Wal-Mart is the world’s largest retailer. The company employs some 1.8 million people, operates 3,900 stores in the United States and 2,700 in the rest of the world, and generates sales of $345 billion in the fiscal year ending January 31, 20-07. Some $77 billion of these sales were generated in 15 nations outside of the United States. Facing a slowdown in the U.S., Wal-Mart began its international expansion in the early 1990s when it entered Mexico, teaming up in a joint venture with Cifra, Mexico’s largest retailer, to open a series of super-centers that sell both groceries and general merchandise.
Initially the retailer hit some headwinds in Mexico. It quickly discovered that shopping habits were different. Most people preferred to buy fresh produce at local stores, particularly items like meat, tortillas, and pan dulce, which didn’t keep well overnight (many Mexicans lacked large refrigerators). Many consumers also lacked cars, and did not buy in large volumes as in the U.S. Wal-Mart adjusted is strategy to meet the local conditions, hiring local managers who understood Mexican culture, letting those managers control merchandising strategy, building smaller stores that people could walk to, and offering more fresh produce. At the same time, the company believed that it could gradually change the shopping culture in Mexico, educating consumers by showing them the benefits of its American merchandising culture. After all, Wal-Mart’s managers reasoned, people once shopped at small stores in the U.S., but starting in the 1950s they increasing gravitated towards large stores like Wal-Mart. As it built up its distribution systems in Mexico, Wal-Mart was able to lower its own costs, which it passed on to Mexico consumers in the form of lower prices. The customization, persistence, and low prices paid off. Mexicans started to change their shopping habits. Today Wal-Mart is Mexico’s largest retailer, and the company’s most successful foreign venture.
Next Wal-Mart expanded into a number of developed nations, including Britain, Germany and South Korea. There its experiences have been less than successful. In all three countries it found itself going head to head against well-established local rivals who had nicely matched their offerings to local shopping habits and consumer preferences. Moreover, consumers in all three countries seemed to have a preference for higher quality merchandise, and they were not as attracted to Wal-Mart’s discount strategy as consumers in the United States and Mexico. After years of losses, Wal-Mart pulled out of Germany and South Korea in 2006. At the same time it continued to look for retailing opportunities elsewhere, particularly in developed nations where it lacked strong local competitors, where it could gradually alter the shopping culture to its advantage, and where the low price strategy was appealing.
Summary
The case explores the international expansion of Wal-Mart, the world’s largest retailer. Wal-Mart began its international expansion in the early 1990s in an effort to continue its growth. The company began with a joint venture in Mexico with local retailer, Cifra. Initially, the company tried to implement strategies similar to those that had proved so successful in the United States, however Wal-Mart quickly realized that to succeed, it would have to adapt to local demands. The company hired local managers who understood the Mexican culture and buying preferences, and changed its strategies accordingly. Wal-Mart continued its international expansion by establishing operations in Europe and South Korea, but in these markets, the company had less success. Not only did Wal-Mart compete head-to-head with established retailers, but its product offerings did not match the needs of consumers. Wal-Mart has had much greater success in China where it has found some parallels between the shopping habits of Chinese and Americans. Wal-Mart has also adapted its strategy to fit the local market and now not only allows unions, but is also selling a product mix designed to meet the demands of China.
1. What did Wal-Mart learn from its experiences in Mexico? How, if at all, did Wal-Mart apply those lessons to its expansion in Europe and China?
2. Compare the culture of Mexico where Wal-Mart was successful to the culture of Germany and South Korea. Indicate how cultural differences influenced Wal-Mart’s success in Mexico and its failure in both Germany and South Korea.
3. Wal-Mart used ‘guanxi’, or relationships backed by reciprocal obligations, to embrace unions in China. Once it did this, the government opened the way for the company to acquire Trust Mart, one of the biggest operators of hypermarkets in China. Using information gathered already from your readings, explain the lesson that Wal-Mart learned in doing business in China.