Topic 1 - Lesson 2 Reading-Walmart

INTERNATIONAL BUSINESS STRATEGY IN ACTION
Wal-Mart
In 2001, Wal-Mart became the worlds biggest company in terms of
sales revenues, a tittle it has kept to date, a breath-taking
achievement for the company that Sam Walton started in Arkansas as
recently as 1962. Indeed, with revenues of $408.214 billion for the
year ending 2009, Wal-Mart is now ahead of General Motors and
Exxon Mobil. The second lagest retailer, Carrefour with revenues of
$121.452, is only about one-fourth the size of Wal-Mart.
Wal-Marts success can be attributed to a scale strategy based on
reduction of costs to steadily generate its always low prices formula
and physical growth or market coverage. The United States offers the
perfect landscape for Wal-Marts expansion. Large, wealthy suburbs
with vast, inexpensive land allow the firm to set up huge warehousestyle retail centers, reducing overall prices.
This is complemented by an entrepreneurial culture in wich store
managers have a lot of decision-making power. Wal-Mart pushes its
suppliers to provide the best product they can at the lowest possible
price, making its products of better quality than those of other
discount stores.
Presently, Wal-Mart commands an 8% share of the retail sales in its
home market and its growth shows no signs of slowing down any time
soon. The firms critics accuse it of exploting its workers, destroying
traditional retail stores and eroding the manufacturing industry by
importing from countries with low labor costs, among other things.
Even those who sympathize with objectors, however, might not resist
saving $100 for an appliance. The criticism can be argued both ways.
Some traditional retail stores suffered as a result of Wal-Marts
expansion, but if Wal-Mart set up show shop in a run-down mall,
neighboring stores benefit from the increased traffic. This might
include dollar-stores, haircutting places, and sportswear outlet,
among others. Wal- Marts bicycle section falls short of offering all the
equipment, not to mention the service, of a traditional bicycle store. A
mother buying her daughter her first bicycle might go to Wal-Mart,
but a young woman looking for quality, accessories, service and a
knowledgeable salesperson might instead visit her local bike store.
The same can be said for most product sections wihin the store. Large
competitors have either stopped competing with Wal-Mart or sough
to beat it at its own game. Indeed, Wal-Mart may be responsible for a

more consumer-oriented retail service sector in the US.
One main criticism of Wal-Mart is its dependence on imports from lowcost countries such as China. In 2003, the firm purchased
approximately $1.5 billion in Chinese products, a fraction of revenues
perhaps, bua sizeable amount jus above the total revenues of
McDonalds for the same year. Here, Wal-Mart had done nothing more
than take advantage of the opportunities, available to all US retailers,
that arose from the liberalization of China.
Those things that have helped Wal-Mart grow might be the same
things that eventually will halt its growth. Low-cost laborers have a
higher turnover. The firm hires approximately 600.000 new employees
a year, and if it wants to reduce the costs of searching for personnel
and training them, it might find that increased salaries and benefits
are its only alternative. The firm has been constantly lowering the
prices of its products, this too will come to a stop when it exploits all
available opportunities in low-cost areas and as China begins to see
its production cost increase in the face of development. Finally, the
entrepreneurial nature of Wal-Mart decentralized business structure
has meant that the organization lacks a coordinated bureaucracy
with the power to impose corporate rules on store managers. For that
reason, the firm is now being plagued with lawsuits, including a class
action suit by its female employees for gender discrimination.
For future long-term growth, Wal-Mart has looked beyond its borders.
However, while it has done extremely well in Canada, Mexico and the
UK, it has had a rough time in other markets, including Germany ,
Japan and Korea.
Wal-Marts international expansion began in 1992when it entered into
a joint venture with Cifra SA, a successful Mexican retailer, in which it
held 50% interest in its partners retail operations. In 1998, Wal-Mart
acquired a controlling interest in Cifra and officially changed the
companys name to Wal- Mart of Mexico in 2000. Wal-Mart entered
Canada when it acquired 122 Woolco stores. Since then, the firm has
stablished itself successfully in the markets of its NAFTA partners. One
reason for this success is that it can rely on suppliers of its US stores
to deliver products for the Canadian and Mexican market. In addition,
the landscape, culture and economic situation in Canada are much
like in the United States.
The group entered Europa in the late 1990s, by purchasing the
Wertkauf and Interspar supermarkets in Germany. Here, Wal-Mart ran
into some trouble. Competitors in Europe had emulated the company

most successful strategies in cost reduction and supply-chain
management, reducing Wal-Marts relative competitive advantage. In
Germany, local competitors offer very low prices, and Wal-Mart is not
big enough to achieve the local economies of scale required to
compete on price alone. There was also a different cost structure.
Real estate development, when possible, was more costly and wages
were also higher. The scale effect does not work in Europe. When the
company must source 90 percent of its gods locally, wich bargain or
logistics savings can it cash in with so few stores? To top it all, WallMarts US managers hard problems adapting to the culture and did
not speak german.
Wal-Mart entered the british market by acquiring ASDA and retained
the name. ASDA had already adopted a focus on low prices an so it
had exactly the type of consumer that Wal-Mart was looking for. Even
though it has done relatively well in England, a low-cost strategy was
secondary to developing long-term relationships with suppliers of
well-known quality-oriented, different brands.
Wal-Mart launched its first store in South-Korea in 1998, but in 2005, it
ranked bottom of the nations five discount store chains. Wal-Mart
lost about 9.9 billion won in 2005 from its business in Korea, on sales
of 750 billion won. In 2006, Wal-Mart pulled out of South Korea- selling
its 16 korean stores to the country biggest discount chain. Shingsegae
paid 825 won ($882 million) for Wal-Martss South Korean operations.
Time , patient, investment and key expertise in each foreing market
may help Wal-Mart to successfully expand its international operations
to become a more international player. Until then, however, the firm
remains extremely NAFTA focused.
1. Is Wal-Mart a multinational Enterprise? Why?

2. Why is Wal-Mart making foreign direct investments in Europe?
3. Using the Porter model, what are the determinants of Wal-Marts
competitive advantage?
4. Is Wal- Marts competitiveness in Europe dependent of the same
determinants listed in question 3? Why?

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INTERNATIONAL BUSINESS STRATEGY IN ACTION

to beat it at its own game. Indeed, Wal-Mart may be responsible for a

into some trouble. Competitors in Europe had emulated the company

1. Is Wal-Mart a multinational Enterprise? Why?

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