Decision Making For Entry Strategy & Organizational Structures
Introduction
Entry into new regions is one of the significant strategies that companies use to expand and widen their operations. An example of a company that has successfully penetrated numerous markets across the globe is Walmart. Wal-Mart became international in the year 1991 after the grand opening of the Sam’s club in Mexico. Wal-Mart has ever since been growing overtime drastically. Despite the successes in many markets, Wal-Mart has been faced with various challenges in its operations of trying to enter different markets. This research document focuses on the expansion strategies of companies when entering new markets using Wal-Mart as the case study.
Walmart’s Global Strategy Expansion
Given Wal-Mart’s inevitability for expansion, it could not confine itself only in the USA; hence it started to focus on venturing in other countries. Some of the three major reasons for Wal-Mart to expand its operations were, first, the hindrances to cross-border ventures in the 1960s that made it conceivable to enter international countries. Secondly, to get substantial economies of scale from the world’s purchasing power. Lastly, the improvements in technology, mainly the spread of internet-based software that made it experience control over its world operations. Wal-Mart started its international expansion strategies by first focusing on Mexico and Canada as the major areas of expansion. Wal-Mart did not use a lot of expansion options in its strategy to diversify its operations. It mainly used the chain acquisition procedure to venture into different markets, for example, in Canada, Germany, South Korea, and Britain. Wal-Mart used this strategy during the purchase of Woolco in Canada, but in the Canada case, it was faced with low sales because of the small size of Woolco stores. In a bid to expand further, Wal-Mart resorted to offering subsidized prices to its customers in Mexico, China, and the UK. However, this strategy did not work due to competition from other established retailers such as Uk’s Tesco. Walmart therefore redesigned its strategy and employed the strategy of buying already existing stores. This proved ideal and resulted in fast growth and access to the brand suppliers, distributors, and customers (Baines 2012).
According to Baines (2012), Walmart also resorted to joint ventures as one of its entry strategies. A joint venture strategy is whereby the two companies tend to share ownership between them in the newly formulated entity. This strategy proved favorable Wal-Mart because it helped it to join regions that were bound with cultural barriers and areas that were difficult to enter. In Mexico, for instance, Walmart signed a joint venture deal with Mexico’s most significant retailer Cifra SA. Wal-Mart also ended up using a joint venture with Lojas Americanas SA, to open five stores in Brazil. A joint venture was also attractive to Wal-Mart since financial risks were shared among the companies that were involved. The strategy was, however, not entirely ideal since Wal-Mart did not get full control of the outlets formed from joint ventures.
Walmart also uses organic growth as one of its expansion strategies. This entails the use of s own invested resources to bring up new stores or to acquire one more existing retail facilities from others. The success of this strategy was based on the availability and accessibility of assets to support the high costs of initial investments. This was not a problem for Walmart since it had a lot of capital to sustain its initial investment. The strategy, however, did not succeed due in every instance as it did not involve local industry players from regions of expansion.
Wal-Mart’s cultural problems
Wal-Mart’s success journey has also been faced with various cultural challenges in the multiple regions in which it expanded. In Germany, for example, two cultural factors made the growth of Wal-Mart difficult. First, there was the issue of mismanagement as some of the American management practices were not ideal for the Germans. The company installed American managers who made well informed cultural bloopers. Another cultural mistake they made was offering to pack groceries to the German customers. In contrast, the Germans prefer to pack the groceries by themselves. The American company management also directed the clerks to smile at customers while the Germans were used to the unfriendly services and were put off by the act of smiling.
Walmart management also made all the employees take part in a morning exercise before the shift. The employees were made to chant ‘WAL-MART! WAL-MART!’ during their morning exercises. In America, this exercise was considered a morale-boosting technique; however, it annoyed the Germans. Walmart management also did not seek employees’ feedback in Germany, lead to frustrations among the employees and a decline in their morale. In Mexico, Walmart had to deal with corruption among the executive members of the company. It was stated that the management offered bribes to get construction permits for Wal-Mart de Mexico. This led to a 5% drop in Wal-Mart’s shareholdings, which totaled to approximately 10billion US dollars (Lillis & Tian 2010).
