Wal-Mart Global International Markets - Case Study Example

Wal-Mart – Global International Markets Introduction The international economy during the last fifty years has developed beyond the bounds. Business firms from various countries around the globe have successfully accomplished their goals through international and multinational strategies. The only tough time face by the firms was during the 1990s when the business environment had to meet a number of challenges to attain an established way of doing business. The significance of international marketing is realized by all the firms and they try to take advantage of the upshots of the global market. According to Wensley, global strategic market is “initiating, negotiating, and managing acceptable exchange relationships with key interests groups or constituencies, in the pursuit of sustainable competitive advantage within specific markets, on the basis of long run consumer, channel and other stakeholder franchise” (Wensley, 1982). The Wal-Mart Wal-Mart is one of the largest retail stores chain in the world and was established in 1962. On the basis of the strategic perspective, the Wal-Mart is structured into three main segments namely, Wal-Mart United States, Sam’s Club and Wal-Mart International. According to the statistical report of the company, in 2011, the Wal-Mart’s revenues constitute up to about three-fifth of the United States market. The web portal, Wal-Mart.com also contributes heavily to the total turnover of the company, constituting nearly 8% of the total revue through online retail operations (Wal-Mart 2011). Today, the company operates their business in over 15 countries, accounting for 25% of their net sales. Their selling policy includes promotion techniques of discounting outlets, restaurants, superstores, retail stores and multiple formats of outlets, to gain the maximum satisfaction of their customers especially in countries like China and Japan. The retail and online operations of the Sam’s club contributes about 10.5% in terms of annual revenues to the company. Moreover, the company holds the top position for employing over 2.1 million people, which remains bigger than all other major retailers (Carrefour, Tesco and Metro AG) put together (Wal-Mart 2009).Besides, the company functions nearly 3000 superstores, 720 discount outlets, and more than 600 Sam’s Club outlets in the United States. Globalization of Markets Globalization of Markets refers to the integration of national markets into one large global marketplace. Today international trade has become much easier as the hurdles of crossing the borders for trade is eradicated. All companies like to offer a standard product worldwide. However, there are considerable variances existing among each market such as, consumer tastes and preferences, cultural variations, and legal regulations. Such variations in the international market make a company to adopt strategies that may match with the conditions of a country’s market. Wall-Mart may still require diversifying their products across each country according the local tastes and preferences. Globalization of production The term globalization of production is associated with sourcing of goods and services from various locations across the globe while taking advantage of the variations in cost and quality of factors of production across the regions. Here, Wal-Mart operates over 4200 outlets in the global markets and which constitutes a quarter of its annual revenues. Its efficiently running primary retailer markets like Mexico and Canada enhance a fast market expansion across South America, Africa and Asia (Wal-Mart 2009). Driving Forces There are various drivers of globalization in the global marketplace. When a company becomes subject to these forces, they practically become candidates for globalization. The major driving forces of globalization are; technological advances, global economic growth, converging market needs and wants, pressure to improve quality, opportunities for leverage, pressure to cut costs, and advancements in communication and transportation technologies. Technological Forces Technology is considered to be a universal factor which expands beyond national and cultural boundaries. Emergence of globalization enabled Wal-Mart in standardizing its products through these technological advancements. Overlap of advertising across the national boundaries enabled the company to effectively reach more customers overcoming the cultural and social barricades (Wal-Mart 2009). Improvement in Transportation and Communication Over the past fifty years, the time and cost barricades related with distance have been dropped enormously. One of the significant characteristics of globalization of business is face-to-face communication between the management and employees and towards its customers too. Revolutions in the transportation and communication technology have enabled Wal-Mart for effectively centralizing their products in the global markets all over the world. Quality of Products A company doing business in the international markets may have to spend 5 percent of sales on research and development to make sure that the quality of products meets the consumer requirements. Global marketing strategies have the potential to raise greater revenues and greater profitability, which in turn helps improving the manufacturing quality. When a company operating in the international market sets a benchmark in quality; and all other competing firms must keep up the pace in improving their quality. Wal-Mart is seen spending 5-10 percent of their sales for research and developments on quality management (Wal-Mart 2009). Global