Walmart Case Study

Walmart Case Study
8 mn read

Abstract:

The case studies discuss in detail challenges and opportunities that Walmart had to confront as a result of its expansion to other foreign markets. Walmart strategy in Mexico was highly successful. However, this isn’t true for all regions the Walmart selected from global expansion. The company had to face cultural and geographical challenges when it chose to enter other foreign markets. The company had limited resources and lack of experience. Thus it decided to expand sequentially. Walmart stated from countries that had the similar business environment and then applied the experience learned to subsequent market expansion strategies.

Introduction

Walmart began its international business operations in 1991 from Mexico City. The company gained its name through Walmart international that was first initiated in the Mexico City. The company adopted a unique business model in which the company offered lowest prices to its customers. The company believed in attracting more customers through it low pricing strategy. Walmart focused on cost leadership strategy. It focused on providing products at the lowest price to its customers to stay ahead of competitors. However, unfortunately, the cost leadership strategy didn’t work for all markets where Walmart decided to expand its operation. Walmart faced immense resistance from retailers of foreign markets. These retailers formed a monopoly to inhibit Walmart from becoming a market leader. The company decided to expand its business to China, United Kingdom, Japan, honking and other foreign markets. In Mexico, United Kingdom, and China the company faced hurdles in successfully running the business. The company faced resistance from local established retailers to come up with a low price model in the market. They were threatened by the new strategy as they believed that low pricing strategy would take away their customers. In Germany, Walmart couldn’t fir itself to cultural needs, tastes and preferences of the customers. It failed to establish its low pricing modal. The company owns several stores in Germany and South Korean, but unfortunately, the model didn’t work out. The company suffered whenever it tried to expand its business to other foreign markets. Resistance from established retailers established monopoly and inability to satisfy the taste of consumers are among main reasons why the company failed to expand its business in the local market. The company now has to think of new ways of adjusting itself to foreign market needs, preferences and to find a suitable strategy to successfully enter the foreign market without being resisted by established businesses.

Walmart

The company had several challenges to face from local market retailers to inability to satisfy its customers. However, despite all these challenges Walmart is among the fast-growing businesses of the world. The company can establish its low pricing model in about fourteen countries. The company has about four thousand and eighty-one stores that are spread across the globe. The company has six lakh and sixty-four thousand associated in fourteen countries across the globe. The company has expanded its business since its inception. The company bravely faced all challenges and became victorious to penetrate to the foreign market. The trade unions of China confronted more challenges to Walmart. The government sided with trade unions and allowed unionization in a foreign company. Despite such pressure, the company was still ranked among top ten companies in China that provide the best environment for workers to work. Walmart is not just a small business now only selling low priced items. The business has grown rapidly than any other retail business offering the same pricing modal. The company was able to earn $405 billion in the year of 2010. Such a huge revenue depicts the success of the company in the local and foreign market. Walmart most of it items supplied by the China market. China is among the closest trading partner. Getting supplies from China helps Walmart to maintain it low pricing modal. Walmart owns several stores, supermarket chains, neighborhood markets and bodegas all around the world.

Walmart began its business in America. When the company decided to expand its operation to other foreign markets, it decided on a sequential approach. The company first decided to enter European market later it decided to enter the Asian market. The business environment of European markets such as United Kingdom, Germany, France, Canada, etc. was quite similar to the environment of the United States market. The company expanded its business to European market first. In the European market, Walmart still has to face several obstacles to cross over before it decided to expand its operations there. The Walmart faced huge monopoly from established players. The European market was quite mature. Thus it was difficult to enter to into European market. Despite challenges, the company was still able to establish its business successfully in European markets. Later it decided to move on to Asian market. Asian market was different regarding culture and Walmart has to fit itself into a completely different culture. The company at first established it business china. China was an attractive market since most of the people living in China had low purchasing power. This was quite advantageous for Walmart since low purchasing power depicted a bright future for low pricing business modal. However, the company still had to face several challenges before it decided to set up its business in China. Walmart had to cover a long distance from America to the Chinese market. Chinese market differs from the European market regarding culture, geography, language, and taste.

The Walmart international was quite successful in Mexico. The company has superstores, bodegas, retail stores inside the Mexico City. Mexico City seemed to be a promising market. The company experienced positive response from Mexico buyers. The company opened ninety-three stores in Mexico. Later, the company owned about eight hundred and eighty-nine stores in Mexico. However, the company still aims to establish one hundred and twenty-five more stores in Mexico due to positive response received by the company. Walmart received permission from the Mexican government to open its bank. The Walmart particularly targeted individuals with low purchasing power. About seventy-five percent of the Mexican population did not have any bank account. This was because the Mexican banks offered huge fee and other charges. Walmart opened its bank in Mexico in 2007. The company now has several; branches. Walmart took the same low pricing model to its new financial business. Low pricing model allowed customers to have an account at low bank rates. Low pricing modal confronted more challenges to established financial service providers that offered high bank charges. Through low pricing modal, Walmart was able to penetrate into Mexican market with most of the people belonging to low-income groups.

In 1998 the Walmart entered Europe by establishing its business in Germany. The company established itself its Germany through the acquisition of local hypermarket. The company was not yet aware of several challenges ahead in the German market. At first, the company had to face cultural differences. Many retail shops were already offering similar items at discounted price. Walmart faced severe challenges in the German market and was unable to maintain its business. Thus it withdrew its operations from Germany market. Expansion to the United Kingdom was a huge success. In Japan, the Walmart offered everyday low price offers to customers in certain categories. This made the business a huge success in Japanese markets where customers realized that they could purchase high-quality items at low prices from Walmart stores. Walmart was quite successful in expanding its business to Latin America and at the end of the Chile market. The company took advantage of its experiences learned from expansion to German markets. The same experience was applied when Walmart decided to it enter into Latin America and Chile market. The company aims to grow to maximize its shareholder wealth. The company aims to optimize its portfolio to continue its organic growth.

