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The purpose of this assignment is to evaluate opportunities and threats for Wal-Mart for expanding globally. For global expansion plan, Wal-Mart must have to adapt to the rapid technological changes world-wide. These types of expansions also posses some challenges to the business which Wal-Mart have to find the solution for. This report also gives some recommendations to Wal-Mart for successfully expanding globally facing the challenges of the new markets.
Wal-Mart is one of the leading retailers of United States and is based on the vision of Sam-Walton. The company has very successfully served its community during the period of its existence. In this report, we have identified three main threats which Wal-Mart will face if it goes for global expansion. One of the most important threats is the supply chain management of Wal-Mart. This supply chain management process is currently doing very well at home, i.e. in the home country. Secondly, the understanding of culture of the country in which the company is operating is very necessary because producing quality products is not enough in international markets. A company must have to consider the culture of that particular community in which it is providing products or services. Thirdly, the pricing strategy of Wal-Mart can also pose a threat to the company if it goes global because in home country might fail in case of host country.
In order to become a total success, Wal-Mart will have to adopt differentiation strategy and this differentiation will not only be made in product preferences but also in the channels of distribution. In case of Wal-Mart, strategy of transition will help the company to focus on local responsiveness and world-wide efficiency.
STRUCTURE OF THE ASSIGNMENT
This assignment is segregated into four major parts. First part is the introduction, in which we have detailed the purpose of the assignment together with some highlights on the current situation of the company. Additionally, we have also shed light on the purpose of going global for Wal-Mart. In the second section, we have identified some key threats and opportunities for Wal-Mart in expanding globally. Third section consists of an analysis of the current strategy. Last, but not the least, section provides some recommendations for Wal-Mart to expand globally.
Wal-Mart can be said as one of the founders of global expansion. It has set an example for local retailers to expand globally. It is Wal-Mart who is currently operating in many countries and has proved that borders are not boundaries for businesses. (Keegan 2007 102)
The origin of Wal-Mart goes back to 1962 when Sam Walton began a retail shop operating on a premise that customer wants low-priced products with high quality. Initially, the quality of this business’ products was not that high, but low price led it to sell more. It was Sam Walton and his experience that Wal-Mart was able to find out how to differentiate the product. Wal-Mart was one of the highest sales retailers in year 2007 with sales going high above $300bn. This was a turning point for the than retailers for whom, Wal-Mart had set a benchmark. Sam Walton believed that it is the mission of the company which is making it fly-high. It is the vision of the founder that Wal-Mart has retail outlets, franchises, production facilities, etc. all over the world. (Jaffee 2005 2)
In 1991, Sam Walton passed away. But since this business was created on the basis of mission and values, therefore, the business is still a success. Here, one can think that what was the need for Wal-Mart to expand globally. Expansion into global market requires a different set of strategies, tactics, planning and training. These all cannot be duplicated with the local ones. Most of the companies are directing their expansion towards third world countries especially China due to decreased labor costs, friendly tax structure and raw material costs, etc.
Supply chain management was one of the cornerstones of the Wal-Mart success. Wal-Mart gained market share due to its strong supply chain management and well-trained employees. These employees are called “Associates.” Additionally, a mixture of strong branding and low-price with high quality products adds up to the success of Wal-Mart as a market leader. With all these strengths and plusses, Wal-Mart is still facing problems in global expansion due to very bad political and economic conditions added with instability all over the world, especially in markets where Wal-Mart is currently serving. Also, the company is facing intense competition from the local competitors as well.
There was a strong dependence on ethno-centrism approach by Wal-Mart. But this perception of dependence on ethno-centrism approach was suddenly changed after the expansion experiences of the company in Korea, Japan, Germany, China, etc. Wal-Mart was producing standardized products all over the world where it operates. These experiences make it very clear that global strategy should be changes as standardized products are unable to satisfy the needs of consumers all around the globe.
While identifying strategy for Wal-Mart expansion, we discovered that United States governments’ subsidies play a vital role in the success of retail businesses. These subsidies help the company to make foreign ventures overseas. This is generally true in case of stable financial markets. But in today’s instable market, it is not necessary that Wal-Mart will become a success by following this strategy. But there is still a hope for Wal-Mart that with the increase in world population, the potential market of Wal-Mart will increase but this will require Wal-Mart to integrate latest technological advancements in its delivery process.
