Wal-Mart: Lessons from Going Global

Should companies promote a global presence or a local defence?

Going global with any business or brand is never easy. Retailers face challenges in the form of cultural and legal barriers, local competition and trade restrictions. Wal-Mart’s example of globalisation is a good way to understand the complexity of taking a retail chain to international markets.

The Need to Go Global:

Wal-Mart perfected a business model, which clicked in the US. Expectations from the capital markets, remained high, and Wal-Mart was consistently pressured to show increased profits and sales. International markets provided them with the best option to achieve this growth.

Leveraging the Competitive Advantage:

The macro-economic scenario was in favour of globalisation. The domestic market was saturated, and trade barriers were coming down. The new transition economies had large population with increasing levels of disposable incomes.

Wal-Mart, courtesy of its existing stores in the US, had huge buying power with companies like Kellogg, Nestlé, 3M, Proctor & Gamble and Coke. This gave Wal-Mart the opportunity to source stocks cheaply for its international outlets. Besides, Wal-Mart had gained expertise in store management and logistics, and leveraged these competencies every time it entered to forge ahead in international market. Its HR policies fostered employee loyalty and retention, giving it a competitive edge. A large percentage of the committed workforce had stock options in the company as the management felt it was a good way to reward and motivate the team.

Modus Operandi:

Wal-Mart did not use one single strategy to enter different countries. The choice was based on the specifics of the business, competitive and economic environments therein. After choosing the country, and understanding the environment, the management at Wal-Mart would decide on the best entry strategy. The options varied from starting new stores from scratch, to acquisitions, joint ventures, and alliances. Wal-Mart established its presence in local markets by first understanding the uniqueness of each market, and then by adapting its business model to suit that market.

Local Adaptation:

China: In China, the liberalisation initiative of the government, increasing disposable incomes of consumers and limited competition offered by similar business models worked in their favour. The focus was to overcome cultural barriers and understand the exact nature of consumer needs in the country. China also had an infrastructure system that would not allow it to leverage its logistical and inventory prowess.

Wal-Mart innovated using retail strategies in China. For the lower middle class, being discount-driven was not going to be good enough. Wal-Mart designed different stores to try and understand which model would suit consumer needs in China. The merchandise that these stores offered, went through similar tests. The final range of products available were those that best catered to the needs of the Chinese market and were very different from what they had in US stores.

Canada: In Canada, Wal-Mart acquired Woolco, when it was in the red. Wal-Mart knew that because of the proximity of Woolco stores to the US border, brand recognition would be a bonus.

Wal-Mart took less than three months to revive the store and incorporate its hallmark team spirit into the newly acquired stores in Canada. It strengthened this with renovation of shops to enhance retail equity and emphasised on customer service. Such localisation was repeated with varying degrees across countries.

Country	Mode of Entry	Strategy
Germany	Acquiring a Dominant Player	Acquired company is the largest player in the local market
		Adopted similar business and human resource models
		Met EU guidelines for zoning
Mexico	50-50 JV with leading player Cifra	Leveraged local market knowledge Understood and overcame cultural barriers
Brazil	60-40 JV with local retailer Attacks Competition	Leveraged experience from the Mexican markets, which were similar
		Emphasised on Customer service (which competitors lacked)
		Developed economies of Scale
		Utilised Discount tactics
Argentina	Greenfield Operations	Gained experience from similar markets in Mexico and Brazil
		Sourcing with economies of Scale
China	Greenfield Operations	Adopted merchandising and store designs that best suit consumer needs
	Local Adaptation	Sourced stocks from international suppliers who manufacture in China
		Sourced from local manufacturers who understand local tastes
		Met government trade and business guidelines
Canada	Acquiring a weak player	Acquired Woolco in a saturated market
		Operated in areas that have high brand recognition
		Required minimum cultural adaptation
		Emphasised on customer service and store design

Though the diversity of the business environment across different countries makes it difficult to adopt a uniform entry strategy, leveraging the expertise and competitive advantage of the company is pivotal to the success of the plan.

Related Reading
“Taking Wal-Mart Global: Lessons From Retailing's Giant”; Govindarajan, Vijay and Gupta, Anil;
www.strategy-business.com; Sep 2000.