In the United States, Wal-Mart customers are greeted with a smile, escorted to the item they're looking for, and watch their purchases being bagged by an employee. These aspects of Wal-Mart's culture were a complete failure in Germany, however, when the company expanded there in 1997. Wal-Mart also failed on other counts, such as recognizing the status of unions in Germany and the importance of store location. What eventually happened to Wal-Mart in Germany, and how could it have been prevented? What did Wal-Mart lean? This case examines the cultural mishaps of America's largest discount retailer.

Introduction

Wal-Mart has become a household name in the United States, and in some parts of the world outside the United States. With low prices and a large array of products, Wal-Mart superstores have become the chosen "one-stop shop" for many consumers. Germans, however, don't view Wal-Mart in the same way. In late 1997, Wal-Mart decided to expand into Germany by first acquiring two retailers for a total of 95 store locations. But Wal-Mart soon learned that its American model simply did not work there. On so many levels and in so many ways, it was an abject failure.

Brief Overview of Wal-Mart

Sam Walton and his brother opened the first Wal-Mart store in Rogers, Arkansas in 1962, generating more than $1 million in sales during the first year of operations. Wal-Mart expanded quickly and, by 1967, the brothers owned 24 stores with sales over $12.6 million. The company incorporated in 1969 and was listed on the New York Stock Exchange two years later. Focusing operations in small towns, in 1977, the company expanded into Michigan and Illinois and by 1980 there were 276 Wal-Mart stores across the United States (Wal-Mart Stores, 2016).

Today the company has expanded internationally and has more than 8,400 retail stores in 15 different countries and employs over 2.1 million employees across the world. Wal-Mart opened with the intention of helping people save money on household goods and by doing so, helping to improve lives. Today the company continues to offer the lowest prices in most markets, relying on buying power with their strong supply chain. Recently, Wal-Mart focused domestic growth on the creation of supercenters, which has proved wildly successful. Additionally, the company has made significant strides toward becoming a leader in sustainability and corporate philanthropy, despite past criticism about labor practices and exploitation of suppliers.

International Development

"All around the world we save people money, so they can live better. That's good news- in any language. " _ Wal-Mart Stores, Inc. (Arunmaba13, 2011). In the United States, Wal-Mart customers cite low prices as the most important reason for shopping there. Its lean business model, plus the ability to reach historically high economies of scale, allow the company to dominate supplier networks. Because of Wal-Mart's market power in the United States and its domination of supplier networks, it can continuously drive down product prices. In addition, Wal-Mart sells a full range of household products and groceries, allowing customers the increasingly ubiquitous one-stop shopping experience. In the early 1990s Wal-Mart announced plans to take their operations global due to tough competition in the U.S. markets and the opportunities available in new markets across the world. The company realized that the United States contained only 4 percent of the world's population and that confining sales to the United States would significantly limit their ability to grow and dominate the market (ICMR, 2004). To fulfill their global expansion goals, the company created Wal-Mart International which has grown into a $63 billion business and is the fastest gowing part of the company (Landler & Barbaro, 2006). Most of Wal-Mart's international growth comes from acquisitions, differing from their domestic strategy of building new stores. This has allowed them to penetrate new markets quickly and easily. Wal-Mart international operates in 15 markets, with a similar goal throughout- to maintain low prices by controlling cost procedures. There are wholly owned operations in Argentina, Brazil, Canada, Puerto Rico, and the United Kingdom. In addition to its wholly owned international operations, Wal-Mart has joint ventures in China and several majority-owned subsidiaries. Wal-Mart's majority-owned subsidiary in Mexico is Walmex. In Japan, Wal-Mart owns about 53 percent of Seiyu. In Central America, Wal-Mart owns 51 percent of the Central American Retail Holding Company (CARHCO), consisting of more than 360 supermarkets and other stores in Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica (Daniel, 2012).

Expansion into Germany

Most U.S. companies begin their international expansion in the United Kingdom due to many perceived cultural similarities to the United States. In late 1997, Wal-Mart instead opted to begin in the German market by acquiring two German retailers, Wertkauf and Interspar. Wal-Mart purchased 21 stores from Wertkauf which offered food and general merchandise to customers in the southwestern side of Germany. This purchase was not enough to fully penetrate the German market, so Wal-Mart acquired 74 Interspar stores in 1998, which increased the total number of Wal-Mart stores in Germany to 95, making Wal-Mart the fourth largest hypermarket retailer in Germany. Wal-Mart was attempting to implement its U.S. business model, characterized by low prices, location strategy, supply-chain management, and a corporate culture that highly values hard work, conformism, and friendly customer service (Gereffi & Christian, 2009). Following the quick purchases, Wal-Mart realized that the cultures of the newly acquired companies were extremely different from the U.S.-based Wal-Mart culture, and the stores they took on were not necessarily in the most convenient locations for customers. In addition, Germany has stringent planning and zoning regulations, and thus Wal-Mart was unable to expand the stores' sizes to reach its economies of scale. Difficulties with local suppliers further perpetuated their logistics issues, so much so that suppliers delivering products to the distribution centers had to wait for hours to unload their cargo. This is an operational characteristic of the German distribution system that is quite different from the U.S. efficiency of lean operations. Germany is the most price-conscious country in Europe and while Wal-Mart is known for their low prices in the United States, they were not able to generate the advantage of economies in scale necessary to be the low-price leader. Wal-Mart totaled only 95 stores, paling in comparison to their direct competitors Aldi and Lidl, both of whom have over 500 retail locations. (Landler, 2006). These factors made it impossible for Wal-Mart's U.S. business model to compete in Germany and the firm was unable to turn a profit. After years of struggling, Wal-Mart eventually halted their German operations at an estimated cost of $1 billion.

