Case 1

Wal-​Mart in Germany

Corporate Formula Does Not Fit the

German Culture1

Abstract
In the United States, Wal-Mart customers are greeted with a smile, escorted to the item they’re
looking for, and watch their purchases being bagged by an employee. These aspects of Wal-
Mart’s culture were a complete failure in Germany, however, when the company expanded
there in 1997. Wal-Mart also failed on other counts, such as recognizing the status of unions
in Germany and the importance of store location. What eventually happened to Wal-Mart in
Germany, and how could it have been prevented? What did Wal-Mart learn? This case examines
the cultural mishaps of America’s largest discount retailer.

Introduction
Wal-​Mart has become a household name in the United States, and in some parts of the world
outside the United States. With low prices and a large array of products, Wal-​Mart superstores
have become the chosen “one-​stop shop” for many consumers.
Germans, however, don’t view Wal-​Mart in the same way. In late 1997, Wal-​Mart decided to
expand into Germany by first acquiring two retailers for a total of 95 store locations. But Wal-​
Mart soon learned that its American model simply didn’t work there. On so many levels and in
so many ways, it was an abject failure.

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Foundations of Intercultural Communication

Brief Overview of Wal-​Mart

Sam Walton and his brother opened the first Wal-​Mart store in Rogers, Arkansas in 1962,
generating more than $1 million in sales during the first year of operations. Wal-​Mart expanded
quickly and, by 1967, the brothers owned 24 stores with sales over $12.6 million. The company
incorporated in 1969 and was listed on the New York Stock Exchange two years later. Focusing
operations in small towns, in 1977, the company expanded into Michigan and Illinois and by
1980 there were 276 Wal-​Mart stores across the United States (Wal-​Mart Stores, 2016).
Today the company has expanded internationally and has more than 8,400 retail stores in 15
different countries and employs over 2.1 million employees across the world.
Wal-​Mart opened with the intention of helping people save money on household goods
and by doing so, helping to improve lives. Today the company continues to offer the lowest
prices in most markets, relying on buying power with their strong supply chain. Recently,
Wal-​Mart focused domestic growth on the creation of supercenters, which has proved wildly
successful. Additionally, the company has made significant strides toward becoming a leader
in sustainability and corporate philanthropy, despite past criticism about labor practices and
exploitation of suppliers.

International Development
“All around the world we save people money, so they can live better. That’s good news—​in any
language.”—​Wal-​Mart Stores, Inc. (Arunmaba, 2011). In the United States, Wal-​Mart customers
cite low prices as the most important reason for shopping there. Its lean business model, plus the
ability to reach historically high economies of scale, allow the company to dominate supplier
networks.
Because of Wal-​Mart’s market power in the United States and its domination of supplier
networks, it can continuously drive down product prices. In addition, Wal-​Mart sells a full range
of household products and groceries, allowing customers the increasingly ubiquitous one-​stop
shopping experience.
In the early 1990s Wal-​Mart announced plans to take their operations global due to tough
competition in the U.S. markets and the opportunities available in new markets across the
world. The company realized that the United States contained only 4 percent of the world’s
population and that confining sales to the United States would significantly limit their ability to
grow and dominate the market (ICMR, 2004).
To fulfill their global expansion goals, the company created Wal-​Mart International which
has grown into a $63 billion business and is the fastest-​growing part of the company (Landler
and Barbaro, 2006). Most of Wal-​Mart’s international growth comes from acquisitions, differing
from their domestic strategy of building new stores. This has allowed them to penetrate new
markets quickly and easily. Wal-​Mart international operates in 15 markets, with a similar goal
throughout—​to maintain low prices by controlling cost procedures.
There are wholly owned operations in Argentina, Brazil, Canada, Puerto Rico, and the United
Kingdom. In addition to its wholly owned international operations, Wal-​Mart has joint ventures
in China and several majority-​owned subsidiaries. Wal-​Mart’s majority-​owned subsidiary in
Mexico is Walmex. In Japan, Wal-​Mart owns about 53 percent of Seiyu. In Central America,
Wal-​Mart owns 51 percent of the Central American Retail Holding Company (CARHCO),
consisting of more than 360 supermarkets and other stores in Guatemala, El Salvador, Honduras,
Nicaragua, and Costa Rica (Daniel, 2012).

