Discuss about the Wal-Mart Decision in Global.
Wal-Mart is recognized as one of the largest and dominant retailing company worldwide. In the year 1997, Wal-Mart focused on attaining a higher level and transforming the company into a much more competitive environment. It began its era of globalization with 9 major countries in South America, Europe and Asia. In majorly every country where Wal-Mart entered, it laid huge efforts to penetrate the hypermarket culture within the country and due to this a number of rigorous issues arrived into picture (Brennan and Lundsten, 2009). After ruling the retail market of US for an extensive period of time Wal-Mart faced towards Germany and continued with its globalization strategy in 1997 by getting hold of 2 major retail chains of Germany. In 2006, after experiencing 8 years of failure and loss-making business the company take away its existence from Germany as well as Wal-Mart sold out its complete retails channels to a company named Metro AG (Brunn, 2006). The report highlights the various reasons behind the failure of Wal-Mart’s strategy of entering into the German market based on the cross-culture viewpoint( Lessard, Lucea, and Vives, 2013). Being a corporate giant, Wal-Mart had to face several issues in international business because of an ignorance and inadaptability look towards the acceptance of the local culture of Germany. Thus it made essential for every company to first understand and have an in-depth knowledge of the local culture and market of the potential country where the company wants to extend the roots of its business and accordingly it should create its strategies. This is exactly the main reason behind the failure of Wal-Mart in the German market (Conaty, 2016).
Wal-Mart’s decision to go global
The main reason behind the decision of Wal-Mart to go global is globalization. In the past decade globalization was significantly achieved huge response and progress because of several benefits associated with it such as enhanced legal infrastructure, improved transportation, modern communication and political preference to willfully open markets to global finance and trade (Peng, 2009). The one major reason for which Wal-Mart took this decision was to enhance its geographical reach by broadening its roots of its products in various other countries. There demonstrate a degree of trans-nationality which is only enable with globalization and that is when one company controls or owns service and production outside the nation in which they are established or based (Rajan, 2016). The things which facilitate Wal-Mart to internationalize and enter into a fresh market includes geographical proximity as well as cultural proximity as these helps in diminishing uncertainty as it generally companies prefer expanding in markets which are similar to their existing markets as Wal-Mart has already experienced this success by expanding its roots into Canada in 1994 after its successful expansion in Mexico (BARBERÁ MARCILLA, 2014). Saturation at one place also forces a company to expand in other regions so that the dependability for success and operations also divides on various expansions a company made. One major reason behind expansion is then availability of labor and land at low prices, the decision of expanding into a new market is many a times based on the availability of efficient and skilled workforce at low cost in comparison with the wages provided to already existing workers in home country and there are high opportunities for acquiring the assets such as land on much cheaper rates (Cuthbertson, 2011). There are various other reasons also which influence Wal-Mart to work internationally such as to acquire strategic assets, efficiency in operations, seeking for potential markets and for gathering efficient resources (Ghauri and Cateora, 2014).
Wal-Mart’s decision to enter German market
The expansion in German market shocked the analysts as according to them a company should expand firstly in its own country in all the potential reasons and afterwards it should focus on expansion through internationalization but in those countries which possess a similar taste and culture like their own country as it’s become easy to get the customers familiar with the products and services. In the case of German expansion analysts does not supported this decision of Wal-Mart as they had were able to forecast the implication associated with these kind of expansions. It was apparently an incorrect decision to enter the European market and that too by the way of Germany. There are several reasons which can be provided to support the incorrectness of this decision, which includes:
Diversity and differences in the cultures of US and Germany
One of the major reasons which oppose the decision of expansion in German market is the diversity in the cultures of both the countries. There was immense difference among the buying habits and local culture of Germany as compared with the US markets (Solomon and Schell, 2009). Wal-Mart was trying hard to impose the similar kind of culture as well as the management team for the German operations which it possess in US which was significantly a wrong decision as there were various things which were not similar such as shopping hours as Germany persist regulations to have fixed and restricted hours for shopping, there prevailed free style shopping without any assistance and many other dissimilarities. Imposing of one’s culture on someone else never proven to b e worked out. Therefore this diversity in the cultures of both the nations hinders this decision to be accepted worldwide (Aklamanu, 2015).