Answer no 1

During early periods of globalization and expansion, Walmart had limited financial resources and managerial capabilities. The company decided to expand its operations to foreign markets in a logical sequence manner. Walmart decided that it will use its experience from expansion to markets in the beginning and it will eventually apply the learned lessons to countries where Walmart expands its operations later on. The company first expanded its operation in Mexico and Canada market for few reasons. The two markets had the same business environment as in the home country. The two markets were not much distant and didn’t differ much culturally. Walmart, later on, decided to expand its operation to European and Asian markets. European markets were quite mature. Entering the European market was difficult. Walmart had to face severe competition and monopoly from established players. Asian markets were quite distant. They differ culturally and geographically (UK Essays, 2017). The Walmart decided to first enter the Mexican and Canadian market since it had enough resources to expand in those markets. Walmart also experienced same business environment there. Later it decided to expand its operation to European than in Asian market. This was because the cost of late entry in Europe was quite low as compared to the cost of delayed entry in the Asian market (Gupta, 2002). Thus initial expansion strategy was based on expanding to markets that have the same business environment, aren’t mush distant and can optimize on limited financial and managerial capabilities, latter lessons learned could be applied when expanding to other markets.

Answer no 2:

Walmart had to face cultural differences when entering into foreign markets. Walmart geographical, cultural and differences in taste and preferences. For instance, when Walmart entered to German market through acquisition, it faces several challenges. There was a huge difference in culture. Walmart had American manager to operate in a culturally different German market. German had different buying behavior, and the American manager couldn’t cope up with that. Germany is already considered the home of the discounter. Thus low pricing modal didn’t work there. Stores of acquired company were quite distant. Most of them were located in poor areas. Low pricing modal didn’t generate many profits in German markets since customers were quite price conscious in Germany. In Japan, Walmart learned that bulk deals are not suitable for Japanese. The company suffered from populated wholesalers. Japanese usually had an idea that low prices are associated with inferior quality products.

Walmart learned several lessons from expansion to German and Japanese markets expansion. Learning from German market expansion, Walmart had Japanese manager to manage the operation. The manager was able to understand several challenges and responded accordingly. He freed floor space, removed butchers, increased sales on private brands and offered everyday low pricing deals. These strategies worked as a success in the Japanese market. One main lesson Walmart learned from its foreign expansion strategy was that it could not apply a single formula to fit into all business and cultural environment. For instance, when expanding to Mexico, Walmart even changed the name to Walmart de Mexico to show its affiliation with Mexican culture (BARBAROAUG., 2016).

Answer no 3:

In Latin America, the strategies implemented by Walmart were quite successful. Instead of coming up with something completely new, Walmart decided to enter Latin American market through the acquisition of existing players. Acquisitions helped Walmart to cope up with cultural differences and to establish a strong competitive position. Brazil and Chile were targeted for expansion. In both countries, Walmart applied acquisition strategy. The biggest opportunity for Walmart in Latin America is the emerging middle class with limited resources. This category will be more inclined towards low priced products. Emerging middle class pose the biggest opportunity for Walmart (Latin Trade, 2017). Some challenges of Latin American market include unavailability of labor due to rising middle class, poor store location as a result of acquisition strategy and uncompetitive prices (REUTERS, 2016).

Answer no 4:

Walmart aims to expand its business in China through expansion of subsidiaries. The company also aims to expand its business in Brazil. Brazil seems to be an ideal place to work in with developed infrastructure. Growing middle class and rising trend of high spending on food make Brazil an attractive market for Walmart. Brazil also provides favorable conditions for foreign businesses to operate, unlike Russia and India. India limits the opening of foreign stores where multiple brands are available under a single roof. Russia on the other side restricts foreign investors to expand their retail operations. India and Russia are also an ideal place to expand since retail business are spread at a fast pace in both countries. But both countries provide unfavorable circumstances for foreign investors to operate. Walmart aims to establish a business in both countries through acquisition and joint venture strategy. Walmart in the future aims to target South African countries. The company will take the same acquisition strategy to compete with established competitors in South African regions. Thus in future Walmart aims to enter new markets such as India. Russia and South Africa while expanding its business to existing markets. Walmart in the future aims to expand its business through acquisition and joint ventures so that it can better compete with the established competitors of new markets.

Exercise:

The country I have chosen is Russia. Russia despite challenges presents an ideal place for Walmart to expand its business. Russia is currently experiencing a huge expansion in the retail market business. The country has a big retail industry serving about one hundred and forty million people. This makes Russian market an attractive place to open the business. Russian retail market is earning huge profits. However, Walmart will be confronted with several challenges if it chooses to start its business in Russia. Competition in cities is fierce. The only way to establish a business in the Russian market is to acquire few existing layers. If Walmart had to choose to open stores in small cities (Kiselyova, 2012), it had to incur extra cost. Roads to small cities are broken, and infrastructure is less developed. However, if Walmart is successful in establishing its business in the Russian market, it will be able to earn huger profits since the retail industry is a fastest growing sector in Russia. Walmart would also have to face cultural differences. Russian and different language and buying behaviors than that in the United States. To cope up with cultural difference and to survive in intense competition. Walmart should focus on acquisition strategy in Russia (Reuters Staff, 2012).

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