Wal-Mart’s Global Expansion Established in Arkansas in 1962 by Sam Walton, over

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Wal-Mart’s Global Expansion

Established in Arkansas in 1962 by Sam Walton, over the last four decades Wal-Mart has grown rapidly to become the largest retailer in the world with sales of US$330 billion, 1.8 million associates (Wal-Mart’s term for employees), and almost 7,000 stores. Until 1991, Wal-Mart’s operations were confined to the United States. There it established a competitive advantage based on a combination of efficient merchandising, buying power, and human relations policies. Among other things, Wal-Mart was a leader in the implementation of information system to track product sales and inventory, developed one of the most efficient distribution systems in the world, and was one of the first companies to promote widespread stock ownership among employees. These practices led to high productivity that enabled Wal-Mart to drive down its operation costs, which it passed on to consumers in the form of everyday low prices, a strategy that enabled the company to gain market share first in general merchandising, where it now dominates, and later in food retailing, there it is taking market share from established supermarkets. By 1990, however, Wal-Mart realised that its opportunities for growth in the United States were becoming more limited. Management calculated that by the early 2000s, domestic growth opportunities would be constrained due to market saturation. So the company decided to expand globally. Initially, the critics scoffed. Wal-Mart as a company, they said, was too American. While its retailing practices were well suited to America, they would not work in other countries where infrastructure was different, consumer tastes and preferences vary, and where established retailers already dominated. Unperturbed, in 1991 Wal-Mart started to expand internationally with the opening of its first stores in Mexico. The Mexican operation was established as a joint venture with Cifera, the largest local retailer. Initially, Wal-Mart made a number of missteps that seemed to prove the critics right. Wal-Mart had problems replicating its efficient distribution system in Mexico. Poor infrastructure, crowded roads, and a lack of leverage with local suppliers, many of which could not or would not deliver directly to Wal-Mart’s stores or distribution centres, resulted in stocking problems and raised costs and prices. Initially, prices at WalMart in Mexico were some 20 percent above prices for comparable products in the company’s US stores, which limited Wal-Mart’s ability to gain market share. There were also problems with merchandise selection. Many of the Wal-Mart stores in Mexico carried items that were popular in the United States. These included ice skates, riding lawn mowers, leaf blowers, and fishing tackle. Not surprisingly, these items did not sell well in Mexico, so managers would slash prices to move inventory, only to find that the company’s automated information systems would immediately order more inventory to replenish the depleted stock. By the mid-1990s, however, Wal-Mart had learned from its early mistakes and adapted its Mexican operations to match the local environment. A partnership with a Mexican trucking company dramatically improved the distribution system, while more careful stocking practices meant that the Mexican stores sold merchandise that appealed more to local tastes and preferences. As Wal-Mart’s presence grew, many of Wal-Mart’s suppliers built factories near its Mexican distribution centres, so that they could better serve the company, which helped to further drive down inventory and logistics costs. Today, Mexico is a leading light in Wal-Mart’s international operations. In 1998, Wal-Mart acquired a controlling interest in Cifera. By 2005, Wal-Mart was more than twice the size of its nearest rival in Mexico with some 700 stores and revenues of US$12.5 billion. The Mexican experience proved to Wal-Mart that it could compete outside of the United States. It has subsequently expanded into thirteen other countries. Wal-Mart entered Canada, Great Britain, Germany, Japan, and South Korea, by acquiring existing retailers and then transferring its information system, logistics, and management expertise. In other nations Wal-Mart established its own stores. As a result of these moves, by mid-2006 the company had over 2,700 stores outside the United States, employed some 500,000 associates, and generated international revenues of more than US$62 billion. In addition to greater growth, expanding internationally has bought Wal-Mart two other major benefits. First, Wal-Mart has also been able to reap significant economies of scale from its global buying power. Many of Wal-Mart’s key suppliers have long been international companies; for example, GE (appliances), Unilever (food products), and Proctor and Gamble (personal care products) are all major Wal-Mart suppliers that have long had their own global operations. By building international reach, Wal-Mart has used its enhanced size to demand deeper discounts from the local operations of its global suppliers, increasing the company’s ability of lower prices to consumers, gain market share, and ultimately earn greater profits. Second, Wal-Mart has found that it is benefiting from the flow of ideas across the 14 countries in which it now competes. For example, a two-level store in New York State came about because of the success of multilevel stores in South Korea. Other ideas, such as wine departments in its stores in Argentina, have now been integrated into layouts worldwide. Wal-Mart realised that if it didn’t expand internationally, other global retailers would beat it to the punch. Wal-Mart faces significant global competition from Carrefour of France, Ahold of Holland, and Tesco from the United Kingdom. Carrefour, the world’s second largest retailer, is perhaps the most global of the lot. The pioneer of the hypermarket concept now operates in 26 countries and generates more than 50 percent of its sales outside France. Compared to this, Wal-Mart is laggard with less than 20 percent from its sales in 2006 generated from international operations. However, there is room for significant global expansion. The global retailing market is still very fragmented. The top 25 retailers controlled less than 20 percent of worldwide retail sales in 2006, although forecasts suggest the figure could reach 40 percent by 2010, with Latin America, Southeast Asia, and Eastern Europe being the main battlegrounds.

