Walmart Can't Conquer All Countries
Walmart is one of the world's most successful retailers. In the United States, its formula of everyday low prices, tight cost controls, nonunion employees, and superb inventory management helped propel the company to retailing dominance. By the mid-1990s, with the U.S. market starting to look saturated Walmart began to turn its attention to other country markets. Walmart certainly has had successes outside the United States, most notably in Mexico, the United Kingdom, China, and parts of South America. Overall, Walmart has some 6,400 stores globally in 27 countries outside the United States and employs about 800,000 workers at these stores.
However, Walmart has slipped up in some nations. Countries such as Germany, South Korea, Russia, and India have been very difficult for Walmart. Germany, in particular, proved to be a particularly tough market for Walmart to address in its early quest to go international. After 10 difficult years in Germany, during which time it never turned a profit, Walmart exited Germany in 2007. Walmart followed its French rival, Carrefour, and withdrew from South Korea in 2006, floundering in an economy with some of the world's most demanding customers. Understanding the cultural taste of South Koreans was one of the reasons for Walmart's failure in the country. Going at it alone turned out to be a failed strategy in Russia; now Walmart is eyeing the possibility of obtaining a foothold in Russia, likely via a purchase of an existing player or some form of collaboration. Walmart has been trying to engage in the Indian market since 2007 without much success, recently trying again via wholesale stores in select locations.
But back to the German example. Germany can serve as an illustration of the differences in culture that Walmart had to take into account (or did not take into account effectively in the case of Germany). Walmart entered Germany by purchasing two German retailers. In 1997, the company acquired Wertkauf, a profitable chain of 21 stores. In 1998, Walmart acquired the Spar chain, which had 74 hypermarkets and was perhaps the weakest of Germany's major retailers. Right from the start, Walmart made a number of missteps. The first German CEO, Ron Tiarks, was a U.S. citizen who had previously supervised 200 U.S. supercenters from the company's headquarters in Bentonville, Arkansas. Tiarks brought a number of U.S. managers with him. He did not speak German and made no attempt to learn the language. Instead, he decreed that English would be the official language for Walmart in Germany at the management level. If this act of hubris (“excessive pride or self-confidence”) wasn't enough, Tiarks reportedly displayed a high degree of ignorance concerning the complexities of retailing in Germany. This was particularly obvious with regard to the different legal and institutional frameworks for doing business in the country. Culturally, he also did not understand the nuances of how shopping behavior and culture differed in Germany vis-à-vis the United States. He ignored strategic advice presented to him by former Werkauf executives, encouraging three of the top six business executives from the old Wertkauf company to leave Walmart within six months.
After a rocky tenure by Ron Tiarks, an Englishman, Allan Leighton, replaced Tiarks. Leighton also spoke no German, and elected to run the German operations from his office in the United Kingdom. Not surprisingly, this too did not work. After another six months, a German, Volker Barth, replaced Leighton. Barth and his German successor, Kay Hafner, who took over in 2001, continued the pattern of struggling to make the German operations profitable. Interestingly, they were also hamstrung by the Walmart way of doing things. Whether this is ultimately a Walmart way of doing things or perhaps even an American or Arkansas way of doing things, the cultural disconnect between Walmart's U.S. operations and those in Germany became quite obvious. Now Aldi and Lidl, Germany's toughest discount food retailers, are entering the U.S. market instead!
At the Walmart management level, there was widespread dissatisfaction with the relatively low base pay at Walmart and the practice of transferring managers after one or two years—something that is not normal in Germany. German managers also complained about the company's frugal regulations for business trips, in particular, the decree that executives had to share rooms, a practice unheard of in any other major German company. Also, Walmart failed to understand the strength of the German union. In fact, Walmart refused to acknowledge the outcome of a sector-specific, centralized, wage-bargaining process between unions and retailers and was then surprised when the union organized a walkout at 30 Walmart stores. This not only resulted in lost sales but also tarnished Walmart with an image of union bashing, something that severely hurt the company with many of its customers.
The cultural differences continued to come through in lots of activities and operating practices as well. For example, when checkout clerks followed company orders and smiled at shoppers, male customers took it as a turn-on. Walmart employees also found the practice of starting their shifts by engaging in the Walmart chant, and stretching exercises, to be embarrassing and silly. Another culturally specific example involved Walmart's ethics code at the time. It cautioned employees from engaging in supervisor–subordinate dating relationships. While this might seem reasonable to an American trained in Arkansas on American ethical guidelines on sexual harassment, Germans interpreted the ethics guidelines as a ban on interoffice romance by puritanical Americans and an invitation to rat on coworkers.A number of customers perceived Walmart to be offering low-value, low-priced products. Some rivals took advantage of this sentiment and even characterized Walmart's products as “American junk.” This mattered very much in a culture where quality is valued heavily, and where the most successful German retailer, Aldi, had a reputation for offering low-priced but high-quality products. Nor did the German shoppers like the Walmart greeters, a staple feature of Walmart in the United States. Germans typically do not greet strangers and soon shoppers started complaining about being harassed by greeters. Similarly, culture problems became an issue even in Walmart's bagging service. As it turns out, German shoppers do not want strangers handling their groceries and products.
Case Discussion Questions
Why do you think that Germany, South Korea, Russia, and India were attractive markets for Walmart? Should Walmart spend more time on one or a few of these markets to be successful?
Recently, Walmart is trying to engage some of these markets (and others) via joint ventures or mergers and acquisitions; is this an appropriate strategy given Walmart's historical problems in cultural differences? Explain.
Some companies like IKEA (which is very Swedish in management operations) can succeed by being culturally tied to their home country even in international operations. Why do you think Walmart was unsuccessful in being American in Germany (and South Korea, Russia, and India)?