Abstract:
The case studies discuss in detail the challenges and opportunities that Walmart had to confront as a result of its expansion to other foreign markets. Walmart’s strategy in Mexico was highly successful. However, this isn’t true for all regions Walmart selected for global expansion. The company had to face cultural and economic challenges when it chose to enter other foreign markets. The company had limited resources and lack of experience. Thus it decided to expand sequentially. Walmart started from countries with similar business environments and then applied the experience learned to subsequent market expansion strategies.
Introduction
Walmart began its international business operations in 1991 from Mexico City. The company gained its name through Walmart International, which was first initiated in Mexico City. The company adopted a unique business model that offered its customers the lowest prices. The company believed in attracting more customers through its low pricing strategy. Walmart focused on cost leadership strategy. It focused on providing products at the lowest price to its customers to stay ahead of competitors. However, unfortunately, the cost leadership strategy didn’t work for all markets where Walmart decided to expand its operation. Walmart faced immense resistance from retailers in foreign markets. These retailers formed a monopoly to inhibit Walmart from becoming a market leader. The company decided to expand its business to China, the United Kingdom, Japan, and other foreign markets. The company faced hurdles in successfully running the business in Mexico, the United Kingdom, and China. The company faced resistance from local established retailers in developing a low-price model in the market. They were threatened by the new strategy as they believed that a low-pricing strategy would take away their customers. In Germany, Walmart couldn’t fit itself to the customers’ cultural needs, tastes, and preferences. It failed to establish its low pricing modal. The company owns several stores in Germany and South Korea, but unfortunately, the model didn’t work out. The company suffered when it tried expanding its business to other foreign markets. Resistance from established retailers, established monopolies, and the inability to satisfy the taste of consumers are among the main reasons why the company failed to expand its business in the local market. The company now has to think of new ways of adjusting itself to foreign market needs and preferences and to find a suitable strategy to successfully enter the foreign market without being resisted by established businesses.
Walmart
The company faced several challenges, from local market retailers to the inability to satisfy its customers. However, despite all these challenges, Walmart is among the fastest-growing businesses in the world. The company can establish its low-pricing model in about fourteen countries. The company has about four thousand and eighty-one stores spread across the globe. The company has six lakh and sixty-four thousand associated in fourteen countries across the globe. The company has expanded its business since its inception. The company bravely faced all challenges and became victorious in penetrating the foreign market. The trade unions of China confronted more challenges to Walmart. The government sided with trade unions and allowed unionization in a foreign company. Despite such pressure, the company was still ranked among the top ten companies in China that provide the best environment for workers to work. Walmart is not just a small business; now, it only sells low-priced items. The business has grown more rapidly than any other retail business offering the same pricing model. The company was able to earn $405 billion in 2010. Such huge revenue shows the success of the company in the local and foreign markets. Most of Walmart’s items are supplied by the Chinese market. China is among the closest trading partners. Getting supplies from China helps Walmart to maintain its low-pricing model. Walmart owns several stores, supermarket chains, neighborhood markets, and bodegas all around the world.
Walmart began its business in America. When the company decided to expand its operation to other foreign markets, it decided on a sequential approach. The company first decided to enter the European market. Later, it decided to enter the Asian market. The business environment of European markets, such as the United Kingdom, Germany, France, Canada, etc., was quite similar to the environment of the United States market. The company expanded its business to the European market first. In the European market, Walmart still had to face several obstacles to cross over before it decided to expand its operations there. Walmart faced a huge monopoly from established players. The European market was quite mature. Thus, it was difficult to enter into the European market. Despite challenges, the company was still able to establish itself successfully in European markets. Later, it decided to move on to the Asian market. The Asian market was different in terms of culture, and Walmart had to fit itself into a completely different culture. The company first established its business in China. China was an attractive market since most people living there had low purchasing power. This was quite advantageous for Walmart since low purchasing power depicted a bright future for a low-pricing business model. However, the company still had to face several challenges before it decided to set up its business in China. Walmart had to cover a long distance from America to the Chinese market. The Chinese market differs from the European market in terms of culture, geography, language, and taste.
