International Marketing for Walmart
Abstract
The nature of markets and marketing strategies continually keep on becoming global. With continued increases in complexities and diversity of world business operations, companies need to be sensitive to the markets where they venture their activities so as to achieve sustainable growth. Business managers need to develop skills, attitudes, and knowledge necessary to compete effectively around the globe. The main reasons for companies to go global is making high profits and gaining a competitive advantage over the direct rivals. This report provides an analysis of international marketing strategy for Wal-Mart and offers valuable advice for the other global companies on what to consider while deciding to venture internationally.
Keywords: global business, sustainable growth, international marketing
Introduction
There are complex patterns of change that affect the global marketplace. International marketing refers to marketing activities coordinated and integrated across different country markets. According to Khanna and Palepu, (2013, p. 400), marketing involves placing the consumer’s needs at the center of organizational operations to provide a firm base for success in the fast moving world of international marketing. As per Doodle and Robin, (2009, p. 25) global marketing strategy aims at leveraging the assets, products, and experience of a company globally in respect to different cultures in different countries. Global marketing enables marketing managers to look for growing target markets and product opportunities overseas. Wal-Mart, the United States based company, was established in 1962 by Sam Walton and his brother. Since its inception, Wal-Mart has created more that 1,000 discount stores in the US as well as introducing customer self-service based innovative concepts. The company deals with the supply of quality items some of which include automotive products, home furnishings, electronics, hardware, jewelry, and housewares among other thousands of items. The Wal-Mart case study (2014, p. 540) reveals that in the early 1990s, Wal-Mart decided to the extent its operations internationally and opened its first global store in Mexico. Currently, Wal-Mart operates its retail stores in at least thirteen global markets outside the US borders. The purpose of this report is to analyze and assess the critical issues in international marketing strategy, international marketing decisions, and activities that faced Wal-Mart after the company’s decision to go internationally.
Reasons for Wal-Mart’s Decision to go Global
Wal-Mart decided to expand its operations globally in the 1990s through acquisitions, joint ventures, greenfield operations, and wholly owned subsidiaries. Luo and Wang, (2012, p. 250) states that Wal-Mart entered Mexico through a joint venture with a Mexican company Cifra where it opened Sam’s Club’s in the country. The main reason that made the management of Wal-Mart company fall on the decision of expanding its retail stores globally to the Mexican market as discussed below.
Stiff Competition in the US Markets
Over the years, Wal-Mart had been experiencing stiff competition from K-Mart and Target companies in the market environment. David Glass, who got appointed the CEO of Wal-Mart in 1988 had tried to start a hypermarket for the business in the USA in an attempt to win more customers and firmly position the company in the US market. However, this did not work. Further, the CEO bought out Cellum’s stake in the joint venture to boost the profitability, which never achieved the objective of creating a competitive advantage over the rival firms K-Mart and Target. On the other hand, Graff, (2006, p. 55) reported that K-Mart and Target adopted the use of aggressive expansion strategies that in effect started eating into Wal-Mart’s market share in the United States. As a result of the high competition from K-Mart, Wal-Mart’s market share in the US kept deteriorating and this necessitated the management’s decision to expand its operations to Mexico. The management of Wal-Mart believed that entering Mexico through a joint venture with Cifra would enable the firm establish a customer base within Mexico and therefore, creating a competitive advantage over Target and K-mart. Graff, (2006, p. 64) argues that the company intended to match its operations and prove to the upcoming rivals that it could still compete outside the United States. To gain a competitive advantage in the global market environment, Wal-Mart transferred its information systems, logistics, and management expertise across all its retail stores both in the US and Mexico markets.
To Diversify its Operations to the World Markets
In the supply of high-quality automotive, hardware, jewellery, beauty products and many other commodities in the hypermarkets located in the US, Wal-Mart carried out a market research that revealed the US market was not enough to consume their products. In Grant, et al., (2014, p. 5) research, the management of Wal-Mart realized that the US market population represented only 4 percent of the world’s customer base. Further, Wal-Mart realized that confining its operations to the US markets meant missing the many potential opportunities for creating broader markets elsewhere beyond the United States borders. Within the US market environment, Wal-Mart could not exploit its maximum potential in the provision of good and services since as per its capacity, the productivity level exceeded the consumers and this surplus assets needed a market for its consumption.