Adoption of acquisition strategy
Another reason behind the unfriendliness towards this decision is the strategy which Wal-Mart planned to enter in the German market. As per the strict laws and regulation Wal-Mart was planning to acquire few big companies of Germany. This strategy apparently had to impose a negative impact on the people of Germany and the existing customers of those companies which are to be acquired by Wal-Mart. Therefore, there should be adoption of some other strategies to attain better results (Neissa and Trumbull, 2004).
Rigidness in adopting changes
Wal-Mart always remained proud of its own way of operating business and of its functioning style. And that is why it is hard for the company to adopt changes and work in accordance with the culture of any other nation. The inflexibility behavior and the rigid approach of Wal-Mart over the acceptance of various cultural diversities and consumer necessities made it difficult for the company to have a word of acceptance for its decision of expanding into German market.
Analysis of reasons behind the difficulty faced by Wal-Mart in the German market
Mistakes associated with the strategies for entering into the German market
The difficulties of Wal-Mart tend to increase day by day in the highly competitive market of Germany even after experiencing the business for 5 years in that country. Wal-Mart faced severe disappointing results which were no longer considered as merely routine issues which can be overcome easily. The failure of the company was the unavoidable outcome of Wal-Mart’s inability which was caused because of the surprising degree of ignorance regarding the chief principles associated with intercultural management and strategies for internationalization which comprises of selecting and implementing an efficient strategy for entering and operating globally. For building a primary presence in the German market Wal-Mart planned for acquisitions (Kim and Hallsworth, 2013). In the year 1997, the company acquired a well-recognized Wetkauf chain followed by the acquisition of 74 hypermarket store of Interspar for increasing the Wal-Mart’s store count in Germany. With all these business dealings Wal-Mart established its presence in the list of few big hypermarkets’ operators. However the company experienced various issues in process of integrating and operating of both the acquired companies (Zentes and Morschett, 2013). While looking over the anticipated accumulated losses it seems worse as Wal-Mart in the German market with no doubt sinking in red ink. Moreover acquisitions were not considered as a right way to enter in the German market but the new licenses for retailing of groceries and food chains were refused by the government. Thus there was no other option remained with Wal-Mart to enter the European market.
Mistakes associated with the operating environment
To provide an assurance to the local customers Wal-Mart as its tradition had imposed a full-blown price war serving the concept of all day squat price. This approach of Wal-Mart was completely failed and backfired as there regulates a tendency in the markets of Germany that the companies there were tends to be the prey instead of being the hunter and chase the customers. These sorts of strategies of Wal-Mart highly influenced and distressed the German opponents (Bianco, and Zellner, 2003). ALDI was one of those competitors who all the way through its existence remained as one of the country’s most undisputed price and cost leader and safeguarded its position for the same. ALDI successfully managed to match with the price cuts offered by Wal-Mart and simultaneously maintaining a strong association with its patrons which Wal-Mart was unable to (David, 2009). Moreover the impression of “everyday low prices” offered by Wal-Mart as its elementary value proposition scheme was completely a fake and empty promise. Wal-Mart was incapable to systematically weaken various firm discounters and ALDI. The assortment offered by Wal-Mart was not too considerably cheaper in comparison with the discounts and offerings offered by the traditional retailers. Furthermore for reducing the costs, Wal-Mart had lower down the wages of its employees which apparently caused dissatisfaction among the workers and even the working conditions were remained unionization. Consequently, the company also gets the wrong impression to its employee which turns out to be rain into difficulty with the unions of Germany (Landler and Barbaro, 2006). Another issue faced by Wal-Mart was problems related to inventory. There was only a single room to keep its stock and there persists high difficulty to hire new and more number of employees with such squat wages. As a result the movement of goods was delayed due the shortage of workforce which leads to extreme stockpiling. Or we can say Wal-Mart does not confirm and provided any kind of motivation to the workers.
