Critical Thinking Case Study: Wal-Mart’s Global Strategies

Critical Thinking Case Study: Wal-Mart’s Global Strategies

Walmart Inc. is an American multinational company in the retail business. It has several hypermarkets in China, and it also has grocery stores and discount department stores. It was founded in 1962 by Sam Walton, and seven years later, it was incorporated (Hunt et al., 2018). The firm operates under different names in different countries. In Canada and the United States, it operates under Walmart, and in Mexico, it operates under a different one while maintaining the original Walmart at the beginning of the name. Walmart is one of the firms leading to its revenue globally. It also holds the leading private employer with over 2 million employees globally (Hunt et al., 2018). The paper discusses the initial strategies of Walmart and examines whether they were right or not. It scrutinizes the issues Walmart faced in some of the international markets it made entries. The paper also makes an analysis of the challenges and benefits that it can face when expanding into the Latin American region. It gives details on the cultural environment, chooses an entry strategy and gives a description of how to implement the plan.

Walmart’s initial global expansion strategy involved the exportation of its approach of big-box low price model. The method was successful in the United States, and so they decided to try it out in countries like the U.K., China and Mexico (Hunt et al., 2018). Although in some other countries, the company’s offer to provide low prices worked. However, in the three countries mention earlier, the model did not work. They received resistance from already established retail companies. In countries like Germany, the approach could not fit with the local preference and taste. In Japan, it was the buying habits of the customers that did not conform to the model (Hunt et al., 2018).

In Mexico, three of the biggest local retailers combined their efforts to resist Walmart. Around the year 1990, Walmart’s presence ended in Hon Kong after only two years (Hunt et al., 2018). In Indonesia, operations ended after riots broke out in Jakarta. The firm had several stores in Germany and South Korea. Still, due to issues such as failure to meet consumer taste, repackaging, and distribution issues, the company decided to sell these store off. Additionally, brand loyalty was also another issue that the model did not address. The company also used a logical sequence approach to entering different international markets. That enabled Walmart to learn from the experience and use it in other market entries.

The low price model that Walmart chose was not an entirely good strategy for global market expansion. It had many downsides to it which can be seen from the resistance by other local companies such as those in Mexico. The coming together of three different companies to form one to compete with Walmart is a big issue. The strategy was not also flexible as seen it its inability to match customer’s needs. It did not take into account the repackaging and distribution needs of customers. The approach was also not able to attract new customers who were loyal to the other brands. Due to this fact, the company closed over a hundred stores in Germany and South Korea.

Walmart faced several cultural problems in some of the international markets it entered. In Germany, for instance, one of the main cultural issues the firm faced was mismanagement (Loomis, 2018). Walmart had a culture of making its employees conduct a particular exercise in the morning. The practice seemed harmless, and one may see it as something intended to boost employee loyalty and morale. In the United States, this was okay, but in Germany, it was resented. The exercise involved chanting the name Walmart every morning. The management should have realized this issue and corrected it.

Walmart’s ethical code was also an issue that was met with cultural resistance in Germany. The moral code involved employees spying on each other and reporting any misconduct at the workplace. Germany had this practice on a social level in the 1940s, and this had drastic repercussions. It is no wonder Walmart stores were closed in the 1990s (Loomis, 2018). That is another example of management not getting involved leading to these closures. The third cultural issue that Walmart faced in entering an international market is ignorance from employees’ feedback. To management did not allow any input from lower-ranking employees. This kind of control frustrated employees and discouraged them. The result was a decline in worker’s morale leading to lower productivity levels. The overall impact was on the efficiency of the venture in international markets.

The other cultural issue was ethnocentric myopia which involves the lack of proper research in the international market on customer habits and needs. Store mechanizing was utterly wrong. All discounted products were placed on lower shelves while premium products placed at eye level—that irritated customers leading to little purchases of Walmart’s products. The habits of clients were also not taken into account. In this case, in a country like Germany, whose citizens are known to be efficient and would want to spend the shortest time possible to purchase a product. Walmart got all this wrong by arranging stores that make a customer stay longer when purchasing a product.