Further, Wal-Mart wanted to diversify the business culture, language, and legal environment. The Mexican retailing industry was facing slow growth rate, and the retailers were engaging in price wars which severely affected its production sector. According to Doodle and Robin, (2009, p. 30), the management of Wal-Mart saw this as an excellent investment zone where they could establish its business operations. Wal-Mart needed to diversify its operations and fame in global markets where it could make more profits and remain stable regarding capital base. With the strong capital base, Wal-Mart’s company managers were sure that the firm would be able to adapt to the foreign business culture, language, and governmental regulations about the retail industry.
Globalization and Liberalization
With the establishment of liberalization and globalization in the retail sector, Wal-Mart became able to open up new markets and to create opportunities for discount stores across the world. As argued by Berthon, et al., (2012, p. 265), the company pursued aggressive globalization and found out that with the advancement of technologies, there were unexploited market opportunities in the world that needed its attention. Further, the management of the company learned that to survive, Wal-Mart needed to expand its operations towards the international arena. With increased liberalization, the company needed to show high sales and profits that could satisfy the high demands of the capital markets such as that existing in Mexico by then.
The emerging technologies under the liberalization sector which led to increased cultural homogenization and removal of trade barriers made Wal-Mart decide to go globally. The emerging retail markets offered low levels of disposable income, and this also necessitated Wal-Mart’s decision to expand its operation to Mexico. Further, Christopherson, (2007, p. 455) argued that other world retail companies had made a step forward and capitalized on growth opportunities mainly brought to the economy by the rapid expansion of technology. Also, the capital market offered great platforms for growth in discount retailing. Wal-Mart had already saturated most of the domestic markets in the US; this meant that limiting its operations in the local market made the company miss a huge percentage of the world’s market.
Wal-Mart Decision to entering German Market
Usually, the similar cultural affinity, language and legal environment between the United States and the United Kingdom made most American firms first to target the UK. Contrarily, Wal-Mart decided to enter the Germany market industry first, a decision that surprised the analysts. According to Falconbridge and Muzio, (2014, p. 38), the market analysts got surprised of Wal-Mart’s decision since by then the Germain retailing industry experienced continued slow growth rates making retailers get indulged in pricing wars for their products. Falconbridge and Muzio, (2014, p. 38), the Germany marketing environment was unfriendly, and this kept on eroding the profitability margins of every company that invested its business activities within the country, especially global markets. Further, with the inflexible business environment within Germany, the labor costs increased leading to the creation of unaffordable real estate prices.
However, despite the inflexibility of the business climate, high energy costs, and persistent slow growth rate in the Germany market, the president of Wal-Mart (Ron Tiarks) felt that it was wise to enter the Germany market. Based on the following arguments, it was a wise decision for Wal-Mart to enter the Germain market. The following discussion represents the opinions that justify Wal-Mart’s decision to operate in Germany as correct.
Expansion of Customer Base
Given that Germany got rated as the third largest economy in the world, it was wise for the administration of Wal-Mart to decide to extend the company’s operations to Germany. According to Berg, (2014, p. 6), large economies frequently command a strong customer base and use of high technologies that makes enterprises thrive in such environments and therefore, should not get taken for granted. The fact that German offered Wal-Mart a central base from which it could expand in all European countries necessitated Wal-Mart to make steps first to establish themselves firmly in the strongest economy in Europe.
Success History of Wal-Mart
Traditionally, Wal-Mart had been able to set high standards in the retailing industry, and this means that its venture into the German market was not an exception to ensure continued success in the market. In the research conducted by Ihlen and Roper, (2014, p. 45) Wal-Mart had been successful especially in the US an aspect that made the company’s management gain confidence invest in German. Wrigley, (2002, p. 81) argues that the firm looked forward to being a pan-European player given the presence of large customer base in the continent. Therefore, it was not wrong for Wal-Mart to decide to extend its operations to German since, from the experience, it had succeeded in Mexico and across all the states of America.
Price Sensitive Market
Since the Wal-Mart Sores everyday low price (EDLP) philosophy confirmed to Germany’s price sensitive market environment, it was wise for the company to the extent its operations to the country. The EDLP philosophy discouraged the company’s customers from looking for promotions and special offers from other suppliers. The report published by Turnbull and Valla, (2013, p. 22) states that Wal-Mart felt the EDLP philosophy could be applied in German market since the governmental regulations emphasized on the application of a sensitive price policies. Application of sensitive price theories could assist Wal-Mart to thrive in its business operations in the compound market environment in Germain.