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Expansion into Germany

Most U.S. companies begin their international expansion in the United Kingdom due to many
perceived cultural similarities to the United States. In late 1997, Wal-​Mart instead opted to begin
in the German market by acquiring two German retailers, Wertkauf and Interspar. Wal-​Mart
purchased 21 stores from Wertkauf which offered food and general merchandise to customers
in the southwestern side of Germany.
This purchase wasn’t enough to fully penetrate the German market, so Wal-​Mart acquired
74 Interspar stores in 1998, which increased the total number of Wal-​Mart stores in Germany
to 95, making Wal-​Mart the fourth largest hypermarket retailer in Germany. Wal-​Mart was
attempting to implement its U.S. business model, characterized by low prices, location strategy,
supply-​chain management, and a corporate culture that highly values hard work, conformism,
and friendly customer service (Gereffi and Christian, 2009).
Following the quick purchases, Wal-​Mart realized that the cultures of the newly acquired
companies were extremely different from the U.S.-​based Wal-​Mart culture, and the stores they
took on weren’t necessarily in the most convenient locations for customers.
In addition, Germany has stringent planning and zoning regulations, and thus Wal-​Mart
was unable to expand the stores’ sizes to reach its economies of scale. Difficulties with local
suppliers further perpetuated their logistics issues, so much so that suppliers delivering products
to the distribution centers had to wait for hours to unload their cargo. This is an operational
characteristic of the German distribution system that is quite different from the U.S. efficiency
of lean operations.
Germany is the most price-​conscious country in Europe and while Wal-​Mart is known for
their low prices in the United States, they couldn’t generate the advantage of economies of scale
necessary to be the low-​price leader. Wal-​Mart totaled only 95 stores, paling in comparison
to their direct competitors Aldi and Lidl, both of whom have over 500 retail locations
(Landler, 2006).
These factors made it impossible for Wal-​Mart’s U.S. business model to compete in Germany
and the firm was unable to turn a profit. After years of struggling, Wal-​Mart eventually halted
their German operations at an estimated cost of $1 billion.

Problems and Reactions

After launching its international operations in Germany, it didn’t take long for Wal-​Mart to
see that its company culture wasn’t catching on, nor were customers increasing their shopping
at the German locations. Wal-​Mart hadn’t fully understood the cultural traditions of retail
shopping in Germany before entering the market, and as a result saw resistance to its stores.
Wal-​Mart was forced to rescind some of its policies to better fit the German business model.
There were seven basic reasons for the cultural clashes.
The first reason was that in the United States, Wal-​Mart has a greeter at the entrance to the
store that is responsible for smiling and welcoming people into the store (Nussbaum, 2006).
This practice flopped because Germans typically find smiles from strangers artificial. Some male
shoppers even interpreted this smiling to be flirting (Landler and Barbaro, 2006). In order to
adapt to this cultural difference, Wal-​Mart was forced to remove this greeter position from its
German stores. Similarly, the cheer that Wal-​Mart workers in the United States typically do each
morning was strange to German employees. The practice was discontinued as well.
A second reason was that in Germany, unions are particularly important, whereas Wal-​Mart
is used to being able to demonstrate and exercise its power rather than having to give in to
pressures from outside sources. One of the biggest unions in Germany, the ver.di union, received
many complaints about Wal-​Mart regarding their lack of concern for the voices of the German