Benefits/advantages gained from international expansion;

Competitive pressures facing international business;

The four strategic alternatives (strategies of international business) for international operations.

Explanation / Answer

Ever since Walmart initiated its globalisation strategy through it's first crossing of the national border in 1991 it has proved many experts who predicted its failure at going global the main reason being its extensively American environment, wrong. The basic opinion was that it was not possible to successfully imitate a business model pertaining to the retail market, which had proved its superiority in America, across the world. The initial foray of Walmart into Mexico almost proved the critics right when it made numerous mistakes and miscalculations. Walmart success is based on its excellent supply chain and efficient distribution system which is supported by superlative infrastructure facilities available in America. The lack of assembler infrastructure in Mexico created major issues for providing the quality of services that Walmart was famous for. The distribution and warehousing issues along with lack of cultural understanding waiting relationship issues with local suppliers all added up to increase in input cause and subsequently the prices. Considering the fact that Walmart has created a brand name which is synonymous with low pricing difficult to compete with, this prove to be a major setback for the company. Another major hurdle presented itself in the selection of merchandise for sale in Mexico. The company did not conduct a relevant survey before it entered the market and was unaware of the difference in demand for products. Products in high demand in the United States such as fishing tackle, leaf blowers and riding lawn mowers why left unsold on the shelves and had to be sold at highly discounted prices, only to be automatically rewarded by the automated inventory information system. Walmart may not have done at home work before making an entry into Mexico but it was quick to implement damage control and responded effectively by adapting to the local markets and implementing all the required changes across all the stores. The success it experienced gradually created special manufacturing facilities exclusively for Walmart within Mexico, strategically located close to the Walmart distribution centres. This had a major impact on the profit margins of the company as it greatly reduced inventory and Logistic cost and proved that Walmart could successfully enter, sustain and grow in international markets and also attain the same level of success it had tasted in America. Walmart entry into Mexico and it's exceptional management and leadership strategy which enables it to succeed in spite of numerous obstacles and challenges, is a feather in the companies cap. This provided the required confidence to the company that it would succeed in global Markets and it search the head with great aggression to capture markets in 13 other countries, some of which were Canada, Great Britain, Germany, Japan, and South Korea. It employees different strategies for catapulting fast paced growth and expansion through acquisition of existing retailers, an application of the entire systems of Walmart as they exist within the US into these stores. Where acquisitions were not possible or feasible Walmart opened its own stores and established them successfully through successful promotional campaigns. This lead to the development of Walmart into a global retail giant difficult to compete with and an act very difficult to match for competitors. Mermaid 2006 Walmart had over 2700 stores outside the United States and provided employment to 500,000 Associates with an international revenue of more than US dollar 62 billion. Besides all the benefits which simultaneously active with growth and expansion such as large increment in profits of the company the two major benefits which Walmart games due to its vast global expansion of operations was an exceptional buying power resulting from economies of scale and also access to Global markets for procurement. Does, it created a major advantage in the supply chain by providing Walmart exceptional barganing power due to the vast size of demand for a wide range of products it retailed through its stores. It exploited this power to leverage prices in its favour why demanding large discounts from global suppliers, passed on the benefit to consumers in the form of lower prices than those prevailing in the market, thereby gains an extensive market share and ultimately earned better profits through maximization of quantity. Walmart also created a system of connecting all its management and promoting flow of effective communication through the offices of the company located across all the 14 countries. This was an excellent strategy as it greatly help the management to implement successful ideas across all other stores in other countries, and also get an understanding of how to better handle crisis situations through information available across the network.

