In: Economics
Please answer the Case Study... Walmart in Japan
Answer:
Introduction
Walmart is an American international retail company that is
headquartered in Bentonville, Arkansas. The company began
operations in 1962 after being founded by Sam Walton and
incorporated in 1969. The present brand name—Walmart—came about in
2008 and before that it was referred to as Wal-Mart. The company is
famous for operating chains of large discount departmental stores
and warehouse stores. Presently, the company is the 18th public
corporation in terms of size and the biggest in terms of revenue,
private employment, and retailer (Walmart 2011 Annual report).
Furthermore, the largest shareholders are the Walton’s with 48%
shares; hence they control the company.
The company has approximately 9000 stores in over 15 countries all
operating under different names. For instance, in Mexico it is
called Walmex, in UK Asda, and in Japan Seiyu. This article
analyses Walmart in Japan through three phases. The three phases
are: problem identification, analysis, and solution phases.
Background
Walmart bought 6.2% of Seiyu in May 2002 (Holstein 73). The shares
of the company increased over time and in 2005 December, Walmart
was the majority shareholder of 50.9%. In 2008, Seiyu was entirely
owned by Walmart whose headquarters are in Tokyo. The company has
419 retail units that are inclusive of: Seiyu Hypermarket, Seiyu
Supermarket, Wakana, and Seiyu General Merchendise.
Setting operations in Japan was not an easy feat for Walmart
because the country had a reputation of being harsh to foreign
retailers. After the acquisition in 2002, the company recorded
losses for seven consecutive years. However, in 2009 there were
signs that the trend might shift after results in operation turned
positive. This led to the first profit in 2010 where it even beat
other retail stores in terms of store sales (Holstein 74).
Problems and Challenges of Walmart in
Japan
Walmarts has a strategy that has helped it in international
expansion without strong retail proposition. The plan is based on
low price strategy, customer service, variety of goods, and
community support (UPINewstrack 1). The company can sustain the low
price strategy because of its high inventory turnover and
competitive gross margins. On the other hand low costs are attained
by purchasing power, close vendor relations, economies of scale,
and efficient and effective supply chain logistics and information
systems.
However, the same strategy has not worked in Japan through
acquisition of Seiyu. The challenges and problems faced by Seiyu
can be divided into two categories which are internal and external.
External problems include: overlooking competitors, culture
difference, house brand and price differentiate, and relationship
with suppliers. The major internal problem stated in the case is
the unique culture and concepts.
External problems
The first problem indicated in the case is that the company
overlooked local competitors. They believed in its strength which
is price and size. This was noticed when Walmart acquired Seiyu,
the competitors in Japan were powerfully investing in store
automation and reducing prices to match Walmart (Matusitz and
Forrester 156). Second, is the opposition at the local level
brought because of culture differentiation. The company was not
able to identify the consumer tastes. For instance, in Japan
consumers never have enough room to store big purchases, and
require high value merchandises (Matusitz and Forrester 160).
Third, the challenge of house brand and price differentiation is
identified in the case where cheaper prices in the not so
different; hence making locals prefer convenience, which is found
in shops nearby. Furthermore, Seiyu sells most products from
Walmart’s manufacturing goods (Matusitz and Forrester 160). The
house brands find it hard to penetrate local market because they
have English labels. The last challenge was the poor relationship
with local suppliers. Local suppliers neither refuse to give
special discounts nor to sell products to Seiyu. Furthermore, some
refuse the delivery system of Seiyu that entailed sending goods to
Walmart distribution centre (Matusitz and Forrester 160).
Internal problems
Unique cultures and concepts of Japan is a major challenge of
Walmart. The company attempted to transport the company’s culture
and retailing concept to Japan. The concept is called the
supercentre concept, which has not been successful in Japan. Most
Japanese live in small spaces because of high population density;
hence have tiny storage (UPINewstrack 2). Less storage results in
small scale purchases. Furthermore, the Japanese locals like brands
that are locally made and representative of their culture. This
goes against the company’s culture advocating for selling of goods
manufactured by the company.
