Question

. Wal-Mart’s Foreign Expansion Wal-Mart, the world’s largest retailer, has built its success on a strategy of everyday low prices, and highly efficient operations, logistics, and information systems that keeps inventory to a minimum and ensures against both overstocking and understocking. The company employs some 2.1 million people, operates 4,200 stores in the United States and 3,600 in the rest of the world, and generates sales of almost $400 billion (as of fiscal 2008). Approximately $91 billion of these sales were generated in 15 nations outside of the United States. Facing a slowdown in growth in the United States, Wal-Mart began its international expansion in the early 1990s when it entered Mexico, teaming up in a joint venture with Cifra, Mexico’s largest retailer, to open a series of supercenters that sell both groceries and general merchandise. Initially the retailer hit some headwinds in Mexico. It quickly discovered that shopping habits were different. Most people preferred to buy fresh produce at local stores, particularly items like meat, tortillas and pan dulce which didn’t keep well overnight (many Mexicans lacked large refrigerators). Many consumers also lacked cars, and did not buy in large volumes as consumers in the United States did. WalMart adjusted its strategy to meet the local conditions, hiring local managers who understood Mexican culture, letting those managers control merchandising strategy, building smaller stores that people could walk to, and offering more fresh produce. At the same time, the company believed that it could gradually change the shopping culture in Mexico, educating consumers by showing them the benefits of its American merchandising culture. After all, Wal-Mart’s managers reasoned, people once shopped at small stores in the United States, but starting in the 1950s they increasingly gravitated towards large stores like WalMart. As it built up its distribution systems in Mexico, Wal-Mart was able to lower its own costs, and it passed these on to Mexican consumers in the form of lower prices. The customization, persistence, and low prices paid off. Mexicans started to change their shopping habits. Today Wal-Mart is Mexico’s largest retailer and the country is widely considered to be the company’s most successful foreign venture. Next Wal-Mart expanded into a number of developed nations, including Britain, Germany and South Korea. There its experiences have been less successful. In all three countries it found itself going head to head against well-established local rivals who had nicely matched their offerings to local shopping habits and consumer preferences. Moreover, consumers in all three countries seemed to have a preference for higher quality merchandise and were not as attracted to Wal-Mart’s discount strategy as consumers in the United States and Mexico. After years of losses, Wal-Mart pulled out of Germany and South Korea in 2006. At the same time, it continued to look for retailing opportunities elsewhere, particularly in developing nations where it lacked strong local competitors, where it could gradually alter the shopping culture to its advantage, and where its low price strategy was appealing. Recently, the centerpiece of its international expansion efforts has been China. Wal-Mart opened its first store in China in 1996, but initially expanded very slowly, and by 2006 had only 66 stores. What Wal-Mart discovered, however, was that the Chinese were bargain hunters, and open to the low price strategy and wide selection offered at Wal-Mart stores. Indeed, in terms of their shopping habits, the emerging Chinese middle class seemed more like Americans than Europeans. But to succeed in China, Wal-Mart also found it had to adapt its merchandising and operations strategy to mesh with Chinese culture. One of the things that Wal-Mart has learned is that Chinese consumers insist that food must be freshly harvested, or even killed in front of them. Wal-Mart initially offended Chinese consumers by trying to sell them dead fish, as well as meat packed in Styrofoam and cellophane. Shoppers turned their noses up at what they saw as old merchandise. So Wal-Mart began to display the meat uncovered, installed fish tanks into which shoppers could plunge fishing nets to pull out their evening meal, and began selling live turtles for turtle soup. Sales soared. Wal-Mart has also learned that in China, success requires it to embrace unions. Whereas in the United States Wal-Mart has vigorously resisted unionization, it came to the realization that in China unions don’t bargain for labor contracts. Instead, they are an arm of the state, providing funding for the Communist Party and (in the government’s view) securing social order. In mid- 2006 Wal-Mart broke with its long standing antagonism to unions and agreed to allow unions in its Chinese stores. Many believe this set the stage for Wal-Mart’s most recent move, the purchase in December 2006 of a 35 percent stake in the Trust-Mart chain, which has 101 hypermarkets in 34 cities across China. Now Wal-Mart has proclaimed that China lies at the center of its growth strategy. By early 2009 Wal-Mart had some 243 stores in the country, and despite the global economic slowdown, the company insists that it will continue to open new stores in China at a “double digit rate.”

Case Discussion Questions

1. Do you think Wal-Mart could translate its merchandising strategy wholesale to another country and succeed? If not, why not?

2. Why do you think Wal-Mart was successful in Mexico?

3. Why do you think Wal-Mart failed in South Korea and Germany? What are the differences between these countries and Mexico?

4. What must Wal-Mart do to succeed in China? Is it on track?

Answer 1

1. Wal-Mart is an American multinational retail corporation that handles chains of huge discount department stores and warehouse stores.

It is difficult but possible for Wal-Mart to translate its merchandising strategy wholesale to another country and succeed easily.The reason is that different society has their different culture.If Wal-Mart wants to attract foreign local markets it must be ready to make some changes of its strategies to adapt local habits in order to fit the requirement and preference of host community.Wal-Mart cannot translate its merchandising strategies to other countries without making some changes in the strategies they have adopted for their home.

2. The success of Wal-Mart is a result of various strategies adopted by Wal-Mart company ehich includes the joint venture with Cifra, the largest local retailer in Mexico.Second they fulfill local consumer's requirements.For example they realised that Mexicans were having problem in buying bulk items because of lack of cars and storages, so they built small stores near residential areas.Thirdly they hired local managers who understand well the Mexican culture to match the company's merchandising strategies.

3. First consumers in these countries preferred higher quality merchandise and were not attracted by Wal-Mart's discount strategy like consumers of US and Mexico.Furthermore there were well established competitors in these countries who nicely matched their products to local shopping habits and preferences. So, there was no chance left for new competitor like Wal-Mart.

Differences between these countries and Maxico:

(a) Mexico preferred low price while price was no matter for these countries.

(b) Mexican people do not give much emphasis on quality of products while consumers of these countries are quality seekers.

4. In order to succeed in chinese markets Wal-Mart should deeply understand and learn chinese cultures,business behaviours and preferences.Then they should come up with common principles which are matching difference of two cultures.They should train and educate chinese for their cultures as well. Additionaly Wal-Mart needs to build a lasting relationship with chinese government in order to avoid political and legal conflicts that create barrier and unfriendly environment for business.

Wal-Mart is on track to be successful in chinese market. Consumers in China are gradually accepting the shopping ways and business culture of Wal-Mart.Wal-Mart already translated its wholesale strategies to reflect chinese shopping habits and preferences.They purchased more than 35% of Trust Mart Chain, which has 101 hypermarkets in 34 cities across China.