The Walmart International was quite successful in Mexico. The company has superstores, bodegas, and retail stores inside Mexico City. Mexico City seemed to be a promising market. The company experienced a positive response from buyers in Mexico. The company opened ninety-three stores in Mexico. Later, the company owned about eight hundred and eighty-nine stores in Mexico. However, the company still aims to establish one hundred and twenty-five more stores in Mexico due to the positive response received by the company. Walmart received permission from the Mexican government to open its bank. Walmart particularly targeted individuals with low purchasing power. About seventy-five percent of the Mexican population did not have any bank account. This was because the Mexican banks offered huge fees and other charges. Walmart opened its bank in Mexico in 2007. The company now has several branches. Walmart took the same low-pricing model to its new financial business. The low pricing model allowed customers to have an account at low bank rates. The low pricing model confronted more challenges to established financial service providers that offered high bank charges. Through a low-pricing model, Walmart was able to penetrate the Mexican market, with most of the people belonging to low-income groups.
In 1998, Walmart entered Europe by establishing its business in Germany. The company established itself in Germany through the acquisition of a local hypermarket. The company was unaware of several challenges ahead in the German market. At first, the company had to face cultural differences. Many retail shops were already offering similar items at discounted prices. Walmart faced severe challenges in the German market and could not maintain its business. Thus, it withdrew its operations from the German market. Expansion to the United Kingdom was a huge success. In Japan, Walmart offers low-priced every day offers to customers in certain categories. This made the business a huge success in Japanese markets, where customers realized they could purchase high-quality items at low prices at Walmart stores. Walmart successfully expanded its business to Latin America and at the end of the Chile market. The company took advantage of the experiences it learned from expanding into German markets. The same experience was applied when Walmart decided to enter into the Latin America and Chile markets. The company aims to grow to maximize its shareholder wealth. The company aims to optimize its portfolio to continue its organic growth.
Answer no 1
During early periods of globalization and expansion, Walmart had limited financial resources and managerial capabilities. The company decided to expand its operations to foreign markets in a logical sequence manner. Walmart decided to use its experience from expansion to markets in the beginning and eventually apply the lessons learned to countries where it expanded its operations later on. The company first expanded its operations in the Mexican and Canadian markets for several reasons. The two markets had the same business environment as in the home country. The two markets were not very distant and didn’t differ much culturally. Later, Walmart decided to expand its operation to European and Asian markets. European markets were quite mature. Entering the European market was difficult. Walmart had to face severe competition and monopoly from established players. Asian markets were quite distant. They differ culturally and geographically (UK Essays, 2017). Walmart first entered the Mexican and Canadian markets since it had enough resources to expand. Walmart also experienced the same business environment there. Later, it expanded its operation to Europe rather than in the Asian market. This was because the cost of late entry in Europe was quite low as compared to the cost of delayed entry in the Asian market (Gupta, 2002). Thus initial expansion strategy was based on expanding to markets that have the same business environment, aren’t mush distant and can optimize on limited financial and managerial capabilities, latter lessons learned could be applied when expanding to other markets.
Answer no 2:
Walmart had to face cultural differences when entering into foreign markets. Walmart’s geographical, cultural, and differences in taste and preferences. For instance, when Walmart entered the German market through acquisition, it faced several challenges. There was a huge difference in culture. Walmart had an American manager to operate in a culturally different German market. Germany had different buying behavior, and the American manager couldn’t cope. Germany is already considered the home of the discounter. Thus, the low pricing model didn’t work there. Stores of the acquired company were quite distant. Most of them were located in poor areas. The low-pricing model didn’t generate many profits in German markets since customers were quite price-conscious in Germany. In Japan, Walmart learned that bulk deals are not suitable for Japanese. The company suffered from populated wholesalers. Japanese usually think that low prices are associated with inferior quality products.
Walmart learned several lessons from expansion to German and Japanese markets expansion. Learning from German market expansion, Walmart had a Japanese manager to manage the operation. The manager was able to understand several challenges and responded accordingly. He freed floor space, removed butchers, increased sales on private brands, and offered everyday low-priced deals. These strategies worked as a success in the Japanese market. One main lesson Walmart learned from its foreign expansion strategy was that it could not apply a single formula to fit into all business and cultural environments. For instance, when expanding to Mexico, Walmart even changed its name to Walmart de Mexico to show its affiliation with Mexican culture (BARBAROAUG., 2016).
