Case-Question

Read the case situation given below and answer the questions:
Wal-Mart’s Foreign Expansion

Wal-Mart, the world’s largest retailer, has built is success on a strategy of everyday low prices,
and highly efficient operations, logistics, and information systems that keeps inventory to
minimum and ensures against both overstocking and under stocking. 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 $4020 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. Wal-Mart 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
Wal-Mart. 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. Mexican 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
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.”
Questions:
a) Do you think Wal-Mart could translate its merchandising strategy wholesale to another
country and succeed? If not, why not?
b) Why do you think Wal-Mart failed in South Korea and Germany? What are the
differences between these countries and Mexico?
c) To what extend can a company like Wal-Mart change the culture of the nation where it is
doing business?

Case-Question

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case-Question

Uploaded by

Copyright:

Available Formats

Read the case situation given below and answer the questions:

Wal-Mart’s Foreign Expansion

You might also like