Introduction
Today, in the 21st century, companies are increasingly engaging in commercial activities across national boundaries as they seek for new markets for growth and competitiveness (Klohs, 2012).
While it is evident that international business expansion presents many opportunities for these companies, there are also a multiplicity of challenges and complexities related to doing international business (Gabriel, 2011). The present paper is an overview of the challenges and complexities that Wal-Mart will potentially face as it engages in global expansion.
Challenges & Complexities
Wal-Mart, the largest retail company in the world but with roots in the United States, has for some time now engaged in international expansion efforts into many countries of the world. The company has registered mixed fortunes as demonstrated by its huge success in countries such as China, Canada and Mexico (Mun & Yazdanifard, 2012), and difficulties in South Korea and Germany (Fox, 2011).
Perhaps surprisingly, the company plans to continue its expansionist strategies and enter into the hugely promising African market due to the growth of a large and aspiring African consumer market with increasing discretionary income, strong gross domestic product (GDP) growth and intra-regional trade agreements, developing infrastructure and growing participation by the labor force, as well as a significant rise in foreign direct investment (Accenture, 2009).
However, it must be prepared to face the following challenges.
The first challenge concerns the legal and regulatory atmosphere in some international markets. Some countries in Africa and Asia have refused to allow big retailers such as Wal-Mart to enter their markets, citing the justification that such an entry would adversely affect the thousands of small local retail stores “which dominate the market and currently supply daily foodstuffs and other products to their local populations” (Fox, 2011 p. 2).
In Zimbabwe, for example, large retail stores such as Wal-Mart are only allowed to partner with local entities in the wholesale industry rather than selling directly to customers, or to sell majority shares to locals for them to be allowed to operate (Experian Marketing Services, 2012). The company must therefore develop strategies aimed at understanding the legal and regulatory atmosphere in some of these international markets before making investment decisions.
The second challenge deals with the stiff competition that Wal-Mart is likely to face upon entry into international markets. The retail sector is highly competitive and Wal-Mart is likely to face stiff competition from other indigenous and foreign-based retailers.
The competition challenge is further compounded by the patronage issue, whereby local customers may prefer to shop at familiar and/or locally owned retail stores (Fox, 2011). In its market entry program, the company must hence undertake to develop ways and strategies that could be used to obtain a substantial market share in the foreign markets (Dewhurst et al., 2012).
The third challenge deals with building a local brand in the African countries that Wal-Mart intends to expand to. Available literature demonstrates that Wal-Mart is already a global brand (Mun & Yazdanifard, 2012), but this may not translate into performance and competitiveness in the hugely untapped African market as customers may not readily identify with the brand (Accenture, 2009).
Consequently, the company must fully appreciate the sustained investment required for brand building and management, and make huge investments while expanding globally to ensure that local shoppers readily identify with the Wal-Mart brand as is the case with other global companies such as Coca-Cola, Nike and Philips.
The fourth challenge concerns cultural differences that Wal-Mart may face in its global expansion endeavors. It should be recalled that cultural variations played a great role in Wal-Mart’s inability to succeed in German and South Korean markets.
While shoppers in Germany thought smiling and friendly sales clerks were flirtatious and unacceptable, the company’s management failed to anticipate challenges with applying U.S. shopping standards to retail stores in South Korea, “such as using store shelves that were too high for short South Korean female shoppers, and wrapping fish in clear cellophane, despite the custom in South Korea of always buying fresh fish, alive in fish tanks at retail” (Fox, 2011 p. 1).
The patronage issue is also exacerbated by culture (Dewhurst et al., 2012); hence Wal-Mart’s management must come up with ways to ensure that cultural differences exhibiting during global expansion do not work to the disadvantage of the company.
Indeed, the management must effectively deal with various cultural issues in the countries the company intends to expand to not only to create demand for its products and services, but also to maximize flexibility and control with the view to meeting customer demands and expectations by operating seamlessly across geographic locations (Gabriel, 2011).
In Africa and some parts of Asia, finding the right talent may be a challenge for Wal-Mart largely due to lack of qualified human resources. Available literature demonstrates that “while African countries have abundant labor, much of it is unskilled” (Accenture, 2009 p. 4).
Of course there exist highly educated human resources in a number of African countries such as South Africa and Kenya; however, majority of these resources tend to lack practical management experience, and training them is often costly and time consuming for the company.
This is a challenge that Wal-Mart needs to deal with because importing expatriates to work in international markets not only slows the process of transferring skills to local talent, but also leads to underperformance as expatriates may be unable to put up with the harsh living conditions found in some global markets (Accenture, 2009; Ernst & Young, 2012). This particular challenge is further exacerbated by language barriers and cultural differences (Klohs, 2012).
The last challenge concerns efforts needed to understand local consumer patterns. Available literature demonstrates that “companies must take the time to understand the values, needs, and behavior patterns of local consumers” (Accenture, 2009 p. 4). Undoubtedly, therefore, Wal-Mart must assess and understand the values and buying habits of consumers in predominantly low-income markets of Africa.
An immediate complexity related to this challenge is that most African consumers have unreliable sources of income and unreliable cash flow, hence tend to purchase in small quantities while others like to buy in extra-large quantities when they have the cash at their disposal (Accenture, 2009). Such consumer patterns are likely to affect Wal-Mart’s operations and strategic direction as it expands globally.
Conclusion
Of course there are numerous other challenges that Wal-Mart will potentially face in its global expansion endeavors; however, this paper has outlined the most important challenges that may adversely affect the company’s global expansionist strategy in the absence of adequate checks and balances.
Overall, it has been found that in its global expansion efforts, Wal-Mart is likely to face a number of challenges related to legal and regulatory frameworks, competition, building strong local brands, cultural differences, finding the right talent, and understanding local consumer patterns.
References
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Dewhurst, M., Harris, J., Heywood, S., & Aquila, K. (2012). The global company’s challenge. McKinsey Quarterly, 3(1), 76-80.
Ernst & Young. (2012). Growing pains: Companies in rapid-growth markets face talent challenges as they expand. Web.
Experian Marketing Services. (2012). Going global? The benefits and challenges of international location planning. Web.
Fox, K. A. (2011). Learn to expect the unexpected in global retail expansion. Graziodio Business Review, 14(4), 1-7.
Gabriel, S. J. (2011). Challenges of international business before SAARC nations: Some reflections. International Journal of Global Business, 4(2), 41-59.
Klohs, B. M. (2012). Going global. Economic Development Journal, 11(3), 27-34.
Mun, L. Y., & Yazdanifard, R. (2012). Wal-Mart success in Mexico, Canada and China: Global expansion, strategy, entry modes, threats and opportunities. Web.