In this report, we are arguing that Wal-Mart should adopt the strategy of making joint ventures with local players (leaders). This will definitely make Wal-Mart a success as it is one of the leading brand names and possess well-reputed supply chain management throughout the world.
With the death of Sam Walton, the doors of opportunities for Wal-Mart were restricted in United States. This was not the main reason. The primary reason was that the market of US was saturated for Wal-Mart which forces Wal-Mart to expand its operations to global markets. (Das 2008 19-33)
OPPORTUNITIES & THREATS
Expanding globally is not an easy task. It seems that expansion to international market is not difficult for a retailer like Wal-Mart. But this not the true case. There are certain threats for markets for expanding to international market. There are discussed below:
Supply Chain Management
It is a fact that Wal-Mart is considered to be the pioneers of implementation of systems and processes. In fact, when it comes to information systems, Wal-Mart can be called as the founders. It is Wal-Mart, who possesses a very strong and reliable information system from production to delivery. The distribution network of Wal-Mart is said to be the most effective and efficient in the world. It was in 1997 when Wal-Mart realized that the existing supply chain management is not enough to fulfill the needs of Korean market. The existing supply chain was more than sufficient for the local market, but it proved to be a failure in the host market. One of the major reasons for this gap was that in Korea, there was no existence of any compatible supply chain infrastructure which can provide support to the supply chain integration technology of Wal-Mart. Additionally, the Koraen distribution channel was a mismatch to high-tech and system supported supply chain strategies of Wal-Mart. A solution to this problem was for Wal-Mart to create some relations with supply-chain partners, but this process was too slow due to lazy market attributes and non-technical mindsets. (Sandelands 2004 5-14)
National Cultures and Sub-Cultures
Another key issue for Wal-Mart in global expansion was the difference of cultures. Management of Wal-Mart believed that standardized products will meet their targets all over the world. They forget that different people belong to different cultures and have different cultural needs. An example of such attribute is that Wal-Mart insisted its sales representatives not to pass a smile during sales. Many of the shoppers complained that it seems that the sales representatives are flirting with customers by passing a smile. Similar case occurred in China. Chinese customers wanted fresh food which is harvested in front of the customers. Or at least the animal should be killed spontaneously. There was a high resistance for this demand by Wal-Mart but later the company recognized this as a cultural need and implemented the same in China. (Malnight 2005 119-141)
Global Pricing and Discounting Strategy
People want discounts. Different cultures have different pricing strategies. The global expansion in China, Germany and Britain posed a pricing threat to Wal-Mart. In these markets, the local retailers have very well established pricing strategies which creates a best match between the pricing patterns and the demands and habits of the respective local customers. Breaking the ice in these markets and setting competitive prices is one of the most challenging tasks for Wal-Mart. (Terptsra and Sarathy 2004 88)
Wal-Mart has an opportunity to create alliances with the local retailers or other entities in order to cater the global market more effectively and effectively.
Global expansion will create an opportunity for Wal-Mart to introduce outlets at various global locations. This will help Wal-Mart to enlarge its market share by expanding to a number of consumer markets in Asia and all over the world.
