to success in its Australian operations. Reference “Australia Business and Economy.” Australia on Net. Retrieved March 18, 2012 from http://www.australiaonnet.com/economy-business/ “Channels of Distribution”. USC Marshall. Retrieved March 19, 2012 from http://www.consumerpsychologist.com/distribution.html “Functions of the International Manager”. Cliff Notes. Retrieved March 19, 2012 from http://www.cliffsnotes.com/study_guide/Functions-of-the-International-Manager.topicArticleId-8944,articleId-8938.html “International”. Walmart Corporate. Retrieved March 18, 2012 from http://walmartstores.com/aboutus/297.aspx “Introduction to Supply Chain Management 2012.” Retrieved from http://logistics.about.com/od/supplychainintroduction/a/into_scm.htm “Handbook of Global Supply Management”. 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