Wal-Mart’s Foreign Expansion
Aaron BlackburnFall 2011
Wal-Mart’s Foreign Expansion
Wal-Mart has not been able to translate its merchandising strategy wholesale to
anothercountry successfully. What has worked well in the United States has
been the result of adapting tochanges in the U.S. market over decades. This
strategy could not be used in another country whenmanagement in the U.S. only
has knowledge of retailing in their home country. Being able to start aventure
with a single store and grow it into a large corporation is very different than said
corporationmoving into a completely new market. Their forays into
international markets have proven this to them.They need to be mindful of how
the local culture shapes merchandise demand and buying behaviors.This
strategy has given Wal-Mart success in Mexico and China. In Mexico, Wal-
Mart used a joint-venture with someone who had that from-the-ground-up
experience in Cifra. While Wal-Mart did nothave a partner in China, their low
prices were something that complimented the bargain-hunting cultureof Chinese
consumers well. Ignoring cultural effects on merchandise demand and buying
behaviors hasled to failure in the United Kingdom, Germany, and South
Korea. In these countries, long-establishedcompetitors knew their customer base
better than Wal-Mart. These have influenced Wal-Mart toconcentrate on
developing countries where there is a lack competition and low prices are a
primary
consideration in purchases. Understanding a country’s culture is a necessity for
conducting succe
ssfulbusiness there.Wal-
Mart’s beg
an international expansion by starting in Mexico. This took the form of a
partnership with the country’s then largest retailer Cifra.
Initially, Wal-Mart had some problems with its
stores in Mexico. “It quickly discovered that shopping habits were diffe
rent.
” These differences
included a preference for fresh produce, meat, and bread goods. Unlike the
United States, manyMexicans did not own large refrigerators, so these
foodstuffs did not last long. This difference betweenthe two cultures accounted
for the difference in buying habits. Therefore Mexicans on average
shoppedmore frequently. They also buy lesser volume because of a lack of
long-term storage, and also becausethey often walked to their grocery
stores. Walking to grocery stores was a result of another materialdifference
between the U.S. and Mexico: lack of privately owned vehicles. The retailer did
not allowthese differences to stop them.
“Wal
-Mart adjusted its strategy to meet local conditions, hiring localmanagers who
understood Mexican culture, letting those managers control merchandising
strategy,building smaller stores that people could walk to, and offering
more fresh produce.
” These changes
proved to be very successful because the company learned how to take
advantage of these differences.Now Wal-Mart is now the largest retail chain in
Mexico.Wal-Mart has not been successful in countries such as the United
Kingdom, Germany, and South
Korea. “In all three countries it found itself going head to head against well
-established local rivals whohad nicely matched their offerings to local
shopping habits and consumer preferences.
” Again, Wal
-Mart was not prepared for the differences between U.S. and local
customers. And unlike the Mexicanexample, Wal-Mart did not have a local
company with whom they could form a strategic alliance. They
also did not change their approach to meet local shoppers’ expectations.
There was also a difference in
Walmart de México
Walmart de México is the name of the joint-venture between Wal-Mart and
Cifra mentioned in
the “Wal
-
Mart’s Foreign Expansion” case.
Since the case was written, it has proven to be a profitableproject for Wal-
Mart. “
In 2009, Walmart de México acquired Walmart Centroamérica, expanding
itspresence to six countries, and increasing the potential for continuous
profitable growth
”
(Wal-Mart). Nodoubt this is because Wal-Mart has continued to offer
the products the people of Mexico and CentralAmerica want in a way that has
encouraged sales. The changes the firm made after their initial entranceinto
Mexico have validated their decision to deviate from their business plan in the
United States.
The company has had its own impact on the retail industry in Mexico. “
Practices introduced bythe retailing giant include centralised distribution
systems, the use of standardised pallets, rigorousdelivery schedules, and
computerised tracking, which allows suppliers to obtain real-time informationon
sales and inventories at the level of individual stores
”
(Iacovone, Javorcik and Keller). Companies, nomatter if they are local or
international, have been successful when they differentiate themselves fromthe
competition. These new practices have helped Walmart de México reduce costs
for themselves andtheir customers while offering those local products that
Mexicans prefer to purchase frequently.The firm has changed how grocery
suppliers conduct business too.
The partnership “
allowsMexican suppliers to reach a larger market without having to make
investments in distribution andlogistics on their own
”
(Iacovone, Javorcik and Keller). This has given suppliers a
tremendousopportunity at little cost compared to other industries
within Mexico. However, this has had an impacton the suppliers. Walmart
de México
“
routinely demands price reductions from suppliers that do notcome up with a
product innovation in a given year
”
(Iacovone, Javorcik and Keller). The retailertherefore extracts a price for using
their sophisticated distribution network. They justify it by offeringnation-wide
access without the suppliers having to create the system themselves. The
practiceincentivizes suppliers to find ways of lowering their costs or provide
new offerings.But not everything is going Walmart de México
’s way. “There’s a limit on how many stores the
Mexican economy can absorb
…
The number of new stores is outpacing the increase in Mexican salariesand new
jobs, resulting in sales being taken a
way from existing ones”
(Levin and Black). This might helpWalmart de México
if the customers’ main motivation is finding the best deal. However, if there is a
trend to locally-owned businesses, the company might be seen as an interloper
from the United States.The everyday low-
price comparative advantage is also in danger. “
Efforts to increase sales come ascompetitors
…
have learned to match Wal-
Mart de Mexico’s prices”
(Levin and Black). The business willeither have to continue to use their
leverage with suppliers, and/or find new efficiencies in theirdistribution system,
to lower prices further. That would be a strategy Wal-Mart could use. In a
differentmarket such as Mexico, they might have to find a new solution that
utilizes the local culture instead.