The networking of all Walmart management across every country of operation resulted in having management support across the countries and helped Walmart survive tough competition from major domestic and international players in all these countries. Many successful innovations and ideas the copied from one Walmart store to another in a different country successfully. Walmart realised the importance of global expansion if it needed to sustain and survive in the face of global giants such as, Carrefour. Other retailers which provide competition to Walmart include a hold of Holland and Tesco from the United Kingdom. Carrefour is essentially the biggest competitor and was The pioneer of the Hypermarket concept presently operating in 26 countries and generating more than half of its sales outside France. The retail segment worldwide is still very fragmented with the top 25 retailers worldwide controlling not even 20% of the worldwide retail sales in 2006 however this is likely to change with operation spreading to Southeast Asia Eastern Europe and Latin America going forward.

The four strategic alternatives for expansion into International markets can be listed as:

Global strategy which consists of high level of integration and low level of responsiveness. These companies mostly offer standardized products globally and optimise efficiency in every process to effectively reduce costs and maximize profitability to ensure sustainable growth. These companies generally operate on a highly centralised model with subsidiaries in every location been extremely dependent on the headquarters for operational control. They are expected to implement all decisions of the parent company and copy the model to the maximum extent possible and generally act as dispenses of products and strategies of the parent company. This model is also referred to as the hub and spoke model, and Pfizer is a good example of a global company.

Multidomestic companies are generally known integration and High in responsiveness. De identifiable through the approach to local markets worldwide with the name to meet the needs and requirements of the specific market by customising all products and services extensively to suit the exact requirement of that market. They do not allow pressure for global integration to impact the product and service decisions and generally operate on a decentralized model by granting adequate Independence to subsidiaries and implements a unique strategy marketing and sales in coordination with the subsidiaries. A good example of multi domestic company is Nestle.

Transnational companies exhibit high integration and high responsiveness and mix the Global and multidomestic firm strategies my aiming to maximize both responsiveness to local requirements as well as Global integration. It achieves this task through implementation of these ideas into the entire value chain mostly through creation of economies of scale upstream which provides it required flexibility to be more adaptive in downstream activities such as marketing and sales. This kind of company is easily identifiable through its unique network model of subsidiaries operating through an integrated and interdependent network. Is subsidiary is given due importance through delegation of strategic roles and development as centres of Excellence while the network and shows effect of flow of communication enabling sharing of knowledge and expertise between subsidiaries leading to achievement of both the strategic objectives. Unilever is an excellent example of a transnational company.

International strategy refers to low integration and low responsiveness. This kind of company has little requirement for local adoption and global integration with the majority of value chain activities being maintained centrally at the headquarter and can mostly be aptly described as an exporting strategy. The products may be manufactured in the company's home country and ship to customers worldwide with or without utilisation of subsidiaries. Subsidiaries if and when they exist corporate simply as local channels for delivery or sale of products to the end consumer. Example of this kind of strategy is of the large wine producers within countries such as France and Italy.

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