Problems implied in the case
The problems that are implied in the case, and which are not listed
include: Joint venture and nationalism, and human resource
management. In joint venture and nationalism, the main aim is for a
foreign company to understand a new market. However, the joint
venture between Seiyu and Walmart made the locals feel like they
were occupied by foreigners. The mentality results in local
companies and suppliers to act defensively towards Seiyu.
Human resource is a problem faced by the company where the labour
market does not have managers who would enable the company wade
through the problems it faces. Managers in the Japanese culture are
thought to stay for long with one employer and so finding one is a
hard task (Datamonitor 2). Furthermore, employees are also hard to
find as more are not able to adjust to the foreign culture that
Walmart advocates.
Categorization of the problems
The listed problems above can be categorized in terms of the
duration in which they can be solved. Meaning they can either be
short or long term. Short term problems are tactical in nature but
can be solved easily through changing of rules and regulations of
operation (Datamonitor 2). The identified short term problems in
the case are overlooking competitors and relationship with
suppliers. On the other hand, problems can be long term and require
certain strategies that take a long time for positive results to be
achieved (Datamonitor 2). The long term problems include: brand and
product differentiation, human resource, and culture
differences.
II. Analysis phase
The tools that can be used to analyse the firm are: the firm’s
human resource policies, its financial performance, and SWOT
analysis.
Human Resource policies
The human resource policies at the company are guided by 3 basic
beliefs fronted by the founder—Sam Walton. The rules are: Sam’s
rules, the sundown, and 10-foot rules. The rules have made the
company the best place to work in USA, but in other cultures a
negative effect can be achieved (‘Seiyu turnaround takes hold’
2).
The company also advocates for non-unionization unlike other
retailers in the market. In return, Walmart offers an open door
policy aimed at encouraging workers to front their grievances
beyond management (‘Seiyu turnaround takes hold’ 2). The fear is
that the policy does little to assist workers, providing the
company with leverage to dismiss unwanted employees. Holsten notes
that employees without unions start off at lower wages compared to
their counterparts protected by unions; hence recorded high rates
of quitting within the first year (71).
The company has a policy of low wages amongst its workers. The
average Walmart employee is paid between $12000 and $17000
annually. This figures suggest that the company cares about
maintaining the prices of its product low compared to improving
employees welfare (Holsten 72). Other human resource policies such
centralized workplace policies and unsupervised local managerial
discretion have been known to advocate for gender bias. The gender
that suffers discrimination in the company is women who make up 72%
of the workforce in the company yet only a few are managers or
supervisors (Holsten 72).
Financial Analysis
The three segments that the company operates in are: Walmart US
(61%); Walmart international (27%); and Sam’s club (12%) (see
figure 1). The profits that each segment brings back are 74% from
Walmart US, 20% from international companies, and 6% from Sam’s
club (Gurugocus, n.d). This proves that approximately 27% of sales
come from abroad. This means that there is a need for the company
to increase sales in foreign companies since the performance is not
good. The valuation of the company is as shown in table 1. From the
valuation it is evident that all pricing measures decreased over
the last decade.
Furthermore, the price to earnings ratio slipped by 67%, price to
book ratio by 63%, price to cash flow by 68%, and price to sales
ratio fell by 58% over the last decade (Gurufocus, n.d). The
measures resulted into the company having a strong track record
that has been doubling over the last past decade (See table 2).
Therefore, the results in Japan throughout 2002 have been showing
negative results compared to other markets. This proves that there
is a problem that should be addressed; either strategic or tactical
problems.
SWOT Analysis
Walmart in Japan operates by the trade name Seiyu. However, despite
the success of Walmart in many countries, the same is not achieved
in Japan. The SWOT analysis of the company is as shown below.
Strength
Strong financial stability which enables the company to benefit
from economies of scale
Strong brand recognition where products sold have value for money
and are conveniently located
They offer a wide selection of goods at a very competitive price
hence can get large discounts from suppliers resulting to higher
revenues
Weaknesses
Low prices often make customers question the quality of the
products
Suppliers are often under pressure to supply when required hence
some of them do not want to supply Seiyu.