Expansion to global markets will provide an opportunity to Wal-Mart for reducing costs of production. The new markets will also give Wal-Mart an opportunity to benefits from various tax structures which are business-friendly. Also the company can benefit from low cost of labor and raw materials in different parts of the world. (Philip and Doole 2004 332)
The strategy currently followed by Wal-Mart is termed as everyday low prices strategy. This strategy is very profitable in United States. But if we talk about Korea and Japan, this strategy is totally a failure. The reason for this everyday low price strategy failure is that consumers in Korea and Japan are prestige conscious. They feel good buying expensive products but with highest quality. (Paliwoda 2008 192) The market saturation of United States and ethnocentric predisposition of Wal-Mart made a gateway for global expansion. In global strategy, companies generally standardize their products which results in ignorance of the needs of local customers. This really is a big flaw and Wal-Mart should address this by creating a separate local strategy for US. (Bradley 2007 69)
The main problem in global expansion for Wal-Mart was integrating the cultural needs of the customers. This was faced by Wal-Mart in Japan and Korea. Wal-Mart was unable to create culturally acceptable stores in both locations. (Axtell 2009 45-49) Additionally, Wal-Mart faced some distribution channel problems in these locations as well. In case of Japan, customers want highest quality even if they are bound to pay maximum price. This trend of pricing made Wal-Mart a failure in Japan as Wal-Mart was focusing on low price strategy. (Dixie 2008 72)
Supply Chain Management
Formation of Joint Ventures (JV) with Local Retailers
Joint ventures are a major source of entering in a new market. Wal-Mart should create joint ventures in major locations where profitability has been forecasted. For joint ventures, foreign entities require brand name and repute which Wal-Mart already has. For example, if Wal-Mart choose to expand to Brazil, it would be mandatory for Wal-Mart to create local presence. This can be in the form of joint ventures or partnerships. This is a governmental requirement which has to be abide by. This will help Wal-Mart to share the risk of doing business in a new location as the partner or joint venture firm will be there to help Wal-Mart cater this. This is also very true for Asian and Arab countries. (Mkandawire 2006 129 -132)
Divide Products into High-End and Low-End Categories
Product division into high end and low end categories can prove to be a very significant strategy for Wal-Mart. As discussed earlier, Japanese want highest quality products and they are willing to pay higher prices. Categorizing products into high end and low end categories will definitely provide support for these types of markets. Additionally, the food products in local markets might vary which requires Wal-Mart to maintain a wide portfolio of food products. In order to meet these needs, Wal-Mart should have enough knowledge about local tastes and preferences. (Cain 2005 58)
Differentiation against Others that Offer Low-Price Store-Brand Products
Wal-Mart should adopt the strategy of making some differentiation between the stores that are in urban areas with that of their counterparts in the suburbs. This should be done to cater the demands of the individual customers as the customers in urban areas are very different from those in suburbs; their demands, shopping habits, preferences, etc. Additionally, it is a fact that local retailers have a very strong grip over the market. So, in order to expand in an international market, Wal-Mart should focus on the needs of customers according to their respective areas. Wal-Mart should adopt local norms, strong distribution channels and information system integration in order to expand internationally. (Helmberger and Patson 2009 102)
National Cultures and Sub-Cultures
Cultures and behaviors play a very significant role in development of habits and preferences of the customers. Wal-Mart should consider the cultural preferences of individual markets internationally so as to have a grip on market instantly. For example, in Japanese culture, low price means that the quality is also low and it is very insulting for Japanese customers to opt for a low quality product. On the other hand, in third world countries, people are always looking for low price and high quality. So, Wal-Mart’s strategy of low prices can be a success in third world countries like Pakistan, India, etc. while the same strategy would be a failure in case of Japan or Korea. So, Wal-Mart should frame its strategy according to the local culture of individual markets. Introducing a standardized strategy all over the world will be a failure for Wal-Mart. (Dixie 2008 72)
Make Public Relations a Core Competency
Core competencies are those strengths on which the company can rely in its hard times as well. In order to succeed internationally, Wal-Mart should work on making public relations its core competency. Also it is very important for Wal-Mart to contribute something to the society or community in which it is operating and expanding. This will definitely create a very positive image of Wal-Mart on the host community/country. (Mkandawire 2006 129 -132)
Global Pricing and Discounting Strategy
‘One price fits all’ doesn’t suits while the company is expanding internationally. Wal-Mart should find out different pricing and discount packages which match the demands, preferences and purchasing power of the individual customers in the host country. Different cultures have different pricing preferences. Wal-Mart should design its pricing and discount policy according to the preferences and acceptance of local customers. This will definitely help Wal-Mart to successfully expand in international markets. (Cain 2005 58)
In conclusion, we can say that Wal-Mart should adopt different strategies for different markets. It would not be wrong to say that ‘One Strategy Doesn’t Fits All’. This requires Wal-Mart to identify and analyze different markets having opportunities for it. In case of Japan, Wal-Mart will have to change its strategy but in case of third world countries, the same strategy of ‘Always Low Price’ can reap the fruits of success for Wal-Mart. These are some recommendations which Wal-Mart should adopt to remain one of the largest retailers of the world.
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