Cultures such as cashiers’ smiles were not considered normal in some countries. Walmart made its employees smile in which they were not comfortable in the end. Therefore they gave out smiles that were not sincere. This is a trigger for reduced customers in some countries, leading to low revenue. The lack of research also made it worse in the case where countries were trying to conserve the environment. Walmart’s use of plastic packaging bags seemed to go against the culture of preserving the environment and therefore had to suffer a big blow of low revenue in the venture into international markets.

Other cultural issues that Walmart faced is the inclusion of Sam Walton’s name in every Walmart store. In this case, some countries took issue with this and the retail store lost a lot of money (Loomis, 2018). The cooperation culture of the retail store does not apply to every international market. Therefore, the company should try and incorporate other learning to ensure that the firm does well. These are a few problems that presented problems in the global expansion of Walmart.

As the Director of Walmart’s global strategic planning team, I would choose the Latin American region. Due to the current recession, there exists an opportunity for Walmart. The area is currently facing financial problems which will, in turn, affect the behaviour of consumers. With its low strategy model, Walmart can use this to its advantage. That is because of the deterioration of the income of Latin America.  The consumer behaviour will change and will opt for access to credit to cope up mainly when it pertains to food. Due to the strategy of low costs, it offers an attractive alternative for Latin Americans (Spicer & Hyatt, 2017). However, this opportunity has to be accompanied by credit offers. The success can be attributed to its recent venture into Chile. The purchase of D&S provided Chile with credit options leading to more purchases in the region.

Latin America also provides the potential for Walmart to grow. Some projections show that Walmart is destined to make more in economies that are anticipated to grow. When compared to other Latin American countries such as Mexico and Brazil, which had economies that were growing, the results were positive. Therefore, venturing into the Latin American region would present a lot of growth for the firm.

However, there are economic barriers that the firm that has to overcome presented by economic deterioration that the region experiences. In the initial stages, the company will have to put up with low demand for goods and services. In this case, Walmart should brace itself and fight to keep its model for a while. It should also prepare to compete with other big retailers that are already established in the region. Even though Walmart has made its name in the area, it will still have to make sure it offers the best prices compared to the other local companies and ensure that there are repeat buyers. With the current economic state of the region, this will be a tough thing to pull off.

The other challenge is the management of a new firm in a foreign language. Additionally, there is the installation of updated software and maintaining the local consumers’ credit portfolios. These consumers may be paying their credit at a slower rate because of the loss of businesses and jobs. Loyalty generated from credit obtained by customers presents another challenge. That is, the consumer will continue with the local company where they have confidence as long as they do not have to pay it off entirely. The culture will also present a problem since the Latin American consumer has a different pattern of consumption. Due to the dynamic nature of the Latin American consumer, it will be challenging to find out how the consumer behaves.

Latin American culture can be seen as one of taking credit because of their current economic status. It is therefore essential, as the Director to introduce credit facilities for these consumers. The best way to make sure there is an easy entry into the Latin American Market is through buying a company in the region. That is because it is an existing local company and customers respond positively in case. As the Director, acquiring a company that has a significant market share and also is a direct competitor ensures that the business starts with an added advantage. These include an already existing consumer base and knowledge of the local market.

References

Hunt, I., Watts, A., & Bryant, S. K. (2018). Walmart’s international expansion: successes and miscalculations. Journal of Business Strategy, 39(2), 22-29. https://doi.org/10.1108/jbs-02-2017-0013

Loomis, E. (2018). Walmart in the Global South: Workplace Culture, Labor Politics, and Supply Chains. By Carolina Bank Muñoz, Bridget Kenny, and Antonio Stecher (eds.). Austin: University of Texas Press, 2018. p. 280, $29.95. The Latin Americanist, 62(3), 471-472. https://doi.org/10.1111/tla.12204

Spicer, A., & Hyatt, D. (2017). Walmart’s Emergent Low-Cost Sustainable Product Strategy. California Management Review, 59(2), 116-141. https://doi.org/10.1177/0008125617695287