Issues related to the external environment
Wal-Mart had to experience various issues on the regulations and laws of Germany for which Wal-Mart was accused for violating those laws regarding restraints of competition. And as a result of that the selling of a range of merchandises below their cost prices was banned by the German antitrust legislation and not even occasionally this can be perfume except that there is an adequate justification for that which should be mention in the laws and regulation (Kalhan and Franz, 2016). For the corporations it became mandatory to disclose the company’s financial information comprises of an annual statement of profit and loss and a balance sheet. But Wal-Mart for the violation of this law Wal-Mart was accused as the company did not published its financial data.
Issues related with cultural mismatch
Other than the regulatory and operational issues, Wal-Mart has to face other issues too which were linked to the cultural mismatch difficulties in Germany. It was found problematic for Wal-Mart to integrate into the cultures of Interspar and Wertkauf, the companies acquired by Wal-Mart. Besides that, there was another issue related to language as the company was aware about the fact that the language pronounced in Germany was not merely English, they need to learn German language but even though the top management was not cautious regarding this cultural mismatch. Therefore, it builds a language barricade where the Americans were not able to communicate well with the employees or the workforces. Moreover, the well-known rule of Wal-Mart named, the Ten-Foot Rule was also not able to work in the German market. As per the economic benefits, the consumers of Germany were highly familiar with the self-service style of shopping for decades without taking assistance from any staff member and so the customers instead of appreciating this service they rather discourage this amenity (Phoebe, 2011). One more cultural mismatch includes the regulation of restrictive shopping hours in Germany which hinders the company to offer its services to the customers on the basis of 24/7 operations and so Wal-Mart was not able to provide excellent shopping comfort and additional convenience to the customers.
Even though the company Wal-Mart is recognized as one of the largest and well-known retailing giant but then also it had to experience failure. While focusing on internationalizing of business, Wal-Mart took away its focus from abridging the cultural differences prevailing in the German market. The company does not have any relevance with the culture of customers, their habits and their purchasing pattern. Rather than Wal-Mart imposed its own culture and prototype on the customers as well as employees. One of the major reasons behind the failure of Wal-Mart was its persistence and urges to perform things in an already set “the Wal-Mart way”. And that is why Wal-Mart was alienated from the market of Germany. Though, Wal-Mart experienced continuous losses and failure even though after having business in Germany from last 5 years. There present several reasons behind its failure such as cultural mismatch, incomplete or very limited knowledge of German market and customers, inflexibility, violation of laws etc. The attainment of success in one country such as US does not guarantee the similar success in other nations too. It has been clearly identified with the huge failure of such an enormous giant, Wal-Mart. There are several lessons which can be learned by other retailing companies through this case study which planned for an expansion (Yoder, Visich and Rustambekov, 2016). To attain success and avoid failures in the process of capitalizing the local market of any country, there is a significant need to understand the local culture first of that particular nation and also to make the strategies accordingly.
Even for the bigger companies, the business of cross-culture is challenging one. Organizations needs to be sensitive enough towards the local culture as well as must tailor the offerings as per the requirements of the local market. And for this, there is a need to perform cultural assessment. It will contribute in measuring the efficacy of the efforts of localization. Following are various recommendations which would be help companies while they are planning for any sort of international business or global alliance:
- First and foremost to have an adequate analysis of the cultural, economical, social and political aspects of any country where the expansion is planned to be taken out.
- To have a sense of being local at the time of going global, which simply means that after having an in-depth cultural assessment, the company should mold itself according to the nation it is planning to enter. This will help in reducing the cultural differences.
- Employing approaches of cross-cultural management.
- To significantly survive the local competition there should be a regular updating of expansion approaches and strategies.
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