With the given information, do you think it is both an advantage and a disadvantage to be as big as Walmart when entering a foreign market? Explain.

Walmarts Failures in Entering Three Developed Markets*

Walmart, the largest retailer in the world, has been pursuing international markets for nearly 30 years as its domestic markets reached saturation. Three market entry fiascos from Walmarts aggressive international expansion are analyzed in this case. Interestingly, these failures took place in developed market countries; Germany, South Korea, and Japan. They represent enormous levels of financial loss, as well as stunning setbacks to global expansion for the firm. Although international operations have been lucrative for Walmart, the firm has faced certain obstacles along the way. They had hoped to duplicate their dynamic business model seamlessly in other high-potential markets by building robust supplier networks due to their gargantuan size and proven ability to influence pricing, particularly through zealous inventory management via elaborate supply chain systems. Starting with Mexico in 1991, they have steadily entered new markets and by the end of 2018 foreign operations consisted of 11,718 stores in 30 countries. Fifty-five percent of Walmart stores are now outside the United States. Exhibit 1 outlines this data. They do not officially disclose international sales figures by country, except to say that they receive 28 percent of their total revenue from outside the US. Walmarts growth has, however, been tainted by an inability to adapt in some markets to local consumer customs, culture and tastes. As a multinational enterprise, Walmarts initial 1991 penetration into foreign markets continues to be highly successful. However, when Walmart entered Germany and South Korea in the late 1990s through acquisitions, it found itself saddled with undesirable locations and was unprepared for the cultural challenges. Expansion into the Japanese market in 2002 was one of its most ambitious joint ventures as it sought to leverage the familiarity of a large, well-known domestic chain Seiyu, in which they purchased a minority interest. Ultimately Walmart suspended operations in Germany and South Korea in 2006 and was able to continue operations in Japan under the Seiyu brand. Exhibit 2 provides a summary of international expansion activities. Germany was Walmarts first European entry. They started in December 1997 by acquiring Wertkauf stores with 21 locations in the southern area of the country. Within months, Walmart acquired Interspar with over 70 stores in the northern region. They believed, as do many American companies, that expansion into Europe by way of Germany makes sense due to similarities in culture, language, and legal environment. Executives assumed that acquiring the two German retailers and then changing them to the Walmart name was a solid entry strategy, but they quickly learned of the operational differences between the two chains and that their locations and appearance were far below the average American standard. Other problems were related to Walmarts lack of Germans in management roles. The company never disclosed the full amounts of its operating losses in Germany. Analysts estimate annual losses at $200 to 300 million per year during Walmarts time in the country. It could be concluded that Walmart sought entry into South Korea due to the countrys rank among the top 15 economies in the world and dense population. In July 1998, Walmart acquired South Korean retailer Makro, which owned four stores and six undeveloped sites and employed over 800 people. Even though Walmart studied the market for four years and saw other multinational corporations fail (Nestl, Nokia), it nevertheless proceeded into the South Korean market, unprepared for the local conditions that they experienced. After losses increased to $150 million in 2005, Walmart sold its 16 stores to its main South Korean competitor E-mart, which already had 86 stores and 30 percent of the South Korean discount market. Walmart entered Japan in May 2002 through a joint venture by purchasing a six percent stake in Seiyu Ltd., Japans fifth largest supermarket chain with over 400 stores. They retained the Seiyu name on the storefronts but stocked through Walmarts supply chain, gradually increasing ownership share. In 2008, Walmart acquired full 100 percent interest in Seiyu. By entering Japan with a local partner, Walmart hoped to better navigate the entrenched operations of manufacturers and middlemen in a country whose historically high cost structures have made an unfriendly environment for foreign discount retailers. Japanese customers are known to be extremely finicky and the Seiyu joint venture was a way to gain advantage by aligning with a recognizable brand name to penetrate the heavily populated market. However, at the time of entry, Japans economy was experiencing lackluster retail sales and intense competition, all factors that continue to exist. Walmarts disappointing Japanese operations continue to this day to be far underperforming their potential.

Much has been written about Walmarts retail model. In terms of the customer, the retailer seeks to provide as many products as possible at one location, at the lowest prices possible. On the supply chain side, because they have so many customers, they can pressure suppliers to reduce the cost of the goods due to large volume purchasing. To articulate Walmarts success in devising an integrated marketing strategy, it is worth looking at marketing expert Philip Kotlers four Ps of marketing.

Four Ps	Four Cs
Product	Customer Solution
Price	Customer Cost
Place	Convenience
Promotion	Communication

The Ps represent the sellers view of the marketing tools available for influencing buyers. From the buyers perspective each P has a corresponding customer C such that companies that can meet consumers needs economically, conveniently and with effective communication are the most successful.

Walmarts basic generic strategy is cost leadership. Walmarts everyday low prices strategy, i.e. value-pricing where prices generally remain consistently low places less emphasis on advertising and more on product availability and large sales volume. When consumers have many shopping alternatives, price can become less important relative to the total shopping experience, particularly in a comparatively affluent market. In other markets, consumers can be very price conscious. Thus, the pricing strategy is of great importance in determining overall strategy. When Walmart entered Germany and South Korea, discount retailing was already entrenched, and Walmart found itself unable to negotiate with suppliers to achieve the most advantageous economies of scale. As a result, they were unsuccessful in offering the lowest prices to highly price conscious German consumers. However, with South Korean consumers, price is not necessarily the most important element when compared to consumer preferences for convenience, quality and choice so the EDLP (Every Day Low Pricing) approach carried little appeal. In comparison to Walmart competitors, Korean shoppers did not find Walmarts prices on domestic items to be impressively lower and continued to prefer stores that carried both discount and luxury items. Customers in Japan are by far the most discriminating shoppers in the world, with an eye for designer products and name brands. As a result of having one of the highest per capita income levels, they place more emphasis on product choice/quality rather than price, and in fact perceive cheap prices to indicate low quality. Germany Accustomed to being a price leader in groceries, Walmart was never as cheap as its well-established competitor Aldi, which had 4,100 stores in Germany at the time Walmart pulled out. Thus, they were not successful with their American style of predatory pricing to force competition out. In fact, entrenched competitors were proactive in price cutting and were able to out-Walmart Walmart. Additionally, local fair trading laws prohibited some of Walmarts favorite loss-leader tactics. Japan Low prices have not been attainable in Japan. Operating expenses are known to be three times higher than North America, and manufacturers do not sell directly to retailers. Quality is more important than cheap prices for Japanese retail customers. This creates a structural problem for Walmarts business model of Every Day Low Pricing. Any price sensitivity of Japanese customers is trumped by their expectations of quality. It is a unique and nuanced combination of attributes that are valued in this market, which foreigners find hugely challenging to comprehend. South Korea Similar to Japan, South Korean buyers did not respond to Walmarts pricing advantages because of their priorities of favoring product mix and attractive surroundings.