Problem and Reactions

After launching its international operations in Germany, it did not take long for Wal-Mart to see that its company culture was not catching on, nor were customers increasing their shopping at the German locations. In an attempt to boost the performance of the German locations, Wal-Mart was forced to react quickly and take action to try to adapt its culture to better suit the Germans. One major reason that Wal-Mart's stores did not succeed greatly at first is due to cultural insensitivity. Wal-Mart did not do its research on the tradition and culture of retail shopping in Germany before entering the market, and as a result saw resistance to its stores. Wal-Mart was forced to rescind some of its policies in order to better fit the German business model. In the United States, Wal-Mart has a greeter at the entrance to the store that is responsible for smiling and welcoming people into the store (Nussbaum, 2006). This practice was not well received by the Germans, who typically find smiles from strangers to be artificial. Some male shoppers even interpreted this smiling to be flirting (Landler & Barbaro, 2006). In order to adapt to this cultural difference, Wal-Mart was forced to remove this greeter position from its German stores. Similarly, the cheer that Wal-Mart workers in the United States typically do each morning was not well received by the German employees. The practice had to be halted there. In Germany, unions are particularly important, whereas Wal-Mart is used to being able to demonstrate and exercise its power rather than having to give into pressures from outside sources. One of the biggest unions in Germany, the ver.di union, witnessed many complaints about Wal-Mart regarding their lack of concern for the voices of the German employees. Germany has many co- determination rules which allow employees to have a voice in management decisions and to participate, whereas Wal-Mart typically ignored the German employees' input, which could have prevented many of these misunderstandings. Additionally, the ver.di union has complained that Wal-Mart did not keep it adequately updated on store closings. In general, Wal-Mart has not cooperated with the union to keep workers happy and motivated, producing a negative view of Wal-Mart among many Germans. Wal-Mart did not have a history of dealing with unions and had never been forced to try to get along with unions in the way that the Germans expected it to. In 2005, Wal-Mart released a new ethics code for is German employes. Unfortunately, the translations within the manual were far from perfect, and did not clearly translate the message that Wal-Mart was trying to send One section advised employees to take caution with supervisor-employee relationships, which the Germans interpreted as a ban on interoffice romance. Another section that talked about how to report unethical behavior of coworkers was interpreted as instructions on how to tattle on your fellow employees. These types of misinterpretations stem from miscommunication, and Wal-Mart did not put the proper time and effort into their translation to get its point across properly. As a result, this ethics code caused much discontent from the German employees (Ewing, 2005). Wal-Mart found its brand name to be particularly important in the United States and used it to attract customers who knew it for its low prices and to build customer loyalty. Through its experiences in the German market, Wal-Mart came to realize that the Wal-Mart name was not as important to customers, and that this assumption had cost them greatly in terms of attracting and retaining customers (Bhan & Toscano, 2006). In general, Wal-Mart did not do enough research on the best location for its stores. As a result, many of the supercenter stores were located on the outskirts of town, in places that people could only reach by driving. These locations were not convenient for German customers, and many found that they could get the same products for similar, if not cheaper, prices at a location that was much more convenient. Wal-Mart initially tried to copy American tradition by having employees bag the groceries at the end of each checkout lane. This practice was not normal for German customers and was seen as strange by many Germans who did not want a stranger touching their groceries. As a result, this practice became one more reason for Germans to choose to shop somewhere else (Landler & Bar-baro, 2006). Additionally, store hours in Germany are usually shorter. Germans do not like to have to wander around a giant store looking for one thing, and did not like help finding what they need, so the help of friendly Wal-Mart employees was not popular in Germany. One other change that Wal-Mart tried to implement was centralizing its German headquarters. Wal-Mart shut down one of the headquarters early on, forcing employees to relocate to keep their jobs. As this is a normal occurrence in the United States, many of the top German employees chose to quit rather than move. This resulted in Wal-Mart losing many talented executives because of its inability to cooperate and listen to employee needs (Landler & Barbaro, 2006). As a result of so many of these clashes of culture, Wal-Mart did not establish a good reputation among German customers or employees. Wal-Mart found that its stores in Germany were doing nowhere near as well as its stores in the United States and other markets, mainly due to its lack of attention to cultural detail when originally implementing its plan in Germany. By the time Wal-Mart figured out its mistakes and where they could improve, it was too late to recover.

Outcome

Wal-Mart finally decided to exit the German market in mid-2006. It sold its 95 stores to the German company METRO AG, a big retailer in Germany. This sale resulted in a $1 billion pretax loss (Zimmerman, 2006). This loss does not even include the millions, and possibly billions, of dollars lost in sales each year from futile efforts to succeed in Germany. Despite its mistakes in Germany, Wal-Mart continues to try to expand into other international markets, particularly in China. Unfortunately, Wal-Mart's missteps in Germany were costly; however, hopefully it will force then to more culturally sensitive in future expansions.

Questions

1. As you know, the iceberg is a metaphor for culture. Provide examples from the case study that indicate how the behaviour of German customers, employees, management, etc., (the outer layer of culture) is reflective of German cultural values (a deeper layer of culture). Be sure to explain what the German values are. Cite your sources.

2. What could Walmart have learned from Hofstede’s Cultural Dimensions that may have provided some insight into German culture and the challenges the company might have expected? Consider all cultural dimensions and analyze the relevant ones. Explain in detail. Cite your sources.

3. (a) How should Walmart’s North American business management strategies change when entering a collectivist culture such as China? Cite your sources.

(b) What can Walmart learn from corporations/ventures that have been successful (or unsuccessful) in China? Cite your sources.

4. Discover three things about doing business in Germany and/or German consumer behaviour that this case did not include that you should be aware of. Cite your sources.