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employees. Germany has many co-​determination rules which allow employees to have a voice
in management decisions and to participate, whereas Wal-​Mart typically ignored the German
employees’ input, which could have prevented many of these misunderstandings in the first place.
Additionally, the ver.di union complained that Wal-​Mart didn’t keep it adequately updated on
store closings. In general, Wal-​Mart didn’t understand the expectations nor cooperated with the
union to keep workers happy and motivated, producing a negative view of Wal-​Mart among
many Germans.
A third reason for misalignment came in 2005 when Wal-​Mart released a new ethics code
for its German employees. Unfortunately, the translations within the manual were far from
perfect, and didn’t clearly translate the message that Wal-​Mart was trying to send. One section
advised employees to take caution with supervisor–​employee relationships, which the Germans
interpreted as a ban on interoffice romance.
Another section of this code of ethics disclosed how to report unethical behavior of co-​workers
and was interpreted as how to tattle on fellow employees. These types of misinterpretations
stemmed from miscommunication regarding cultural values in the workplace along with
improper translations. As a result, this ethics code caused much discontent from the German
employees (Ewing, 2005).
A fourth reason was that Wal-​Mart found its brand name to be particularly important in
the United States and used it to attract customers who knew it for its low prices and to build
customer loyalty. Through its experiences in the German market, Wal-​Mart came to realize that
the Wal-​Mart name wasn’t as important to customers, and that this assumption had cost them
greatly in terms of attracting and retaining customers (Bhan and Toscano, 2006).
A fifth reason was insufficient understanding of the location of stores. As a result, many
of the supercenter stores were situated on the outskirts of town, in places that people could
only reach by driving long distances, which was not typical of many city dwellers. These
locations weren’t convenient for German customers, and many found that they could get the
same products for similar, if not cheaper, prices at a neighborhood location that was much
more convenient.
A sixth reason for failure was that Wal-​Mart initially copied their usual tradition by having
employees bag the groceries at the end of each checkout lane. This practice was odd because
the German customer didn’t want a stranger touching their groceries. As a result, this practice
became one more reason for Germans to choose to shop somewhere else (Landler and Barbaro,
2006). Additionally, store hours in Germany are usually shorter. Germans don’t like to have to
wander around a giant store looking for one thing, and didn’t like help finding what they need,
so the help of friendly Wal-​Mart employees wasn’t popular in Germany.
The seventh change that Wal-​ Mart tried to implement was centralizing its German
headquarters. Wal-​Mart shut down one of the headquarters early on, forcing employees to
relocate in order to keep their jobs. While this is a normal occurrence in the United States, it’s
not in Germany and many of the top employees chose to quit rather than move. This resulted
in Wal-​Mart losing many talented executives due to its inability to cooperate and listen to
employee needs (Landler and Barbaro, 2006).
As a result of so many of these clashes of culture, Wal-​Mart didn’t establish a good reputation
among German customers or employees. Wal-​Mart found that its stores in Germany were doing
nowhere near as well as its stores in other markets mainly due to its lack of attention to cultural
detail when originally implementing its plan. By the time Wal-​Mart figured out its many mistakes
and where they could improve, it was too late to recover.

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Outcome
Wal-​Mart finally decided to exit the German market in mid-​2006. It sold its 95 stores to the
German company METRO AG, a big retailer in Germany. This sale resulted in a $1 billion pre-​
tax loss (Zimmerman, 2006). This loss doesn’t even include the millions, and possibly billions,
of dollars lost in sales each year from futile efforts to succeed in Germany.
Despite its mistakes in Germany, Wal-​Mart continues to try to expand into other international
markets, particularly in China. Unfortunately, Wal-​Mart’s missteps in Germany were costly;
however, hopefully it will force them to be more culturally sensitive in future expansions.

Discussion Questions
1 Who was most affected by Wal-​Mart’s mistakes?
2 What sources or models could Wal-​Mart use to research cultures and understand what
strategies to use?
3 What considerations should Wal-​Mart consider as it tries to expand in other countries?
4 In looking at the Iceberg Model, what were some of the values, beliefs, attitudes, and norms
that affected business?
5 Knowing this, how could Wal-​Mart have altered its international expansion strategy to
account for these differences?

Note
1 Authors: Chen-​jun Yu, G., Langhamer, T., Powelson, S., Foose, B., Ripple, M., O’Neill, B., and Tuleja, E. A.
(Ed.) (2015).

References in Case 1
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Bhan, N., and Toscano, M. (2006). Lessons from Wal-​Mart: Five common mistakes when
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