Customer Focused Service
With its customer-focused services, Wal-Mart was able to gain a strong customer base in Germany. Further, most Germany stores offered seasonal sales discounts and special offers to customers due to their greed to make higher revenues. According to Douglas and Craig, (2011, p. 85), with the strong capital base of Wal-Mart, the company could establish price reductions and offer products to customers at an affordable price, hence being correct to venture its retail activities in German. Further, being an experienced company, it was possible and easy for Wal-Mart to adjust its policies so that they could conform to the nature of German laws. Also, it was an easy task for the enterprise sell its high-quality products at the right prices to avoid hurting small and medium-sized businesses (SMEs) in Germany and thus promoting fair competition.
Opportunity of Avoiding the Stiff Competition in the US
The fact that most American companies entering the Europe preferred the UK due to similarities in culture, language, and legal requirements between the UK and the US, shows that there was stiff competition for customers in the United Kingdom. It was correct for the management of Wal-Mart to decide to go to operate in Germany since this would act as an opportunity for a competitive advantage over the other domestic companies venturing in the UK. Although the culture, language and legal environment in Germany never favored Wal-Mart’s policies, Sethi, (2014, p. 424) saw it possible for the company to adjust its policies so that they could fit with the German business culture. Further, the German customer base entirely convinced Wal-Mart that the market was a perfect chance to obtain a competitive advantage over other rivals namely K-Mart, Woolworth, and Target corporations.
Reasons for Wal-Mart’s Failure in the German Market
In the year 1997, Wal-Mart expanded its operations into Germany through acquisition of 21 hypermarket stores of Werkauf which provided both general merchandise and food to the customers. Based on the research conducted by Wal-Mart, Wertkauf stores would offer the right footage in the German market, but this did not work since Wartkauf stores covered only southwestern Germany markets. Fernie, et al., (2006, p. 248) research revealed that Wal-Mart decided to overlook the hypermarket and to acquire Interspar’s 74 hypermarket stores, this raised the company’s total number of stores in Germany to 95. Among other reasons which will get discussed below, this continued the approach to entering the Germany market made it fail miserably for five years in the Germany business environment.
Stiff Competition from Germany Retailers
The intense competition from Germany retailers made Wal-Mart unable to cash on its EDLP selling point. Under the circumstances whereby Wal-Mart reduced the price over its products and services, all Germany retailers such as Rewe, Aldi, Lidl, and Edeka also lowered their prices to keep their customers, and this made Wal-Mart find it challenging to establish a strong position in the market. Salvioni and Gennari, (2014, p. 470) identified that Wal-Mart kept making more steps to slash its commodities prices in 2000. Unfortunately its strong competitor Real reacted by lowering prices for approximately 3000 items. The Germany competitor Real claimed that the prices of Wal-Mart were lower than theirs, and this made the company’s operations across the Germany market to keep deteriorating at a constant frequency.
Lack of Strong Vendor Relations
Mainly, the leading cause of Wal-Mart’s success in the domestic market was it’s efficient and excellent supply chain and vendor relations. In the US markets, Wal-Mart and its key suppliers adopted the use of a centralized distribution channel opposed to Germany vendors who were never comfortable with a centralized distribution system. Just like it operated in the United States markets, Wal-Mart’s in Germany wanted to rely on supplier inputs so that it could promptly decide on the product assortments. According to Jahanson and Mattsson, (2015, p. 132), Wal-Mart’s relationship with the Germany customers was not mature and therefore, unable to decide on the product assortments. Therefore, Wal-mart was forced by circumstances to sell less demanded commodities by the Germany market, yet its suppliers kept pushing for it.
Inventory Problems
While carrying out its international business in Germany, Wal-Mart begun with just one stockroom which stocked all merchadise, this created a number of inventory problems. As per Schilke, et al., (2009, p. 46), the company faced a great challenge when it came to recruiting new employees due to the poor wage rates it provided to the personnel. Barely, only a little number of people, especially the unskilled and less qualified proved to be available. As a result of shortage of workers for Wal-Mart, the movement of goods got delayed a problem that lead to excessive stockpilling. Despite the continued efforts nade by Wal-Mart to renovate and put its brand name across all retail stores, its EDLP message never penetrated the Germany market since Interspar’s and Werkauf were not popular With the Germany customers.
