Walmart's Global Expansion Strategy: Cultural Issues

Walmart, the largest retailer in the world, is spreading its power all over the world, starting in Asia, Europe and Latin America. They have planned the expansion for more in the near futures. Many serious problems are come into play while with its attempt to penetrate hypermarket culture in every country it enters. The company believes that one day will replace the United States position when the trend down (Molin, 2004). To achieve this goal, Walmart is encouraged to expanding stores to nine countries around the world and more in its plans (About Walmart, 2012). As the rest of the world does not guarantee it become the number one in the United States. There are many problems that Walmart facing in this competitive business world.

Introduction

Walmart is the world’s largest retail company. The company has more than 8,000 stores, sales of over $300 billion and over 1.8 million employees. (Walmart responsibility report, 2012) Walmart sales general merchandise at “Everyday Low Prices”. In the past two decades, Walmart has been a leading retailer in the world. Its primary success comes from their excellence in supply chain management, the customer service and ability to keep prices low. (Bianco, 2003)

Walmart control the U.S. market and their 24.7% of its sales were come from 15 international markets. It has achieved their early success in Mexico, Canada, later in the China and U.K, but it failed to entry the market in Germany and Japan .However, the company has learned the lessons and early mistakes and has been more successful in their later entries in other international markets.

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The purpose of this report is to discuss the global expansion strategy and cultural problems involved in the Walmart case study. It will firstly discuss the global expansion strategy of Walmart and it will go on to elaborate on the cultural variances faced in international market which Walmart entered and some successes and failed enter strategies. After that, the report will analysis a number of targeted countries for Walmart to gain in-depth understanding on the cultural variances and opportunities that might affect their international business operation and the future global expansion plan. Finally, the report will end with a synthesized conclusion.

Early global expansion strategy and First Enter strategies

In the early 1990s, Walmart think-tanks rightly realized that internationalization was the need right now. For the future growth, it was important that Wal-mart should explore markets outside the U.S. There have three main reasons: Firstly, it calculated that the U.S. population account for only 4 of the world’s population, so Walmart confined itself to a small piece. Secondly, even it was a relatively small market which had saturated and growth becoming flat. Finally, some people believe that the emerging markets have a greater potential for discount retailing. As mentioned, the market growth opportunities for Walmart in the United States are becoming more and more limited. Therefore, in early 2000s, the company decided to start its global expansion.

Meanwhile, the “Low Price Promises” is an advertising strategy that is known in any language. Walmart has adopted productive business strategy that in each country its stores will have a different name and the products produced are of different quality according to the preferences of the local customers in international country. Walmart’s corporate management strategy is including sale of high quality products at the lowest price.

In the adventure beyond its huge domestic market, Walmart had a lot of regional options, it including enter into Asia, Europe or other western hemisphere countries. However, at the time, Walmart lacked of the necessary financial, organizational and managerial resources to pursue a number of countries and regions simultaneously. Instead, Walmart chose a logical sequencing method to enter the market that would allow it to apply the learning gained from its initial entries to subsequent ones. Finally, Walmart decided to focus on establish a presence in the Americas, Mexico, Brazil, Argentina and Canada for the next few years.

In 1991 Walmart began to expend into international market; they began their internationalization by enter into the two geographically closest markets, which are Mexico and Canada. They first choose to entered Mexico, the country which Walmart chooses that has had a very successful experience joint venture with Mexico’s largest retailer, Cifra, to open the Sam’s Clubs in 1991 (Chain Store Age,2001), and the next step was to enter Canada through acquisition in 1994.

Obviously, Canada and Mexico are the neighbor markets which had the closest business environment to the U.S. and also the easiest entry destination. Canada is a mature market and there are significant incomes and cultural similarities between the United States and Canadian markets, since most Canadians live near the U.S. border, they were already familiar with the company. so Wal-Mart faced relatively little need for new learning. Mexico and Canada are two good markets for Wal-mart first starting the expanding to international market.

On the contrary, Wal-wart also has plan to expand into European and Asia market, but they recognize that the Asia market such as China, Japan have a long distance , high entry barriers and huge cultural differences compare with U.S. market. Otherwise, the retail industry in European was mature and it means that the new entrant would have to take market share away from the existing competitors, but also there were some well-entrenched competitors in European market, such as Carrefour in France, Metro in Germany, which would likely retaliate vigorously against the new entrants, it is detrimental for Wal-mart expansion strategy implement.

