Case study B:

WALMART Walmart, the worlds largest retailer, has built its success on a strategy of everyday low prices and highly efficient operations, logistics, and information systems, which keep inventory to a minimum and ensure against both overstocking and understocking. The company employs some 2.1 million people, operates 4,200 stores in the United States and 3,600 in the rest of the world, and generated sales of almost $400 billion in the 2008 fiscal year. Approximately $91 billion of these sales were generated in 15 nations outside of the United States. Facing a slowdown in growth in the United States, Walmart began its international expansion in the early 1990s when it entered the Mexican market, teaming up in a joint venture with Cifra, Mexicos largest retailer, to open a series of supercenters that sell both groceries and general merchandize. Initially, the retailer ran into some obstacles 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 didnt keep well overnight (many Mexicans lacked large refrigerators). Many consumers also lacked cars and did not buy in the large volumes that consumers in the United States did. Walmart adjusted its strategy to meet the local conditions, hiring local managers who understood Mexican culture, letting those managers control merchandizing 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 merchandizing culture. After all, Walmarts manager reasoned, people once shopped at small stores in the United States but starting in the 1950s that increasingly gravitated toward large stores like Walmart. As it built up its distribution systems in Mexico, Walmart was able to lower its costs, and it passed these savings on to Mexican consumers in form of lower prices. The customization, persistence and low prices paid off. Mexicans started to change its expansion into their shopping habits. Today, Walmart is Mexicos largest retailer and Mexico is widely considered to be the companys most successful foreign venture.

Next, Walmart expanded into a number of developed nations including Britain, Germany and South Korea. There, its experiences have been less successful. In all three countries, it found itself going head to head with well-established local rivals that had nicely matched their offerings to local shopping habits and consumer preferences. For example, the policy of doing things the Walmart way, which included smiling at customers and assisting them by bagging their groceries, presented problems in the German environment. Male employees who were ordered to smiling at customers were often seen as flirtatious to male customers, and German consumers did not like strangers handling their groceries. Moreover, consumers in all three countries seemed to have a preference for higher quality merchandise and were not as attracted to Walmarts discount strategy as the consumers in the United States and Mexico. After years of losses, Walmart pulled out of Germany and South Korea in 2006. At the same time, it continued to look for retailing opportunities elsewhere, particularly in developing nations where it lacked strong local competitors, where it could gradually alter the shopping culture to its advantages, and where its low-price strategy was appealing.

Recently, the centerpiece of its international expansion efforts has been China. Walmart opened its first store in China in 1996, buy initially expanded very slowly, and by 2006 had only 66 stores. What Walmart discovered, however, was that the Chinese were bargain hunters, and open to the low-price strategy and wide selection offered at Walmart stores. Indeed, in terms of their shopping habits, the emerging Chinese middle class seemed more like Americans than Europeans. But to succeed in China, Walmart also found it had to adapt its merchandizing and operations strategy to mesh with Chinese culture. One of the things that Walmart has learned is that Chinese consumers insist that food must be freshly harvested, or even killed in front of them. Walmart initially offended Chinese consumers by trying to sell them dead fish, as well as meat packed in Styrofoam and cellophane. Shoppers turned their noses up at what they saw as old merchandise. So, Walmart began to display the meat uncovered, installed fish tanks into which shoppers could plunge fishing nets to pull out their evening meal, and began selling live turtles for turtle soup. Sales soared.

Walmart has also learned that in China, success requires it to embrace unions. Whereas in the United States Walmart has vigorously resisted unionization, it came to the realization that in China union doesnt bargain for labor contracts. Instead, they are an arm of the state, providing funding for the Communist Party and (in the governments view) securing social order. In mid-2006, Walmart broke with its longstanding antagonism to unions and agreed to allow unions in its Chinese stores. Many believe this sets the stage for Walmarts most recent move, the purchase in December 2006 of a 35% stake in the Trust-Mart chain, which has 101 hypermarkets in 34 cities across China. Now, Walmart has proclaimed that China lies at the center of its growth strategy. By early 2009, Walmart had some 243 stores in the country and despite the global economic slowdownthe company insists that it will continue to open new stores in China at a doubledigit rate.

SourceAdapted from Hill, Wee and Udayasankar 2012, 86-87

Questions 1

Based on the case above, please answer the following questions

(a) Why do you think that Walmart was successful in Mexico but not in South Korea and Germany?

(b) In order to succeed in China, what did Walmart do?