Answer no 3:
In Latin America, Walmart’s strategies were quite successful. Instead of coming up with something completely new, Walmart entered the Latin American market by acquiring existing players. Acquisitions helped Walmart to cope with cultural differences and to establish a strong competitive position. Brazil and Chile were targeted for expansion. In both countries, Walmart applied an acquisition strategy. The biggest opportunity for Walmart in Latin America is the emerging middle class with limited resources. This category will be more inclined towards low-priced products. The emerging middle class poses the biggest opportunity for Walmart (Latin Trade, 2017). Some challenges of the Latin American market include unavailability of labor due to rising middle class, poor store location as a result of acquisition strategy, and uncompetitive prices (REUTERS, 2016).
Answer no 4:
Walmart aims to expand its business in China through the expansion of subsidiaries. The company also aims to expand its business in Brazil. Brazil seems to be an ideal place to work with its developed infrastructure. The growing middle class and rising trend of high spending on food make Brazil an attractive market for Walmart. Unlike Russia and India, Brazil also provides favorable conditions for foreign businesses to operate. India limits the opening of foreign stores where multiple brands are available under a single roof. Russia, on the other side, restricts foreign investors from expanding their retail operations. India and Russia are also ideal places to expand since retail businesses are spread quickly in both countries. However, both countries provide unfavorable circumstances for foreign investors to operate. Walmart aims to establish a business in both countries through acquisition and joint venture strategy. Walmart aims to target South African countries in the future. The company will take the same acquisition strategy to compete with established competitors in South African regions. Thus, in the future, Walmart aims to enter new markets such as India. Russia and South Africa while expanding its business to existing markets. In the future, Walmart aims to expand its business through acquisitions and joint ventures to better compete with established competitors in new markets.
Exercise:
The country I have chosen is Russia. Russia, despite challenges, presents an ideal place for Walmart to expand its business. Russia is currently experiencing a huge expansion in the retail market business. The country has a big retail industry serving about one hundred and forty million people. This makes the Russian market an attractive place to open a business. Russian retail market is earning huge profits. However, Walmart will be confronted with several challenges if it chooses to start its business in Russia. Competition in cities is fierce. The only way to establish a business in the Russian market is to acquire a few existing layers. If Walmart chose to open stores in small cities (Kiselyova, 2012), it had to incur extra costs. Roads to small cities are broken, and infrastructure is less developed. However, if Walmart is successful in establishing its business in the Russian market, it will be able to earn higher profits since the retail industry is the fastest-growing sector in Russia. Walmart would also have to face cultural differences. Russian and different languages and buying behaviors than those in the United States. To cope with cultural differences and survive in intense competition. Walmart should focus on its acquisition strategy in Russia (Reuters Staff, 2012).
References
BARBAROAUG., M. L. (2016, August 2). Wal-Mart Finds That Its Formula Doesn’t Fit Every Culture. Retrieved from http://www.nytimes.com/2006/08/02/business/worldbusiness/02walmart.html
Gupta, V. G. (2002, June 19). Taking Wal-Mart Global: Lessons From Retailing’s Giant. Retrieved from strategy + business Website: https://www.strategy-business.com/article/13866?gko=e19cb
Kiselyova, M. (2012, April 5). Analysis: Cautious Wal-Mart is missing out on Russia’s retail boom. Retrieved from https://www.reuters.com/article/us-walmart-russia/analysis-cautious-wal-mart-missing-out-on-russias-retail-boom-idUSBRE8340KT20120405
Latin Trade. (2017, April 19). RETAIL GIANT WALMART’S STRATEGY FOR LATIN AMERICA. Retrieved from http://latintrade.com/what-is-retail-giant-walmarts-strategy-for-latin-america-in-the-next-years/
REUTERS. (2016, February 17). Wal-Mart Is Blowing It in This Huge Emerging Market. Retrieved from http://fortune.com/2016/02/17/wal-mart-is-blowing-it-in-this-huge-emerging-market/
Reuters Staff. (2012, April 5). Timeline: Wal-Mart is eyeing Russian market. Retrieved from https://www.reuters.com/article/us-walmart-russia-timeline/timeline-wal-mart-eyeing-russian-market-idUSBRE8340LP20120405
UK Essays. (2017, May 24). Walmart’s Global Expansion Strategy: Cultural Issues. Retrieved from https://www.ukessays.com/essays/marketing/early-global-expansion-strategy-and-first-enter-strategies-marketing-essay.php