Employees Unrest
Wal-Mart used to pay low wages and provided unconducive working environment for the workforce. The poor working conditions and low salaries posed an operational problem as the analysts argued that Wal-Mart did not clearly understand the German work culture. While carrying out its retail stores business in the US, Wal-Mart dscouraged employees from forming labor unions whereby the staff could raise their grievances towards tha management in unison. Zou and Cavusgil, (2002, p. 56) argues that immediately Wal-Mart aquired Wertkauf and Interspar, the management disallowed the staff members from meeting each other and share their ideas and perceptions regarding the company’s value of their inputs. The adminstration of Wal-Mart rarely consulted the elected representatives of its employees, something which created labor unrests and therefore, continued poor performance of Wal-Mart in Germany.
Breach of German Laws
Wal-Mart violated various German laws for it breached the act of law against restraints of competition. As per Papadopoulos and Heslop, (2014, p. 90), the German legal requirements prohibited companies with superior market power in relation to SMEs competitors from reducing their price rates and engaging in price wars with small firms. The law allowed big business to lower prices only after providing justification for the decision to lower prices. Contrarily, Wal-Mart lowered prices for some of its commodities namely margarine, sugar, and milk. These new set prices by the company got considered lower than cost price at which Wal-Mart bought them, this translated to a direct loss. Wal-Mart was also hauled up for violating the commercial law by not publishing its financial statements on its operations In Germany as alleged by the trade unions.
Cultural Mismatch and Language Barrier
Faulconbridge and Muzio, (2014, p. 40) states that Wal-Mart found it difficult to integrate Wertkauf and Interspar, the two companies which it had acquired since the companies had entirely different work cultures. First and foremost, while decision making in Wertkauf was highly centralised with the senior management, Interspar had decentralised its operations with independent regional units. Further, it was difficult for Wal-Mart to integrate its domestic US culture with that of the German market environment. In attempts to integrate the three business cultures, employees morale got affected by the internal rules and regulations adopted by Wal-Mart. Also, Wal-Mart faced language barriers in the German market since the top management shown less interest in learning the German language. Making english the official language affected employees morale a bludder that frustrated them and made them feel sidelined by the management.
Whether Wal-Mart Will be Able to Improve Its Performance in Germany
The Germany market proved difficult for Wal-Mart to crack something which made the company make continued losses in five consecutive years (1997-2002). The main reason for this persistent failure was the company’s inability to understand the shopping habits of Germans as well as the countries business culture. The fact that Wal-Mart was unable to correct its mistakes in the German business environment shows that it would have been difficult for the company to improve its performance in the nation (Wal-Mart’s German Misadventure, 2000, p. 578). If the top management was sensitive enough to the business culture and customer requirements in Germany, Wal-Mart would not have exhibited the significant losses as portrayed in its weak retailing performance across the Germany markets. Further, Wal-Mart would not have been able to improve its performance in Germany due to its poor foreign market entry strategy of acquisitions. Even after failing miserably in the Germany market, Wal-Mart still focussed on acquiring the second retail store to make its stores total to 95 in Germany. Despite the fact that there were various other foreign market entry strategies that the company could have opted for, the management proved to be ignorant and focussed on acquisitions which never suited the Germany market culture (Wal-Mart Case Study, 2014, p. 65). Therefore, it was wise for Wal-Mart to stop looking for further acquisitions in Germany and instead concentrate on stabilising its business operations in the US where it commanded a strong customer base. Venturing in the US markets where Wal-Mart clearly understood the market culture would enable the company to operate optimally and achieve high profits.
Conclusion
Most challenges faced by the foreign marketers result from the unfamiliar business environment within which firms implement the marketing operations. Successful players in the international markets have the ability to adjust appropriately to the impacts of strange business conditions. Achieving a substantial competitive advantage over foreign competitors depends on a company’s ability to focus on strategic perspectives which are truly global. Further, well-managed enterprises monitor the control procedures for all international markets an aspect that enables them to thrive in the foreign markets.
Recommendations
Apparently, firms and organizations planning to compete effectively in world markets need to establish a well-focussed international marketing strategy that gets based on a thorough understanding of the foreign markets which the corporation of targeting. Also of great importance is creativity and innovation on the external market entry strategies suiting a particular market. Further, companies should increasingly adopt the implementation of successful implementation strategies by enhancing continued countertrading, networking, and value-based marketing strategies that suit the customers. With consideration of all these recommendations, companies will undoubtedly excel in the foreign markets.
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