Essay: Issues In International Business - Walmart's Entry Into Singapore.

Discuss about the Issues in International Business.

Walmart was opened in the year 1962, by Mr. Sam Walton (Walmart.com, 2016). It is a widely popular multinational retail chain outlet headquartered in the United States of America (Walmart.com, 2016). It has created a chain of discount department stores, hypermarkets, grocery stores and others (Walmart.com, 2016). There are 11,545 Walmart stores in 28 countries, as on date 30 June, 2016 (Walmart.com, 2016). The company has different names in the different countries. For example, it is known as “Asda” in UK, “Walmart” in USA, “Best Price” in India and “Walmart de Mexico y Centroamerica” in Mexico (Walmart.com, 2016).

The company is hugely popular because it is the largest company by revenue in the world, as per the Fortune Global 500 list, published in the year 2016 (Fortune, 2016). It is also considered as the most valuable company in the world in terms of market value. The net income of the company was US$ 14.694 billion in the year 2015 (Walmart.com, 2016). The company is regarded as the largest employer in the world (in the private sector) (Walmart.com, 2016) . It has approximately 2.2 million employees all over the world (Walmart.com, 2016). It is a well known name in the Retail industry. There are three retail formats of Walmart in U.S.A known as Discount stores, Supercenters and Neighborhood markets (Walmart.com, 2016). The retail division in the U.S.A is the largest one. It contributes approximately 62.4% of the total sales of the company (Walmart.com, 2016).

The company offers store brands, also known as generic brands. These are low cost alternatives to the branded products. The company offers generic brand products for the purpose of consumer purchase (King & Chicken, 2015). The main products of the company are electronics, clothing, movies, footwear, toys, jewelry, craft supplies, fitness goods, grocery items and others.

The city-state selected for launching Walmart stores is Singapore. It is a Sovereign Republic State which is a based on English Common Law (Gill, 2013). It possesses the best water, air and road transportation in the global market. The cultural diversity of Singapore makes it a preferable spot for the foreign firms. The Singaporean market is lucrative for the foreign investors and hence it is a lucrative country for business oppportunities.

The primary policy of Walmart is to help customers to save their hard earned money by implementing best prices in the market (Niu & Yu, 2016). The target market of the company includes the middle class, lower and lower income households. In general, the company attracts the modest income group.

Background

Singapore is a free market economy with a high per capita GDP (Rodan, 2016). The country occupied the first position in the ease of doing business, as per the World Bank survey (in the year 2012). It is also the best destination for foreign direct investment (Singstat.gov.sg 2016).

The city has a population of 5.68 million and is considered as the second “densest sovereign state” (Singstat.gov.sg 2016). The cultural diversity of the population presents lucrative opportunity for the launch of the Walmart stores. There are people from all income groups in Singapore, which makes it the best destination for the launch of the Walmart stores (Singstat.gov.sg 2016).

Challenges

There can be several challenges during the launch of the products of Walmart at Singapore. There can be several barriers when entering a new market. There may be stringent government regulations, high start up expenses, technology protected by patent, product differentiation, economies of scale, competitors, cultural differences, substitute products and others (Creusen & Lejour, 2013).

There are three major barriers for entry in the markets of Singapore namely Government regulations, Economies of Scale and the Competitors. The Singaporean Government may pose entry barriers by “restrictive licensing requirements”. It may also restrict the availability of the raw materials and delay in the issuance of necessary government approvals. The existence of the economies of scale can act as a barrier. The gains in the efficiency and the low production costs comprises of the economies of the scale. The existing companies in the Singaporean market are already producing better products which are well positioned in the target markets. The new company may not be able to deliver products that capture the target markets. This causes a resistance to the products as well as services of the new company. The new market has already a large number of competitors who are delivering similar products and services to the customers. The existing market players have already captured the target market by satisfying their preferences. Walmart needs to customize its products and fix an affordable price for the products. This is done for the purpose of competitive advantage in the new markets.