Opportunities and challenges in Russia
Russia was an attractive growing market amongst Brazil, India, and China, and it formed an attractive market for Wal-Mart’s expansion. Russia is considered as the world’s greatest retail market, even with the fact it frustrates foreign retailers. Apart from the country’s growing market, Wal-Mart’s human resource situation was a big opportunity for it to establish in Russia. First, Russia has high-growth economic conditions. Secondly, human resource activities relate directly to the criticisms of Russia’s retailers’ practices. If Wal-Mart improved their practices, it would be in a better position as compared to other retailers. Most companies in Russia also charge the same prices on commodities across the country, which could be an advantage for Wal-Mart to endear itself to clients by charging lower prices. It could focus on the level of income in different regions in Russia, and it could take advantage of the regions’ heterogeneity. Wal-Mart can decide to differentiate prices and consider promotion offers across areas. (Kusznir 2016).
Despite Russia’s attractive market, it posed challenges to foreign retailers. First, it was hard for international companies to get approvals from various government agencies. Many stakeholders might be in opposition to raising allegations that the companies might bring unemployment, loss of livelihood for local products, among the many claims. Russia’s administration is corrupt; they are capable of hindering operations if they are not bribed. Russia is ranked 147 out of 180 counties on the corruption index by Transparency International. Even though the company will be successful in starting operations, its future will have challenges. The companies will not be in a position to bargain with suppliers, and they will be required to pay high wages to their staff.
Wal-Mart’s entry strategy for Russia
The Russian culture is made up of collectivism, egalitarianism, and dusha. The country embraces the communal spirit based on cooperation rather than competition. Egalitarianism removes the idea of inequality and promotes the equitable distribution of resources. Dusha requires that new business entrants should find mutual likings and emotions with each other. Russia’s attitude towards time is of less importance, although there is a need for punctuality. They mostly use faxes and emails for communication because post offices are considered unreliable. Personal and informal contacts are critical elements among the Russians. Physical contacts like handshakes while partnering in business are considered as positive signs.
For Wal-Mart to traverse the Russian market successfully, it has to keep in mind the significant players in the Russian retail market. It will have to sort for a developed retail company to avoid initial construction and advertisement costs incurred in setting up retail outlets. A total buy-out of the other company or a joint venture might be the most suitable strategy of entry, depending on the deal that will be accepted first from the different market players in Russia (Bei, Gielens & Dekimpe 2018). A total buy out would be most appealing if the time factor is brought into consideration. Wal-Mart is mostly driven by the idea of consumer satisfaction at affordable prices
Walmart’s entry into the market might provide customers with less expensive commodities due to the issue of high prices across all regions in Russia. The price reduction mechanism can only be possible if Wal-Mart is in full control of the already existing retail company; it’s opting to purchase. In the case of a joint venture, it would be hard for Walmart to make decisions because of the input from the other shareholders. However, Walmart can begin with a joint venture and then end up purchasing the other company’s shares, making it the majority shareholder responsible for approving most decisions.
Conclusion
In conclusion, it is vivid that Wal-Mart is a significant player in the retail business with a huge capital base, power, and assets. Wal-Mart has been able to encroach most of the world’s retail markets. It has several stores in different countries in the world and is still ambitious to enter other markets it has not explored. The organization has detailed knowledge of market needs and how to improve services they are offering in the retail market industry.
Wal-Mart has faced stiff competition over time but has been able to overcome such challenges time and again. They have a high purchasing power making it possible for them to undercut their competitors easily. Wal-Mart’s competitive nature, coupled with its ability to purchase commodities in bulk and at lower costs, enables them to sell to consumers at relatively lower costs compared to other retailers. Wal-Mart’s understanding of its market, and consumers will see it dominate the retail industry for years to come.
References
Baines, J. (2012). Walmart’s Contested Expansion in the Retail Business: Differential Accumulation, Institutional Restructuring, and Social Resistance.
Bei, Z., Gielens, K., & Dekimpe, M. G. (2018). Retail entry and exit. In Handbook of Research on Retailing. Edward Elgar Publishing.
In-depth integrative case 2.2
Kusznir, J. (2016). Doing business in Russia: The main political risks and challenges for international companies. In-State Capture, Political Risks, and International Business (pp. 115-133). Routledge.
Lillis, M., & Tian, R. (2010). Cultural issues in the business world: An anthropological perspective. Journal of Social Sciences, 6(1), 99-112.