economic growth Global economic growth has been a driving force as it created opportunities for the companies to grow globally. Developing countries are often the growing markets and it puts forward an opportunity for everyone to invest. Taking the global economic growth and its advantages into consideration, Wal-Mart formulates strategic plan for entering into newer markets where they think they can flourish. Leverage A global company possesses the advantages of enjoying the opportunity for developing leverage. The term simply refers to a kind of advantage that a company possesses only because it operates in more than one country. Wal-Mart indeed has the greatest opportunity for leverage as it has been operating in more than 15 countries, and the company has been utilizing this advantage at its best (Wal-Mart 2011). The globalization of the economy has brought the international market into a concise form of a global village. The survival and success in the global market has become a hard-hitting objective for international firms. And Wal-Mart takes quite diverse market entry strategies to sustain their brand value in the international markets while moving on to newer markets. The Economic Environment The growth and development of global economy is rooted back many hundreds of years when traders from the east and west came together to exchange goods. Economic factors are some of the uncontrollable aspects that must be considered by the marketers while entering the global economy. Wal-Mart had to face a tough battle in the Korean market, as it was already a mature market and had very little room for Wal-Mart to grow. Emart was dominating the market and so the company could not withstand, and finally it had to sell all of its Korean ventures in order not to bear further losses in operating there. Markets fluctuate widely in their size and state of development across the world. A global company must classify these markets into rich or poor, and developed or developing in order to ease the analysis of the market. The company must be conscious of evaluating market potentials while taking a decision on whether a country is suitable and can open trade negotiations. According to the economic condition of each market, Wal-Mart adopted different strategies that suited best to the market conditions. For instance, while entering the Mexican market, the company chose an equally proportioned joint venture with a leading local retailer; it was later on took over by Wal-Mart conferring Wal-Mart the leading position in the market. Socio-cultural Environment Social and cultural elements of a society are the basic factors that form a society. In other words, a culture is the essence of a society. Culture is the most incomprehensible element of the environmental uncontrollable. According to Food and Agricultural Organization of the United Nations (1997), some products and services are cultural bound which are generally indigenous in nature and are cheap and locally available. This is especially evident in the cases of food stuffs. On the other hand, products that are more of a technical nature like computers and other electronic gadgets always have universal appeal. Moreover, from the recent upshots in the communication and transport technology has contributed in finding a world market niche for even the most culture bound products and services (FAO, 1997). The study of cultural element is related with many forms such as, anthropological approach, diffusion theory, high and low context culture and perception approaches. Moreover, culture itself is made up of various characteristics like, education, aesthetics, religion, attitudes and values. An effective evaluation of the culture enables the marketers in making and executing decisions with possible overwhelming results. The international business operations of Wal-Mart have been facing many other cultural challenges and conflicts. Cultural challenges such as, Power Distance, which stands for the unequal distribution of power in society, affected the Wal-Mart’s business expansion plans in countries like Malaysia and Mexico where older generations are given greater respect in a traditional way. However, Wal-Mart was able to find out ways to tackle down the cultural impacts on the global business. The firm has been managing its cultural challenges throughout the years in various countries, making the maximum use of their long years of experience in the international market. Political and Legal Forces The legal and political elements are most important variables in the global market. International law consists of the basic rules, regulations, policies and principles that countries must bind upon themselves while moving on to the international business. As noted by Food and Agricultural Organization of the United Nations (1997), one of the two facts about the international law is that international law only remains to the degree that individuals and nations are willing to relinquish their rights; and the second fact concentrates on a company’s necessity for adequate international judicial and administrative framework or a body of law that would constitute basis for a truly comprehensive international legal system (FAO, 1997). In the same way, the international business market is also viable to the political decrees implemented by the government both in home and host countries. The political pressures of the home government may force a company not to deal with disapproved parties. Such measures of the government may withhold granting export license or cancel the existing export guarantee cover. Likewise, the political influence of the host country may take additional