Declining profits from 2002 the year of inception. This was seen in
the financial year of 2007 where the decline was the most at 86%
compared to the 2006 financial year (Walmart Annual report
2011).
Opportunities
Improved supply chain management where there would be improved
delivery and reduced storage costs
Creation of convenient stores to reduce travelling costs and
competition from local convenient stores
Online shopping can be used to improve revenue streams.
Threats
Declining Japanese retail market due to consumers spending less on
food, clothes, and appliances. The decline would result in reduced
revenues.
Intense competitive environment with companies such as AEON,
seven-eleven Japan, and UNY, which have larger scale of operations
and financial bases.
III. Solution Phase
The problems stated in phase I fall under strategic and tactic
problems. Tactic problems are short term and include overlooking
competitors and relationship with suppliers. Therefore, according
to Matusitz and Forrester (165) these problems can be solved
through solutions such as: carrying out a feasibility study of the
Japanese market to understand buying trends and consumer tastes;
tailoring the supply chain to suit the local suppliers so that they
can be comfortable supplying the stocks. Other solutions to the
tactic problems listed, which can be used include: using dedicated
and experienced marketing teams to promote products and research on
customer attitudes; online commerce to enable suppliers get paid
before supplying; and running retail stores through joint ventures
as opposed to fully owned by foreign companies
However, strategic problems that include brand and product
differentiation, human resource, and culture differences are all as
a result of globalization and require glocalization strategies to
solve them. The solutions posited by Matusitz and Forrester (168)
include:
Cultural adjustment to local style stores where international
companies aggressively get involved in product development, media
advertising and many more so that they resemble any local retail
store.
Cultural adjustment to locals consumer habits where strategies
are put to ensure that tastes are satisfied
Adjustment to merchandising and operational systems suiting the
locals
Adjustment to work and employee practices that suit the local’s
culture.
Therefore, from the listed solutions the best solutions that suit
the strategic problem Walmart is facing in Japan are adjustments to
local consumer habits and merchandising and operational systems
that can increase the revenue of the company and satisfy the needs
of consumers.
Recommendations
Walmart in Japan has been recording losses for seven years since
2002 and all stem from the fact that they did not research the
market comprehensively and cultural hurdles. Therefore, to reduce
the effects of the problems it is recommended that: The company
sets up a team that would research the market to analyse consumer
tastes and competition. Implement Japanese culture into the work
setting to attract qualified labour that might be conserved.
Implement online commerce systems that would facilitate timely
delivery that is convenience.
Pay suppliers for merchandise before delivery, either full or a
deposit to motivate them.
Plan of Action
Walmart in Japan despite its acquisition of Seiyu has been
recording losses in sales and revenue since 2002. Despite, the
trend looking to change in 2010 there is need for an action plan to
be implemented for successful transition into profits. The first
thing would be to conduct a feasibility study of the market tastes
and culture of the locals. This would take a period of a month and
the people who would carry out the exercise would be market
representatives. The report from the market representatives should
be debated upon by the management within a week. The
recommendations should be forwarded to managers and supervisors at
the supply chains, and market centres for implementation.
Recommendations should be given a month for full implementation.
During debating of the market findings, the finance manager would
also be asked to air his/her views on whether there is enough money
to carry out the plan. If a middle ground is reached on the way
forward, then the action plan should be proposed and implemented
within two to four months.
Conclusion
Walmart in Japan has been operating under the trade name of Seiyu
since 2002. However, despite recording profits in other countries
and in the home country USA, the opposite has been happening in
Japan. Decreased sales and revenues have been recorded and lately
in 2010 the trend looked to change. The problems identified are
grouped under tactical which are short term and include overlooking
competitors and poor relationship with suppliers, and
strategic—long term—are: brand and product differentiation, human
resource, and culture differences. The solutions for tactic
problems are carrying out a feasibility study and changing supply
operations. Strategic problems can be solved by glocalization
strategies.