The given case study is about the entry of Wal-Mart in Africa. It also covers the issues and challenges it faced in its establishment in Africa. Wal-Mart made its strategy to expand its business in different countries for its growth because financial crisis of 2008 greatly impact the domestic market. This strategy is not always helpful as we know its failure in the markets of Germany and South Korea. Many other countries like India offers good growth opportunities but they are still not open for foreign trade. So Wal-Mart started to focus on Africa. Though it didn’t provide such opportunity but it is good for MNC’s like Wal-Mart. (Deresky, H. 2017).
Issues faced by Wal-Mart in Africa:
Retailing in Africa is not a piece of cake. If a person thinks that he would succeed there in a year then probably that year is equal to twenty years. Wal-Mart played wisely in start by acquiring a local retailer. Wal-Mart made an offer to Massmart to buy 51% of its stake. And it started operating there.
Business environment:
The biggest mistake Wal-Mart made in Germany and South Korea is that it didn’t make a new strategy for these countries. It applied the same model to the markets of those countries. Without knowing the actual needs of these two countries. Now in Africa they firstly faced a cold behavior of retailers. Because economic conditions of country were really unstable and political changes were icing on the cake. Entering in new market always give some challenges. The value of dollar impact its activity in Africa. People had in mind the high prices of Wal-Mart so they were not welcoming it and sticking to their older shops.
Cultural differences:
Whenever starting a business in new country, it is the foremost thing to get complete information about their culture and their needs. In Africa, Wal-Mart faced this cultural difference too. Because African workers feared that the American differences can retailer would not respect the labor unions and on-going contracts. (Moran, Abramson & Moran, 2014). For this purpose Mr. Bond emphasized on the respect for local laws and regulations. He suggested that existing contracts wouldn’t be cancelled. Wal-Mart work hard on developing the environment which is open, friendly and respectful for local associates. The solution to this difference was resolved by:
- No staff would be dismissed
- Existing contracts would be retained.
Above mentioned are the primary challenges that Wal-Mart faced in Africa. But according to some analysts, Wal-Mart low-cost model would be succeed in Africa. The main aspects of this model are:
Basic strategy of Walmart:
Low price strategy in Africa:
Walmart is expanding its name day by day in the world by offering low prices to its customers(Özer & Zheng, 2015). This is possible because of following main factors:
-
Volume of sales:
Walmart is occupying the major position in market because it almost supplying everything. It has wide customer based due to the spread of it operations in every corner.it gives opportunity to buy everything under one roof. It mainly runs four kind of stores. And it badly attracts customers.
-
Supply chain management:
It has the most advanced electronic system. Everything is readily available to the management that when and where the products are required and how much required. This maximize the efficiencies and minimize the outlays. It deals directly with its manufactures. It results in more cost effective process. When cost is decreasing it ultimately leads to low pricing.
-
Minimization of overheads:
Walmart prefers to keep its overheads low. It offers low cost health care to its employees. Though it is protested but Walmart knows really well that how to pleased its employee and retain them.
-
Bargaining power:
Walmart in the market is the number one in many goods. It is the basic supplier for many goods. Many famous companies rely on Walmart for its revenue. It adds value to Walmart business. Observing above strategy of Walmart, we can conclude that though Africa is not a piece of cake for Walmart but keeping its low price strategy would give a lot benefit to its business in Africa. Because poverty level is so high in Africa and people would appreciate it if they have to pay less. If Walmart wants to attract customers then it has to offer less price. Because survey was held in Africa and mostly people mentioned, they are disappointed. Because Walmart is offering the same price which other super stores offered. This way Walmart can lose its customers. People of Africa would appreciate lower prices. Walmart should offer discounts and different other offers to avail customers. It should be in its policy. Low price model should be applied to Africa. This will help a lot in generating profit from Africa (Bamiatzi & Kirchmaier, 2014).
Unions working in Africa are the other reason that people are not that much welcoming Walmart. Because unions like UNICEF UNCWF are really doing great work for the people of Africa. These unions are providing them food, clothes and fulfilling their basic needs. So Walmart has no other choice except lowering its prices. It might be loss for Walmart in start but it will be helpful in coming years. Because by applying this policy it become popular among the people of Africa. And would have wide customer pace. Then gradually increase prices for the goods.
Lessons for Walmart from the failure of Germany:
Walmart failed in Germany because it applied the same business model it applied in US. Low price policy was badly failed in Germany because the local markets easily compete the Walmart in this. The other issues were of labor and unions.
Walmart should learn from its failure and before expanding its business to other countries, it should:
- Understand the culture of that country
- Market strategy
- Competitors
- Political situations
- Economic stability
These are the basic things to learn before expanding a business. Though other countries give growth opportunities but also give bad experience and losses too. Walmart is a multi-dollar company it can do what It want to. But it should remember its failures.
Precautions to avoid future failures:
Walmart should do the foremost thing to avoid failure is to eliminate the racial discrimination. People of Africa would be more pleased if it do so. Stop comparing between Chinese and African labor. Chinese are working on low and cheap payrolls. Because of immersive man force. Africa has that too but offering low wages at once would cause downsizing and maybe strikes in Africa. Which will worse the conditions for Walmart.
Walmart also need to observe the bureaucratic issues and try hard to lessen them. The other issue is transport. Walmart is using its own transport in US but in Africa it is facing difficulties in delivery of goods. It should address that issue too.
Views on Wal-Mart entry to Africa:
Johnson’s said that it is not that market that add so much to Wal-Mart. Van Zyl explains that Wal-Mart can bring prices down to the next level and it would give tough competition to other running superstores. Mike Abraham said that “it would be difficult to have Wal-Mart in in Africa because we are trying to improve our local procurement while Wal-Mart is totally opposite to it”. Walmart is going to have really tough time in Africa.
References
Bamiatzi, V. C., & Kirchmaier, T. (2014). Strategies for superior performance under adverse conditions: A focus on small and medium-sized high-growth firms. International Small Business Journal, 32(3), 259.
Deresky, H. (2017). International management: Managing across borders and cultures.
Moran, R. T., Abramson, N. R., & Moran, S. V. (2014). Managing cultural differences.
Özer, Ö., & Zheng, Y. (2015). Markdown or everyday low price? The role of behavioral motives. Management Science, 62(2), 326-346.