steps to control the business of global companies through taxation, ownership controls, expropriation, etc. At such conditions, the Wal-Mart’s implemented strategies in Mexico and China were greatly successful and markets seemed highly manageable for the company. On the other hand, the company faced hard times while implementing the strategies in the German and Korean markets and ultimately had to withdraw from the markets due to poorly executed strategies and failure in understanding, and political and legal forces of both markets. Evidently, the political and legal environment plays one of the most important roles in the global market as they are related to regulations on permissible and non permissible forms of cooperation and completion, which act as the major challenges to the businessmen in the international market while trying to go across the national border. The most important elements of the political and legal environment of the global market includes individual country policies, terms of access, tariff and non tariff barriers, and rules and regulations related to standards of quality and quantity. These elements are of great significance and so that Wal-Mart has always been careful in seeking expert help to deal with them. The company has taken into account the new GATT Round, put into effect by the newly constituted World Trade Organization, the agreement which is expected to have a great impact on the global trade and to create a boost up in the international economy. The company once already had faced a difficult situation when they tied up a joint venture with one of the distinguished Thai retailers on their way to enter into the Hong Kong markets. Hong Kong was actually a compact market where the company failed in recognizing it. The company had no experience in the Asian markets and in the legal and political conditions of those markets. Therefore the business seemed gradually diminishing and ultimately affected accessibility to its stores. Finally, the company had to close its three outlets in the country as the store locations were inconvenient to reach. Physical and Environmental Forces Environmental forces have become a matter of constant discussions in the international business scenario. Environmental forces have a great impact on the global market as it directly affects the business operations on the host country. The major environmental force that affects the business is geographical size of the country in which the company operates its business. In the same way, the topographical and climatic challenges have a great impact on the overall performance in a foreign country. Wal-Mart made use of the advantage of environmental forces of global marketing by setting up outlets in Canada in order to leverage local purchasing power, local economies of scale, and to make use of the local logistics to the best extent possible (Wal-Mart 2009). Even though there were some early failures relating to determining the correct product mix and recognizing the local customer preferences, the company restored to health such deficiencies quickly to bring a better profitability to the firm. Moreover, the element that affects all sorts of business firms is the gift of natural resources. The company can sustain a desired profitability if only it can effectively utilize the available natural resources. In order to effectively managing the globalization effects while entering into new markets, Wal-Mart initiates joint ventures and acquisitions as best choices to sustain profitability in their operations. The ultimate objective is to function as a fully owned subsidiary and to carry out its operations through a centralized network of sourcing and distribution to manage most of the markets. The management thinks that a centralized organizational structure different from other major opponents like Carrefour can enhance the store managers’ autonomy. Together with taking the advantages of globalization, Wal-Mart focuses on going beyond relying just on simple local economies of scale into concentrating on growing niche localized strategies for each particular market. For instance, Wal-Mart understood that the Chinese consumers like fresh meat, and so the local sourcing would be much more practicable than the centralized system. Moreover, a centralized distribution structure would eliminate any kind of added value to the customer. Besides, the company also understands the importance of heterogeneity with regard to what the customers choose to purchase. Despite the knowledge, the company still seems to depend heavily on its centralized decision framework that does not provide any room for autonomy to local store managers. Wal-Mart must concentrate on the element of autonomy, as the centralized structure limits the firm’s ability to compete with smaller players and thereby restrain the growth in the global market. The autonomy factor is much more important in the Chinese and Indian markets and it becomes extremely necessary to constantly engage with the local administrative authorities. References FAO: Food and Agriculture Organization of the United Nations. (1997). Global Agricultural Marketing management. (Marketing and Agribusiness texts – 3). Rome: FAO 1997. Wensley J.R.C. (3 April/ June 1982). PIMS and BCG New Horizons. False Dawns Strategic Management Journal No. 3. Walmart: 2011 financial report. (2011). Walmart 2011 Annual Report, 1-58. Retrieved from http://walmartstores.com/sites/AnnualReport/2011/financials/2011_Financials.pdf Walmart: 2009 annual report. (2009). Wal-Mart Stores, Inc. 2009, 1-56. Retrieved from http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/wmt2009.pdf Read More