Question

Managers tend to speak optimistically about the prospects of globalization, and for good reason. Globalization has fostered an increasingly interconnected world, with more than $30 trillion in goods and services traded and more than $1 trillion in corporate investment each year. Advances in information technology and transportation have helped facilitate globalization—connecting developed and developing worlds, lifting some 400 million people out of poverty along the way.

Nations are now inextricably linked through global trade and investment. There is no turning back. Accordingly, managers often view globalization as a powerful and inevitable force, and they tend to treat it with reverence—speaking of it as if it were a breakthrough technology, the wave of the future that will change the world, if not their companies’ fortunes. And they tend to think of themselves as the champions of globalization, akin to explorers embarking on a mission to discover and conquer far-off, unexplored lands.

Managers express their optimism for globalization in terms of the profitability it can generate for their companies. They salivate at the potential for double-digit sales growth. They are seduced by opportunities that promise to slash costs by half or more, simply by shifting operations overseas. And they lead their companies on journeys to global markets in search of untapped and untold riches.

However, opportunity and reality do not always coincide. Although globalization certainly holds promise, it is also rife with hazards. It presents risks that managers fail to appreciate and that they often overlook. Sadly, in the high-stakes world of global strategy, companies regularly fail to convert potential into profits. Most companies are poorly positioned to capitalize on globalization’s potential, and many are spectacularly unsuccessful in their attempts to globalize.

China provides the setting for a classic cautionary tale about globalization. Given a population of more than 1.3 billion people and the market potential that goes hand in hand with a consumer base of that size, the prospect of expanding to China is enough to make any manager’s eyes light up. The potential is seemingly limitless.

But on further inspection, it becomes clear that China poses tremendous challenges for Western companies. The first obstacle is economic. Though China has made tremendous strides and enjoyed incredible growth since opening its markets to global trade and investment in 1979, the development of its economic institutions and its infrastructure has lagged behind that in the West. The second obstacle is cultural. Chinese consumers, for example, tend to be very different from those in the West, which makes it difficult for Western companies to appeal to local consumer tastes. The third obstacle is political. Western companies struggle to skillfully navigate China’s complex web of local and national political organizations. All of these factors led G.E.’s CEO Jeff Immelt to conclude: “China is big, but it is hard.”

Walmart has learned these lessons the hard way. Walmart’s ongoing troubles in China, since opening its first superstore in Shenzhen in 1996, reflect a fundamental misunderstanding of China’s political, economic, and cultural environments.

The American retailer has struggled to understand Chinese consumers and Chinese culture. Chinese consumers, unlike those in the U.S., differ widely from city to city in their needs. Walmart therefore struggles to find the right product mix to offer in the 117 cities and 25 provinces in which it operates. This makes it challenging to sell a core set of products nationwide.

Walmart has also suffered from troubled relationships with politicians—both local and national. The company has had its fair share of run-ins with the law. On one occasion the Chinese government fined Walmart for violating local and national laws and even forced it to close stores temporarily for purported product violations. Walmart paid the fines, even though the company believed the claims to be unfounded.

Although China has led the gobe in infrastructure investment over the last several years, outside of its largest cities (e.g., Shanghai, Beijing, Tianjin, Guangzhou, and Shenzhen), its infrastructure remains more than problematic. The efficient transport of goods from one region to another is a challenge because of China’s sheer physical size, and because its air, ground, and rail infrastructure does not meet developed country standards. Not surprisingly, Walmart’s China business has struggled to generate profits, and it has consistently underperformed in this huge and potentially lucrative market.

The lesson in all of this is that, when it comes to globalization, managers are not just optimists; all too often, they are unbridled optimists. They habitually overestimate the benefits of globalization and underestimate its costs. In evaluating globalization opportunities, managers often forget the other side of the opportunity equation: risk. Risk goes hand in hand with opportunity, and managers fail to accurately account for the risks they face in global markets.

Managers often make dangerous assumptions about what it takes to succeed in global markets. They tend to assume that their current business model, one they successfully and profitably exploit in their home country, will translate simply and effectively to other countries, yielding similar levels of profitability. These same managers fail to account for real and salient differences between nations, and fail to consider how those differences generate operational risks that may negatively impact their business. Unfortunately, they end up learning the hard way that the risk borne out of cross-country differences can overwhelm even the best-laid globalization plans. And Walmart is no exception.

To improve the practice of global business and to make better global expansion decisions, managers need a more sophisticated understanding of the economic, political, and cultural environments in the countries in which they intend to operate. They must appreciate how nations differ economically, politically, and culturally, and how those differences manifest as increasing risks (and costs). They then need to incorporate those risks into their existing strategy and financial decision models.

Robert Salomon is a professor of International Management and Faculty Scholar at NYU’s Stern School of Business and has researched globalization and global strategy for nearly 20 years. This article is excerpted from his book, Global Vision: How Companies Can Overcome the Pitfalls of Globalization. Published by Palgrave Macmillan; reproduced by permission.

Question

from the above case study it has been required that identify challenges wallmart need to overcome affecting their implemation of international strategy. write answer in between 200 to 300 word

Answer 1

Walmart, an ultra-billionaire and a largest retail organisation across the globe failing in the Chinese Market indeed gives a red-alert to all the potential Multi National Corporations. Some of the key challenges, way ahead for Walmart in contemplating its International Strategy are –

1. Having a robust legal & troubleshoot framework: As rightly said in this case, different Countries have different laws. In the absence of a proper legal framework to run operations in China, Walmart had to trigger legal obligations. Therefore a robust legal & troubleshoot framework should be sketched order to mitigate such risks.

2. Grip on the cultural differences: Culture is an important factor which has influenced the international operations of businesses. People from different countries always have different traditions and attitudes towards business. In this case, Walmart failed to understand the fundamentals of the Chinese and their “feng shui” business culture which in turn gave losses to the Company. In order eliminate such losses, a grip or rather say a hold on the culture of the country needs to be addressed onto.

3. Guanxi: “An intricate aspect which involves relationships between or among individuals creating obligations for the continued exchange of favours”. Walmart suffered from troubled relationships with politicians—both local and national in China. Co-incidentally “Guanxi”, a Chinese Term, could be a source of power and advantage for multinational companies if it is operated appropriately in the right time and right occasion. Walmart or any other such corporations should take this in cognizance when dealing across the border.

4. Expatriate Issues: An expatriate is someone who has chosen to live in a country other than the one in which he or she legally resides. The conduct of Walmart in its operations seemed that the Company had been more focused on expatriate led team rather than appending with the local groups. This had enacted as a failure to penetrate into the market. Therefore there lies a huge elbow room for Walmart or any other overseas entities to scrub the way ahead in overcoming the challenges so forth so better.

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