Recommendations

The challenges explained in the previous section needs to be overcome so that Walmart can capture the new market in a short span of time. The company needs to identify the strong areas of the market in which the Singaporean government is interested. The company should be well aware of the legal requirements of Singapore such as permissions, licenses, regulatory compliances and others. The company should focus more on the economies of scale by fostering innovation and launch low cost production methods or change in the pattern of sourcing. Special attention should be given on costs of raw materials, production, logistics, shipments, service, recruiting talented personnel and others. An extensive market research should be carried out for analyzing the strengths of the competitors and their offerings. The services and the products should be modified accordingly as per the demands of the customers. The company should aim to create competitive advantage for better visibility in the market. The company should analyze the capital requirements before venturing into the new market. The startup costs should be estimated and noted. This may include the cost of manufacturing plant, cost of raw materials, acquiring suitable locations, the recruitment of talented personnel, installation of technology, implementation of telecommunications and others. The company should know the sources of fund raising and should find investors long before the actual launch. There is also a need to determine the fixed costs and the variable costs. Walmart should focus on product differentiation strategies. The companies should produce unique products with special features, which are slightly different from the competitor’s products. The company can also use the technique of low pricing for better acceptance in the market. It should analyze the offerings of the competitors in relation to cost as well as functionality and design its products accordingly. The infrastructure requirements should be well managed by the company. It cannot function efficiently without a sound infrastructural setting. The acquiring of land, setting up of offices, implementation of digital connectivity and other utilities should be planned well by the company. 

Products of the Company

Entry Modes

There are several methods of entering a new market. These can be by licensing, franchising, joint ventures, distributorship and fully owned subsidiaries (Shishido, Fukuda & Umetani, 2015). The recommended mode of entry to Singapore is by Joint Ventures. It can be defined as a phenomenon by which two or more investors share control and ownership with respect to its operation as well as property rights (Chung & Beamish, 2012). This is a more extensive form of market entry in comparison to licensing or exporting. There are established market leaders in Singapore which deal with similar products. These companies are popular and well known by the local population. The tie up with such established local leaders would give immense visibility to the new firm. This is the reason of choosing joint venture as a method of market entry in new geographical locations (Chung & Beamish, 2012). Time is an important factor in the penetration of new markets. The setting up of basic infrastructure and the creation of brand image through promotion involves a considerable amount of effort, time and finances (Chung & Beamish, 2012). In the case of a new firm in a foreign location, these can be a challenging task. This is the reason why joint venture should be opted for the purpose of  gaining visibility and strong foothold in the foreign market (Killing, 2012). There are many advantages of joint ventures such as joint financial capability, source of supply, sharing of risks, sharing of ability and others. The financial investments are shared by multiple partners, which makes it convenient for the new entrant. There is  easy supply of raw materials from the partnered organization, as they have already procured from the best suppliers. Walmart would enjoy access to new prospective markets, distribution networks and others. The sharing of potential risks with the partners also makes the company to deal efficiently with adverse situations (Beamish, 2013). The company would prosper without the need to borrow funds from third parties. The existing companies database can be used to effectively market the products of Walmart (Chung & Beamish, 2012). This would make the company to establish their presence in the untapped markets of Singapore. 

References

Beamish, P. (2013). Multinational Joint Ventures in Developing Countries (RLE International Business). Routledge.

Chung, C. C., & Beamish, P. W. (2012). Multi-party international joint ventures: Multiple post-formation change processes. Journal of World Business, 47(4), 648-663.

Creusen, H., & Lejour, A. (2013). Market entry and economic diplomacy.Applied Economics Letters, 20(5), 504-507.

Fortune. (2016). Fortune. Retrieved 10 August 2016, from https://www.fortune.com

Gill, C. (2013). Open Access to Legal Materials in Singapore.

Killing, P. (2012). Strategies for joint venture success (RLE international business) (Vol. 22). Routledge.

 King, B., & Chicken, K. F. (2015). Marketing Plan. Marketing, 7, 2.

Niu, X., & Yu, X. (2016). Exploring Customers’ Search Behavior on a Large E-Commerce Website.

Rodan, G. (2016). The political economy of Singapore's industrialization: national state and international capital. Springer.

Shishido, Z., Fukuda, M., & Umetani, M. (2015). Joint Venture Strategies: Design, Bargaining, and the Law. Edward Elgar Publishing.

Walmart.com (2016). Retrieved 10 August 2016, from https://www.walmart.com

Welcome to Statistics Singapore. Singstat.gov.sg (2016). Retrieved 10 August 2016, from https://www.singstat.gov.sg