Latin America expansion strategy

The life attitudes towards passionate Latino are not really like Wal-Mart’s “everyday low price” strategy. Because In developed countries such as United States and Canada, the weekend procurement as a task that people must be completed as soon as possible, so Wal-Mart’s excellent low-cost strategy can help people to accomplish this daunting task in the shortest possible time and in most efficient way. But Latin Americans still at the level of developing countries, they were more willing to shopping as a pastime or social gatherings, customers like droves in retail stores on a regular basis to meet each other and recommend their shopping discovery and tips, those occasional discount goods and shops increase their social fun, so the lowest price strategy Wal-Mart looked in Latin America lost their attractiveness. Of course, after wandering in after years of suffering, Wal-Mart seems to have started to consciously change their operation strategy.

However, in the 1990s, economic and political environment has become more stabilized, thereby increasing the targeting by developed country retailers such as Wal-Mart. Because of cultural differences, consumer different preference and only recently stable economic and political environment, Wal-Mart decided through a Joint Venture to enter Mexico and Brazil market. The idea has been used in Mexico and Brazil and as strategic bases to further expand to other Latin American markets. The successful of “Everyday Low Prices” system in Mexico was the first strategic move aiming occurred 1991 and it reaching the company’s overall goal to becoming the leading player in Latin America.

Wal-Mart further highlighted its commitment to growth throughout Latin America by a new market entry strategy and operates a major business in Chile after acquiring local retailer D&S at the end of 2009. In general, Walmart’s employs are more than 341,000 people in Latin America and it has become the largest employer in the region, according to a Latin Business Chronicle ranking of the top 100 employers. (Latin 500)

Wal-mart had taking advantage of strong performance in Brazil, Mexico and Chile; and it has undertaken the massive task of conquering the rest of Latin America. The company targeted that it has open stores in Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Costa Rica.

Potential, culture challenges and opportunities of future global expansion

Paul Naranjo, the professor of Chile Adolf the Iban Naizi Business School, he through that Wal-Mart’s low-price strategy has making it become an attractive shopping place, but in this case generated in addition to the lower-priced goods, but along with a credit card service. For example, it has developed in Chile market. He also explained that, Wal-Mart’s recent acquisition of D&S – a very important member of the region has the Ryder supermarket chains, and it established the credit card called Presto Card, which consumer can not only use in the Ryder supermarkets, it can also used in other business activities, such as pharmacies, banks and travel agencies (Bianchi, C.C.; Ostale, E, 2006). This initiative will undoubtedly come into this country. Also this is a successful example for Wal-mart to expand this business into other international market.

In addition, Wal-mart creating the Banco Walmart, which is the world’s first Walmart bank in Mexico and the successful development of the new formats, such as Fair-Price Shop Bodega Aurrera Express in Mexico. (Sean Deale, 2011)This store format is intended for fill-in trips with daily frequency, mainly focus on the price and convenience as the primary trip drivers. This is the format Walmart is expecting will expand the fastest in terms of pure of stores added in the next 3-5 years in their future expansion.

For the success of Wal-Mart in this region, Pablo Naranjo, the professor of business at the Adolfo Ibáñez University said that must recognize the differences between consumers in every country, and must stop thinking about that Latin American culture as a single entity (Latin 500). Walmart also might face some barriers of a cultural and economic while expanding in Latin America. Each country is a totally different market and with very dissimilar economic realities. To achieve this goal, it has to rely on the experience of its business partners in various countries.

According to Silverman (1999), despite the fact that Wal-Mart entering into international markets is very aggressive in matters, it sometimes will face a lot of problems in the process of entering into another country. For example, the efforts made by this company to enter into Argentina were not very successful because the result of cultural influences in this country. This indicates that in Argentina, customers do not accept the U.S. supermarkets and hence Wal-Mart is facing a very big problem. In the year 1995, Wal-mart had optimistic hopes of changing the cultural influences of the people in Argentina; however, this was not successful. Henderson (2006) indicates that the culture usually determines the success and failures of an organization. In addition, cultural influences affecting the company’s performance and it usually change from place to place and from time to time.

Brazilian retail consumers consider product quality the most important factor in the decision-making process of purchasing, followed by product price, customer service, store cleanliness, and store distance. (A. de Rocha, L. A. Dib, 2002) A good example is the difficulty of Sam’s clubs in Brazil. The Brazilian consumers never pay for a membership fee and they do not have much room to store a big volume of purchases (Lewis, 1998). It is undeniably that Wal-Mart had to change its strategies in order to fit their culture.

Latin America has big potential growth opportunities because of its culture, economics and infrastructure. Walmart Latin America CEO Eduardo Solórzano said (David A., Thierry O, 2011) that Latin America is a key region and have a good opportunity for Walmart growth in the next couple of years. Walmart are sharing best practices across markets and developing new formats to serve the unique customs and needs of Latin America customers. According to Escobar, in Latin America one of the most attractive opportunities for Wal-Mart is to grow by acquiring supermarket chains at the competitive prices, as the retailer which has done in Chile. In the rest of Latin America, Wal-Mart will have to repeat the same strategy, or at least try to do so.