The initial global expansion strategy for Wal-Mart was to enter into the Western hemisphere states, Asia and Europe. However, Wal-Mart had insufficient managerial, organizational and financial resources that were considered necessary to simultaneously pursue these multiple states expansion.
Wal-Mart thus initially opted to rationally sequence its market entry strategy to enable it to use the lessons it acquired from the early global market entries. Wal-Mart strategized to go global by focusing on Canada, Argentina, Brazil and Mexico markets.
Its first early global expansion strategy was to concentrate on countries found within Latin America that had the largest populations. Next, Wal-Mart strategized to expand its market operations to Europe. While in Europe its first destination was Germany where it significantly failed to operate. Its second retail destination was the UK market where it recorded the desired triumph.
The third early strategic expansion was to enter the Japanese markets. After recording considerable slow growths in the developed countries and Germany Wal-Mart took back its operations to Latin America and South American States.
Why Canada and Mexico were the first entry options instead of Asia and Europe
The reasons for this kind of Wal-Mart global expansion strategy can be well illustrated using the Porter’s five forces model.
The intensity of competitive rivalry
The European market initially became less attractive for this corporation because its retail industry was very mature. This meant that Wal-Mart as a fresh European marketplace competitor had to compete for market-shares with the well-known market participants. This was indeed a difficult undertaking for Wal-Mart.
Besides, the Asian and European markets had deep-rooted market rivals like Metro A.G. and Carrefour that were prepared to strongly retaliate against Wal-Mart market entrance. There were also possibilities that well-entrenched market operators in the Asian and European markets could have initiated prices wars to reduce Wal-Mart profitability margin and increase its operational costs (Orgel 10).
Substitutability threat
As a global corporation Wal-Mart goods and services were prone to being replaced with new marketplace rivals goods. This was because Wal-Mart was a newcomer in the European and Asian markets with deficiencies in strong client associations and comparatively small in size to lure brand loyal customers.
It could have been very difficult for Wal-Mart to charge low prices for the products, fulfill each client’s needs and overcome the loyalty schemes that other corporations offered (Basker 178).
Threat to entry
Canada and Mexico were the closest business environments next to the United States. Hence, they were the easiest market entry destinations for Wal-Mart compared with Europe and Asia. Europe and Asia were potential markets though geographically distant from the U.S. The cost of investing in Canada and Mexico were perceived to be low and required narrow distribution network (Matusitz and Forrester 156).
Nevertheless, the scope, cost, distribution network and scale of operating in Asia and Europe are high. The opportunity cost of acquiring the European market entry seemed very petite and Wal-Mart market entry could have been delayed. Finally, the strong culture and Chinese linguistics created a big obstacle for Wal-Mart to institute its presence in Asia.
Buyers bargaining power
Wal-Mart first opted for Canada and Mexico strategic market entries because its bargaining power as a buyer was low. As compared with Canada and Mexico Wal-Mart might have lacked best product pricing and sufficient consumer services.
Suppliers bargaining power
Wal-Mart limited presence and small size in the European and Asian markets would have made this company to completely rely on its sales. This is because its bargaining power with suppliers could have been reduced to low levels.
Targeted countries for Wal-Mart future growth
For the future growth of Wal-Mart, the corporation targets the BRIC countries such as China, India, Russia and Brazil. Apart from the BRIC countries Wal-Mart also targets countries such as South Africa and Canada for its future growth. These countries have associated risk profiles and attractiveness which can only be analyzed using the PEST model.
China, India, Russia, Canada, South Africa and Brazil
Political influences
Brazil offers little custom regulations to retail stores such as Wal-Mart. In fact, Brazil only offers limited foreign direct investment retail barriers or restrictions on Businesses.
China hardly presents any custom regulations to bar any country that wishes to establish its presence in this country. China through its ministry of commerce encourages foreign direct investment in retail stores and allows corporations to smoothly localize and expand their business operations within its localities (Matusitz and Forrester 157).
China realized that unfavorable political ideologies deter this country from realizing its goals and objectives. Hardly is it common to find that politics is incorporated in trade and commerce in Canada and South Africa.
Russia has been offering retail expansion limits to most corporations while India has foreign direct investment retail restrictions. India has occasionally been reported to ban foreign retail stores selling several brand products.
The government of India has instituted custom regulations and restrictions to bar overseas retailers from directly selling to the clients and consumers (Moreau 45). Conversely, the political ideologies of Russia are impeding the retail stores developments. The level of corruption is also widespread.
Economic influences
The rate of inflation and exchange rates are within manageable levels in all these countries and they have high per capita income. China as a country is very attractive since it reported a sharp economic growth rate of 8.0% in the fiscal 2010.
Brazil in contrast had an economic growth rate of 5.80% in 2010. China, Canada, South Africa, and India have favorable rate of inflation, exchange rates and high per capita income (Basker 178). These rates are also fair in both India and Russia.
Social influences
China embraces modern marketing strategies. Chinese consider most retail stores to be ineffective and traditional since they shop at hypermarkets. Corporations wishing to set up their businesses in China are bound to merge with the Chinese corporations (Fisk and Oswalt 45).
China is prone to cultural and language barriers that globalizing foreign companies are likely to encounter. South Africa only allows foreign retailers to merge but not to fully acquire domestic corporations.
India simply allows foreign retailers that have effective and recommended marketing strategies to conduct their businesses in its markets (Orgel 10).
This is to ensure that retail stores offer consistently valuable products. For purposes of growth, India and Russia allow foreign retailers to operate in their markets through acquisitions and joint business ventures. India is deeply rooted in cultural practices.
Technological influences
Brazil has essential infrastructural facilities that a corporation like Wal-Mart can use to conduct its business operations. India, Russia, Canada and South Africa also have essential infrastructural facilities. These are reported to boost the level of business operations within these countries (Moreau 43).
Whereas China boasts of the satellite and technological systems advancement, the country still lacks adequately essential infrastructural facilities.
Most corporations that are well-entrenched in China claim that their operating processes become complicated and subsequently slowed down during expansions due to infrastructure. Canada and South Africa are somewhat technologically advanced to offer requisite facilities for the smooth running of retail stores.
From the PEST analysis, I think that it would be valuable in future if Wal-Mart expands its operations to the Asian region. This is because the region has ample potentials in form of larger consumer bases, availability of raw materials, adequate labour force and newly emerging markets.
Works Cited
Basker, Emek. “The Causes and Consequences of Wal-Mart’s Growth.” Journal of Economic Perspectives, 21.3 (2007): 177-198. Print.
Fisk, Catherine and Oswalt Michael. “Preemption and Civic Democracy in the Battle over Wal-Mart.” Working USA, 11.1 (2008): 45-70. Print.
Matusitz, Jonathan and Forrester Maya. “Successful Glocalization Practices: The Case of Seiyu in Japan.” Journal of Transnational Management, 14.2 (2009): 155-176. Print.
Moreau, Raphael. “Carrefour and Mal-Mart’s differing Expansion Strategies in China.“ Retail Digest, 2008: 42-45. Print.
Moreau, Raphael. “Carrefour, Casino and Wal-Mart’s Expansion Strategies in Latin America.” Retail Digest, 2009: 44-49. Print.
Orgel, David. “How Best to Compete With a Re-Energized Wal-Mart.” SN: Supermarket News, 56.45 (2008): 10-10. Print.