It is natural for a company that has experienced domestic success to expand internationally. Expansion into other markets helps in supporting the growth of the company. The company attempts to replicate the domestic success in these markets. However, the business environment in these markets may make it hard for companies to replicate their domestic success (Gaughan, 2007).
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This is what happened to Wal-Mart, one of the most successful American companies. Expansion into the German and South Korean market did not have the financial success that the company predicted. This forced the company to terminate its operations in these countries. Wal-Mart did not experience considerable financial success in Germany.
The company recorded a pretax loss of $1 billion in the last quarter of German’s operations prior to the closure (Troy, 2006). Despite making huge investments in the German operations, Wal-Mart was not reaping good returns on its investment. In fact, investments in the German market were jeopardizing the operations of the entire company.
Huge losses from the company siphoned off valuable finances of the company. In addition, continued losses in Germany and other international markets led to a significant decline in the company’s share value. Reduced share value indicated that there was a significant reduction in the attractiveness of the company to investors (Stegmann, 2009).
Therefore, it was vital for the company to terminate operations in regions that were making huge losses. This would safeguard the interests of the company and ensure that the losses do not affect the entire operations of the company. Companies use various strategies to venture into international markets. Mergers and joint ventures are some of the common strategies (Neelankavil & Rai, 2009).
Wal-Mart used the wrong strategy in venturing into the German market. The company enticed customers using low prices of its products. However, this was not successful. Customers in the German market enjoyed low priced products prior to the entry of Wal-Mart. Therefore, customers could not understand why there was so much fuss about Wal-Mart’s low prices (Troy, 2006).
The German business environment did not provide a favorable ground for the success of Wal-Mart. Germany had restrictive policies on store hours and new development. In addition, the demographics of the country were unfavorable to the company. The intense price wars in the German market limited the success of Wal-Mart’s operations in the market (Troy, 2006).
Wal-Mart knew that it would face these problems if it ventured into the German market beforehand. However, the company overlooked these limitations. These problems haunted the company for the entire period that it was in operation in the country. They limited the financial profitability of the German operations. The only way out for the company was to shut its German stores.
The losses in international operations led to a significant decline in share value of the company. Significant reduction in the share value reduced financial worth of the company. Reduced market capitalization of the company of the company placed the operations of the entire company in jeopardy (Mantysaari, 2010). The failure of Wal-Mart in Germany is proof to the fact that a company can be successful in a certain region and experience dismal results in another.
The business environment and determines the success of a company in foreign locations. Unfavorable business environment forced Wal-Mart to terminate its German operations. Huge losses in Germany and other international locations led to a significant decline in the company’s share value.
Gaughan, P. A. (2007). Mergers, acquisitions, and corporate restructurings. Hoboken, NJ: John Wiley & Sons.
Mantysaari, P. (2010). The law of corporate finance: General principles and EU law. Berlin: Springer.
Neelankavil, J. P. & Rai, A. (2009). Basics of international business. Armonk, NY: M.E. Sharpe.
Stegmann, J.P. (2009). Strategic value management. Hoboken, NJ: John Wiley & Sons.
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Troy, M. (2006). Wal-mart bids auf wiedersehen, ends nine-year grind in Germany. Retailing Today, 45(14), 1-2.